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Interim Award

I. INTRODUCTION

[1].
The large-scale power development at issue included the engineering, procurement, and construction of a 250 megawatt concentrating solar power plant near Harper Lake, in San Bernardino County, California (Project). Ex. 77, (Subcontracts). The owners of this green energy project were Abener Teyma Mojave and Mojave Solar LLC (Owners) (See Ex. 77 - Subcontracts). This arbitration proceeding involves disputes between Abener Teyma Mojave General Partnership (ATMGP), the prime contractor, and Desert Mechanical (DMI), the subcontractor. Ex. 77, (Subcontracts).
[2].
While this arbitration began as a scope of work and delay claim by DMI, it quickly became enmeshed in the bankruptcy of ATMGP, whose interests were eventually assigned to the Abeinsa Litigation Trust (Trust), acting on behalf of ATMGP for purposes of this proceeding. Once the parties resumed this arbitration, a new issue was brought to this arbitration panel (Panel), namely, whether DMI, during periods relevant to the project, was properly licensed. As a result, a bifurcated proceeding was conducted with the Panel on September 20 and 21, 2017 regarding whether DMI had the right to proceed with its claims and, equally significantly, whether the Trust is entitled to discouragement of all payments made to DMI during the course of the Project.
[3].
This Interim Award pertains to, and exclusively considers, the license issue and is decided against DMI for the reasons set forth with specificity below.

II. THE DISPUTE

[4].
DMI was hired by ATMGP to perform work under both its utilities and water treatment plant subcontracts (Utilities Subcontract and WTP Subcontract). ATMPG paid DMI $12,129,438.21 for work performed on the Project in the aggregate under those subcontracts. During a portion of this 59-day period, the Trust asserts that DMI was unlicensed. The Trust requests the Panel award disgorgement penalties under Cal. Bus. & Prof. Code § 7031.
[5].
On March 29, 2016, ATMPG filed Chapter 11 Bankruptcy in the United States Bankruptcy Court for the District of Delaware, Case No. 16-10797-KJC (Bankruptcy Court). On July 12, 2017, the Bankruptcy Court ordered that the Trust’s disgorgement claim proceed in the Pending Arbitration by this Panel.
[6].
The Panel previously ruled that the Trust may stand in ATMGP’s shoes as its successor in interest for the purpose of this proceeding. This is in accordance with the Orders of the Bankruptcy Court. Under those Orders, the Trust may collect what is owed to ATMGP, so as to make payments to creditors of the ATMGP estate in bankruptcy.
[7].
There is no factual dispute that DMI was unlicensed in California for a period of approximately two months during the course of this Project. During that period, DMI performed substantial onsite and offsite work and was paid a large amount of money for those services. It is also undisputed that at the end of the Project, DMI had done an exemplary job in bringing a technically challenging project to completion in conformance with the specifications with no known construction flaws, construction accidents or incomplete work.
[8].
In defense of its lack of licensing during the early months of the Project, DMI makes three principal arguments: (1) DMI substantially complied with Cal. Bus. & Prof. Code § 7031(e), thereby absolving itself of the licensing requirement; (2) the Panel should set aside statutory licensing requirements under these circumstances, as the California Contractors State License Board (CSLB) has discretion to waive these types of irregularities; and (3) the statutory penalty for contracting without a license is unenforceable as an unconstitutional breach of due process or penalty. For reasons discussed in detail, infra, the Panel rejects each of DMI’s three arguments.
[9].
The Panel concludes DMI did not have a contractor’s license for almost two months while substantial work was completed by it at the Project site. Further, the Panel finds that DMI is subject to statutory disgorgement penalties under Cal. Bus. & Prof. Code § 7031(b).
[10].
Therefore: (1) DMI cannot collect on any claims they filed; and (2) DMI must disgorge $12,129,438.21 in amounts paid to ATMGP. As discussed above, those amounts shall be paid to the Trust, the successor in interest to the prime contractor, ATMGP.

III. PROJECT TIMELINE

[11].
DMI is a large, sophisticated company owned by Tutor-Perini, one of the largest contractors in the United States. Critical to this proceeding is the chronology of events as it relates to DMI’s licensure. The Panel finds the following events were supported by the record:

1. On June 28, 2013, DMI retained Norcal Contractors Consulting Inc. (Norcal) to assist with replacing its qualifier, Stephen Burnthon, with Joseph Guglielmo. Trudy Fielding was the primary point of contact at Norcal. Ex. 36.

2. In the same June 28, 2013 correspondence, Mr. Guglielmo advised Norcal that he was returning the signed form to become the qualifier and would get a check out "next week." Ex. 36.

3. On July 2, 2013, Mr. Burnthon signed the disassociation request. Ex. 38.

4. On July 3, 2013, Mr. Burnthon notified DMI of his disassociation via email. Ex. 38.

5. On July 12, 2013, CSLB rejected Mr. Burnthon’s disassociation because no disassociation date was provided. Ex. 41.

6. On July 12, 2013, CSLB notified DMI that the disassociation request lacked a date of disassociation. Ex. 41.

7. On July 12, 2013, DMI and ATMGP executed the WTP subcontract. Ex. 77.

8. On July 15, 2013, Norcal advised Mr. Guglielmo that it required two of the disassociation request forms. Ex. 44.

9. On August 16, 2013, Mr. Guglielmo prepared applications for additional classification and prepared a disassociation request to disassociate his previous licenses from his inactive company—JAMG, Inc. Ex. 46.

10. On August 16, 2013, Mr. Burnthon departed from DMI. Record, 9/20/17 p. 28:16-19.

11. In September of 2013, CSLB contacted DMI via telephone, advising it could not approve replacement of the qualifier because the former officer of a company, Mr. Guglielmo, had unsatisfied judgments. Record, 9/21/17 pp. 208:21-209:13.

12. In September of 2013, CSLB requested DMI withdraw its application to avoid processing and rejection. Record, 9/21/17 pp. 209:25-210:1-8.

13. On September 4, 2013, Mr. Guglielmo overnighted his signed applications for additional classification and disassociation request form to Norcal. Ex. 46.

14. On September 6, 2013, Mr. Guglielmo emailed Norcal the disassociation request signed by Mr. Burnthon. Ex. 47.

15. On September 12, 2013, DMI and ATMGP executed the Utilities Subcontract. Ex. 77.

16. On September 16, 2013, DMI sent Norcal the applications for replacing the qualifier via FedEx. These applications were dated July 19, 2013. Ex. 45; Record, 9/21/17, p. 167:3-20

17. On September 19, 2013, DMI sent CSLB a letter requesting a 90-day extension to replace its qualifier. Ex. 48.

18. On September 27, 2013, DMI overnighted eight checks to Norcal for CSLB application fees. Ex. 49.

19. On October 11, 2013, Mr. Burnthon faxed a second request to the CSLB with a July 15, 2013 date of disassociation. Ex. 51.

