Richard CROWE, dba Richard Crowe Construction Company, Plaintiff-Appellant, v. HICKMAN'S EGG RANCH, INC., an Arizona corporation, Defendant-Appellee, 202 Ariz. 113

OPINION THOMPSON, J. ¶ 1 Appellant Richard Crowe (Crowe) appeals from the trial court’s dismissal of his claims against Hickman’s Egg Ranch, Inc. (Hickman’s). At issue is whether Crowe substantially complied with Arizona Revised Statutes (A.R.S.) § 32-1153 (1996), thus allowing him to seek payment of $105,709.10 on a contract with Hickman’s. I. BACKGROUND ¶ 2 Crowe is an experienced builder and licensed contractor in Mississippi who specializes in building commercial hen houses. Crowe took a contract with Hickman’s to build hen houses and an egg processing plant in Arizona.

It is undisputed that the contract was entered into before Crowe was licensed in Arizona. It is undisputed that Hickman’s was aware that Crowe was unlicensed in Arizona at the time the contract was entered into. It is undisputed that Crowe took and passed the Arizona contractor’s test in October 1997 but was not licensed or bonded until the following February. Crowe was not licensed when he began work on the project. ¶ 3 Crowe filed a complaint seeking $105,709.10 payment for the work undertaken while he was a licensed and bonded Arizona contractor between February 1998 and February 1999.

Crowe has not made a claim for any work outside of the licensure period. In the first amended complaint, Crowe asserted that “[djuring the period at issue herein Plaintiff had an Arizona General Commercial Contractor’s license (B-01, No. 131893).” The complaint made no other reference to Crowe’s license. ¶4 Hickman’s filed a motion to dismiss for lack of jurisdiction on the basis that Crowe was not a licensed Arizona contractor when the contract was entered into. Attached to Hickman’s motion was a copy of the contract and an affidavit.

In response, Crowe submitted an affidavit, documents from the Registrar of Contractors and invoices. Crowe urged that he had substantially complied with the licensing statute as permitted under Aesthetic Property Maintenance, Inc. v.

Capitol Indemnity Corp., 183 Ariz. 74, 900 P.2d 1210 (1995), and that he should be allowed to recover the contract losses he suffered while licensed and bonded in Arizona. ¶ 5 The trial court after motions and argument found that Crowe’s failure to be licensed when the contract was entered into and when the cause of action arose was a complete bar to the action and that the Aesthetic substantial compliance doctrine did not create an exception under these facts. The court also found that it lacked subject matter jurisdiction as a matter of law. Crowe appealed. We have jurisdiction. II.

STANDARD OF REVIEW ¶ 6 Plaintiff bears the burden of establishing jurisdiction. Switchtenberg v. Brimer, 171 Ariz. 77, 82, 828 P.2d 1218, 1223 (App.Ct.1991). The trial court is free to consider extrinsic evidence and resolve factual issues related to jurisdiction. Id. We review the record “in a light most favorable to sustaining the trial court’s ruling.” Id. Legal arguments are reviewed de novo. Id. III. DISCUSSION A.

Section 32-1153 ¶7

Section 32-1153 sets forth the prerequisites to bring an action for unpaid work: No contractor ... shall act as agent or commence or maintain any action in any court of the state for collection of compensation for the performance of any act for which a license is required by this

chapter without alleging and proving that the contracting party whose contract gives rise to the claim was a duly licensed contractor when the contract sued upon was entered into and when the alleged cause of action arose. A.R.S. § 32-1153(1996) (emphasis added). The legislature enacted A.R.S. § 32-1153 “to protect the public from unscrupulous, unqualified, and financially irresponsible contractors.” Aesthetic, 183 Ariz. at 77, 900 P.2d at 1213 (citation omitted).

Section 32-1153 explicitly conditions a claim for unpaid work on licensure “when the contract sued upon was entered into and when the alleged cause of action arose.” Crowe was not licensed when the contract was entered into. And Crowe was not licensed when work began on the project. ¶ 8 For many years Arizona required strict compliance with the contractor licensing statutes. See, e.g., Northen v. Elledge, 72 Ariz. 166, 232 P.2d 111 (1951) (denying recovery for more than eight months work done while the contractor’s license lapsed).

