by John McGill
My grandmother had a favorite saying: ‘A word to the wise is sufficient’, meaning of course that I should shape up or the next time I would be in even more trouble. Regrettably I didn’t always understand what I was supposed to do to avoid the “next time”. Courts do this correction with direction in their decisions too, and sometimes that direction is not clear either. A good example is the latest decision in Pacific Caisson & Shoring Inc v Bernard Bros. Inc.
In the first decision in the dispute between Pacific Caisson and Bernard Bros. the court ruled that Pacific Caisson was properly licensed to perform C-12 work notwithstanding that it did not have that specialty license. Pacific had a Class A and Class B license and the court held that was sufficient because the work allowed under those two general licenses included the kind of work that a specialty C-12 could perform. The court then sent the case back to the trial court to determine if Pacific was licensed the entire time it was performing the contract.
That did not go so well for Pacific.
First, recall that in California a contractor must be properly licensed the entire time it is performing work. If you are not properly licensed the entire time then you not only have no rights in court and cannot sue for any payments owed, but you can be required to return (disgorge) all funds that you have already been paid. The Legislature is serious about licensing and contractors should be serious about licensing too.
In the second Pacific Caisson matter, Pacific was delinquent in making payments to the Union trust fund. The Fund sued and eventually reached an agreement that allowed Pacific to pay an agreed amount over time. A Stipulated Agreement was then filed with the court. Presumably, but it’s not clear, there was another document, a Covenant Not To Execute, that provided that if Pacific made all payments then the Stipulated Agreement would be dismissed. If Pacific did not make the agreed payments, the Fund could execute on the Stipulated Judgment.
But Pacific did not make payments so the Fund sued. Two years later the Fund notified CSLB that Pacific still had not paid the judgment. CSLB wrote to Pacific saying that its license was suspended because Pacific had not notified CSLB within 90 days of there being a judgment. Sometime after that Pacific and the Fund entered another stipulation for the outstanding payments and CSLB reinstated the license.
Unfortunately the suspension and the reinstatement occurred while Pacific was working on the project for Bernard Bros. Pacific was not paid, it sued Bernard, Bernard defended by saying Pacific did not have the correct license category (the first case) and that Pacific was not properly licensed the entire time of the project (the second case). Pacific won the first round, but Bernard won the second and the court’s decision there is a cautionary tale for all contractors.
First, contractors need to be properly licensed at all times during the performance of a contract; that’s the easy rule.
Second, you need to inform the CSLB of any “unsatisfied” judgments entered against you; but what is an unsatisfied judgment? A Stipulated Judgment with a Covenant Not To Execute, which is the way these agreements are usually done, should be sufficient to make a stipulated agreement not a judgment, at least not until the debtor misses the payments and the Stipulated Judgment is enforced. Then it would become an unsatisfied judgment. Typically the Stipulated Judgment is held and not filed until the judgment is not paid. If it is filed with the court, then any Covenant Not To Execute becomes pointless. So beware, you don’t want any judgment to be entered, especially if you have a Covenant Not To Execute.
If you do have a judgment entered against you, and if it is related in any way to your contracting business, you must do two things. You must notify CSLB within 90 days of the judgment being issued and you must post a judgment bond. If you do both things you are compliant and your license stays active. If you don’t do both, then once CSLB is notified they will suspend your license. Any projects you are working on at the time are in jeopardy.
Keep in mind too that if you are the qualifier for multiple companies and one license that you qualify is suspended, then all other licenses are also suspended. Any projects under way for those other companies are being performed illegally because there is no active license.
Pacific tried to grab the protection of the substantial compliance exception. For this exception to apply you need to satisfy four factors: 1- you need to be properly licensed prior to the unlicensed activity; 2- you act reasonably and in good faith to maintain your license; 3- you don’t know and reasonably could not know that you were unlicensed; and 4- when you find out, you immediately act to correct the license issue. You need to satisfy all four. The court found that Pacific failed the 2d prong because it did not act reasonably.
Pacific argued that it did not believe the Trust Fund payment was part of its “construction business” and so it did not believe it needed to advise CSLB of the stipulated judgment. The court disagreed and found that because the owners were experienced contractors they were expected to know the CSLB rules and therefore they acted unreasonably. Assuming the owners presented credible evidence of their belief, the decision seems a bit harsh. Contractors are expected to know the law, but even the court could not cite to a case that had decided this issue.
But there is that case now and if you are reading this you are aware that a judgment, stipulated or otherwise, can’t be ignored. You need to notify CSLB and you need to post a judgment bond. A word to the wise.
Bio: John McGill is an attorney and represents contractors and suppliers throughout the Bay Area and Northern California in both private and public work disputes and transactional, matters. He is the author of California Contractor’s DESKTOP GENERAL COUNSEL What You Need To Know About California Construction Law. Second Ed. Contact: 925-952 5403 or 707-337-1932. Email johnmcgill310@gmail.com