The Year 2010 In Review: Contractor Licensing

by Sheppard Mullin Richter & Hampton LLP
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This article is the second in a series summarizing construction law developments for 2010.

1. Loranger v. Jones, 184 Cal. App. 4th 847 (3d Dist. May 2010)

Jones, a licensed contractor, had a workers' compensation policy covering his employees. Jones unknowingly used an unlicensed subcontractor and knowingly permitted two minors without work permits, and another person without a contractor's license, to help perform work for Loranger. Loranger refused to pay the final invoice and Jones filed suit for breach of contract. Loranger cross-complained alleging defects and sought disgorgement of monies paid.

However, the Court of Appeal, affirming the trial court, held that Jones' license had not been automatically suspended under Business and Professions Code Section 7125.2 and accordingly, Jones was not subject to the sanctions of Section 7031 subdivisions (a) and (b). Loranger largely relied upon Wright v. Issak, 149 Cal. App. 4th 1116 (6th Dist. 2007) in arguing that Jones could not bring suit and was subject to disgorgement. However, the Court found Wright distinguishable because in that case the contractor intentionally reported zero payroll to avoid obtaining workers' compensation insurance. In the instant case, however, Jones had workers' compensation coverage when he began the project. At worst there may have been a lapse of coverage; however, without notice of a lapse of coverage from the registrar, there was no effective suspension of the contractor's license. The Court also expressly rejected a reading of Wright to find "any" underreporting of payroll tantamount to a failure to obtain workers' compensation coverage and thus an automatic suspension of a contractor's license.

Also, in this update:

2. In re Yehuda Sabban, 600 F.3d 1219 (9th Cir. BAP, April 2010)

A homeowner won a judgment against an unlicensed contractor under Business and Professions Code Sections 7031(b) (disgorgement for non-licensure) and 7160 (contract induced by falsity or fraud) in state court....

3. Alatriste v. Cesar's Exterior Designs, Inc., 183 Cal. App. 4th 656 (4th Dist. April 2010)

A homeowner employed a landscaping contractor which it knew did not have a contractor's license at commencement of work. The contractor stopped work when the homeowner refused to make payments. The homeowner brought suit to recover the money he had already paid to the contractor. The contractor contended that the homeowner's claim was barred because he knew about the contractor's unlicensed status....

4. UDC-Universal Development, L.P. v. CH2M Hill, 181 Cal. App. 4th 10 (6th Dist. Jan. 2010), rev. denied, 2010 Cal. LEXIS 4141

UDC-Universal Development, L.P. entered into two contracts with CH2M Hill, pursuant to which CH2M agreed to provide engineering and environmental planning services for UDC's condominium development. The contracts included an indemnity provision that covered all of UDC's losses to the extent that they arose from, or were connected to, any negligence or omission by CH2M. A duty to defend clause obligated CH2M to defend any suit, action or demand brought against UDC on any claim "covered herein" upon written request from UDC. After completion of the development, the homeowners association brought suit against UDC for "defective conditions" due in part to negligence attributable to CH2M. CH2M rejected UDC's tender of defense, and UDC cross-complained against CH2M for indemnity....

5. Licensing Now Available to LLCs (SB 392)

Effective January 1, 2011, section 7025 of the Business & Professions Code is amended to allow limited liability companies to obtain contractor licenses in California....

Please see full update below for more information.

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