Vascos Excavation Group v. Gold CA2/5 ( 2022 )

Filed 12/21/22 Vascos Excavation Group v. Gold CA2/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
VASCOS EXCAVATION GROUP, B315205
LLC,
(Los Angeles County
Plaintiff and Appellant, Super. Ct. No. 20STCV01372)
v.
ROBERT GOLD,
Defendant and Respondent.
APPEAL from an order of the Superior Court of
Los Angeles County, Timothy P. Dillon, Judge. Affirmed.
Law Office of Daniel M. O’Leary and Daniel M. O’Leary for
Plaintiff and Appellant.
The Law Offices of Abdulaziz, Grossbart & Rudman and
Bruce D. Rudman for Defendant and Respondent.
Plaintiff and appellant Vascos Excavation Group, LLC
(Vascos), a contractor, prevailed in an arbitration against its
client, defendant and respondent Robert Gold. After finding that
Vascos was not duly licensed because its responsible managing
employee (RME) did not meet the criteria required by law, the
trial court granted Gold’s petition to vacate the arbitration award
on the ground the arbitrator exceeded her powers.
Vascos makes two main arguments on appeal. It first
contends the trial court misapplied the burden of proof regarding
whether Vascos was a duly licensed contractor. We reject this
argument. The trial court correctly determined that Vascos had
the burden of proof on this issue.
Vascos also argues the trial court erroneously denied it an
evidentiary hearing. In the trial court, however, Vascos did not
seek an evidentiary hearing. It instead argued that such a
hearing was not authorized by law. Vascos therefore forfeited the
issue on appeal.
BACKGROUND
In June 2019, Vascos and Gold executed a written
agreement. Under the contract, in exchange for monetary
compensation, Vascos was required to perform certain
excavation, grading, and concrete work at Gold’s property in
Pacific Palisades. The contract included an arbitration clause.
A dispute arose between Vascos and Gold regarding the
amount Gold owed under the contract. Vascos recorded a
mechanics lien and then, in January 2020, filed a complaint in
superior court against Gold to enforce the lien.
Gold did not file an answer to the complaint. Instead, he
filed a petition to compel arbitration. Vascos responded by filing
a notice of non-opposition to the petition and serving Gold with a
2
demand for arbitration with the American Arbitration
Association (AAA) pursuant to AAA’s Construction Industry
Arbitration Rules and Mediation Procedures (Construction
Arbitration Rules). The court then entered an order compelling
the parties to arbitrate.
AAA advised counsel for both sides that it would apply the
Construction Arbitration Rules and assigned the matter to
arbitrator Marcia Haber Kamine. Gold corresponded with the
arbitrator but did not file an answer to Vascos’ demand for
arbitration.
The arbitrator held a four-day hearing in October 2020.
After both parties rested, Gold argued that Vascos was barred
from seeking compensation because it was not a duly licensed
contractor. The arbitrator re-opened the arbitration for the
limited purpose of giving Vascos an opportunity to prove it had a
valid license.
Vascos filed a certified copy of its license, showing its
license was current and that John Matthew Welch was its RME.
On the RME issue, Vascos filed a declaration by Victor Montes,
the project manager at Gold’s property. Montes attached a
“snippet” of two videos that purportedly show Welch at the
construction site on June 29 and August 10, 2020. These videos
are not in the record.
In January 2021, the arbitrator issued an interim award,
finding that Vascos was entitled to recover $111,440.29 in
damages and penalties. In the interim award, the arbitrator
found: “The evidence of Mr. Welch’s participation was his
attendance at the job site on at least one occasion, and that he
worked remotely from his home in his capacity as RME. Working
remotely would allow Mr. Welch to make administrative
3
decisions. For this reason, the challenge to his RME status is
over ruled.” The arbitrator issued a final award in February
2021, adopting the relevant portions of her interim award.
In March 2021, Gold filed a petition to vacate arbitration
award in the superior court. Vascos opposed the petition and
asked the court to confirm the arbitration award.
On July 28, 2021, the trial court entered an order granting
1
Gold’s petition to vacate the arbitration award. The trial court
found Vascos failed to meet its burden of proving that Welch was
a bona fide RME and, consequently, failed to show that Vascos
was a duly licensed contractor at the time it provided Gold with
construction services.