In 1995, however, the Arizona Supreme Court found that substantial compliance with the contractor licensing statute was sufficient to satisfy the licensing prerequisite in A.R.S. § 32-1153. Aesthetic, 183 Ariz. at 78, 900 P.2d at 1214. Because this expansion necessitates a factual inquiry, we proceed to analyze whether Crowe substantially complied with A.R.S. § 32-1153 and whether

summary judgment was appropriate. B. Aesthetic and the Substantial Compliance Test ¶ 9 In Aesthetic, a contractor’s license was automatically suspended when the contractor failed to renew. 183 Ariz. at 75, 900 P.2d at 1211. The evidence showed that the Registrar of Contractors had erroneously sent the renewal notice to the contractor’s old address. Id. The contractor renewed immediately once he became aware of the problem. Id. The supreme court reversed

summary judgment against the contractor and held that the contractor could sue for payment on one job completed and one job begun while his license had inadvertently lapsed through no fault of his own. Id., 183 Ariz. at 75, 78, 900 P.2d at 1211, 1214. The court allowed that “substantial compliance is adequate when it satisfies the general policy or purpose of the statute” and it set out factors to determine substantial compliance. Id., 183 Ariz. at 78, 900 P.2d at 1214. ¶ 10 Applying the factors enumerated in Aesthetic to Crowe, we examine whether: (1) the Registrar of Contractors contributed to Crowe’s noncompliance;

(2) Crowe was financially responsible while he was unlicensed;

(3) Crowe knowingly ignored the registration requirements;

(4) Crowe immediately, upon learning of the statutory noncomplianee, acted to remedy it, and (5) the failure to comply with the licensing statute prejudiced Hickman’s. See id. Aesthetic instructs that either a failure to be financially responsible or to knowingly ignore the registration requirements is fatal. Id. The contractor bears the burden of proof to demonstrate substantial compliance. See id. ¶ 11 In applying the Aesthetic factors to Crowe, we need not go far before his claim of substantial compliance is obviated.

Under the first factor, there is no assertion that acts by the Registrar contributed to Crowe’s lack of licensing so we proceed on. 1112 For the second factor, Aesthetic requires that the contractor demonstrate financial responsibility by maintaining his liability insurance, surety bond, and workman’s compensation during the unlicensed period; “[flailing that, there can be no substantial compliance.” Id., 183 Ariz. at 78, 900 P.2d at 1214. Crowe presented no evidence that he was financially responsible during the pertinent unlicensed period prior to February 1998.

Instead, Crowe seems to argue that he was financially responsible during the time for which he seeks damages. Crowe asserts that had he not been financially responsible, as required by A.R.S. § 32-1122, the Arizona Registrar of Contractors would not have licensed him. ¶ 13 Aesthetic is clear that the court is to examine whether the contractor acted responsibly during the time when he was unlicensed. See id. Of this factor, the court said: Because the statute is designed to protect the public, the public must in fact be protected while the license is suspended.

Was the contractor financially responsible while its license was suspended? Id. The application of this factor requires demonstrable financial responsibility while the license was not in effect. See id. Crowe did not meet his burden of proof as to financial responsibility, and this alone eliminates his claim of substantial compliance. We need not proceed to the next two factors, although we note that Crowe also does not dispute that he was aware of Arizona’s licensing requirements and that he did not immediately attempt to comply with the licensing statute.

Failure to act diligently in this regard is, likewise, fatal. Aesthetic, 183 Ariz. at 78, 900 P.2d at 1214. ¶ 14 We agree with Hickman’s that the basic premise of the substantial compliance test as outlined in Aesthetic is that the contractor was unlicensed through no fault of his own and immediately acted to rectify the problem. Such is not the case here and the trial court correctly determined that the substantial compliance doctrine did not save Crowe. C.

Crowe’s Contract Ratification Theory ¶ 15 Crowe asserts that “[g]iven Hickman’s admitted conduct, e.g., knowingly contracting with, requesting services from and paying Crowe while he was unlicensed, it would not be equitable” to allow Hickman’s to escape payment. Crowe urges us to find that because Hickman’s acted with full awareness that he was unlicensed, Hickman’s should be found to have ratified this behavior. To this end, Crowe cites McNairy v. Sugar Creek Resort, Inc., 576 So.2d 185 (Ala.1991). If 16 Hickman’s asserts that Crowe has waived this argument by failing to raise it below. We agree.