20. ATMGP’s certified payroll documents reflected that DMI performed work on the WTP Subcontract beginning on October 14 through December 10 of 2013. (Ex. 72, declaration of Lorraine DeLap).

21. On October 17, 2013, CSLB sent DMI its notice of license suspension, effective October 13, 2013, for failure to replace its qualifier within 90 days. Ex. 52; 53.

22. On October 23, 2013, DMI filed its application to add a new qualifier to the corporation. Ex. 54.

23. ATMGP’s certified payroll documents reflected trade labor on site for the Utilities Subcontract beginning October 28 through December 10 of 2013 (Ex. 72, declaration of Lorraine DeLap).

24. On November 12, 2013, DMI submitted its notice of Mr. Burnthon’s disassociation. Ex. 76.

25. On November 13, 2013, DMI retained Capitol Services to assist with the CSLB. Ex. 58.

26. On November 14, 2013, DMI sent its application for its new qualifier, Richard Felix, and requested the application be expedited. Ex. 60.

27. On November 22, 2013, CSLB denied DMI’s request to expedite processing and requested further supplementation to reconsider the matter. Ex. 62.

28. On December 10, 2013, Mr. Felix’s fingerprinting was completed. Ex. 63.

29. On December 11, 2013, CSLB reinstated DMI’s license with Mr. Felix as the RMO. Ex. 64.

[12].
Central to this timeline is that DMI received definitive notice on July 3, 2013 that Mr. Burnthon was dissociating from DMI as qualifier with immediate effect. For reasons unknown, DMI waited more than two months to provide a signed replacement application to its consultant, Trudy Fielding of Norcal. DMI also waited until September 30, 2013 to provide Ms. Fielding with a check it knew was needed to file the application.
[13].
DMI engaged in no follow up with Ms. Fielding to assure that she filed the application promptly. Further, DMI knew or reasonably should have known the application it belatedly submitted would be rejected, because DMI knew Mr. Guglielmo was legally unfit to serve as qualifier. DMI did not submit a replacement application with Mr. Guglielmo as qualifier until October 23, 2013, or ten days after DMI’s license was suspended. No proper qualifier application was submitted until November 14, 2013. DMI’s license was eventually reinstated on December 11, 2013.

IV. KEY FACTUAL FINDINGS

[14].
The Panel finds the following: (1) work was performed for 59 days on the Project while DMI was unlicensed; (2) DMI’s own, unreasonable conduct is the sole cause of the 59 day lapse in licensure; and (3) DMI knowingly performed two months of work on these subcontracts while unlicensed, and is therefore subject to disgorgement. DMI did not establish the elements required to satisfy substantial compliance under Cal. Bus. & Prof. Code § 7031(e).

A. ATMGP paid DMI $12,129,438.2 for substantial work performed under both Subcontracts.

[15].
There is no question ATMGP paid DMI over $12 million for work performed on the Project. Record, 9/20/17, pp. 11:19-13:3, Ex. 105 (stipulation as to the amount ATMGP paid DMI and declarations of Lorraine DeLap and Bruce Van Malkenhorst admitting the same; Ex. 72 (declaration of Lorraine DeLap establishing that DMI performed craft labor under both Subcontracts between October 14, 2013 through December 11, 2013): Ex. 94 (declaration of Bruce Van Malkenhorst establishing that DMI performed substantial work on the Project during the unlicensed period); Record, 9/20/17, pp. 57:14-58:7.
[16].
DMI admitted it did not stop working on the Project during the suspension period. Record, 9/21/17, p. 211:4-7. In its November 14, 2013 letter to the CSLB, DMI stated: "we have numerous jobs that have been put on hold due to the license suspension." Id. at p. 210:16-24. This was not true. During the hearing, Mr. Guglielmo testified that he wrote those words because he "understood that DMI was not legally allowed to perform work without a license at this time." Id. at pp. 210:25-211:3. He did not state to the CLSB that DMI continued to work on the Project. DMI was continuously performing work during the period of suspension: October 13, 2013 through December 11, 2013.
[17].
Mr. Guglielmo also testified that DMI continued working on the Project because DMI believed it was subject to an exception due to the alleged presence of federal funding. Record, 9/21/17, pp. 211:24-212:13. This testimony is flatly inconsistent with DMI’s Subcontracts, which specifically require DMI to maintain proper state licensure at all times. Record, 9/21/17, pp. 219:3-220:8; Ex. 77. There is no evidence before the Panel of any federal funding. Further, there is no basis that any such funding would excuse DMI from the licensure requirements of California law.

B. DMI Failed to Act Reasonably to Maintain Proper Licensure

[18].
The Panel finds DMI has made various unpersuasive assertions that do not absolve it of statutory penalties for failing to have a license for 59 days of work performed on the Project.