Vascos timely appealed.
DISCUSSION
I. The Trial Court Did Not Misapply the Burden of
Proof
A. An Arbitration Award Issued Pursuant to an
Unenforceable Contract May be Vacated
The trial court compelled an arbitration in this case
pursuant to an arbitration clause in the contract between the
parties. The Legislature has enacted a comprehensive statutory
scheme regulating arbitration in furtherance of a “ ‘strong public
policy in favor of arbitration as a speedy and relatively
inexpensive means of dispute resolution.’ ” (Moncharsh v. Heily
& Blase (1992) 3 Cal.4th 1, 9 (Moncharsh).)
1
The trial court also denied Vascos’ request to
“partially correct” the award to grant Vascos attorney fees.
Vascos does not make any argument on appeal regarding this
issue.
4
Generally, an arbitration award is final. (See Moncharsh,
supra, 3 Cal.4th at p. 9.) “The scope of judicial review of
arbitration awards is extremely narrow because of the strong
public policy in favor of arbitration and according finality to
arbitration awards.” (Ahdout v. Hekmatjah (2013) 213
Cal.App.4th 21, 33 (Ahdout).)
A trial court may vacate an arbitration award only on
certain, enumerated grounds. (Code Civ. Proc., § 1286.2.) One
ground is that the arbitrator exceeded his or her powers. (Id. at
§ 1286.2, subd. (a)(4).) “[T]he power of the arbitrator to
determine the rights of the parties is dependent upon the
existence of a valid contract under which such rights might
arise.” (Loving & Evans v. Blick (1949) 33 Cal.2d 603, 610
(Loving & Evans).)
In Loving & Evans, an unlicensed contractor prevailed in
an arbitration against its client. Our Supreme Court held the
trial court erred in confirming the arbitration award because the
underlying contract was illegal. (Loving & Evans, supra, 33
Cal.2d at pp. 614–615.) Since Loving & Evans, the courts have
repeatedly upheld the rule that arbitration awards issued
pursuant to illegal or unenforceable contracts must be vacated.
(See, e.g., All Points Traders, Inc. v. Barrington Associates (1989)
211 Cal.App.3d 723, 738 [unlicensed real estate broker];
Lindenstadt v. Staff Builders, Inc. (1997) 55 Cal.App.4th 882, 893
(Lindenstadt) [unlicensed real estate broker]; Richey v.
AutoNation, Inc. (2015) 60 Cal.4th 909, 917 [“judicial review may
be warranted when a party claims that an arbitrator has
enforced an entire contract or transaction that is illegal”];
Sheppard, Mullin, Richter & Hampton, LLP v. J-M
5
Manufacturing Co. (2018) 6 Cal.5th 59, 73–75 (Sheppard Mullin)
[violation of attorney professional responsibility rules].)
While the California Supreme Court has “identified limits”
to the Loving & Evans exception to arbitral finality, it has
“not questioned the continued validity” of the exception.
(Sheppard Mullin, supra, 6 Cal.5th at p. 75.) “[T]he basic
premise of Loving & Evans is that an agreement to arbitrate is
invalid and unenforceable if it is made as part of a contract that
is invalid and unenforceable because it violates public policy.”
(Sheppard Mullin, at pp. 78–79.)
B. The Trial Court and This Court Review the Issue of
Illegality/Unenforceability De Novo
“Whether a contract is entirely illegal, and therefore
unenforceable, is an issue ‘for judicial determination upon the
evidence presented to the trial court, and any preliminary
determination of the legality by the arbitrator . . . should not be
held to be binding upon the trial court.’ ” (Sheppard Mullin,
supra, 6 Cal.5th 59 at pp. 74–75 [quoting Loving & Evans];
accord Ahdout, supra, 213 Cal.App.4th at p. 33.)
We review the trial court’s decision regarding whether an
arbitrator exceeded his or her powers de novo. (Haworth v.
Superior Court (2010) 50 Cal.4th 372, 382; Ahdout, supra, 213
Cal.App.4th p. 33.)
