Article: Legal Representation in Connection with CSLB Claims and Actions and Consumer Claims Against Contractor License Bond
This article is not intended to give the reader legal advice on how to pursue or defend a consumer complaint brought before the Contractor State License Board (CSLB). Many factors, including but not limited to: (a) nature and quality of the applicable construction contract; (b) licensure status; (c) contractor payment of workers’ compensation insurance; (d) the status and quality of construction; (e) experience of the contractor; and, (f) the history of claims and disciplinary proceedings against a contractor ALL impact the manner and strategies of how to pursue or defend a CSLB investigation / accusation. This article is not intended to substitute for the advice of an attorney as to a specific problem by and between a contractor and the party who hired the contractor.
The Attorneys at Last & Faoro have: (1) assisted numerous contractors defend; and, (2) assisted numerous property owners pursue matters before the CSLB.
Our experience has included such issues as:
- Contractor’s alleged failure to utilize Home Improvement Contracts (HICs);
- Contractor’s alleged failure to utilize Change Orders;
- Contractor’s alleged abandonment of construction projects;
- Contractor’s alleged insufficient construction experience, prior to obtaining his / her contractor’s license;
- Contractor’s alleged mis-allocation / mis-use of project funds;
- Contractor’s construction services allegedly falling below applicable industry standards;
- Contractor’s alleged receipt of excessive down payments or progress payments; and,
- Contractors having performed construction services with a suspended, inactive, non-existent and borrowed contractor’s license.
In most instances, we have defended Contractors (protecting them from discipline) in situations where they were unaware of the existence of applicable CSLB rules or regulations. We sought to achieve mutually acceptable resolutions with the CSLB and / or property owners to resolve their respective differences. In those instances where our contractor clients have sought our assistance in their defense of a CSLB claim, investigation or hearing, we are regularly retained by those very contractors to create customized construction contracts, including customized Home Improvement Contracts, with applicable CSLB consumer mandated warnings, to help the contractor avoid future consumer complaints.
THE CSLB INVESTIGATION
In our experience, a licensed contractor in trouble with the CSLB started when a complaint was filed by a client against the contractor. Aside from their exposure in civil court, Contractors with otherwise impeccable reputations can suddenly be the subject of a CSLB investigation. It is now a simple and quick process for a commercial or residential property owner to go to the CSLB website and file an online complaint against their contractor. CSLB complaints typically involve allegations of poor workmanship, abandonment of a project, building code violations, violations of the Contractors License Law, or alleged breaches of the operative construction agreement for the particular project.
In responding to a complaint, the CSLB may investigate the contractor for potential additional violations of Contractor’s License Law. This investigation may include an interview with the contractor. Unfortunately, many contractors fail to prepare for their CSLB interview or investigation: (a) failing to seek the advice of counsel, (b) failing to understand the best manner in which to present their position to the CSLB, (c) not knowing the significance or impact of what they say or report to a CSLB investigator. A contractor’s incriminating statements to a CSLB investigator may be used against the contractor in a disciplinary action. Consequently, we recommend to our contractor clients to be prepared before responding to a CSLB investigation.
Contractors are NOT always wrong. We have represented contractors in many instances when a disgruntled client has filed a CSLB accusations alleging that a contractor has “abandoned” construction projects, seeking contractor discipline, all in an effort to avoid paying the contractor’s bill. Yet, based on the contract, the contractor had legitimate defenses to the accusation, because of the property owner’s failure to make timely progress payments or because the owner refused to sign change orders. In must be noted that the facts, circumstances and contracts need to be evaluated on a case by case basis, so as to understand who is right or wrong in each situation.
Following its investigation, the CSLB may issue a citation against the contractor, including civil penalties of up to $5,000.00, or pursue formal charges for violations of the Contractors License Law, or may even attempt to suspend or revoke a contractor’s license. A CSLB citation may become a public record and is easily discoverable to future potential clients, through the CSLB website. Consequently, the attorneys at Last & Faoro present the best possible case to minimize the impact of a CSLB disciplinary investigation or proceeding.
