Judge: Malcolm Mackey, Case: 19STCV38574, Date: 2023-03-10 Tentative Ruling

Case Number: 19STCV38574    Hearing Date: March 10, 2023    Dept: 55

TRAM v. ZHANG                                                                            19STCV38574

Hearing Date:  3/10/23,  Dept. 55

#7:   (1) MOTION FOR SUMMARY ADJUDICATION OF THE CROSS-COMPLAINT’S SIXTH CAUSE OF ACTION; AND (2) MOTION FOR SUMMARY JUDGMENT, OR IN THE ALTERNATIVE, MOTION FOR SUMMARY ADJUDICATION OF WILLIAM TRAM AND WT CONSTRUCTION’S FIRST AMENDED COMPLAINT.

Notice:  Okay

Opposition

MP:  Cross-Defendants WILLIAM TRAM, W T CONSTRUCTION, AND HUDSON INSURANCE COMPANY

RP:  Cross-Complainants PETER X. ZHANG; and HONG JIANG.

Summary

On 12/12/19, Plaintiff filed a First Amended Complaint alleging that defendants, as owners of 6676 23 Kimdale Rd. San Gabriel, CA, entered into a written construction contract,  failed to pay a balance due in the amount of $27,290.00.

The causes of action are:

1. FORECLOSURE OF MECHANIC'S LIEN;

2. BREACH OF WRITTEN CONTRACT;

3. COMMON COUNTS;

4. UNJUST ENRICHMENT;

5. STATUTORY PROMPT PAYMENT PENALTIES.

On 6/30/20, defendants filed a Cross-Complaint.

On 9/21/22, defendants filed a First Amended Cross-Complaint against plaintiffs and others, alleging that plaintiffs did substandard remodeling work on defendants’ residence.

Those Causes of Action are:

1.         BREACH OF CONTRACT;

2.         BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR  DEALING;

3.         NEGLIGENCE;

4.         FRAUD;

5.         DISGORGEMENT PURSUANT TO BUSINESS AND PROFESSIONS CODE §7031(b);

6.         RECOVERY OF CONTRACTOR'S BOND.

MP Positions

Moving parties request an order granting the motion for Summary Adjudication as to the Sixth Cause of Action of the Cross-Complaint for Disgorgement (pursuant to California Business and Professions Code Sections 7031(b) and 7125.2), and (2) Motion For Summary Judgment/Adjudication, as to the first, second, third, fourth, and fifth causes of action of TRAM’s First Amended Complaint, on grounds including the following:  

On October 18, 2018, Hong Jiang (“JIANG”) and her late husband Peter Zhang entered into a construction contract to make additions to the property located at 6676 Kimdale Rd, San Gabriel, CA 91775 (“Property”) with William Tram (“TRAM”) dba WT Construction. TRAM represented that he was properly insured and carried worker’s compensation insurance for the workers working on the Property. The representation was false; TRAM did not carry the proper worker’s compensation insurance.

In order to have a valid contractor’s license, the contractor must have proper worker’s compensation insurance. Since TRAM did not have the proper worker’s compensation insurance, TRAM’s contractor’s license is automatically suspended as a matter of law. As a result, TRAM must return any and all money to Jiang.

Aware that TRAM did not carry the proper worker’s compensation insurance, TRAM attempts to avoid the legal obstacle by representing that TRAM hired Cross Defendant Manuel Carrillo (“Carrillo”) to work on the Property as a subcontractor. TRAM states that since he was the general contractor and hired Carrillo as the subcontractor for the project at the Property, that TRAM was not required to have worker’s compensation insurance since Carrillo was his subcontractor. However, through discovery, Carrillo and his company Cinq Carrillo Construction did not carry the proper worker’s compensation insurance either during the time they worked at the Property. Carrillo’s worker’s compensation insurance had lapsed when he began work on the Property in October 2018. Accordingly, Carrillo’s contractor’s license is also suspended as a matter of law since he also failed to carry worker’s compensation insurance. Additionally, since Carrillo’s contractor’s license was suspended, Carrillo would be deemed a statutory employee of TRAM.