C. The Requirements of the CSLL
The purpose of the Contractors State License Law (CSLL;
Bus. & Prof. Code, § 7000 et seq.)2 is to protect the public from
2
Unless otherwise stated, all future statutory
references are to the Business and Professions Code.
6
incompetent and dishonest contractors who provide building and
construction services. (Manela v. Stone (2021) 66 Cal.App.5th 90,
102; Hydrotech Systems, Ltd. v. Oasis Waterpark (1991) 52 Cal.3d
988, 995 (Hydrotech).) To further that goal, the CSLL “imposes
strict and harsh penalties for a contractor’s failure to maintain
proper licensure.” (MW Erectors, Inc. v. Niederhauser
Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412, 418
(MW Erectors).)
Under the CSLL, a contractor may not maintain any
action, legal or equitable, to recover compensation for the
“performance of any act or contract” unless the contractor was
duly licensed “at all times during the performance of that act or
contract.” (§ 7031, subd. (a).)
A limited liability company (LLC) like Vascos may qualify
for a license through the qualification of certain individuals
affiliated with the company, including an RME. (§ 7068, subd.
(b)(4).) If an RME is disassociated with an LLC, and is not
replaced within 90 days of the disassociation date, the company’s
license is automatically suspended. (§ 7068.2, subd. (a); Buzgheia
v. Leasco Sierra Grove (1997) 60 Cal.App.4th 374, 387
(Buzgheia).)
An RME must satisfy two basic requirements. The
individual must be (1) a “bona fide employee” of the LLC and (2)
“actively engaged” in the work for which the LLC has a license.
(§ 7068, subd. (c)(1).) “Bona fide employee” of the LLC means an
employee who is “permanently employed.” (§ 7068, subd.
(c)(2)(A).) “ ‘Actively engaged’ means working 32 hours per week,
or 80 percent of the total hours per week that the [LLC’s]
business is in operation, whichever is less.” (§ 7068, subd.
(c)(2)(B).)
7
An RME “shall be responsible for exercising supervision
and control of their employer’s or principal’s construction
operations to secure compliance” with the CSLL and related
regulations. (§ 7068.1, subd. (a).)
D. The Trial Court’s Order Was Correct
Section 7031, subdivision (d) provides: “If licensure or
proper licensure is controverted, then proof of licensure pursuant
to this section shall be made by production of a verified certificate
of licensure from the Contractors State License Board which
establishes that the individual or entity bringing the action was
duly licensed in the proper classification of contractors at all
times during the performance of any act or contract covered by
the action. Nothing in this subdivision shall require any person
or entity controverting licensure or proper licensure to produce a
verified certificate. When licensure or proper licensure is
controverted, the burden of proof to establish licensure or proper
licensure shall be on the licensee.”
Vascos suggests that it met its burden of demonstrating it
had a valid license by producing a copy of its certificate and had
no further burden to prove that it was properly licensed because
defendant did not meet its burden of proving that the RME was a
sham. We disagree. Indeed, the court in Buzgheia rejected the
argument made by the contractor in that case that it “had no
burden other than to produce the license certificate.” (Buzgheia,
supra, 60 Cal.App.4th at p. 389.) Instead, the court found that
“production of the certificate is necessary, but insufficient if the
point is controverted.” (Ibid.)
A party sued by a corporate contractor may also challenge
the contractor’s license on the ground that the RME is a “sham.”
(Buzgheia, supra, 60 Cal.App.4th at p. 385.) “If the RME was a
8
sham, the contractor is barred from recovery because [it] is, in
effect, acting outside the license, just like a specialty contractor
who labors at a task for which he or she has no expertise nor
license.” (Id. at p. 386.) The contractor has the burden of proof
on the issue of whether it has a bona fide RME. (Id. at p. 389;
Jeff Tracy, Inc. v. City of Pico Rivera (2015) 240 Cal.App.4th 510,
516–518 (Jeff Tracy, Inc.).)
In Jeff Tracy, Inc., the defendant argued the plaintiff
contractor could not recover compensation because it had a sham
RME. The trial court denied the contractor’s request for a jury
trial on the issue pursuant to Code of Civil Procedure section 597,
which permits non-jury trials on special defenses. The Court of
Appeal reversed, holding that the contractor’s licensure—
including its satisfaction of the RME requirements—is an
element of its breach of contract claim. (Jeff Tracy, Inc., supra,
240 Cal.App.4th at p. 518.)
A plaintiff, of course, has the burden of proof with respect
to each element of its causes of action. (Evid. Code, § 500.)