1. Stephen Burnthon disassociated from DMI as its qualifier on July 3, 2013.

[19].
The Panel finds that there is overwhelming evidence that Mr. Burnthon disassociated from DMI on July 3, 2013. Mr. Burnthon testified that as of July 3, 2013, he was no longer permitted to perform the duties required of him as a responsible managing employee. Ex. 106 (designating pp. 26:24-27:20 of his deposition); Ex. 77 (deposition transcript). He no longer had involvement in DMI’s "construction activities and ongoings" at the time, and therefore gave formal written notice to DMI that he was disassociating with immediate effect. Ex. 38 (7/3/13 notice email); Ex. 106 (designating pp. 28:15-30:2 of his deposition); Ex. 77 (deposition transcript).
[20].
Mr. Burnthon testified that DMI was terminated for convenience from an unrelated project at Los Angeles International Airport (LAX). Ex. 106 (designating pp. 17:21-19:6; 19:16-25 of his deposition); Ex. 77 (deposition transcript). He testified that DMI’s termination from the LAX project occurred six to eight months prior to his July 3, 2013 notice of disassociation. Ex. 38. In response to DMI’s LAX termination, Mr. Burnthon began working full time on DMI’s termination for convenience claim. Ex. 106 (designating pp. 17:21-19:6; 19:16-25 of his deposition); Ex. 77 (deposition transcript).
[21].
Mr. Burnthon’s ultimate disassociation as DMI’s qualifier should have come as no surprise to DMI because DMI had phased him out of his former supervisory role on active construction projects by hiring a new Vice President of Operations. Ex. 106 (designating pp. 23:21-24:10 of his deposition); Ex. 77 (deposition transcript). Because Mr. Burnthon had long since ended his supervisory role on DMI construction projects prior to his July 3, 2013 disassociation, this knowledge is therefore imputed to DMI executives and consequently imputed on DMI.
[22].
When DMI received Mr. Burnthon’s July 3, 2013 disassociation notice, DMI was obligated to file a notice of disassociation with the CSLB within 90 days, or October 1, 2013. DMI erroneously asserts that disassociation only occurs upon notice to the CSLB or upon termination of employment of the qualifier. DMI further asserts that disassociation only becomes effective when it receives a letter from the CSLB. These assertions are contrary to law.
[23].
Disassociation is a substantive inquiry that concerns whether a qualifier is exercising "direct supervision and control of his or her employer’s or principal’s construction operations to secure compliance with this chapter and the rules and regulations of the board." Cal. Bus. & Prof. Code § 7068.1(a); 16 CCR § 823. Disassociation occurs when the qualifier is no longer exercising such "direct supervision and control," which triggers and obligation for the qualifier or licensee to notify the CSLB within 90 days after the date of disassociation. Cal. Bus. & Prof. Code § 7068.2(a). Termination of employment is sufficient, but not necessary, to trigger disassociation.
[24].
Under 16 CCR § 823, there are four ways a qualifier may exercise "direct supervision and control," as required by Cal. Bus. & Prof. Code § 7068.1: (1) supervising construction, (2) managing construction activities by making technical and administrative decisions, (3) checking jobs for proper workmanship, or (4) direct supervision on construction job sites.
[25].
Mr. Burnthon testified that certainly as of July 15, 2013, he was not performing any of these functions on behalf of DMI. Ex. 106 (designating pp. 37:11-38:19 of his deposition); Ex. 77 (deposition transcript). This is also the date Mr. Burnthon ultimately provided the CSLB as his disassociation date. Based on Mr. Burnthon’s own testimony concerning the LAX claim, it can be imputed that Mr. Burnthon was not performing these supervisory duties even earlier than July of 2013. Further, Mr. Burnthon testified that he had never heard of the Mojave Solar Project, did not know who the owner was, did not know whether DMI was a subcontractor for the project, had never seen DMI’s subcontracts, and had absolutely no idea what happened on the Project. Ex. 106 (designating pp. 38:20-40:16 of his deposition); Ex. 77 (deposition transcript).
[26].
DMI contends Mr. Burnthon remained its qualifier until his last day of employment, August 16, 2013. This argument is unsupported because: (1) Mr. Burnthon wrote to DMI informing it unequivocally that he was disassociating as its qualifier "effective immediately" on July 3, 2013; and (2) from July 3, 2013 through August 16, 2013, Mr. Burnthon was working full time on the LAX terminal claim and was not performing any of the required duties of qualifier under 16 CCR § 823. Exs. 38, 106 (designating p. 30:3-20 of his deposition); Ex. 77 (deposition transcript).
[27].
Further, the Panel finds that Mr. Guglielmo himself confirmed Mr. Burnthon’s July 3, 2013 email appropriately put DMI on notice that Mr. Burnthon was disassociating. Mr. Guglielmo wrote in his 2015 declaration to the Panel: "In July 2013, Mr. Burnthon abruptly filed a disassociation request prior to notifying the company of his intention to do so." Record, 9/21/17, p. 195:16-23; Ex. 70 para. 6. Later, Mr. Guglielmo testified before the Panel that Casey Condron, the recipient of Mr. Burnthon’s July 3, 2013 email, told Mr. Guglielmo about the contents of email, presumably including the disassociation forms included as attachments. Record, 9/20/17, p. 116:3-25; Ex. 38. When confronted with the discrepancy between of Mr. Burnthon’s July 3, 2013 disassociation email and the above sentence in Mr. Guglielmo’s 2015 declaration to this Panel, Mr. Guglielmo claimed that at the time he signed the declaration, he was not aware of the disassociation forms attached to Mr. Burnthon’s July 3, 2013 email. Record, 9/21/17, pp. 195:24-196:21. Mr. Guglielmo stated:

Q. And, in that e-mail, Mr. Burnthon included the very disassociation forms for each of the three states where he was listed as a qualifier, right?

A. I didn’t see any forms associated with that e-mail.

Q. Okay. We can take a look at the e-mail. It’s Exhibit 38.

A. Excuse me. What number?

Q. Thirty-eight. Just let me know when you’re there. So we’ve been — we’ve reviewed this e-mail several times, but if you take a look at pages 2, 3, and 4, you’ll see -

A. If you take a look at page 1, this is to Casey Condron, not to me.

Q. Okay. So you never - you were not aware that Mr. Burnthon had attached these forms to his e-mail at the time you signed your declaration?

A. Not to my knowledge, not that I recall.

Id.

[28].
Moments later on redirect about Trial Exhibit 38 (Mr. Burnthon’s July 3, 2013 email), Mr. Guglielmo testified as follows:

Q. This was the email from Mr. Burnthon to Casey Condron?

A. Yes.

Q. And it attaches - it’s dated July 3rd, correct?

A. Yes.

Q. And it attaches copies of the disassociation request, that Andre had already sent in?

A. It appears that way.

Q. Is that what you meant by "he abruptly disassociated" when you wrote that in your declaration?

A. Yes.

Record, 9/21/17, pp. 214:15-215:7. The Panel finds that DMI knew Mr. Burnthon was disassociating July 3, 2013 based upon his email and attached disassociation forms. DMI knew he would soon file a disassociation form with the CSLB. DMI had an independent and direct obligation to put CSLB on notice in timely manner.

2. DMI’s licensing consultant. Norcal, identified July 1, 2013 as Mr. Burnthon’s disassociation date in a replacement qualifier application to the CSLB.

[29].
DMI attempted to replace Mr. Burnthon as qualifier with Mr. Guglielmo. Ms. Fielding, owner of Norcal, testified that when she input July 1, 2013 as the date of Mr. Burnthon’s disassociation from DMI on Mr. Guglielmo’s replacement application (see Ex. 70 p. 29), she "could only go by what [she] was told." Ex. 106 (designating pp. 33:12-34:8 of her deposition); Ex. 75 (deposition transcript). She testified that Mr. Guglielmo was the only person at DMI who provided her information. Ex. 106 (designating pp. 78:11 -79:19 of her deposition); Ex. 75 (deposition transcript). Mr. Guglielmo testified that he agreed that he most likely provided this July 1, 2013 disassociation date to Ms. Fielding on a form he signed under penalty of perjury. Record, 9/21/17, pp. 169:21-170:14; Ex. 517. Lastly, in Mr. Guglielmo’s November 14, 2013 letter to the CSLB requesting that it expedite Mr. Felix’s replacement application, he represented to the CSLB that Mr. Burnthon disassociated in July 2013. Record. 9/21/17, p. 202:3-23; Ex. 60.
[30].
Although there is evidence that indicated Mr. Burnthon’s disassociation date could have been even earlier than July 3, 2013, the Panel finds that Mr. Burnthon’s disassociation date was July 3, 2013. The Panel also agrees that the record does not support that Mr. Burnthon disassociated any later than July 15,2013.

