The Significance of Reporting Judgments

Contractors beware! Pursuant to the recent findings of the California Court of Appeal in Pacific Caisson & Shoring, Inc. v. Bernards Bros Inc., in the event there is a judgment imposed on a contractor, the contractor must notify the Contractors’ State Licensing Board within 90 days of the judgment as to any unsatisfied portion of the judgment or face an automatic suspension of the contractor’s license pursuant to Business & Professions Code 7071.17. Further, as a condition to continual maintenance of the license, a contractor must file a bond with the CSLB sufficient to guarantee payment of any unsatisfied judgments. Keep in mind that Business & Professions Code 7071.17 is broadly interpreted by the CSLB to mean that if the judgment relates in any way to your construction business, it is considered “construction related” and thus, even a stipulated judgment for failure to pay pension and other benefits (which is considered a failure to pay wages to employees) would fall into the reporting requirement of Business & Professions Code 7071. This is a type of judgment that the CSLB considers “substantially related to the construction activities of a licensee.”

In Pacific Caisson & Shoring Inc. v. Bernards Bros Inc., the California Court of Appeal confirmed that failure to report judgments to the CSLB will in fact result in a suspended license. Pacific filed suit against Bernards for compensation for work it performed on a project to build a medical center for Ventura County. Bernards raised an affirmative defense that Pacific was not properly licensed at all times during the project, and cross-complained against Pacific to seek reimbursement for the money owed. During the project, the CSLB suspended Pacific’s license as a sanction for its failure to notify the CSLB that a judgment had been entered against it. The trial court found that Pacific failed to substantially comply with the requirement that contractors be licensed while performing work under Business & Professions Code 7031. Pacific appealed contending that the judgment was not “substantially related” to its construction activities within the meaning of Business & Professions Code 7071.17, thus Pacific’s license should not have been suspended. The Court of Appeal disagreed and held that the judgment falls precisely within the ambit of section 7071.17, affirming judgment against Pacific.

In short, and when in doubt, report any judgments related to the business promptly to the CSLB to avoid suspension. Failing to do so could be costly. Moreover, it could serve as a basis for the hiring entity to later seek reimbursement for money paid on a project.