By Kenneth S. Grossbart, Abdulaziz, Grossbart & Rudman
The case of Twenty-Nine Palms Enterprises v. Paul Bardos once again shows contractors how important it is to make sure that they are properly licensed and all paperwork is in order. February 2007 saw the start of construction improvements to the Spotlight 29 Casino. Twenty-Nine Palms Enterprises ("Palms"), a tribal corporation, hired a construction manager by the name of Paul Bardos ("Bardos") who was the RMO of Bardos Construction, Inc. ("BCI"). They also hired Worth Group ("Worth") as the general contractor.
There was one portion of the project which dealt with a new parking structure that Worth submitted a bid for in excess of $1.7 million. Palms apparently asked Bardos to bid as well. The bid from Bardos came in around $750,000 so Palms wanted Bardos to do the work. Palms apparently asked Bardos to do the work under a different name and Bardos agreed which lead to the creation of Cadmus Construction Co. ("Cadmus").
Outside of the fact that the construction contract should not have been entered into until Cadmus was properly licensed, Bardos should have at least filed the appropriate paperwork with the county for the fictitious business name as well as with the Contractors' State License Board at that time. However, the paperwork was not filed with the CSLB until June 25, 2007, with the license being issued in October 2007, months after the work was actually completed. Palms discovered that Cadmus was not licensed and sued to recover all funds paid for the construction work completed. The trial court ruled in their favor and ordered full disgorgement for $751,995.
With over $750,000 on the line, Bardos appealed the trial court's decision to no avail. Bardos argued that the license that was issued to BCI made him a licensed contractor because he was an officer. However, in that BCI is a corporation, it is considered a separate legal entity from its officers and shareholders and as Business and Professions Code section 7059.1 (b) states, "A licensee shall not conduct business under more than one name for each license. Nothing in this section shall prevent a licensee from obtaining a business name change as otherwise provided by this chapter." Cadmus would have been another name.
Bardos also argued that Cadmus substantially complied with licensure requirements. In order for substantial compliance to be found, four factors must be met. First, the contractor must be duly licensed prior to the act or contract. Second, the contractor must have acted reasonably and in good faith to maintain proper licensure. Third, the contractor did not know that it was not duly licensed. Fourth, the contractor acted promptly and in good faith to reinstate licensure. As stated previously, the application for licensure did not happen until the job was actually completed, thereby leaving Cadmus unlicensed for the entire duration of the job. This definitely does not support substantial compliance.
Looking at Business and Professions Code section 7031(b) which states in part "...a person who utilizes the services of an unlicensed contractor may bring an action in any court of competent jurisdiction in this state to recover all compensation paid to the unlicensed contractor for performance of any act or contract." caused the appellate court to uphold the trial court's decision of having the funds disgorged.
As a side note, Bardos argued that Business and Professions Code section 7031 was inapplicable because of Palms status as a tribal entity. However, the appellate court held that the sovereign immunity defense is only available to the tribe and the tribal entities, not to parties attempting to avoid liability to tribal entities.
As said in the past, make sure that everything is properly done. If all of your I's are dotted and T's are crossed, then you have a higher chance of avoiding trouble at all times!
Kenneth Grossbart is recognized as one of the foremost authorities in California construction law. Over the past 30 years, Ken has become a respected speaker on Mechanic’s Liens and other construction related issues. Abdulaziz, Grossbart & Rudman provides this information as a service to its friends & clients and it does not establish an attorney-client relationship with the reader. This document is of a general nature and is not a substitute for legal advice. Since laws change frequently, contact an attorney before using this information. Ken Grossbart can be reached at Abdulaziz, Grossbart & Rudman: (818) 760-2000 or by E-Mail at ksg@agrlaw.com, or at www.agrlaw.com. FEBRUARY/MARCH 2013
***