3. DMI failed to discharge its obligation to promptly notify the CSLB of Mr. Burnthon’s July 3, 2013 disassociation date.

[31].
DMI had a statutory obligation to notify the CSLB of Mr. Burnthon’s disassociation within 90 days of receiving notice of the same. Cal. Bus. & Prof. Code § 7068.2(a). DMI unequivocally received notice of disassociation on July 3, 2013. Record, 9/20/17, pp. 51:11-52:3; Ex. 38. Following Mr. Burnthon’s disassociation notice to DMI, he prepared a disassociation notice to CSLB. On or about July 10, 2013, the CSLB received a defective disassociation notice prepared by Mr. Burnthon. The notice was defective because it failed to disclose his date of disassociation. Record, 9/20/17, p. 54:16-25; Ex. 39.
[32].
DMI (not Mr. Burnthon) received the CSLB's July 12, 2013 responsive letter requesting that DMI provide Mr. Burnthon’s date of disassociation. Ex. 41; Record, 9/201/17, pp. 55:1-56:21; Record, 9/21/17, p. 198:7-20. After receiving the CSLB’s July 12, 2013 letter, DMI failed to even discuss the issue with Mr. Burnthon. Although both DMI and Mr. Burnthon were under a statutory obligation to provide notice of Mr. Burnthon’s disassociation to the CSLB within 90 days of his July 3, 2013 disassociation email, only DMI had actual knowledge it needed to file another disassociation notice with the correct date of disassociation. Accordingly, only DMI was in a position to discharge this statutory obligation, which it undisputedly failed to do so. Record, 9/21/17, p. 198:7-20. DMI failed to give the CSLB notice of Mr. Burnthon’s disassociation until November 12, 2013.
[33].
DMI’s failure to notify the CSLB of Mr. Burnthon’s disassociation was a substantial factor giving rise to DMI’s license suspension. If DMI had promptly notified the CSLB of Mr. Burnthon’s July 3, 2013 disassociation after receipt of the CSLB’s July 12, 2013 letter, the CSLB would have issued DMI a notice that its license would be suspended on October 1, 2013, unless DMI replaced its qualifier. If DMI took issue with Mr. Burnthon’s disassociation date, at a minimum, DMI should have raised the issue with him, attempted to resolve it, and should have responded to the CSLB’s July 12, 2013 letter.

4. Following Mr. Burnthon’s July 3, 2013 disassociation, DMI failed to promptly submit the appropriate paperwork for its proposed replacement qualifier, Mr. Guglielmo.

[34].
On June 28, 2913, Ms. Fielding asked DMI to provide her with an original application for Mr. Guglielmo and a check to pay the filing fee to the CSLB. However, DMI unreasonably failed to provide these materials until late September of 2013.
[35].
Ms. Fielding testified that she had one or more phone calls with Mr. Guglielmo in late June 2013 and that he knew then that Mr. Burnthon was disassociating as DMI’s qualifier. Ex. 106 (designating p. 53:17-21 of her deposition); Ex. 75 (deposition transcript).
[36].
On June 28, 2013, Ms. Fielding asked Mr. Guglielmo for signed originals of his replacement application and a check to make payment to the CSLB. Based on this discussion, Mr. Guglielmo understood that Ms. Fielding needed a signed original application and a check in order to file the application with the CSLB. Record, 9/21/17, pp. 162:8-163:24; 167:21-23; 171:22-25.
[37].
DMI admittedly failed to provide a signed original of Mr. Guglielmo’s replacement application to Ms. Fielding until September 17, 2013. Record, 9/21/17, p. 167:3-20; Ex. 517. DMI also admittedly did not send Ms. Fielding a check to file the application until Friday, September 27, 2013. The check was received Monday, September 30, 2013. DMI delayed this process despite knowing since June 28, 2013 that Ms. Fielding needed the check in order to file the replacement application. Record, 9/21/17, pp. 172:4-174:1; Ex. 519; see also Ex. 106 (designating pp. 55:1-57:1 of Ms. Fielding’s deposition); Ex. 75 (deposition transcript).
[38].
DMI knew it needed provide the CSLB with an appropriate replacement qualifier by October 1, 2013. Further, the DMI knew that the consequence of not meeting the October 1, 2013 deadline was that its license would be automatically suspended. Despite this, DMI waited until September 16, 2013 to send Ms. Fielding a completed original application for Mr. Guglielmo. It is within this context that the Panel must evaluate whether DMI’s conduct was reasonable. The Panel concludes it was not.
[39].
DMI proffered to this Panel an incomprehensible story that it sent Mr. Guglielmo’s replacement application to Ms. Fielding-signed but otherwise blank-with the expectation that Ms. Fielding would complete the form and file it with the CSLB. Record, 9/21/17, pp. 188:20-189:2. Mr. Guglielmo testified that the first time he sent an original of this application to Ms. Fielding was September 16, 2013. Record, 9/21/17, p. 167:3-20; Ex. 517.
[40].
DMI’s position that it sent an unpopulated, signed form to Ms. Fielding for her to fill out, with the expectation that she would file it with the CSLB, is inconsistent with the physical evidence. Record, 9/21/17, p. 190: 1-14. Trial Exhibit 517 is a completely filled out application, which Mr. Guglielmo testified bore his original signature, and which DMI sent via FedEx to Ms. Fielding on September 16, 2013.
[41].
Further, DMI did not provide Ms. Fielding with a check to file this application until September 30, 2013, or one day before the suspension would become effective. This is despite Ms. Fielding asking for the check over three months earlier. DMI’s expert, David Kalb, confirmed that DMI’s delay in providing the check to Ms. Fielding was "unreasonable." Record, 9/21/17, p. 276:10-22. Mr. Kalb testified that waiting until after the 90-day grace period to submit a replacement application would not be recommended conduct, and that it was good practice to submit a replacement application sooner rather than later in the 90-day grace period. Record, 9/21/17, pp. 247:12-248:17.
[42].
Despite this, there is no evidence that DMI took any steps to follow up with the CSLB or Ms. Fielding to make sure any replacement application was on file before the October 1, 2013 deadline that DMI understood at the time to apply. Mr. Guglielmo acknowledged that he did not know when DMI filed the application to substitute him for Mr. Burnthon as qualifier during the arbitration proceeding. Record, 9/21/17, p. 152:5-12. This is powerful evidence of DMI’s failure to follow up diligently on the status of its application for over four years.

5. At all times relevant to this proceeding. DMI knew that Mr. Guglielmo was not legally permitted to serve as a qualifier.

