Judge: Kevin C. Brazile, Case: 20STCV30302, Date: 2023-11-07 Tentative Ruling

Hearing Date: November 7, 2023

Case Name: Whitestone Builders, Inc. v. Taylor, et al.

Case No.: 20STCV07353

Matter: Motion for Summary Adjudication

Moving Party: Cross-Defendants Whitestone Builders, Inc. and Pier Pjerin Prenga

Responding Party: Cross-Complainants Valerie Taylor and Derek Taylor

Notice: OK

Ruling: The Motion for Summary Adjudication is granted.

Moving parties to give notice.

If counsel do not submit on the tentative, they are strongly 

encouraged to appear by LACourtConnect rather than in person due to the COVID-19 pandemic. 

This is a dispute relating to renovations to a duplex.  On February 20, 2020, Whitestone Builders, Inc. (“Whitestone”) filed a Complaint against Valerie Taylor and Derek Taylor for (1) breach of contract, (2) account stated, (3) common count, (4) unjust enrichment, and (5) foreclosure on mechanic’s lien.

On July 6, 2022, Valerie Taylor and Derek Taylor filed a Second Amended Cross-Complaint (“SACC”) against Cross-Defendants Whitestone, Pier Pjerin Prenga, and Suretec Indemnity Company for (1) disgorgement; (2) rescission and restitution—violation of Bus. & Prof. Code § 7159; (3) rescission and restitution—contract void for illegality; (4) declaratory relief; (5) breach of written contract; (6) negligence; (7) fraud; and (8) contractor’s license bond.

On August 18, 2023, Whitestone filed a First Amended Complaint (“FAC”).

Whitestone and Prenga now seek summary adjudication of the Taylors’ claim for disgorgement in the SACC.  They argue this claim has no merit in light of the fact that they were properly licensed at all times.

The law of summary judgment provides courts “a mechanism to cut through the parties’ pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute.”  (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.)  In reviewing a motion for summary judgment or adjudication, courts employ a three-step analysis: “(1) identify the issues framed by the pleadings; (2) determine whether the moving party has negated the opponent’s claims; and (3) determine whether the opposition has demonstrated the existence of a triable, material factual issue.”  (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294.)  The moving party bears the initial burden of production to make a prima facie showing of the nonexistence of any triable issue, in which case the burden shifts to the opposing party to make a prima facie showing of the existence of a triable issue.  (Code Civ. Proc. § 437c(p)(2).)  To show a triable issue of material fact exists, the opposing party may not rely on the mere allegations or denials of the pleadings, but instead must set forth the specific facts showing that a triable issue exists as to that cause of action or a defense thereto.  (Aguilar, at p. 849.)  Courts “liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party.”  (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389.)

The issue is whether Whitestone was properly licensed as a contractor.

The Taylors state that “the MSA argues that because Whitestone could have obtained workers’ compensation insurance before it started work on the Taylors’ construction project (‘Project’) and Prenga ‘thought’ it did (despite all evidence to the contrary) and, because Whitestone was able to obtain retroactive insurance that was accepted by the Contractors’ State License Board (‘CSLB’ or ‘License Board’), this Court should ignore the clear mandate contained in Business and Professions Code section 7125.2 that requires contractors to obtain insurance on the first day they are required to obtain coverage or suffer the automatic suspension of their contractor’s license. Nothing in the Contractors’ License Law allows a contractor to ‘undo’ the automatic suspension of its license by obtaining retroactive coverage long after it should have. . . . Similarly, no credence should be placed in Whitestone’s claim that it had insurance before starting work on the Project because the License Board accepted the retroactive certificate of insurance, as reflected in the Certificates of Licensure. The Certificates do no more than create a rebuttable presumption of licensure. The Court may look behind the Certificate; when it does so, it will become clear that the Certificate does not prove that Whitestone obtained insurance before April 2020. The License Board’s decision not to discipline Whitestone lacks any probative value. There has been no judicial or administrative determination on the issue, which is the equivalent of no finding at all. Nor were the Taylors’ required to seek a writ of mandamus. Finally, even if obtaining retroactive insurance excused Whitestone’s failure to obtain insurance when first needed, i.e., no later than August 7, 2019, Whitestone’s failure to report any payroll for work performed in 2019 is the equivalent by law of failing to have workers’ compensation insurance.”

A contractor must be licensed at all times of performance in order to collect in law or equity on a home improvement contract; the burden is on the contractor to allege the existence of a license.  (Bus. & Prof. Code § 7031(a).)  A licensed contractor who employs individuals without worker’s compensation insurance is deemed not to have a valid license.  (Bus. & Prof. Code § 7125.2.)

On August 14, 2023, the State Compensation Insurance Fund answered questions as follows:  

RESPONSE TO QUESTION NO. 2 

State Fund insured Whitestone and Southland as combinable entities.

