Edwards Villa, Inc. vs. Ybanag Realty & Development Corp.

the conduct “must be shown to have been so manifestly erroneous that no prudent attorney would have done so.” (Id.) An action is “frivolous only when it is [done] for an improper motive—to harass the respondent or delay the effect of an adverse judgment—or when it indisputably has no merit— when any reasonable attorney would agree that the [action taken] is totally and completely without merit.” (Id. at 650.) Conduct is not sanctionable if the party has “nothing to gain from delay,” and there is no evidence of subjective bad faith. (Id. at 651.)

The foregoing facts do not demonstrate any abuse of the right to access the judicial system, any intent to harass Defendants or delay any adverse judgment, and do not show that Plaintiffs’ counsel’s continued pursuit of Plaintiffs’ claims was totally and completely without merit. Critically, Plaintiffs gained nothing from this delay. There is no evidence of bad faith, and thus no ground for sanctions.

Based on the foregoing, this Motion for Sanctions is denied.

Defendants are ordered to give notice of this ruling.

11 30-2021-01183112 Plaintiff Edwards Villa, Inc.’s (“Plaintiff”) Demurrer to Edwards Villa, Inc. vs. Defendant QT General Contractor, Inc. and Quang Quoc Ybanag Realty & Truong’s (collectively, “QT Defendants”) Second Amended Development Corp. Answer (“SAA”) to Plaintiff’s Second Amended Complaint (“SAC”) is SUSTAINED WITHOUT LEAVE TO AMEND as to QT Defendants’ 28th Affirmative Defense of Illegality/Void Contract and QT Defendants’ 29th Affirmative Defense of In Pari Delicto – Equal Fault.

The court GRANTS Plaintiff’s requests for judicial notice of the court’s ruling on QT General Contractor and Quang Quoc Truong’s Motion for Summary Judgment, and the court’s ruling on Edwards Villa, Inc.’s Motion for Summary Adjudication in this action. (Cal. Evid. Code § 452(d).)

The court GRANTS QT Defendants’ request for judicial notice as to the court’s ruling on QT General Contractor and Quang Quoc Truong’s Motion for Leave to Amend its Answer to Edwards Villa, Inc.’s Second Amended Complaint (ROA 924).

28th Affirmative Defense (“28th AD”) – Illegality/Void Contract

Plaintiff demurs to QT Defendants’ 28th Affirmative Defense on the grounds of collateral estoppel because any defense that Plaintiff is barred from recovery in this action because Plaintiff was allegedly unlicensed was already rejected in the court’s February 2, 2026 ruling on Plaintiff’s Motion for Summary Adjudication (“Plaintiff’s MSA”). Plaintiff also contends that the statutory framework for contractor licensing preempts the more generalized public policy principles of barring enforcement of illegal contracts. QT Defendants argue that they can still assert a defense based on the illegality of the contract due to Plaintiff’s unlicensed status so long as it is not based explicitly on Cal. Bus. & Prof. Code § 7031, which was the subject of Plaintiff’s MSA.

The court stated in its March 23, 2026 Minute Order granting leave for QT Defendants to file an amended answer: “To the extent the court rejected the defenses of illegality or in pari delicto [in denying Plaintiff’s MSA], it was only to the extent they were based upon EV’s alleged failure to satisfy the requirements of Cal. Bus. & Prof. Code § 7031 as that was the scope of QT’s 18th Affirmative Defense and EV’s MSA.” (ROA 924 at p. 2.) The court allowed leave to amend to add the affirmative defenses of illegality or in pari delicto in part because QT Defendants “failed to adequately plead these alternative general defenses in their original Answer[.]” (Id.)

The court noted that “to the extent QT seeks to assert these new defenses of illegality and in pari delicto based on the contractor licensing requirements pursuant to Cal. Bus. & Prof. Code § 7031, these defenses would be futile and denied as moot as the court already ruled upon these defenses in granting EV’s MSA.” (Id. at p. 3.) The court stated that “the court declines to extend the February 2, 2026 ruling as foreclosing all defenses based on illegality or in pari delicto to the extent, they can be raised on other statutory or equitable grounds.” (Id.).

”[A] prior determination by a tribunal will be given collateral estoppel effect when (1) the issue is identical to that decided in a former proceeding; (2) the issue was actually litigated and (3) necessarily decided; (4) the doctrine is asserted against a party to the former action or one who was in privity with such a party; and (5) the former decision is final and was made on the merits.“ (Bame v. City of Del Mar (2001) 86 Cal. App. 4th

1346, 1364.) “The party asserting collateral estoppel bears the burden of establishing these requirements.” (Id.) “Even if these threshold requirements are established, res judicata will not be applied ‘if injustice would result or if the public interest requires that relitigation not be foreclosed.’” (Id.)

Here, res judicata/collateral estoppel would apply to any affirmative defense concerning the illegality of the contract between the parties based on Plaintiff’s lack of license pursuant to Cal. Bus. & Prof. Code § 7031, which was adjudicated in the court’s February 2, 2026 Minute Order. Only if the affirmative defense of illegality of the contract is based on other valid grounds would it be available to QT Defendants.

QT Defendants’ 28th AD states in relevant part: “At all relevant times, Plaintiff was not exempt from licensure and not duly licensed as required to perform such activities and nevertheless undertook to perform and contract for such work through others in violation of California’s contractor licensing laws. To the extent Plaintiff’s claims seek to enforce rights or recover damages arising from or dependent upon such unlawful conduct, those claims are barred.”