[43].
Prior to Mr. Guglielmo’s employment with DMI, he was President and CEO of Scott Co. Industrial Contractors and/or Scott Co. of California (collectively, the Scott Companies). The Scott Companies had been sued and judgments awarded against them.
[44].
From 2004 to 2005, Mr. Guglielmo received six different notices from the CSLB, which informed him that because he was an officer of the Scott Companies, under Cal. Bus. & Prof. Code § 7071.17, the license of JAMG, Ltd. (JAJVIG) was suspended because he served as JAMG’s qualifier. Record, 9/20/17, pp. 110:21-1 15:18, Ex. 8, 11, 14, 23, 26, 29. The notices specifically informed Mr. Guglielmo that "Section 7017.17 of the California Business and Professions Code prohibits anyone who is listed on the license that is under judgment suspension from being listed on any other license." Mr. Guglielmo testified that he received these notices. Record, 9/20/17, p. 113:2-9; Exs. 8, 11, 14, 23, 26, 29. The notices also informed Mr. Guglielmo that disassociating from the Scott Companies would not resolve the prohibition against him serving on other licenses. Record, 9/20/17, pp. 113:20-114:2, Ex. 8, 11, 14, 23, 26, and 29.
[45].
To the best of Mr. Guglielmo’s knowledge, the judgments against the Scott Companies remain unsatisfied to this day. Record, 9/2017, pp. 115:25-116:2. Therefore, as of the relevant times in 2013, Mr. Guglielmo’s knowledge as to this issue was and is imputed to DMI. See Uecker v. Zentil, 244 Cal.App.4th 789, 797.
[46].
Cal. Bus. & Prof. Code § 7017.17(j) mandates that the "qualifying person and any partner of the licensee or personnel of the licensee named as a judgment debtor in an unsatisfied final judgment shall be automatically prohibited from serving as an officer, director, associate, partner, owner, manager, qualifying individual, or other personnel of record of another licensee." The CSLB therefore lacked discretion to grant Mr. Guglielmo’s application to become DMI’s qualifier given the unsatisfied judgments against the Scott Companies.
[47].
Given Mr. Guglielmo’s longstanding knowledge that the CSLB would not permit him to serve as qualifier because of the judgments against the Scott Companies, it was unreasonable for DMI to attempt to use Mr. Guglielmo as DMI’s qualifier. DMI knew that California law prohibited Mr. Guglielmo from serving in this role. It was especially unreasonable for DMI to attempt to make this qualifier substitution while failing to provide Ms. Fielding with any further detail about the underlying judgments. No such information was provided in the October 23, 2013 application, although the CSLB requires this information.
[48].
Ms. Fielding testified that she did not include explanatory detail for the judgments against the Scott Companies in Mr. Guglielmo’s October 23, 2013 application because she had no such information. Ex. 106 (designating pp. 31:7-32:10 of her deposition); Ex. 75 (deposition transcript). Ms. Fielding testified that she had several conversations with Mr. Guglielmo spanning several years beginning in 2003 or 2004 about the need to clear up the effect of the judgments against the Scott Companies, but that Mr. Guglielmo "kept putting it off’ because the records of the judgments were located somewhere in his garage. Ex. 106 (designating pp. 62:25-64:9 of her deposition); Ex. 75 (deposition transcript).
[49].
DMI’s own expert, Mr. Kalb, testified that if someone such as Mr. Guglielmo had approached him with a request to become a qualifier, he probably would have counseled DMI to find another qualifier, and would have advised that there is a substantial likelihood that Mr. Guglielmo’s application would be denied. Record, 9/21/17, pp. 256:2-258:8. DMI already knew that, but filed Mr. Guglielmo’s application anyway.
[50].
Further, DMI knew as far back as 2011 that Mr. Guglielmo would be an inappropriate qualifier. In 2011, Mr. Guglielmo submitted an application to the CSLB to add himself as an officer of record for DMI. Record, 9/21/17, pp. 177:6-178:10; Ex. 70 at pp. 7-8. The application contained Question No. 10 asked the following:

Is anyone listed on this application, ... or any company the person was a part of, or any immediate family member of the applicant named in or responsible for any entered and unsatisfied judgments, liens, and/or claims against any bond or cash deposit pertaining to a construction project?

Question No. 10 went on to specify that if the answer was "yes," the applicant was to attach a statement identifying all judgments "with a detailed description of the situation." Id. In this application, Mr. Guglielmo did not answer the question in the affirmative and did not attach any statement describing the judgments against the Scott Companies, even though he was aware of the judgments at the time. Record, 9/21/17, pp. 178:15-180:14; Ex. 70.

[51].
In another matter, Mr. Guglielmo stated to the CSLB that there was no judgment against him personally despite being confronted with specific details of the judgment such as the court, name of the judge and pincite to the opinion on Westlaw. Record, 9/21/17, pp. 190:25-191:19. See U.S. Fidelity and Guaranty Co. v. Scott Companies, Inc., 2007 WL 141 1629 (N.D. Cal. May 10, 2007) (granting judgment in the amount of $1,030,544 against Mr. Guglielmo personally). Mr. Guglielmo’s inconsistent testimony to the Panel is unexplainable, not only because the existence of this judgment is so easily verifiable through public records, but also because it is not likely that he forgot a million dollar adverse judgment.
[52].
When the CSLB received Mr. Guglielmo’s application for the instant matter, it acted promptly to reject it. The undisputed evidence indicates that the CSLB took the following steps with respect to this application:

• 10/23/13 - received application;

• 10/28/13 — sent acknowledgement letter to DMI;

• 10/29/13 - application sent to the CSLB’s judgment unit for review;

• 10/31/13 - judgment unit returned application to program technician;

• 11/8/13 - application rejected on account of judgments against the Scott Companies;

• 11/18/13 - application withdrawn per Mr. Guglielmo’s letter;

• 11/18/13 - application deemed void by the CSLB.

Record, 9/20/17, pp. 61:1-17, 66:4-13; Ex. 78. DMI’s expert agreed that the CSLB "acted promptly" in taking the above steps. Record, 9/21/17, pp. 283:15-284:14.

[53].
In follow up separate letter by Mr. Guglielmo to the CSLB dated November 14, 2013, he wrote the following;

We were unaware that matters associated with the other licenses where I was an officer would prevent me from becoming the RMO on our current license. By the time we were informed of this, we asked for an extension of time ....

Record, 9/21/17, pp. 204:20-206:6; Ex. 60. This statement was at best ignorant and at worst, a material misrepresentation. Mr. Guglielmo was aware, since 2004, that the CSLB prohibited anyone listed on a license that is under judgment suspension from being listed on any other license. Record, 9/21/17, p. 205:17-22. Again, the evidence shows that Mr. Guglielmo made inconsistent statements to the CSLB in an apparent effort to gain some advantage during the process of replacing Mr. Burnthon. This practice is troubling and further demonstrates lack of good faith and reasonableness on DMI’s part.