In Buzgheia, the defendants argued the plaintiff contractor
could not prevail because his company had a sham RME. The
trial court instructed the jury the contractor’s presentation of a
certificate of licensure shifted the burden of proof on the issue of
licensure to the defendants. (Buzgheia, supra, 60 Cal.App.4th at
p. 383.) The Court of Appeal held this instruction was erroneous
because the contractor’s burden “included the burden of proving
compliance with the RME requirements.” (Id. at p. 393.)
Similarly, in the present case, Vascos’ presentation of a
certificate of licensure did not end the inquiry or shift the burden
of proof. As the trial court correctly determined, Vascos had the
burden of proof on the issue of whether its purported RME,
9
Welch, was bona fide. This is because Vascos’ licensure through
a bona fide RME is an element of its cause of action.
Vascos did not meet its burden. It presented no evidence
showing Welch was a “permanent” employee of the company.
Vascos also failed to present any evidence that Welch worked 32
hours per week, or 80 percent of the total hours per week that the
company’s business was in operation.
The only evidence in the record on this issue is a
declaration by project manager Victor Montes.3 Although Montes
states that he attaches videos purporting to show Welch at Gold’s
property, the videos are not in the record. In any case, even
assuming Welch was at the project site on two occasions as
Vascos claims, this falls far short of showing Welch was a bona
fide RME.
The trial court correctly noted that “Vascos could have
easily submitted a declaration from Welch establishing that he
was a bona fide RME.” Vascos could have met its burden, the
trial court stated, with a “five sentence declaration” from Welch.
We agree with the trial court’s observation. The burden on
Vascos was not high, yet it failed to meet it.
Vascos argues it never had the burden on the issue of
licensure because the issue was not “controverted” by Gold within
the meaning of section 7031, subdivision (d). We disagree.
3
The parties make different assertions about the
evidence presented to the arbitrator regarding the RME issue.
There was no court reporter at the arbitration hearing and very
little of the evidence the arbitrator considered is in the record.
From our perspective, “if it is not in the record, it did not
happen.” (Protect Our Water v. County of Merced (2003) 110
Cal.App.4th 362, 364.)
10
“[A] defendant’s answer containing a general denial of the
material allegations of the contractor’s claim [citation] is
sufficient to ‘controvert’ the contractor’s allegation of licensure,
and thus invokes the requirement of section 7031, subdivision
(d) . . . .” (Advantec Group, Inc. v. Edwin’s Plumbing Co., Inc.
(2007) 153 Cal.App.4th 621, 624.) Here, though Gold did not file
an answer in court, he did controvert Vascos’ licensure at the
arbitration.
The AAA Construction Arbitration Rules provide that the
parties may proceed under “Regular Track” or “Fast Track”
procedures.4 Pursuant to stipulation of the parties, the arbitrator
applied the Fast Track Procedures in this case.
Section F-2 of the Fast Track Procedures provides: “If an
answer or counterclaim is to be filed, it shall be filed within seven
calendar days after notice of the filing of the demand is sent by
the AAA. All other requirements of Section R-4 apply.”
Section R-4(c)(i) of the Regular Track Procedures, in turn,
provides: “A respondent may file an answering statement with
the AAA within 14 calendar days after notice of the filing of the
demand is sent by the AAA. . . . If no answering statement is
filed within the stated time, the respondent will be deemed to
deny the claim.”
In the present case, while Gold did not file an answering
statement, he was “deemed” to deny Vascos’ allegations,
including its allegation that it was a duly licensed contractor.
Gold also argued in his closing arbitration brief that Vascos was
4
The Fast Track Procedures are in the record. We
take judicial notice of the remainder of the Construction
Arbitration Rules. (Evid. Code, §§ 452, subd. (h), 459, subd. (a).)
11
not duly licensed because Welch was not a bona fide RME. After
Gold made this argument, Vascos was given an opportunity to
present evidence on the issue at the arbitration.