“Where a contract has but a single object, and such object is unlawful, whether in whole or in part, or wholly impossible of performance, or so vaguely expressed as to be wholly unascertainable, the entire contract is void.” (Cal. Civ. Code § 1598.) However, cases have made clear that generally, “a court will not impose additional penalties for [noncompliance] with the licensing requirement” outside of the statutory framework for contractor licensing requirements. (MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co. (2005) 36 Cal. 4th 412, 437.)

Where “the contract's object is not inherently wrongful or contrary to sound public policy, it will be deemed void ‘only if it falls within the area which the Legislature intended as part of deterrence necessary to protect the public interest.’” (Id.) The Contractors’ State License Law’s (“CSLL”) purpose is “to protect the administration of the licensing law as well as to protect the public from incompetent and untrustworthy artisans.” (Id.) The legislature “reserved the bar against civil suit for cases where the contractor was unlicensed during [] performance [of the contract].” (Id. at 437-438.) “[T]he civil bar should not be expanded beyond its explicit legislative bounds.” (Id. at 438.)

Generally, “contracts in violation of regulatory statutes are invalid.” (Id.) However,

the general rule “will not be applied where the penalties imposed by the Legislature exclude by implication the additional penalty of holding the contract void.” (Id. at 438- 439.)

QT Defendants argue that the contract between Plaintiff and QT Defendants is illegal and unenforceable pursuant to Civil Code § 1598 because it is unlawful under Cal. Bus. & Prof. Code § 7028(a) for an unlicensed contractor to act as a contractor. This is no different from their argument that Plaintiff is barred from recovery pursuant to Cal. Bus. & Prof. Code § 7031 because Plaintiff is an unlicensed contractor. The legislature spelled out the requirements for when an unlicensed contractor’s contract is unenforceable in Cal. Bus. & Prof. Code § 7031, and the court already ruled that those requirements have not been met as to Plaintiff.

The legislature also set forth the consequences for acting as an unlicensed contractor generally in Cal. Bus. & Prof. Code § 7028(a), which is a misdemeanor punishable by fine or imprisonment. “[T]he statute making the conduct illegal, in providing for a fine or administrative discipline, excludes by implication the additional penalty involved in holding the illegal contract unenforceable.” (MW Erectors, Inc., 36 Cal. 4th at 436.) This language is taken from a case cited by QT Defendants, which also notes that courts are “not free to weigh” facts to ascertain the enforceability of an allegedly illegal contract as “Section 7031 represents a legislative determination that the importance of deterring unlicensed persons from engaging in the contracting business outweighs any harshness between the parties, and that such deterrence can best be realized by denying violators the right to maintain any action for compensation in the courts of the state.” (Lewis & Queen v.

N. M. Ball Sons (1957) 48 Cal. 2d 141, 151.) Accordingly, the case law makes it clear that the CSLL preempts any illegality defense based on the unlicensed status of a plaintiff.

Based on the foregoing, the court SUSTAINS WITHOUT LEAVE TO AMEND Plaintiff’s Demurrer to QT Defendants’ 28th AD, as no amendment would cure the defects of the 28th AD.

29th Affirmative Defense (“29th AD”) – In Pari Delicto – Equal Fault

QT Defendants’ 29th AD states in relevant part: “Defendants incorporate by reference the allegations set forth in the Twenty-Eighth Affirmative Defense (Illegality / Void Contract) as though fully stated herein. . . . Plaintiff’s claims are barred, in whole or in part, by the doctrine of in pari delicto. To the extent any unlawful or improper conduct occurred in connection with the project, Plaintiff was an active and knowing participant in such conduct. Plaintiff undertook to coordinate, direct, and manage construction activities, including the selection and supervision of subcontractors and trades, and any alleged defects or damages arise in whole or in part from Plaintiff’s own conduct. Accordingly, to the extent Plaintiff’s claims are based on or arise from conduct in which Plaintiff was an equal or greater participant, Plaintiff is barred from obtaining relief.”

“The doctrine of in pari delicto dictates that when a participant in illegal, fraudulent, or inequitable conduct seeks to recover from another participant in that conduct, the parties are deemed in pari delicto, and the law will aid neither, but rather, will leave them where it finds them.” (Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal. App. 4th 1138, 1143 n.1.)

Plaintiff argues that QT Defendants have inadequately pled facts concerning the parties’ economic strength, but cites to a CACI instruction for the in pari delicto defense in the antitrust context, which is inapplicable here.

Nevertheless, Plaintiff points out that the unlawful conduct that is the basis for the 29th AD is Plaintiff’s unlicensed contractor status. QT Defendants concedes as much in their opposition papers. (See Opp. at p. 8 [“EV's direction of the work as an unlicensed contractor was a substantial factor in the damages claimed,” and “[t]he unlawful conduct is unlicensed contracting, the same conduct pled in the Twenty-Eighth Defense and incorporated by reference.”].) Thus, as this defense (like the 28th AD) is also based on Plaintiff’s alleged unlicensed contractor status, this in pari delicto defense is also preempted by the CSLL.

The court SUSTAINS WITHOUT LEAVE TO AMEND Plaintiff’s Demurrer to QT Defendants’ 29th AD, as no amendment would cure the defects of the 29th AD.

Plaintiff is ordered to give notice of this ruling.