Arizona Rule of Civil Appellate Procedure 13(b)(3) requires that issues be “properly presented below.” Issues not properly raised below are waived. R.E. Monks Constr. Co. v. Aetna Cas. & Sur. Co., 189 Ariz. 575, 578, 944 P.2d 517, 520 (App.Ct.1997). Our review of the record reveals that Crowe never raised this “ratification” theory prior to his appeal; rather, Crowe argued and submitted documents that asserted that Hickman’s knew he was unlicensed, advised him to become licensed and advised him regarding the applicability of sales tax.

Crowe mentioned the McNairy case in various documents but each time it was in support of a theory of substantial compliance. Crowe did not adequately raise the ratification theory below and, thus, it is waived on appeal. If 17 Even if the ratification theory had been timely raised, we would not be prepared to create a judicial exception for ratification.

The McNairy court, in adopting the ratification theory, was not interpreting a statute like ours; A.R.S. § 32-1153 specifically prohibits suits unless the contractor was licensed “when the contract sued upon was entered into.” Alabama did not have such a statute; rather its common law made that prohibition based on their contractor licensing scheme. See Herbert v. Birmingham-Jefferson Civic Cent. Auth., 694 F.2d 240 (11th Cir.1982) (citing Hawkins v. League, 398 So.2d 232 (Ala.1981)).

Arizona’s Legislature, on the other hand, recently moved to strengthen the contractor statutes to prohibit even bidding or responding to a request for proposal without a license. See A.R.S. § 32-1151 (2000). Under this paradigm, we could not create a judicial exception to the explicit language laid out by our legislature. ¶ 18 It is not unusual for a contractor like Crowe, caught between being unpaid and unlicensed, to complain about equity. See, e.g., Northen, 72 Ariz. at 173, 232 P.2d at 116 (citations omitted).

However, like the North-en court, we decline to act in equity even to prevent a substantial loss to the complainant because: the statute requiring a contractor to possess a contractor’s license before he may recover for work done was designed for the protection of the public and must not be defeated in order to accommodate one who has violated the provisions of the statute. Permitting an unlicensed contractor to recover on the ground that a loss would result to him otherwise would completely nullify the statute since every unlicensed contractor would sustain a loss or forfeiture unless he were allowed recovery.

The remedy, if any, lies with the legislature. Id. We have before us a statutory scheme as laid out by our legislature and a single Arizona Supreme Court case in Aesthetic laying out the elements for substantial compliance. Given these parameters we are not at liberty to adopt the reasoning set forth in the dissent. For the above stated reasons, we decline to adopt the ratification exception urged by Crowe. IV. FEES ¶ 19 On appeal, both Hickman’s and Crowe request fees and costs. Crowe’s request is denied. Hickman’s request for fees pursuant to A.R.S. § 12-341.01 is denied. Hickman’s request for costs is granted.

CONCLUSION ¶ 20 For the above stated reasons, we affirm. CONCURRING: SCOTT, Presiding Judge. . Crowe’s work on the project, prior to licensure, included: June 5, 1997 Crowe was present for several days during which surveying was done and Crowe met with the surveyor. August 8, 1997 Crowe accompanied Hickman's to meet with various county officials regarding the project. August 8-9, 1997 Crowe met with various proposed earth-moving contractors regarding the scope of the project and their upcoming bids. August 19, 1997 Crowe and Hickman spoke on the telephone regarding which earthmoving contractor to hire.

September 5, 1997 Crowe visited construction site to check compliance by subcontractor. February 17-22, 1998 Crowe re-surveyed properly for hen house locations.

Section 32-1101(

B) states that contractors are persons who represent: themselves as having the ability to supervise or manage a construction project for the benefit of the property owners including, but not limited to, the hiring and firing of specialty contractors, the scheduling of work on the project and the selection and purchasing of construction materials.

Section 32-1101(A)(2) explicitly includes actions to “construct, alter, repair, add to, subtract from, move ... or to do any part thereof, including the erection of scaffolding or any other structure or work” whether done directly himself or indirectly as a supervisor. We find Crowe's conduct clearly falls within the scope of contracting work contemplated by the legislature in A.R.S. § 32-1101(A)(2) and (B), and, indeed, constitutes a criminal offense. A.R.S. § 32-1164(A)(2). . This is so whether the contract was effective in October or December, 1997; Crowe was not licensed in Arizona until February, 1998.

Achieving a passing score on the contractor’s exam is but one factor in achieving licensure. See A.R.S. § 32-1122 (1996). We need not further address whether Crowe was licensed when the claim arose.