Court strips California contractor of arbitration award

Despite video evidence, contractor failed to show it had a 'bona fide responsible managing employee'

Court strips California contractor of arbitration award

Under the Contractors State License Law, a limited liability company could be licensed through the qualification of a responsible managing employee (RME) and certain other individuals affiliated with the company. Its license would be automatically suspended if the RME disassociated without a replacement within 90 days.

An RME should be a bona fide employee, meaning an employee that the company permanently employed, and should be actively engaged in the work for which the company had a license. To be actively engaged, the employee should work 32 hours weekly or 80% of the total hours per week that the company’s business was in operation, whichever was less.

The case of Vascos Excavation Group LLC v. Gold involved a contract between the plaintiff, Vascos Excavation Group LLC, and the defendant, an owner of property in Pacific Palisades. The written agreement required Vascos to perform excavation, grading, and concrete work at the defendant’s property. The contract had an arbitration clause.

A dispute arose regarding the amount that the defendant owed Vascos under the contract. Vascos brought a complaint to enforce the mechanics lien. The defendant filed a petition to compel arbitration. The trial court issued an order compelling the parties to arbitrate.

During arbitration, the defendant argued that Vascos was barred from seeking compensation since it was not a duly licensed contractor. In response, Vascos filed a certified copy of its license.

Vascos also offered evidence supporting that John Welch was its RME. The project manager at the defendant’s property provided a declaration attaching a snippet of two videos allegedly showing Welch at the construction site on two different dates.

The arbitrator awarded Vascos damages and penalties of $111,440.29. She overruled the defendant’s challenge to Welch’s RME status. She found that Welch assisted at the job site at least once and could make administrative decisions while working remotely from home in his capacity as RME.

The defendant filed a petition to vacate the arbitration award. The trial court found that the arbitrator exceeded her powers and granted the petition to vacate. It held that Vascos failed to show that it was a duly licensed contractor when it furnished construction services since it did not prove that Welch was a bona fide RME.

Vascos appealed. The California Court of Appeal for the Second District affirmed the trial court’s decision vacating the arbitration award.

RME status not proven

The appellate court ruled that Vascos failed to show that it had a valid license and that Welch was a bona fide RME. Vascos presented no evidence showing that Welch was a permanent employee who worked 32 hours weekly or 80% of the total hours per week that the company’s business was in operation, the appellate court explained.

While the project manager supposedly provided videos showing Welch at the defendant’s property, the Court of Appeal noted that these videos weren’t in the evidentiary record. Besides, even if Welch was present at the project site on two occasions as the project manager alleged, this would not automatically make him a bona fide RME, the appellate court said.

Vascos could have submitted a five-sentence declaration from Welch to establish that he was indeed a bona fide RME but did not do so, the appellate court added.

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