6. After DMI’s license was suspended, it submitted a replacement RME application of Richard Felix.

[54].
DMI submitted an application to substitute Richard Felix as DMI’s qualifier on November 14, 2013. Record, 9/20/17, pp. 69:18-70:15; Ex. 59. This was a DMI-caused delay of four weeks. Despite DMI knowing it did not have an active license, DMI further delayed providing Mr. Felix’s required fingerprinting until December 10, 2013. Record, 9/21/17, pp. 284:25-285:11.
[55].
In Mr. Guglielmo’s November 14, 2013 letter requesting that the CSLB expedite Richard Felix’s application, Mr. Guglielmo represented to the CSLB that DMI "promptly" submitted a replacement application to the CSLB in July 2013. Record, 9/21/17, p. 202:10-23; Ex. 60. Mr. Guglielmo knew Ms. Fielding could not file the application any earlier than September 30, 2013, when she first received the filing check from DMI. Record, 9/21/17, p. 171:9-21. Thus, when he represented to the Board that DMI "promptly" applied to replace Mr. Burnthon, this was not true.

V. LEGAL DISCUSSION

[56].
In short, the Panel agrees with the Trust that DMI failed to "act reasonably and in good faith to maintain proper licensure," as required by Cal. Bus. & Prof. Code § 7031. Record, 9/20/17, pp. 50:6-51:7. The basis of this finding includes the foregoing license history, the testimony of the witnesses, direct and indirect admissions of DMI during the hearings, the written record of submissions to the License Board, the oral testimony and the Trust’s expert witness, who served many years at the CSLB.
[57].
The Panel also reviewed the CSLB mandates and applicable licensure rules, procedures, statutory law, as well as analogous case law. E.g., Pacific Caisson & Shoring, Inc. v. Bernards Bros., Inc. (2015) 236 Cal. App. 4th 1246, 1257. Record, 9/21/17, pp. 197:3-198:5 (DMI admitting that as of July 2013, it knew it had an obligation to notify the CSLB within 90 days of Mr. Burnthon’s disassociation).
[58].
The California Court of Appeals in Twenty-Nine Palms Enterprises Corp. v. Bardos (2012) 210 Cal.App.4th 1435 held that the statute as applied to licensure of contractors:

"[P]ermits a court to find that there has been 'substantial compliance with 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 in maintaining proper licensure, (3) did not know or reasonably should not have known that he or she was not duly licensed when performance of the act or contract commenced, and (4) acted promptly and in good faith to reinstate his or her license upon learning that it was invalid.’"

The Bardos court concluded, that Cadmus, the unlicensed contractor, failed to satisfy the first factor because Cadmus was not licensed prior to the performance of its work for Palms. As to the second and fourth factors, the Court of Appeals held that Cadmus had not acted reasonably and in good faith and promptly because it was not until after the construction project was completed that it attempted to obtain a license. And finally, as to the third factor, the Court of Appeals held that Cadmus knew that it did not have its own contractor’s license.

[59].
The Panel finds the instant proceeding analogous to that of the Bardos case in that:

1. DMI knowingly performed work on the Project while unlicensed.

2. DMI was not diligent in keeping its license current. DMI’s executives knew their RME was going to leave as of late June of 2013. DMI did not notify the CSLB of that event. DMI stalled for several months, then proposed an ineligible replacement who had outstanding judgments against a former company where he was CEO. DMI did not forward required fees and fingerprinting in a timely manner.

3. DMI was working on the Project while fully aware of its potential suspension, as they were not following up with the CSLB on a timely basis. DMI certainly had complete knowledge of its lack of a license when it received the CSLB’s suspension letter dated October 17, 2013, which was received on or about October 20, 2013. DMI did not get its license reinstated until December 11, 2013,

4. Finally, DMI got the notice of suspension, but did not submit a new application with an eligible employee as RME until November 14, 2013. DMI did not bother to get that qualifier fingerprinted until December 10, 2013. DMI engaged in almost two months of unlicensed activity on a major project with no apparent urgency to fix its licensure problem.

[60].
To accept DMI’s arguments regarding the requirements of Cal. Bus. & Prof. Code § 7031(e) would otherwise distort the narrow parameters of that provision and disregard evidence. DMI cannot plead ignorance of the law as a defense to its license violation. "The Supreme Court has also held that a contractor may not plead reliance upon another person in determining what is required under the Law; unlicensed contractors are held to knowledge of the Law’s requirements." Construction Financial v. Perlite Plastering Co. (1997) 53 Cal.App.4th 170, 181; see also Hydrotech Systems, Ltd. V. Oasis Waterpark, 52 Cal.3d 988, 999, fn. 7; K & K Services, Inc. v. City of Irwindale (1996) 47 Cal.App.4th 818, 827.
[61].
Cal. Bus. & Prof. Code § 7031(e) does establish excuses for licensure lapse "where a contractor was without a license owing to circumstances truly beyond his control." Construction Financial v. Perlite Plastering Co. (1997) 53 Cal.App.4th 170, 181; Pacific Caisson & Shoring, Inc. v. Bernards Bros. Inc., 236 Cal.App.4th 1246, 1257 (2015). DMI did not establish that it became unlicensed for reasons beyond its control. The Panel rejects DMI’s argument for the applicability of "substantial compliance" and concludes DMI failed to act reasonably to maintain proper licensure. Cal. Bus. & Prof. Code § 7031(e).
[62].
The Panel finds that DMI performed two months of substantial work while unlicensed and that DMI must therefore disgorge all compensation paid on the Project. M. W. Erectors, Inc. v. Niderhauser Ornamental and Metal Works Co., Inc, 36 Cal.4th 412, 430-31; see also WSS Indus. Const., Inc. v. Great West Contractors, Inc. (2008) 162 Cal.App.4th 581, 596.

