On May 18, 2015, the California Court of Appeals, Second District ruled in Pacific Caisson & Shoring, Inc. v. Bernards Bros., Inc. 2015 DJDAR 5486 that a contractor, whose license was suspended for failing to notify the California Contractors State License Board (“CSLB”) of a judgment against it in another matter, was not entitled to recover for work under the substantial compliance exception found in Bus. & Prof. Code §7031(e).
The Court’s ruling is a strict interpretation of Bus. & Prof. Code §7071.17(j) which states:
“The qualifying person and any partner of the licensee or personnel of the licensee named as a judgment debtor in an unsatisfied final judgment shall be automatically prohibited from serving as an officer, director, associate, partner, owner, manager, qualifying individual, or other personnel of record of another licensee. This prohibition shall cause the license of any other existing renewable licensed entity with any of the same personnel of record as the judgment debtor licensee to be suspended until the license of the judgment debtor is reinstated or until those same personnel of record disassociate themselves from the renewable licensed entity.”
It is clear from the Court’s ruling that any Responsible Managing Officer (“RMO”) or Responsible Managing Employee (“RME”) who has a court judgment entered against him/her must take steps to report the judgment to the CSLB or a suspension of his/her license will result.
This ruling should be a wakeup call to all contractors that it is their responsibility to report all judgments in order to maintain their license in good standing with the California Contractors State License Board (“CSLB”). The financial result is that a Court will be able to deny a contractor’s current and future requests for payment on any construction project which are undertaken after a judgment has been entered against the contractor’s RMO or RME.
If a contractor’s RMO or RME has a judgment entered against him/her, then the contractor must follow these steps:
- Provide notice to the CSLB of any judgment within 90 days of entry of the judgment, (including Stipulated Judgments entered into as a result of settlement).
- If the judgment is to be appealed, the contractor must post a bond with the CSLB to avoid license suspension.
- If the contractor has entered into a payment plan with the creditor, in lieu of filing the bond, you must provide the CSLB with a notice of an accord reached with the creditor that is notarized by both parties to avoid license suspension.
The failure to follow the steps outlined above will result in an automatic suspension of the license. The suspension will put all of the contractor’s current and future projects at risk and will result in non-payment and disgorgement of all profits.
Mr. Earle is a partner in ECJ’s Litigation Department and is an AV Preeminent-rated trial attorney experienced in all phases of trial and litigation. He brings unique, practical experience to his litigation practice: he is one of few attorneys with hands-on experience in construction as a licensed California general contractor (B) and subcontractor (C-36 Plumbing); and has served as a combat engineer, construction surveyor and soils analyst in the U.S. Army Corps of Engineers.
Mr. Earle has been the lead counsel in over 40 jury trials, bench trials, and binding arbitrations. He has also been lead counsel in over 700 mediations. He has represented municipalities, developers, general contractors, sub-contractors, product manufacturers, suppliers, design professionals, hotels, homeowners, condominium and homeowners associations in California, Nevada, Colorado, Florida, Washington and Arizona.
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