2017-00209945-CU-PT

D.A. McCosker Construction Co. vs. DWR

Nature of Proceeding: Petition to Vacate Contractual Arbitration Award

Filed By: Firstman, Eric J.

The Court previously heard argument on July 12, 2017 regarding the petition to vacate portions of the arbitration award dated September 29, 2016 filed by Respondent and

Cross-Complainant Department of Water Resources (“DWR”) and the petition to correct and confirm arbitration award filed by D.A. McCosker Construction Co. dba Independent Construction Company, and Fidelity & Deposit Co. of Maryland (collectively, “ICC”). Following argument by the parties, the Court took the matter under submission. On July 19, 2017, the Court affirmed the tentative ruling and remanded several issues to the arbitrator to make further findings.

On January 4, 2018, the arbitrator issued an Amended Decision on Remand (“Amended Decision”). ICC seeks to confirm the arbitrator’s decision. DWR seeks to vacate the decision, arguing: (1) the arbitrator lacked subject matter jurisdiction to grant the embankment protection and liquidated damages awards because a statutory claim is required, and DWR contends ICC did not submit a statutory claim for either embankment protection or withheld contract amounts for liquidated damages; (2) ICC was not a duly licensed contractor during the work on the Dyer project because ICC’s license qualifier held another active contractor’s license and qualified the work of another construction firm, in violation of Business & Professions Code section 7068, or, alternatively, because ICC failed to meet the requirements of Business & Professions Code sections 7068 and 7068.1.

The Court requests supplemental briefing from the parties, as outlined below.

The Court’s prior order set forth the requirements for contractor licensing and the related requirements for a responsible managing employee (“RME”). The current briefing by both parties on this point is in many instances unclear, seemingly unduly complicated in its presentation, and oftentimes without citations to evidence and/or law. ICC’s opposition, in particular, is almost entirely devoid of citations to evidence, statutes, or case law.

Additionally, the Amended Decision is silent on the considerations involved. In particular, on the issue of whether the arbitrator determined that Kevin McCosker is and at all times was a valid RME under California law due to holding a Nevada contractor’s license and/or qualifying a Nevada construction business during the contract. It is unclear whether the arbitrator even considered or ruled on this issue.

Business and Professions Code section 7068(b)(3) allows an applicant to qualify for a contractor’s license through a “responsible managing employee who is qualified for the same license classification as the classification being applied for.” Subsection (e) provides that “[e]xcept in accordance with Section 7068.1, no person qualifying on behalf of an individual or firm under paragraph (1), (2), (3), or (4) of subdivision (b) shall hold any other active contractor’s license while acting in the capacity of a qualifying individual pursuant to this section.” DWR contends that none of the exceptions of section 7068.1 apply here and that Kevin McCosker’s RME qualification for ICC is invalid because he held a Nevada contractor’s license through September 2010, which was during the pendency of the Dyer project, and also acted as the qualifier for his Nevada construction company thereafter and through the present.

In California, the ramifications of being found unlicensed are severe. Pursuant to Business and Professions Code section 7031(a), a contractor is ineligible to recover any compensation under the terms of the statute if, at any time during the performance of an agreement for contractor services, the contractor was not duly licensed. (MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412, 425.)

ICC’s opposition to DWR’s petition to vacate is unhelpful on this point, and merely states, without relevant analysis: “Whether Kevin McCosker is also licensed in Nevada is irrelevant. California cannot enforce Nevada law anymore [sic] than Nevada enforce California law. Neither has jurisdiction over the other, nor would they want it.” [Oppo. at 9.]

The parties also disagree about whether a RME must be involved in the contractor’s business generally or must meet the specific Buzgheia factors, reflected in the Code of Regulations, as to the subject project(s) at issue in litigation.

As stated in the Court’s prior order:

“A corporation applying for a contractor’s license must

qualify through either a “Responsible Managing
Officer” (RMO) or “Responsible Managing
Employee” (RME), who themselves are eligible for the
same license qualification. (Bus. & Prof. Code § 7068(b) (3). Business and Professions Code section 7068, subdivision (c), requires that “[a] responsible managing employee for the purpose of this chapter shall mean an individual who is a bona fide employee of the applicant and is actively engaged in the classification of work for which that responsible managing employee is the qualifying person on behalf of the applicant.”

“Under regulations promulgated by the Contractors’ State License Board (the Board), a ‘bona fide’ employee is ‘an employee who is permanently employed by the application and is actively engaged in the operation of the applicant’s contracting business for at least 32 hours or 80 of the total hours per week such business is in operation, whichever is less.’ [Code Regs., tit. 1, § 823(a).] ‘“Direct supervision and control” includes any one or any combination of the following activities: supervising construction, managing construction activities by making technical and administrative decisions, checking jobs for proper workmanship, or direct supervision on construction job sites.’ [Code Regs, tit. 1, § 823(b).] Personal presence is not necessary.” (Buzgheia v. Leasco Sierra Grove (1997) 60 Cal.App.4th 374, 381, citing G.E. Hetrick & Assoc., Inc. v. Summit Construction & Maintenance Co. (1992) 11 Cal.App.4th 318, 328-329; Swickheimer v. King (1971) 22 Cal.App.3d 220, 224.)

ICC’s opposition states, without citation to authority: “Contrary to the Department’s representations, there is absolutely no requirement that Kevin McCosker exercise direct supervision over the Dyer project. The RME must be actively engaged in the management of the company, not actively engaged on a particular project. . . . An RME isn’t required to be on every job the company performs-that has never been a California licensing requirement.” [Oppo. at 9-10.] Alternatively, DWR contends that the appropriate review is with regard to the project or projects at issue in the litigation.

Furthermore, given that the Amended Decision does not make findings on either of these points, the Court is inclined to remand the matter for further specific findings of fact and law by the arbitrator. This Court, as the reviewing court, is not intended to make its decision to confirm or vacate the arbitration award in a vacuum.

Therefore, the Court requires additional briefing-with citations to evidence, authority, and/or public policy arguments-on the issues of (1) the impact, if any, of Kevin McCosker’s Nevada contractor’s license and/or Nevada construction company with California requirements for a RME and ICC’s contractor’s license, (2) an analysis of the Buzgheia factors in this case, and whether the appropriate analysis by the Court is with regard to the subject project(s) involved in this litigation or a more global review of the RME’s involvement with the contractor’s business, and (3) whether it is appropriate and/or necessary for these issues to be remanded to the arbitrator for further findings of fact and law on these points.

DWR, as the party petitioning to vacate the award, shall file and serve supplemental briefing of no more than 10 pages by no later than March 30, 2018. ICC shall file and serve responding supplemental briefing of no more than 10 pages by no later than April 16, 2018. The hearing is continued until May 4, 2018.