A. DMI is not excused by the acts or omissions of its licensure consultant.

[63].
During the hearing, DMI suggested that in determining whether it acted "reasonably and in good faith to maintain proper license," as required by Cal. Bus. & Prof. Code § 7031(e)(2), DMI is somehow not responsible for the acts or omissions of its consultant, Ms. Fielding. The Panel finds that DMI was completely responsible for keeping its license in effect. In numerous instances, DMI did not respond to its consultant by sending needed forms, fees, or clarifying information.
[64].
Further, the law does not support DMI’s contention that by hiring a consultant, they are off the hook. Courts have routinely rejected claims that a contractor relied on statements or representations of a third party-including those of project owners and other contractors-when the contractor performed unlicensed contractor work. For example, in K & K Services, Inc. v. City of Irwindale, the court rejected a contractor’s equitable estoppel argument against applying Cal. Bus. & Prof. Code § 7031 in connection with alleged representations by an owner’s agent that the contract work would not require a license. K & K Services, Inc. v. City of Irwindale (1996) 47 Cal.App.4th 818, 827. In another example, the court in Construction Financial rejected a subcontractor’s argument under Cal. Bus. & Prof. Code § 7031 that one of its officers "relied upon the advice of [another contractor’s] manager in connection with [the subcontractor’s] license[…]" Construction Financial, 53 Cal.App.4th at 181. Alleged reliance on the advice of an owner or another contractor does not absolve a licensee of its responsibility to maintain proper licensure. Alleged reliance on a consultant, such as Ms. Fielding, does not either.
[65].
California follows a well-established rule of nondelegable duties of licensees, which provides that, if a licensee "elects to operate his business through employees [or independent contractors, the licensee] must be responsible to the licensing authority for their conduct in the exercise of his license[,]" and must ensure "that the license is not used in violation of law." California Assn. of Health Facilities v. Department of Health Services (1997) 16 Cal.4th 284, 295 (citation and internal quotations omitted). That is, "[a] licensee 'may not insulate himself from regulation by electing to function through employees or independent contractors.’" Rob-Mac, Inc v. Department of Motor Vehicles (1983) 148 Cal.App.3d 793, 797 (quoting Camacho v. Youde (1979) 95 Cal.App.3d 161, 164) (emphasis in original). The rule’s purpose is to "ensur[e] accountability of licensees so as to safeguard the public welfare." California Assn of Health Facilities, 16 Cal.4th at 296. "If a licensee were not liable for the actions of his independent contractor, effective regulation would be impossible." Id. "He could contract away the daily operations of his business to independent contractors and become immune to disciplinary action by the licensing authority." Id.
[66].
Here, DMI’s undisputed obligation to maintain licensure by timely replacing its qualifier is, of course, part of the California State Licensing Law (CSLL). See Cal. Bus. & Prof. Code § 7068.2(a). As with the licensure schemes discussed above, the CSLL is designed "to protect the public" - in this case "from incompetence and dishonesty in those who provide building and construction services." Hydrotech Systems, Ltd., 52 Cal.3d at 995. Maintaining a qualifier is essential to protecting the public because it is through this requirement that the CSLB ensures that licensees such as DMI "show the degree of knowledge and experience in the classification applied for, and the general knowledge of the building, safety, health, and lien laws of the state and of the administrative principles of the contracting business that the board deems necessary for the safety and protection of the public." Cal. Bus. & Prof. Code § 7068(a). Prime contractors, such as ATMGP (and by extension, its assignee, the Trust), fall within the class of persons protected by this statutory scheme. See Lewis & Queen v. NM Ball Sons (1957) 48 Cal.2d 141, 153.
[67].
Given the protective purpose of the CSLL, its licensure requirements constitute mandatory obligations that cannot be delegated to Ms. Fielding. The CSLL instead squarely places the onus of timely obtaining a replacement qualifier solely on the licensee. DMI’s expert confirmed that DMI was ultimately responsible for the contents and truthfulness of any applications presented to the CSLB. Further, DMI’s expert testified that the applicant, not the consultant, is "responsible for the consequences of not complying with the law." Record, 9/21/17, p. 246:8-21. The Panel observes that allowing a company to shift blame to a third party consultant under these circumstances would be inconsistent with the express intent of the substantial compliance elements under Cal. Bus. & Prof. Code § 7031. In rejecting a contractor’s argument that conduct amounting to "excusable neglect" sufficed, the Construction Financial court noted that the California legislature expressly rejected an amendment to Cal. Bus. & Prof. Code § 7031. Construction Financial, 53 Cal.App.4th at 183. This amendment that would have authorized a substantial compliance defense if the lack of licensure resulted from "(1) inadvertent clerical error, (2) excusable delay, or (3) other error or delay not caused by the active negligence of the person." Id. (emphasis in original) (internal quotations omitted). Instead, the legislature adopted "an extremely narrow exception" to the licensure requirement, applicable only "where a contractor was without a license owing to circumstances truly beyond his control" - i.e., "situations ... in which an unlicensed contractor was essentially without fault." (Id. at 182-83).
[68].
Cal. Bus. & Prof. Code § 7031 leaves no room for contractors to pass the buck to others. To underscore this, the CLSB’s forms do not provide for consultants, lawyers, or other agents to file forms on behalf of applicants, or for any formal appearance by consultants such as Ms. Fielding. In short, DMI is responsible and accountable for its licensure suspension under Cal. Bus. & Prof. Code § 7031, regardless of whether DMI’s licensure suspension resulted from a purported disconnect between DMI and Ms. Fielding, or solely because of DMI’s lack of diligence.

B. The Subcontracts’ indemnity clause applicable to permits and licenses does not give rise to a waiver of the Trust’s statutory disgorgement claim.

[69].
In its Pre-Hearing Brief, DMI argued that the Subcontracts’ permits and licenses clause means ATMGP, and in turn, the Trust, waived the right to recover statutory disgorgement penalties under Cal. Bus. & Prof. Code § 7031(b).
[70].
Section 24 of both Subcontracts required DMI to "indemnify and hold harmless Abener Teyma Mojave [ATMGP], its partners, Owner and/or their respective employees from and against any and all loss, liability, damages and expense (including cost of defense, settlement and legal fees and disbursements) caused, incurred, arising out of or occasioned directly or indirectly by Contractor’s and/or Subcontractor’s failure to comply with any and all Applicable Law/Regulations." The clause in question is not a waiver of any statutory duties. To the contrary, it imposes specific affirmative obligations on DMI to "indemnity" or "hold harmless" ATMGP in identified circumstances. Sections 24 contain no language that mention or waive Cal. Bus. & Prof. Code § 7031(b) penalties. It is not stated as an exclusive remedy for any aspect of contract performance.

C. There is no basis for "Arbitrator Nullification" of the License Statutes.

[71].
While there is a long history of juror nullification in criminal cases, where the conscience of the jury does not allow the enforcement of what is considered an egregious miscarriage of justice, there is no such legal precedent in an arbitration proceeding.
[72].
The California legislature was plainly aware these licensure rules could result in an incredibly severe penalty for an unlicensed contractor. The statute specifically overturned a far more lenient substantial compliance standard that had previously been created by the California Supreme Court under former Chief Justice Rose Bird. E.g., Asdourian v. Araj (1985) 38 Cal.3d 276. The Legislature considered those arguments and chose to impose strong sanctions on contractors who engage in construction activities while unlicensed. By its nature, the size of the disgorgement is exactly proportional to the amount of payments made to the offending contractor. So strong is the policy for such enforcement of licensing rights that adverse decisions of arbitration panels are apparently subject to extraordinary court review. See Ahdout v. Hekmetjah (2013) 213 Cal.App.4th 21.

