The North Dakota Supreme Court recently issued an opinion that clarifies the rules for contractors about when they need to obtain a contractor’s license and the risks they face if they are not properly licensed. Importantly, the decision makes clear that a contractor is not entitled to recover for services provided before they obtain a contractor’s license, even if the work is flawless and the contractor obtains the license during a construction project.
In Snider v. Dickinson Elks Bldg., LLC, 2018 ND 55, RJ Snider Construction (Snider) signed a contract on December 26, 2011 to furnish materials and labor for work to be performed on property owned by Dickinson Elks Building, LLC (“Dickinson Elks”). Snider began work shortly after signing the contract, but Snider did not obtain its contractor’s license until February 6, 2012. Dickinson Elks paid Snider for the materials and services provided through February 2, 2012, but not afterwards. As a result, Snider sued Dickinson Elks for the value of materials provided after February 2nd, including those provided before it obtained its license on February 6th.
The Court held that the contractor licensure statute, N.D.C.C. § 43-07-02, precludes a contractor from recovering damages for work performed during periods when the contractor was not licensed. Put in the affirmative, the Court interpreted the statute to only permit a contractor to recover for services performed while licensed.
After Snider, two points are now clear. First, a contractor in North Dakota need not be licensed when entering the contract or agreeing to provide contractor services to pursue a claim for compensation for work performed. Second, if the contractor begins performance before receiving a license from the state, the contractor will not be entitled to recover anything for the services provided while unlicensed. Thus, based upon the Snider decision, North Dakota courts will focus upon the date the contractor began to provide services and the date the contractor obtained its license.
From a practical perspective, the decision creates potential problems for contractors and property owners alike. In a case like Snider, the parties are likely to face difficulties establishing the exact services that were provided before or after a specific date. At the same time, one can understand the equitable nature of the Court’s decision. If the Court were to hold that a contractor cannot recover when it signed a contract before obtaining its license, even if all services were actually provided after the license, it could provide for a substantial windfall to the property owner.
Importantly, N.D.C.C. § 43-07-02 has been amended since the events underlying the Snider case. First, the statute now provides it is a Class A misdemeanor to work as a contractor without obtaining a license. If such provision existed at the time of the events in Snider, the contractor could have faced prosecution for completing work before February 6, 2012, even though the owner did not object to the quality of the work and Snider eventually obtained its license.
In addition, N.D.C.C. § 43-07-02 now provides that a person commits the felony offense of construction fraud if the contractor abandons a construction project after receiving payment. The statute defines “abandonment” as occurring when a contractor fails to substantially commence any work within either 60 days of an agreed upon start date, or 90 days of the contract date if no starting date is agreed upon in writing. As a result, if a contractor signs a contract to perform services and waits weeks or months to obtain its license, such delays could lead to a claim of abandonment under the construction fraud statute.
Indeed, after the clarification provided by the Court in Snider and the addition of criminal penalties added to N.D.C.C. § 43-07-02, the consequences of not being licensed as a contractor for work performed in North Dakota can be significant. Now, not only can a contractor forfeit its right to payment for services provided before licensure, but the contractor could also be facing criminal fines and even imprisonment.
If you have questions about business licensing or specific issues about doing business in North Dakota, contact business attorneys Sean Foss or Steve Welle at O’Keeffe O’Brien Lyson Foss online or by calling 701-235-8000 or 877-235-8002.