LBExam

Case note

AVL v. Hensel Phelps and the s. 7045 exemption

A published April 2026 Court of Appeal decision: whether installed equipment becomes a fixed part of the structure under s. 7045 is a question of fact.

Published
2026-09-17

A manufacturer of vehicle emissions testing equipment sold and installed its products in a building a general contractor was putting up for the California Air Resources Board. The general contractor paid it more than $73 million, then refused to pay more, arguing the manufacturer had been working as an unlicensed contractor. On April 28, 2026 the Court of Appeal, Fourth District, Division One, decided AVL Test Systems, Inc. v. Hensel Phelps Construction Co. (D086160), and certified it for publication. It is the newest appellate word on Bus. & Prof. Code s. 7045, the exemption for finished products that do not become a fixed part of the structure.

The dispute

AVL Test Systems, Inc. (AVL) contracted with Hensel Phelps Construction Co. (Hensel Phelps) in May 2018 to design, engineer, fabricate and install four-wheel-drive chassis dynamometers, with four change orders adding more equipment. AVL obtained a Class A license in May 2019, a year or so into the work, and said it did so only because Hensel Phelps asked. In September 2021 AVL demanded arbitration for further payment. Hensel Phelps answered that s. 7031(a) barred the claim, because AVL had performed work needing a license without one.

AVL went to the Riverside County Superior Court for a declaration that its claims were not barred, relying on s. 7045. Both sides moved for summary judgment. The trial court granted Hensel Phelps’s motion and denied AVL’s, finding that “the parties’ contract called for emissions equipment to become a ‘fixed part of the structure’” given the equipment’s size and weight and the “substantial permanent connections” (embeds, anchor plates, welding, penetrations through walls and floors, conduit encased in concrete) in AVL’s scope (opinion, p. 9).

What the court held

The Court of Appeal reversed the judgment for Hensel Phelps and remanded. Its reasoning rests on a rule it takes from Walker v. Thornsberry (1979) 97 Cal.App.3d 842: “[w]hether the goods installed bec[a]me a fixed part of the structure is a question of fact” (p. 3). A question of fact belongs to a trier of fact, and summary judgment is available only when there is no triable issue of material fact. AVL had lodged two admissible expert declarations, one from a former Chief Deputy Registrar of the Contractors State License Board (CSLB), saying the equipment was bolted in place, could be unbolted and reused, and would not damage the building on removal. Hensel Phelps had lodged its own expert, a former CSLB employee, saying the equipment was permanently attached through welding, anchors, seismic bracing and conduit buried in concrete. On that record the court concluded “that the trial court should have denied both motions for summary judgment and permitted a trier of fact to resolve this question” (p. 3).

The court agreed the trial court was wrong to grant Hensel Phelps judgment, and also held the trial court was right to deny AVL judgment, because Hensel Phelps’s evidence would let a reasonable factfinder find the products did become a fixed part of the structure (pp. 30 to 35). Whether AVL needed a license is still undecided; it now goes to trial.

The factors a factfinder may weigh

The most useful part of the opinion for anyone studying s. 7045 is a list. Reading the statute with the expert declarations and the older cases, the court says a factfinder “could reasonably consider a host of factors, including but not limited to” these (pp. 22 to 23):

  1. How much time, cost and labor went into installing the products.
  2. How much would go into removing them.
  3. Whether removal would damage the products.
  4. Whether removal would damage the structure.
  5. How permanent the physical connections are.
  6. Whether the products are ready-made and can be assembled off-site.
  7. Whether it is common for them to be removed and reused elsewhere.
  8. Whether they are used independently of the structure.
  9. Whether they are designed to be replaced.
  10. Whether the connections are such that the public safety purpose of the license law would be served by requiring a license.
  11. Whether the parts attached to the structure are incidental to the products or were consumed by the structure.

The court also rejected Hensel Phelps’s description of s. 7045 as an “extremely narrow exception”. It found no authority for that reading and pointed to the word “any” in the statute’s text as a term of broad inclusion (p. 23). The carve-outs the legislature has added, among them the exclusion of installed carpets from “finished products” and the application of the chapter to home improvement goods as defined in s. 7151, exclude specific activities without making the exemption itself narrow (pp. 23 to 24). The section keeps mobilehomes and mobilehome accessory structures, as defined in s. 7026.2, out of “finished products” as well.

Three points that carry over to the exam

The opinion restates settled s. 7031 law along the way, and each point is the kind of thing the Law and Business exam asks.

The bar is about performance. Quoting Judicial Council of California v. Jacobs Facilities, Inc. (2015) 239 Cal.App.4th 882, 896 to 897, the court says a contractor unlicensed for any period while delivering construction services forfeits all compensation for the work, and that unlicensed contractors are prohibited from asserting equitable defenses such as estoppel (pp. 10 to 11). What the parties believed about the need for a license “is not dispositive”; s. 7031(a) looks to whether the person was duly licensed at all times during the performance of the act or contract (p. 28). And a contractor unlicensed when the contract was signed but licensed before performing it is not barred on that ground alone (p. 34).

Holding a license does not prove one was required. Hensel Phelps argued that CSLB’s grant of a Class A license to AVL for this project deserved substantial weight. The court found no statute or case saying that issuing a license amounts to a determination that the work needed one, and noted the former Chief Deputy Registrar’s declaration that it does not (p. 27).

Section 7045 has two halves. The first exempts the sale or installation of finished products, materials or articles of merchandise that do not become a fixed part of the structure. The second exempts a material supplier or manufacturer who does not install or contract for the installation of what it furnishes. AVL was arguing the first half, because it did install. The definition of contractor in s. 7026 reaches anyone who by or through others constructs, alters or improves a building, which is why the exemption has to be proved.

The matter is remanded to the trial court, each side bearing its own costs on appeal (p. 35). Nothing in the opinion says how a trier of fact will answer the question for AVL’s dynamometers.

Sources