LEGAL ISSUES Important Court of Appeal Ruling Issued


Dealing With Disgorgement Claims Court Holds That One-Year SOL Applies to Disgorgement Claims Under B&P Section 7031


By Garret Murai, Nomos LLP


experience it. Referred to by courts as “harsh,”


Y


“unjust” and even “draconian,” Business and Professions Code Section 7031 provides that if a contractor is performing work requiring a contrac- tor’s license, but doesn’t have one, the contractor is not only prohibited from suing to recover compensation for work performed but is also required to disgorge all compensation paid for work it performed. Tis is true even if the project


owner knew that the contractor was unlicensed, the contractor was only unlicensed during part of the time it performed work requiring a license, and even if the work performed by the contractor was free of defects. In short, it is the nuclear bomb of remedies against a contractor. Until now, however, no court


has addressed when a project owner is permitted to raise a Business and Professions Code section 7031 claim against a contractor. Tis question was recently answered in the case Eisenberg Village of the Los Angeles Jewish Home for the Aging v. Suffolk Construction Company, Inc., 53 Cal.App.5th (2020).


1201


The Eisenberg Village Case In 2007, project owner Eisenberg


Village of the Los Angeles Jewish Home for the Aging entered into a construction contract for construction


16 May/June 2021


ou’ve likely heard of it. You may have even seen it. And good luck to you if you’ve ever had to


of a senior home with contractor Suffolk Construction Company, Inc. Suffolk completed its work in June 2010 and Eisenberg paid Suffolk just over $49 million. After residents began to move into


the senior home problems emerged with the hot water supply. Te temper- ature of the hot water was above the level allowed by law, and the California Department of Social Services ultimately issued a citation against the senior home. After initially filing suit against the project architect DLR, Eisenberg


Until now, no court has addressed when a project owner is permitted to raise a Business and Professions Code section 7031 claim against a contractor. This


question was recently answered in the case Eisenberg Village of the Los Angeles Jewish Home for the Aging


v. Suffolk Construction Company, Inc.


later amended its complaint to sue Suffolk in March 2014, and later amended its claim again to add a claim for disgorgement under Business and Professions Code section 7031 against Suffolk in May 2015. Eisenberg’s Section 7031 claim


was premised on its argument that Suffolk’s qualifier, who had moved from Suffolk’s Irvine office to Suffolk’s Boston office in 2008, did not exercise “direct supervision and control” over the project in violation of Business and Professions Code section 7068. In short, it charged that Suffolk’s qualifier was a “sham qualifier.” While the action was pending,


Suffolk filed a motion for summary judgment arguing that Eisenberg’s disgorgement claim was time-barred because it was not brought within one year of the time Eisenberg filed its claim against Suffolk under Code of Civil Procedure section 340, which provides for a one-year statute of limitations for actions under a statute providing for penalties or forfeiture. Te trial court agreed, and


Eisenberg appealed.


The Appeal On appeal, the Court of Appeal


found that the disgorgement remedy provided under Business and Profes- sions Code section 7031 was subject to the one-year statute of limitations under


California Constructor


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