D. Disgorgement penalties under Cal. Bus. & Prof. Code § 7031 are constitutional.

[73].
DMI argues that disgorgement under Cal. Bus. & Prof. Code § 7031(b) violates the Gore guideposts that supply due process constraints on punitive damages awards. The three "Gore" constitutional guideposts set forth by the United States Supreme Court for punitive damages are:

(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.

(State Farm Mutual Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408, 418 (citing BMW of North America, Inc. v. Gore (1996) 517 U.S. 559). These guideposts are wholly inapplicable in this arbitration proceeding and in no way limit an award of statutory civil penalties under Cal. Bus. & Prof. Code § 7031(b). DMI’s arguments on this point are wrong for four reasons.

[74].
First, the Due Process Clause does not apply to an arbitration award made under a private arbitration agreement. Rifkind & Sterling, Inc. v. Rifkind (1994) 28 Cal.App.4th 1282, 1291. Because the Due Process Clause constrains only state action, it is inapplicable in private contractual arbitration proceedings such as this one. Rifkind & Sterling, Inc., 28 Cal.App.4th at 1291.
[75].
Second, California courts have rejected claims similar to those made by DMI, that Cal. Bus. & Prof. Code § 7031(b) "is unfair and 'serves no purpose other than punishment.’" Alatriste v. Cesar's Exterior Designs, Inc. (2010) 183 Cal.App.4th 656, 673. As noted by the Alatriste court, the Legislature was specifically aware that permitting reimbursement may result in harsh and unfair results to an individual contractor and could result in unjust enrichment to a [litigant], but nonetheless decided that the rule was essential to effectuate the important public policy of deterring licensing violations and ensuring that all contractors are licensed. As a judicial body, we are not permitted to second-guess these policy choices.

Id. Courts have routinely applied the disgorgement penalty against unlicensed contractors without any reference to constitutional constraints or "equitable considerations." (E.g., White v. Cridlebaugh (2009) 178 Cal.App.4th 506, 509; Twenty-Nine Palms Enterprises Corp. 210 Cal.App.4th at 1437).

[76].
Third, disgorgement under Cal. Bus. & Prof. Code § 7031(b) is a civil statutory penalty, not a form of punitive damages. Therefore, the statute is not subject to the Gore due process guideposts, supra. Although punitive damages and statutory damages "motivate compliance with the law and punish wrongdoers, they are distinct legal concepts, one of which is entrusted to the factfinder, the other to the Legislature." Kizer v. County of San Mateo (1991) 53 Cal.3d 139, 148; see also Los Angeles County Metropolitan Transp. Authority v. Superior Court (2004) 123 Cal.App.4th 261, 272 (further discussing distinctions between the two concepts).
[77].
Finally, the United States Supreme Court "never has held that the punitive damages guideposts are applicable in the context of statutory damages ... the guideposts themselves ... would be nonsensical if applied to statutory damages." Capitol Records. Inc. v. Thomas-Rasset (8th Cir. 2012) 692 F.3d 899, 907; see also Zomba Enterprises, Inc. v. Panorama Records, Inc. (6th Cir. 2007) 491 F.3d 574, 587.
[78].
It is obvious that a disgorgement penalty is a very harsh outcome, especially where DMI performed exemplary work on this Project. It is often a windfall for the owner of a project who not only keeps the project in its entirety, but also is relieved from any requirement to pay for it. Perhaps the legislature could have created a remedy where such penalty was remitted to the State of California or other local entities in lieu of the property owner or in this case, a prime contractor. However, construction is an industry with an extremely high employee death and injury rate. The legislature requires contractors to build structures that are meant to comply with code and last for generations. In contrast, poorly constructed buildings can subject occupants to enhanced risk of electrocution, collapse or other injury.
[79].
The regulatory environment of licensing contractors, keeping track of their activities and subjecting them to license discipline for lack of professional conduct plays an essential role in mitigating the risk to the public of unlicensed work. Those license rules include a system of enforcing the requirement for worker’s compensation and a bond for contractors who are properly licensed. Where a contractor is unlicensed, there is no real recourse. The homeowner or other property owner is stuck with disclosing the existence of substantial unlicensed work.
[80].
During the periods in question, there was no qualifier on site or in the chain of command that was responsible and in charge of the work at the site. There was no direct "link" to the license board. The Panel finds this break in the R.ME and licensure a crucial factor in their decision.
[81].
The Panel acknowledges that disgorgement is a serious and financially devastating remedy under Cal. Bus. & Prof. Code § 7031(b). However, California courts have upheld the legislature’s express language and remedy. The Panel finds the federal constitutional constraints placed on extreme punitive damage awards have no application to this private arbitration proceeding regarding statutory civil license penalties.

VI. CONCLUSION

[82].
DMI was undisputedly unlicensed for almost two months in 2013 while it performed substantial work on a complex, highly technical and high dollar electrical generation project. The evidence provides no factual basis for this Panel to excuse that extended lack of licensure. DMI did not act "reasonably and in good faith to maintain proper licensure," as mandated by Cal. Bus. & Prof. Code § 7031(e)(2). It did not treat its licensure obligations seriously and was not forthright in the process.
[83].
Furthermore, DMI breached its subcontracts by negligently letting its license lapse, in violation of California law.
[84].
The remedy for this unlicensed activity is explicitly set forth by the legislature:

1. DMI shall not recover any outstanding invoices or claims against the Trust.

2. DMI shall disgorge all amounts paid to DMI for the subcontracts on which it performed work while unlicensed.

[85].
The parties do not contest the amount of previous invoices by the predecessor of the Trust. For the foregoing reasons, the Panel finds in favor of the Trust and renders an award of $12,129,438.21 against DMI and in favor of the Trust.
[86].
All other claims that were presented or could have been presented in this arbitration proceeding are denied and the Interim Award in this matter is the exclusive remedy of the parties. The previously scheduled hearings in the Spring of 2018 on DMI’s claims are hereby vacated.
[87].
This Interim Award shall be adjusted according to any requests for fees, costs, interest, attorneys' fees and other adjustments that that parties may request following the receipt of this Interim Award.
[88].
Such request shall be filed with the AAA and the panel by email and mailing a physical copy with proof of service no later than November 30, 2017. The Opposition, if any shall be filed by December 15, 2017, any Reply by December 20, 2017, The oral hearing shall be conducted by telephone conference at Noon on December 22, 2017.

SO ORDERED,

Dated: November 13, 2017

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