Unlicensed California Contractor Forced To Return Payments For Work Performed on Tribal Land

A recent California court of appeal case reminds us of the harsh and unforgiving penalties that await an unlicensed California contractor. The contractor in Twenty-Nine Palms Enterprises Corp. v. Bardos, 12 C.D.O.S. 12625, was forced to disgorge $751,995 it had been paid for construction of a roadway and parking lot for the Twenty-Nine Palms Band of Mission Indians’ (the “Palms”) casino property in Coachella, California. This recent case is notable because of two twists – sovereign immunity and an alleged misrepresentation of law by the owner – into a largely settled area of California law.

The contractor, Paul Bardos, owned and operated a licensed construction company, Bardos Construction, Inc. (“BCI”), which had held its license since 1983, with Bardos as the Responsible Managing Officer.

Bardos claimed Palms hired him as its representative for construction of a parking structure, and his role was similar to a construction manager. At the time, Palms had already hired another contractor to perform the actual construction work, but asked Bardos to prepare a bid for the temporary parking lot and access road work after learning that Bardos could perform the work for almost $1 million less.

Bardos claimed that Palms then asked him to form a new company with a different name to conceal from the existing contractor that Bardos’ company, BCI, was actually going to perform the work. Bardos also claimed he was told by Palms’ representatives that a California contractor’s license was not required because the work would be performed on tribal land and was not subject to state law. Bardos’ new company, Cadmus Construction, was a sole proprietorship and did not receive a contractor’s license until several months after the work was complete, and Cadmus had been paid.

Palms later sued Bardos, seeking disgorgement because Cadmus was not licensed. The trial court granted summary judgment, and the Court of Appeals affirmed. Bardos raised a number of arguments on appeal.

First, Bardos claimed Palms should be estopped to rely on California’s license laws after Palms led him to believe those laws would not be enforced on tribal property. But the court rejected this argument, noting that equitable estoppel cannot be used to circumvent the state’s license law. The court also found inconsistencies in Bardos’ testimony that were fatal to his argument, because although he claimed a license was not required for Cadmus, he did apply and receive a license after the work was complete.

Second, Bardos raised sovereign immunity as a defense, claiming the license law is not applicable (and therefore not enforceable) on tribal land. The court rejected this argument as well, noting that only Palms could raise the sovereign immunity defense, not Bardos. The U.S. Supreme Court, in the 1984 case Three Affiliated Tribes v. Wold Engineering, had rejected attempts to “clothe oneself in the immunity afforded another.”

Finally, the court rejected Bardos’ “substantial compliance” argument, a narrow exception to the license requirement that may allow a contract who has substantially complied with the license laws, to be treated as though it were licensed. To prevail, Bardos would have had to prove that (1) Cadmus Construction had been duly licensed as a contractor in the state prior to the performance of the act or contract, (2) Cadmus acted reasonably and in good faith to maintain proper licensure, (3) Cadmus did not know or reasonably should not have known that it was not duly licensed when performance of the act or contract commenced, and (4) Cadmus Construction acted promptly and in good faith to reinstate its license upon learning it was invalid.

The court determined that, arguably, Cadmus had satisfied the first factor because Bardos licensed and Cadmus was a sole proprietorship. However, Bardos was unable to establish the last three factors because Cadmus did not seek a separate license until construction of the Palms project was almost complete. The evidence suggested Bardos knew a license might be required, and the delay in seeking licensure showed Bardos did not act promptly to resolve the issue.

Bottom Line: This case is a good reminder of what every company performing construction work in California should know – get a license before you start working, or you might have to work for free.

Author: Douglas McManmon


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