Vascos’ contention that Gold did not controvert its licensure
claim elevates form over substance. This argument also fails to
account for the public policy underlying section 7031. The shield
against the “evil targeted by section 7031” is undermined if the
RME is sham. (Buzgheia, supra, 60 Cal.App.4th at p. 387.)
“Because of the strength and clarity of this policy, it is well
settled that section 7031 applies despite injustice to the
unlicensed contractor.” (Hydrotech, supra, 52 Cal.3d at p. 995.)
Moreover, there are sound public policy reasons for placing
the burden on the contractor rather than the consumer under
these circumstances. “The contractor will (or should) have
knowledge of how he has utilized the RME. The contractor will
(or should) have greater access to evidence, namely his own
records, including payroll records, timesheets, the names of other
employees who can testify to the activities of the RME and so
forth. The ‘most desirable result in terms of public policy in the
absence of proof’ that a contractor complied with the licensing
laws, including the RME provisions thereof, is that the contractor
who evades the law should be barred from court. [Citations].”
(Buzgheia, supra, 60 Cal.App.4th at p. 390.)
Vascos argues that the trial court should have given
“deference” to the arbitrator’s findings and that “[t]he Arbitration
Award created a presumption of proper licensure.” As we have
explained, however, this position has been repeatedly rejected by
the courts. “A party seeking confirmation [of an arbitration
award] cannot be permitted to rely upon the arbitrator’s
conclusion of legality for the reason that paramount
12
considerations of public policy require that this vital issue be
committed to the court’s determination whenever judicial aid is
sought.” (Loving & Evans, supra, 33 Cal.2d at p. 614; accord
Lindenstadt, supra, 55 Cal.App.4th 892–893 [holding trial court’s
failure to review issue of illegality de novo was error]; Sheppard
Mullin, supra, 6 Cal.5th at pp. 74–75 [affirming Loving & Evans
rule].)
Vascos’ reliance on MW Erectors is misplaced. There, the
California Supreme Court held that “the CSLL does not
automatically void all contracts entered by unlicensed
contractors.” (MW Erectors, supra, 36 Cal.4th at p. 440.) In
particular, the court held, “if fully licensed at all times during
contractual performance, a contractor is not barred from
recovering compensation for the work solely because he or she
was unlicensed when the contract was executed.” (Id. at p. 419.)
MW Erectors did not involve judicial review of an
arbitration award and stated nothing about the issue here,
namely the burden of proof on the issue of a contractor’s
licensure. Further, the trial court’s decision is consistent with
MW Erectors because there is no evidence that Vascos was a duly
licensed contractor at any time, including when it performed its
obligations under the contract.
Vascos’ citation to Templo Calvario Spanish Assembly of
God v. Gardner Construction Corp. (2011) 198 Cal.App.4th 509(Templo Calvario) is also unpersuasive. In Templo Calvario, an
arbitrator ruled a consumer could disgorge fees it paid an
unlicensed contractor. Citing MW Erectors, the court held the
CSLL did not prohibit a consumer from arbitrating a dispute
“simply because the contractor was unlicensed at the time of the
13
signing of the construction contract.” (Templo Calvario, supra,
198 Cal.App.4th at p. 519.)
The present case is factually distinguishable from Templo
Calvario. Instead of a consumer seeking disgorgement from an
unlicensed contractor, an unlicensed contractor is attempting to
recover from a consumer. The Templo Calvario court expressly
recognized this distinction. It noted that the CSLL and MW
Erectors barred a contractor from “initiating any affirmative
arbitration claim” and “bringing suit or using the courts to collect
compensation of its work while unlicensed.” (Templo Calvario,
supra, 198 Cal.App.4th at p. 519.)
Vascos unconvincingly cites dicta in Tempo Calvario. The
Templo Calvario court stated that MW Erectors “effectively”
overruled Loving & Evans “on the issue of whether a contract
entered into by an unlicensed contractor is automatically ‘ “illegal
and void.” ’ ” (Templo Calvario, supra, 198 Cal.App.4th at p.
