Failure To Report A Judgment

Many contractors are unaware of the sanction that can be issued against them for a Judgment/Arbitration Award that is entered against them in a legal proceeding. Business and Professions Code section 7071.17 requires that licensed contractors notify the Contractors State License Board ("CSLB"), in writing, of any unsatisfied final judgment imposed on the licensee. If the licensee fails to notify the CSLB in writing within ninety (90) days, the license shall be automatically suspended. That is exactly what happened in the Pacific Caisson case.

 

The Pacific Caisson case went one step further. In a May 19, 2015, Second District, Court of Appeal ruling in Pacific Caisson & Shoring v. Bernard Bros. Inc., 2015 DJDAR 5483; the court found that a contractor whose license was suspended for failing to notify the state licensing board of a judgment against it cannot satisfy the second prong of the substantial compliance exception to Section 7031. This was the second Court of Appeal ruling in this matter. We had published a previous article in 2013, dealing with a different issue that was taken up on appeal in this matter. Gold Coast Drilling, Inc. ("Gold Coast") defaulted under a stipulated judgment entered against it. Pacific Caisson & Shoring, Inc. ("Pacific Caisson") was a company owned by the same owners of Gold Coast. Pacific Caisson later worked with Bernard Bros, Inc. ("Bernard Bros"). The Board suspended the licenses of Gold Coast and Pacific Caisson (as an associated license of Gold Coast) for two months for failing to notify the Board within 90 days of the unsatisfied stipulated judgment. When it sued for compensation for the work performed for Bernard Bros, the court found that Pacific Caisson did not qualify for the "substantial compliance exception" and specifically found that prong two, which required that the contractor act reasonably and in good faith to maintain proper licensure, was not satisfied. The owners of Pacific Caisson acted unreasonably if their failure to notify was based on ignorance, given their decades of contracting experience.

 

In the Pacific Caisson case, the lower court held that Pacific Caisson was "duly licensed," however, because the license was suspended for a two month period, Pacific Caisson was not licensed "at all times" during performance of the subcontract and found that Pacific Caisson cannot collect its money from Bernards. Pacific Caisson argued that although its license was suspended for a two month period, they have substantially complied with the licensing law so as to be entitled to recover from Bernards even though there was a lapse in their licensing.

 

Business and Professions Code section 7031(e), allows for contractors to overcome gaps in their license if, in fact, they can satisfy the four prong test identified in 7031(e). The Appellate Court examined the position being taken by Pacific Caisson and determined that Pacific Caisson did not satisfy prong number two of the four prong test that requires that the contractor "act reasonably and in good faith" to maintain its license. Despite the arguments being made by Pacific Caisson, the Appellate Court ultimately concluded that Pacific Caisson did not act reasonably and in good faith to maintain its license. As a result, the Appellate Court determined that Pacific Caisson did not satisfy prong number two and since the law requires that you satisfy all four prongs, the Appellate Court upheld the lower court's ruling that Pacific Caisson did not substantially comply with licensing law. As a result, Pacific Caisson was not entitled to recover its money from Bernards.

 

All of the above occurred as a result of Pacific Caisson's failure to notify the CSLB of an unsatisfied judgment. The failure to notify the CSLB resulted in the CSLB suspending Pacific Caisson's license. Pacific Caisson's license was suspended for approximate two months, which in turn put them in a position of not being able to collect for work they performed and when Pacific Caisson attempted to convince the court that Pacific Caisson has substantially complied with licensing law, the court determined that they did not.

 

The moral of this story is that all unsatisfied judgments entered against contractors which include arbitration awards must be reported to the CSLB within ninety (90) days of the Judgment/Award. Failure to do so will cause the contractor's license to be automatically suspended.