Contractors and subcontractors are not only required to be licensed, but as part of that obligation they must have a bona fide responsible managing employee (“RME”) or responsible managing owner (“RMO”). “Bona Fide” means real or in good faith. In a recent decision in Vascos Excavation Group v. Robert Gold an appeals court confirmed the trial court decision that the contractor did not have a bona fide RME. That effectively held that the contractor was unlicensed and could not recover on an award made by an arbitrator.
The dispute was between a contractor (Vascos) and a home owner (Gold). The case was initially heard in an arbitration hearing. The arbitrator allowed the parties to address the issue of whether Vascos had a valid license. Where the issue is limited to whether a contractor has maintained its license with the CSLB, submitting a certified license history is sometimes enough to put the burden of proof on the owner. Here a certified license history was submitted. On the issue of whether Vascos had a bona fide RME, the contractor submitted a declaration by its project manager (not the RME) which referenced two video snippets supposedly showing the RME was at the project at least twice. The arbitrator held the license was valid.
Gold then asked the Superior Court to vacate the judgment based on the license issue and asked for an evidentiary hearing on the license issue. The contractor asked for the court to issue a judgment based on the award and specifically rejected the idea of a hearing on the license. The court held that the contractor’s RME was not a bona fide RME and vacated the arbitration award to the contractor. The contractor’s monetary recovery was gone.
That decision was appealed. As a note, it is often said that arbitrations cannot be appealed. While that is largely true, there are some narrow issues that can be appealed. The appeals court decided that license issues could be considered by the court. The trial court decided that the arbitration award was illegal / unenforceable and, as a result, the arbitrator exceeded her authority.
On the issue of proof of a bona fide RME, the court held that the project manager’s declaration (which lacked the two video snippets) was insufficient to prove the contractor had a bona fide RME. The court stated that the burden could have been met by a “five sentence declaration” from the RME. No advice was given regarding what those five sentences should be.
On the issue of whether there should have been an evidentiary hearing on the RME issue, the court argued that the contractor forfeited its rights to appeal the issue when it argued there should not have been such a hearing.
Conclusion: If an opposing party puts your license in issue and challenges whether you have a bona fide RME or RMO, take it very seriously. Also, the proof that you have a bona fide RME or RMO should come directly from that RME or RMO.
Marwa Katbi is an Associate at Hunt Ortmann. Her practice areas include Construction Disputes & Litigation, Construction Agreements, Contractor Licensing, and Public Works. Ms. Katbi can be reached at firstname.lastname@example.org.
Laurence P. Lubka is Senior Counsel at Hunt Ortmann. His practice areas include Construction Disputes & Litigation, Construction Agreements, Contractor Licensing, Public Works, and Business & Commercial Disputes & Litigation. Mr. Lubka can be reached at email@example.com.