520.) Addressing this comment, the Ahdout court stated that
“even if Templo Calvario correctly interprets the state of the law,
the decision does not affect the outcome here.” (Ahdout, supra,
213 Cal.App.4th at p. 39, fn. 8.)
The same is true in this case. Nothing in MW Erectors or
Templo Calvario changes our analysis. Further, as explained
ante, after MW Erectors, Templo Calvario, and Ahdout were
decided, the California Supreme Court endorsed the continued
validity of Loving & Evans, though it noted the decision has been
limited in certain respects that do not change the outcome here.
(See Sheppard Mullin, supra, 6 Cal.5th at pp. 75–79.)
The trial court applied the correct burden of proof and
reached the right result. Vascos did not meet its burden of
proving it was a duly licensed contractor through a bona fide
14
RME. The arbitration award therefore must be vacated because
the arbitrator exceeded her powers.
II. Vascos’ Request for an Evidentiary Hearing
In his petition to vacate the arbitration award, Gold asked
for an order permitting “very limited discovery to determine the
existence of documents proving full-time employment of John
Matthew Welch from June to November 2019, including: (a)
payroll records with cancelled checks; (b) worker’s compensation
employee reports; and (c) payroll tax returns.” (Italics omitted.)
Gold also requested the trial court to conduct an evidentiary
hearing with live witness testimony on whether Welch was a
bona fide RME.
In its opposition to Gold’s petition, Vascos objected to
permitting discovery and holding an evidentiary hearing. Vascos
argued that “Gold’s request for what would effectively be a new
court trial on the issue of licensure is legally unsupported and
unsupportable.” According to Vascos, the trial court only had
authority, at most, to conduct “a de novo review of the available
evidence to the trial court at the time of review.” (Italics and bold
omitted.) Vascos asserted an evidentiary hearing would be an
inappropriate “fishing expedition” that “is clearly not supported
by law.”5
Now, on appeal, Vascos argues that it “should have been
given notice and an opportunity to present evidence of the bona
5
In support of his request for an evidentiary hearing,
Gold cited Ahdout, supra, 213 Cal.App.4th at pp. 39–40 and
Lindenstadt, supra, 55 Cal.App.4th at p. 893, fn. 8. Vascos
argued Ahdout and Lindenstadt did not support Gold’s position.
We do not reach this issue.
15
fides of its responsible managing employee prior to the trial
court’s ruling.” The trial court, Vascos contends, “erred by not
setting an evidentiary hearing.”
Gold argues Vascos “waived” a request for an evidentiary
hearing and is judicially estopped from contending it was
deprived of an evidentiary hearing.
A. Waiver/Forfeiture
“It is axiomatic that a party may not complain on appeal of
rulings to which it acquiesced in the lower court.” (Porterville
Citizens for Responsible Hillside Development v. City of
Porterville (2007) 157 Cal.App.4th 885, 912 (Porterville).)
Although “waiver” and “forfeiture” are often used
interchangeably to describe a party’s failure to raise an issue in
the trial court, the two terms should be differentiated. (In re
Stier (2007) 152 Cal.App.4th 63, 74.) “ ‘ “ ‘Whereas forfeiture is
the failure to make the timely assertion of a right, waiver is the
“intentional relinquishment or abandonment of a known right.”
[Citations.]’ [Citation.]” [Citation.]’ ” (Ibid.) Forfeiture is “the
correct legal term to describe the loss of the right to raise an
issue on appeal due to the failure to pursue it in the trial court.”
(Ibid.; accord Porterville, at p. 912.)
Vascos forfeited on appeal any argument that the trial
court should have conducted an evidentiary hearing because it
did not ask for one in the trial court. To the contrary, Vascos
successfully opposed such a hearing.
B. Judicial Estoppel
Because we conclude Vascos forfeited its argument that the
trial court denied it an evidentiary hearing, we do not reach the
16
issue of whether Vascos is judicially estopped from making that
argument.
DISPOSITION
The July 28, 2021, order of the superior court is affirmed.
Respondent Robert Gold is awarded his costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
TAMZARIAN, J. *
We concur:
BAKER, Acting P.J.
KIM, J.
*
Judge of the Los Angeles County Superior Court, assigned
by the Chief Justice pursuant to article VI, section 6 of the
California Constitution.
17