Now, both Cross Defendants, being aware that they did not carry the proper worker’s compensation insurance or even worker’s compensation insurance itself, stated that only TRAM and Carrillo worked on the property (and no other workers worked on the Property). However, Carrillo admits he hired other workers and paid them to work on the Property.

There is no dispute that other individuals worked on the Property and accordingly, proper worker’s compensation insurance was required.

There are no disputed facts concerning the lack of worker’s compensation insurance, thus both TRAM and Carrillo’s contractors’ license would be deemed suspended as a matter of law. When a Contractor’s license is suspended, the contractor forfeits all compensation for the work performed with no right of recovery.

(Motion, pp. 1-2.)

RP Positions

Opposing party advocates denying, for reasons including the following:  

·         Plaintiff TRAM is a California licensed general contractor who contracted with moving Party JIANG and her late husband Peter Zhang to perform a home-improvement project, from end of October 2018 to July 2019.

·         TRAM maintained his license, and filed for worker’s compensation insurance waiver, as he had no employee at the time prior to entering the contract with JIANG.

·         TRAM was in substantial compliance under Cal. Bus. & Prof. §7031(e), which permits a court to find there has been “substantial compliance” with the licensure requirements, “if it is shown at an evidentiary hearing that the person who engaged in the business or acted in the capacity of a contractor (1) had been duly licensed as a contractor in this state prior to the performance of the act or contract, (2) acted reasonably and in good faith to maintain proper licensure, (3) and did not know or reasonably should not have known that he or she was not duly licensed.”

·         TRAM acted in good faith believing in CARRILLO’s representation of having valid worker’s compensation coverage.  CARRILLO had consecutive worker compensation insurance coverage for 24 years. CARRILLO’s license was never suspended by the license registrar, the California Contractors State License Board (“CSLB”), nor was CARRILLO notified of any suspension under Cal. Bus. & Prof. §7125.2(b) when his insurance lapsed. CARRILLO acquired worker’s compensation insurance coverage on December 7, 2018 to December 7, 2019 to work on the JIANG’s construction project.

·         Suspension is not automatic.  California Business and Professions Code§7125.2 requires that, “[a] licensee who is subject to suspension under paragraph (1) of subdivision (a) shall be provided a notice by the registrar….”  Smith v. Workers' Compensation Appeals Bd. (2002) 96 Cal.App.4th 117, 129-130.  CARRILLO’s license was never suspended by CSLB or suspension notice was given to CARRILLO before any intended suspension.

·         The agreed price for the work was $139,150.00, but JIANG and ZHANG only paid TRAM $118,000.

Tentative Ruling

The motion and alternative motion are denied entirely.

The Court determines that there are triable issues of material fact, as to each issue raised, including whether opposing party reasonably believed the hired subcontractor had worker compensation insurance coverage and there were no employees involved (e.g., William Tram decl., filed 2/28/23, ¶¶ 2, 4).  Hirers are not required to check to ensure their exempt contractors meet the conditions of their licenses.  Smith v. Workers' Comp. Appeals Bd. (2002) 96 Cal. App. 4th 117, 134. Further, “[u]nder section 7031 , subdivision (e), a contractor who has failed strictly to comply with the CSLL can avoid disgorgement if the ‘court’ determines that the contractor substantially complied, as defined in section 7031, subdivision (e). Among other elements, the contractor must show that it ‘acted reasonably and in good faith to maintain proper licensure.’ ”  Jud. Council of California v. Jacobs Facilities, Inc. (2015) 239 Cal. App. 4th 882, 893.

Finally, there is a dispute as to the amount recoverable— $139,150 or $118,000.  People using their services may recover the compensation paid to unlicensed contractors.  Goldstein v. Barak Constr. (2008) 164 Cal. App. 4th 845, 854.