Our firm has experience: (a) representing contractors in disciplinary proceedings; (b) providing strategies on how to respond to consumer and CSLB allegations; (c) negotiating with the CSLB to resolve matters with minimal impact on the contractor license; and, defend contractors involved with the CSLB’s Consumer Arbitration Program.
CSLB CONSUMER ARBITRATION PROGRAM
When a Contractor – with no prior negative history – has a complaint filed against him / her, the CSLB may refer the dispute between the client and the contractor to CSLB’s Arbitration Program whereat the client and contractor present their case to a neutral person, an arbitrator – with construction experience, who will render a binding decision.
If a homeowner elects to use the CSLB’s arbitration program and the matter involves damages of $12,500 or less (and otherwise qualifies for the CSLB arbitration program), then the contractor will have no choice but to have the dispute resolved in that forum. A contractor’s failure to participate in CSLB’s mandatory arbitration program may result in an award against the contractor that may be enforced by a court or through disciplinary action by the CSLB.
In matters involving damages over $12,500 but under $50,000, the CSLB Arbitration Program is voluntary. Meaning both the client and the contractor have to agree to the dispute being submitted to the CSLB’s arbitration program. If both parties agree, then the contractor must participate and is subject to the same (possible) adverse consequences for non-participation. The CSLB arbitration program does not involve construction claims valued at $50,000 or above. A claimant can agree to have a claim valued in excess of $50,000 limited to the $50,000 cap.
Importantly, the CSLB pays for the arbitration hearing, for the services of the arbitrator, and, in some instances for a board-appointed expert witness. Consequently, the CSLB arbitration program enables a disgruntled client to pursue claims against a contractor at minimal costs, in proceeding that may occur more expeditiously than the traditional Court system. While the arbitration process may be simple, there is advantage of retaining counsel to pursue or defend a CSLB arbitration in the presentation of the case.
If you are involved in a dispute with a homeowner, the attorneys at Last & Faoro can assist you. We represent contractors and property owners in arbitration, mediation, and civil litigation construction dispute resolution.
Through proper planning and implementation of good business practices, contractors with the assistance of counsel can minimize the likelihood of having a CSLB complaint filed against them. The attorneys of Last & Faoro are experienced in the preparation of code compliant written contracts tailored to the business needs of contractors and subcontractors in an effort to avoid disputes with their clients. The law is constantly evolving, the construction attorneys at Last & Faoro help their clients navigate those changes.
CONTRACTOR’S BOND CLAIM
In addition to filing a claim with the CSLB, a homeowner may also choose to make a claim against a contractor’s bond. In California, licensed contractors are required to have a contractor’s bond in the amount of $12,500. Bus. & Prof. Code § 7071.6. One purpose for the contractor’s bond is to provide compensation to homeowners who have been damaged as a result of a contractor’s violation of the Contractors License Law. Bus. & Prof. Code § 7071.5.
When a homeowner makes a claim against a contractor’s bond, the surety company providing the bond investigates the claim. If the surety company determines that the contractor has violated the Contractors License Law and caused damage to the homeowner, then the surety company may pay all or a portion of the $12,500 contractor’s bond to the aggrieved homeowner. After payment to the homeowner, the surety company will demand in turn reimbursement from the contractor in order to reinstate the full $12,500 contractor’s bond.
If a contractor fails to pay back the surety company, then the contractor’s license can be suspended or even revoked. Consequently, a claim against a contractor’s bond should be taken seriously. Our firm represents contractors in defending against bond claims. The attorneys at Last & Faoro have assisted numerous contractors defend against bond claims.
The foregoing article is intended only to provide a general overview of some of the issues that may present in CSLB claims against Contractors and Contractor Bond claims. This article is not intended to contain legal advice, is not intended to discuss or address any specific situation or problem and should not be relied on in making any legal decisions. If the reader of this article has a specific legal question or needs specific legal advice, the reader should contact a qualified attorney.
Dennis L. Faoro is a partner at Last & Faoro specializing in Real Estate and Construction Law for over 25 years, assisting contractors property owners, developers, and Realtors in real estate and construction matters. He can be reached at 650-696-8350, or by email at [email protected].