{"id":901247,"date":"2023-06-01T16:54:44","date_gmt":"2023-06-01T22:54:44","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=901247"},"modified":"2023-06-02T09:00:13","modified_gmt":"2023-06-02T15:00:13","slug":"arbitration-win-only-to-lose-superior-court","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/arbitration-win-only-to-lose-superior-court\/","title":{"rendered":"Contractor Wins in Arbitration Only to Lose Before the Superior Court on Section 7031\u00a0Claim"},"content":{"rendered":"\n

Garret Murai | California Construction Law Blog<\/a><\/p>\n\n\n\n

If you\u2019re a regularly reader of the California Construction Law Blog you\u2019re aware of Business and Professions Code section 7031 which courts have variously described as \u201charsh[ ],\u201d \u201cdraconian\u201d and \u201cunjust,\u201d but, importantly, nevertheless valid. We haven\u2019t seen many cases applying Section 7031 in an arbitration setting, however, until now.<\/p>\n\n\n\n

In Vascos Excavation Group LLC v. Gold<\/a><\/em>, 87 Cal.App.5th 842 (2022), a contractor who prevailed on a payment claim in arbitration<\/a>, had its victory snatched from its fingertips by the Superior Court which found that the arbitrator had exceeded her authority because the contractor was subject to Section 7031.<\/p>\n\n\n\n

The Vascos Case<\/h3>\n\n\n\n

in 2019, Vascos Excavation Group LLC entered into a construction contract with Robert Gold to perform excavation, grading and concrete work at his property in Pacific Palisades, California. A payment dispute arose and Vascos recorded and later filed suit to foreclose on a mechanics lien. In response, Gold filed a petition to compel arbitration pursuant to an arbitration provision contained in the construction contract. Vascos filed a notice of non-opposition to the petition and the court entered an order compelling the parties to arbitration.<\/p>\n\n\n\n

The arbitration provision provided for arbitration before the American Arbitration Association pursuant to the AAA\u2019s Construction Arbitration Rules. A four-day hearing was later held. After both parties rested, Gold argued that Vascos was barred from seeking compensation as an unlicensed contractor under Section 7031. The arbitrator re-opened the hearing  for limited purpose of giving Vascos an opportunity to prove it held a valid contractor\u2019s license.<\/p>\n\n\n\n

Vascos filed a certified copy of its contractor\u2019s license from the Contractors State License board showing that one John Matthew Welch was the responsible managing employee (RME) for the company. Vascos also filed a declaration by Victor Montes, the project manager onto project, which attached two videos showing Welch at the construction site on June 29 and August 10, 2020.<\/p>\n\n\n\n

After the arbitration was officially closed, the arbitrator issued an award finding that Vascos was entitled to recover $111,440.29 from Gold. In the award, the arbitrator found: \u201cThe evidence of Mr. Welch\u2019s 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 decisions. For this reason, the challenge to his RME status is over ruled.\u201d<\/p>\n\n\n\n

Gold later filed a petition to vacate the arbitration award on the ground that the arbitrator had exceed her authority. Gold\u2019s argument was that the arbitrator\u2019s authority was premised on the arbitration provision contained in the parties\u2019 construction contract, but that because Welch was a sham RME, that Vascos was an unlicensed contractor, and the arbitration provision was therefore contained in an void construction contract. Vascos opposed the petition and asked that the trial court confirm the arbitration award.<\/p>\n\n\n\n

The trial court, finding that Vascos had failed to meets its burden of proving that Welch was a bond fide RME, vacated the arbitration award.<\/p>\n\n\n\n

Vascos appealed.<\/p>\n\n\n\n

The Appeal<\/h3>\n\n\n\n

At this point you may be asking yourself \u201cwhat the heck happened?\u201d Didn\u2019t the arbitrator find that Vascos had satisfied its burden of proving that it was a licensed contractor? Why is the superior court second guessing the arbitrator? And aren\u2019t arbitration decisions generally not reviewable for errors of fact or law? Well, read on.<\/p>\n\n\n\n

On appeal, the 2nd District Court of Appeal explained that \u201cgenerally, an arbitration is final\u201d and that \u201cthe 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.\u201d However, explained the Court of Appeal, the \u201cpower 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\u201d and \u201can 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.\u201d<\/p>\n\n\n\n

\u201cWhether a contract is entirely illegal, and therefore unenforceable, is an issue \u2018for judicial determination upon the evidence presented to the trial court,\u201d explained the Court of Appeal, \u201cand any preliminary determination of the legality by the arbitrator . . . should not be held to be binding upon the trial court.\u201d In short, each reviewing court conducts its own de novo review, although the Courts of Appeal will look at the evidence presented to trial court, not the arbitrator.<\/p>\n\n\n\n

On appeal, Vascos argued that by producing a certified copy of its contractor\u2019s license from the CSLB that it had satisfied its burden of proof and that the burden then shifted to Gold to prove that Welch was a sham RME. Not so held the Court of Appeal. While production of a certified copy of a contractor\u2019s license is \u201cnecessary\u201d to prove valid licensure, it is \u201cinsufficient if the point is controverted,\u201d and where a claim is made that an RME is a sham, \u201c[t]he contractor has the burden of proof on the issue of whether it has a bona fide RME.\u201d<\/p>\n\n\n\n

And here, held the Court of Appeal, Vascos did not meet its burden. In fact, what the Court of Appeal said the Vascos failed to do, is embarrassingly simple:<\/p>\n\n\n\n