QUESTION NO. 3 

In email correspondence between Marlene A. Hernandez, underwriter for State Fund Regional Operations- Los Angeles, and Pjerin Prenga, dated October 4, 2022 through October 25, 2022, attached as Exhibit B, (hereinafter, the “October Emails”), Pjerin Prenga asked “Would Whitestone Builders Inc. have been covered in case there was an accident from August 5, 2019 through November 2, 2019?”. To this question, Ms. Hernandez responded: “Yes, coverage for Whitestone Builders Inc. is effective 07/17/2019, so claims between 08/05/2019 and 11/02/2019 would be covered by the policy.” Is Marlene Hernandez’s response aligned with State Fund’s policy? 

RESPONSE TO QUESTION NO. 3 

Marlene Hernandez’s response is aligned with State Fund’s policy; coverage existed on 8-5-2019 and on 11-2-2019. 

QUESTION NO. 4 

Whitestone was unable to report payroll during the audit conducted for the policy year 2019-2020 because workers’ (compensation) documents had been lost and destroyed. In the October Emails between Marlene A. Hernandez and Pjerin Prenga, attached as Exhibit B, Pjerin Prenga asked, “For the four employees who worked from August 5, 2019 through Nov. 2, 2019, does the fact that Whitestone Builders was not able to report their payroll during the audit in July 2020 mean that these employees would not have been covered in case of an accident?”. To this question, Ms. Hernandez responded: “Coverage for Whitestone Builders Inc. is effective 07/17/2019, so claims between 08/05/2019 and 11/02/2019 would be covered by the policy.” Is Marlene Hernandez’s response aligned with State Fund’s policy?

RESPONSE TO QUESTION NO. 4 

Marlene Hernandez’s response is aligned with State Fund’s policy. Claims are not rejected unless there is a valid reason, such as the injury did not occur during the course of employment. It is the job of the auditor to verify the injured worker is on payroll records. If an injured worker is not on the payroll records, the auditor will ask the policyholder about the worker. If records were destroyed, the auditor could request the following records from the policyholder: bank records; EDD Quarterly Tax Reporting records; and, IRS reporting records to try to determine the payroll for billing purposes. 

. . . 

RESPONSE TO QUESTION NO. 5 

Coverage existed between 7-17-2019 and on 11-5-2019, therefore workplace related injuries occurring during this time period would be covered under the policy. 

. . . 

RESPONSE TO QUESTION NO. 7 

. . . Actually, State Fund would accept any claim submitted by an injured employee of Whitestone for an injury that occurred during the policy period July 17, 2018 through July 17, 2019. Due to the fact that Whitestone is a combinable entity with Southland Roofing, Inc. under the Experience Rating Plan, State Fund would cover workers’ compensation claims submitted by injured employees of Whitestone, regardless of the fact that Whitestone Builders was not listed on the policy during the initial policy term.

(Monon Decl., Exhibit S.)

Also, the Taylors submitted a complaint to the Contractors State License Board and the Board stated as follows: “The Contractors State License Board (CSLB) recently concluded its investigation of the above-numbered complaint filed against your license, and we would like to advise you of that complaint's final disposition. Our investigation of the complainant's allegation(s) did not substantiate any violation of California Contractors License Law to the standard of proof required. We have therefore closed our complaint investigation with no finding of misconduct. No further action on your part is required, and your license is unaffected. Thank you for your cooperation during our complaint investigation, and for your continuing efforts to comply with all California requirements and statutes affecting your license.”

Given the above evidence, the Court finds that Cross-Defendants have established they were properly licensed.  The Taylors contend that a retroactive certificate is inadequate, and that Whitestone was required to have insurance before it commenced work.  But, Whitestone did in fact have coverage at the time of work due to the insurance provided to Southland Roofing, Inc, a combinable entity.  The Taylors contend that there wasn’t coverage because Whitestone failed to report payroll and because Southland’s insurance related only to roofing work.  The State Compensation Insurance Fund, however, has indicated that such would only be a matter of billing and that a claim would still have been accepted for Whitestone’s employees.  Further, unlike in Wright v. Issak (2007) 149 Cal.App.4th 1116 wherein virtually no payroll was reported, Southland reported $181,708 in payroll and paid $26,445 in premium under its policy for the year 2019-2020.  (UMF nos. 34-35; see also Loranger v. Jones (2010) 184 Cal.App.4th 847, 858).  Based on these facts, the Court does not see any triable issues necessitating a trial.  The Court finds that, as a matter of law, Whitestone was properly licensed.

Therefore, the Motion for Summary Adjudication is granted.  The objections are overruled.  The Request for Judicial Notice is granted.

Moving parties to give notice.

If counsel do not submit on the tentative, they are strongly encouraged to appear by LACourtConnect rather than in person due to the COVID-19 pandemic.