- Posted by Brad Westmoreland
- On September 16, 2014
The separation of powers principle is an important cornerstone of American political governance. America’s tripartite version of this principle – memorialized in the U.S. Constitution – allocates certain governing responsibilities among three branches: the legislative branch, which makes the laws; the judicial branch, which interprets the laws; and the executive branch, which enforces the laws. In theory, the system allows for the effective administration of government without centralizing too much power in a single body. In practice, government branches sometimes step on one another’s toes when confronting cross-jurisdictional issues.
One example of branch collision can be seen in a recent Ninth Circuit Court of Appeals decision involving a wastewater treatment project in Oregon. In Stellar J Corp. v. Smith & Loveless, Inc., a Kansas-based company (Smith) agreed to construct and deliver a new wastewater unit and provide additional treatment equipment to another subcontractor (Stellar). 2014 WL 2884556 (2014) (unpublished opinion). At the time the subcontract agreement was executed, Smith did not have an Oregon contractor’s license. During the course of performance, Stellar terminated its agreement with Smith. It then sued Smith for failing to deliver on various terms of the subcontract agreement, claiming damages in excess of $300,000. In response, Smith alleged a number of counterclaims against Stellar, including breach of contract and unjust enrichment.
In the proceedings that followed, the courts had to determine whether an Oregon law prevented Smith from asserting its counterclaims against Stellar. The relevant portion of the statute stated:
[A] contractor may not perfect a construction lien, file a complaint with the Construction Contractors Board or commence an arbitration or court action for compensation for the performance of any work or for the breach of any contract for work that is subject to this chapter unless the contractor had a valid license issued by the board: (a) at the time the contractor bid or entered into the contract for performance of the work; and (b) Continuously while performing the work for which compensation is sought.
Or.Rev.Stat. § 701.131(1) (emphasis added).
Stellar argued that Smith was barred from asserting claims because it never had a valid license to do business in Oregon as the statute required. Smith countered that the language of the statute only prevented an unlicensed contractor from “commencing … a court action,” not from asserting counterclaims in an action that was already underway.
Affirming the trial court’s decision, the Ninth Circuit sided with Stellar. In an attempt to give effect to what it believed was the legislature’s intent, the Court reasoned that adopting Smith’s interpretation of the law would produce an absurd or unreasonable result. Although the literal meaning of the statute cut in favor of Smith’s position, the legislature’s intent to incentivize contractor registration would be undermined if unlicensed contractors were allowed to assert claims so long as they did not initiate the lawsuit themselves. Finding this to be the clear intent of the legislature, the Court held that the statute prevented unlicensed contractors from bringing claims and counterclaims in any court action.
In a dissenting opinion, one justice opined that the majority’s decision inappropriately undermined the role of the legislature. In going beyond the plain meaning of the statute’s language, the majority was substituting its own interpretation of the law for what the law’s wording actually required. Because the legislature did not choose to use more specific words describing the prohibitions against unlicensed contractors, the dissent reasoned that the Court should not read such prohibitions into the statute.
Comments: Oregon amended the statute in 2013 to explicitly prohibit all claims brought by unlicensed contractors. Although courts would have considerably less trouble interpreting the intent of the legislature on this matter today, the case illustrates the line that courts toe when engaging in statutory interpretation. Should courts seek to give effect to what they think the legislature intended? Or should they give more deference to the legislature’s choice of words and enforce the law as written?