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Strictness of Contractor Licensing Requirements in California Upheld Again

January 9, 2013

Twenty-Nine Palms Enterprises Corp. v. Paul Bardos

E051769
210 Cal.App.4th 1435

In a case where a tribal corporation sought to disgorge profits from an unlicensed contractor, California’s Fourth District Court of Appeal affirmed summary judgment and rejected the contractor’s efforts to assert reverse sovereign immunity as well as its efforts to utilize the active license of its related corporation. 

Facts and Procedural History

The federally recognized Twenty-Nine Palms Band of Mission Indians (the Tribe) owns and operates the Spotlight 29 casino on its reservation in the Coachella desert.  Defendant Paul Bardos’ (Bardos) sole proprietorship, Cadmus Construction Co. (Cadmus), was awarded a bid to construct a temporary access road and parking structure for the Plaintiff tribal corporation, Twenty-Nine Palms Enterprises Corp.’s (Palms) Spotlight 29 casino.  In May of 2007, Cadmus completed the work, and was paid $751,995.  At the time it performed the work, Cadmus was not a licensed contractor, and did not receive its contractor’s license until October 2007.  Palms sought to recover all sums paid due to Cadmus’ violation of the licensure requirements of Bus. &  Prof. Code §7031.

Bardos contended that as a sole proprietorship, his company (Cadmus) was operating under a contractor’s license issued to Bardos Construction, Inc. (BCI).  Bardos supported this argument by the fact that he is the RMO for BCI.  Additionally, Bardos argued that Cadmus has always been a sole proprietorship and Bardos has always been the 100% owner.  Palms brought a motion for summary judgment, arguing that undisputed evidence showed Cadmus acted as a contractor while being unlicensed, in violation of the state’s statutory requirements.  In Cadmus’ opposition, it asserted, among other arguments, that: (1) Palms asked BCI, who was the Palms representative on the parking lot project, to perform work under a different name so that the general contractor on the project would not know of BCI’s dual role; (2) Palms expressly and impliedly approved of BCI’s licensure covering the job, even representing that the Tribe routinely disregards California state laws and work performed on the Tribe’s land need not be done in accordance with California regulations or licensing laws; (3) Civil regulatory laws do not apply on tribal lands under 28 U.S.C. §1360; and (4) A triable issue of fact exists as to whether Cadmus can avail itself of the substantial compliance defense.  

The trial court found that Cadmus did not have a valid license when it performed the work, and therefore, that Palms was entitled to judgment against Cadmus for $751,995.  The trial court found using a shared license “is legally barred as a basis for substantial compliance.”  Further, the trial court concluded that Cadmus had not provided any legal authority for the remainder of its arguments.

Holding

The Court of Appeal affirmed the trial court’s ruling on the summary judgment motion, finding:

(1) Cadmus could not rely on the Tribe’s sovereign immunity; (2) Although the trial court erred by rendering a blanket ruling on objections, the error would not change the inevitable outcome given that the defendant failed to present any evidence creating a triable issue of fact; (3) Using an alter ego doctrine to allow defendant to borrow another company’s license would be improper, as alter ego is an equitable doctrine; and (4) There are no triable issues of fact on the issues of substantial compliance and equitable estoppel.  Cadmus was found to be without a valid license, and was ordered to disgorge the $751,995.

Discussion

The Court of Appeal immediately dismissed Cadmus’ attempt to assert Palms’ sovereign immunity, citing precedent that “an attempt to clothe oneself in immunity afforded to another has already been rejected by the Supreme Court.”   The court clarified that a tribe’s sovereign immunity is reserved for the tribe and its entities, not one trying to defend against the Tribe in state court.

Interestingly, the Court did not appear to outright reject the idea of Cadmus’ constructive borrowing of the BCI license given that a sole proprietorship is not a separate entity from its owner.  Under the Court’s reasoning, if BCI were also a sole proprietorship, the license would be Bardos’ to use via Cadmus or BCI.  However, since BCI is a corporation, it is its own legal entity, and the borrowing must fail.  As to the attempt at piercing the corporate veil to aid the borrowing argument, the Court found that “Cadmus is trying to pierce the corporate veil in order to circumvent the state’s licensing statutes.  The alter ego doctrine was not created to circumvent regulatory requirements; it was founded on equitable principles and designed to prevent injustice.”

Almost equally disapproving, the Court did not find Cadmus’ substantial compliance argument persuasive.  As it relates to the four substantial compliance factors, the Court of Appeal found as follows: (1) Since Bardos previously held a contractor’s license, and since Cadmus is his sole proprietorship, he arguably had been licensed prior to the work performed for Palms; (2) The evidence strongly refuted any suggestion that Cadmus “acted reasonably to maintain proper licensure” as Cadmus was nearing completion on the project before applying for its license;

(3) The third factor was not satisfied because it requires Cadmus to not know that it was unlicensed and, in this case, Cadmus knew it was unlicensed; and (4) Cadmus did not act promptly and in good faith to reinstate its license upon learning it was invalid.

Finally, the Court of Appeals rejected Cadmus’ argument that Palms should have been estopped from relying on Section 7031’s licensing laws because Palms told Cadmus state licensing laws do not apply to their transaction.  The Court noted that equitable principles may not be used to circumvent Section 7031. 

 Significance

 The Twenty-Nine Palms case once again confirms the harshness of the California licensing laws.  The case emphasizes that contractors must ensure the proper entity is a “duly licensed contractor at all times during performance of the act or contract” to ensure compliance with Section 7031.  However, the Court leaves open the possibility that a sole proprietorship may use the license of its individual owner and vice versa. 

 

 

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