Written by attorney Christine C McCall


It is all too easy for a licensed contractor in the home-remodeling and construction business to get cross-wise with the State Contractors Licensing Board. Many California contractors are seriously uninformed about CSLB's enforcement powers, and do not understand the web of administrative process in which they can become snared as a consequence of license. Escape – even surrender – can be expensive and can take years to fully resolve.

This article is a general and summary description of common and typical CSLB disciplinary and enforcement enforcement actions against CA contractors. Application of these general principles to specific facts requires consultation with a skilled and experienced attorney who regularly and routinely defends against CSLB actions and is known to CSLB staff as a credible and reliable advocate.

1. License revocation/suspension.

Under California's Business & Professions Code, CSLB has independent statutory enforcement powers over State licensed contractors. CSLB license discipline and enforcement processes can occur at the same time and in addition to private litigation and claims by a homeowner or client of the contractor. In most matters, CSLB processes are unaffected by a simultaneous civil action by a homeowner, unless CSLB chooses to defer its proceedings until after the homeowner's action is concluded.

Similarly, settlement of a civil damages action against a contractor does not compel CSLB to stand down in an investigation, or to withdraw or dismiss a citation or Accusation re Suspension or Revocation. A civil action can be settled by agreement of the parties that requires the plaintiff homeowner to give notice to CSLB that the homeowner's prior complaint to CSLB is withdrawn and rescinded. But withdrawal and rescission of plaintiff's complaint to CSLB does not prohibit CSLB from enforcement action against the settling defendant because CSLB's enforcement powers are independent and statutory. CSLB can proceed with a revocation or other disciplinary action, and can compel testimony by plaintiff notwithstanding the private settlement agreement and plaintiff's withdrawal of plaintiff's complaint to CSLB.

Unless proscribed by the terms of the settlement agreement, both the fact of settlement and the settlement terms will be admissible evidence in defense against CSLB disciplinary action. But settlement cannot preclude enforcement or license discipline, nor can it prescribe or “cap" the penalty that may result.

To put it simply and plainly, CSLB is not party to settlement of a private lawsuit, will not sign the agreement, and cannot be bound or limited by it. There is no settlement instrument or provision that can directly accomplish (1) divesting CSLB of the authority to proceed against a contractor licensee, or (2) prohibiting or limiting testimony by plaintiff in a CSLB proceeding.

But what cannot be accomplished directly can sometimes be effectively accomplished indirectly. A settlement instrument can include factual recitals that undermine or contradict CSLB's factual premises and contentions in an enforcement action. Plaintiff's execution of an artfully and carefully drafted settlement instrument can make plaintiff an ineffective or even useless witness against the settling defendant contractor in a post-settlement administrative hearing.

  1. CSLB Citations and Fines.

CSLB can issue citations instead of filing an Accusation re Revocation or Suspension. Citations often seem relatively less onerous than an action for revocation or suspension, but the comparison can be misleading. The law caps the fine for a CSLB citation at $5,000 per citation for a single construction project no matter the number of violations cited. But there is no limitation on the number of citations that CSLB can issue per project, and multiple citations are typical CSLB practice. So, the jeopardy for the contractor is in the number of citations that can be issued at $5,000 potential penalty each. The influence and position of the complaining homeowner is often a factor in the scope and number of citations.

The dollar amounts of penalty for multiple CSLB citations for a single project can usually be significantly reduced by an Administrative Law Judge in an administrative hearing in defense of the citations. CSLB cannot overrule an ALJ decision reducing the amount of the citation penalties. But a hearing to challenge the amount of fines for citations will itself raise issues of legal fees for the administrative hearing. Precise and reliable calculations of the contractor's comparative financial exposure as to each option is critical.

For some contractors, an important consideration will be whether citation penalties are dischargeable in bankruptcy. Contractors should seek the advice of bankruptcy counsel on this issue.

3. CSLB Orders of Correction.

CSLB has the power by statute to issue orders to the contractor to correct defective or incomplete work. Alternatively, where such order is not feasible, CSLB can order the contractor to pay for corrective work or completion of work by another contractor. Careful projections and calculations of the costs that can be charged to the defending contractor are essential where CSLB proposes to proceed with corrective orders. There is no cap or limitation by rule or statute in the costs of required corrections or completions.

4. CSLB referrals to prosecuting agencies.

CSLB has unlimited power to provide its evidence and investigative material to prosecuting and law enforcement agencies, and to request the initiation of criminal legal processes. CSLB's referrals ordinarily are given substantial deference by law enforcement agencies, and many prosecuting agencies will not engage in plea negotiations without CSLB participation and approval of a proposed plea agreement. Criminal law processes do not divest CSLB of its powers to initiate or proceed with license enforcement processes at the same time, and a plea in resolution of a criminal case cannot terminate CSLB's enforcement processes or exercise of its powers, even if the prosecutor purports to include such provision in the plea agreement, and even if such provision is made a part of the record and approved by the criminal court.

5. CSLB Orders for reimbursement of investigation and enforcement costs.

All CSLB disciplinary and enforcement actions will result in a demand for reimbursement of CSLB's costs of investigation and enforcement. Ordinarily, CSLB will provide an accounting of the claimed amount. But in many cases that “accounting" will be a very rough estimate, and an estimate is by law an allowable basis for the demand. In all events, the claim for reimbursement will attempt to capture every penny of CSLB's costs – every postage stamp, photocopy, and 6-minute time block of every staff person. The reimbursement demand will also ordinarily include an “apportioned" share of the agency's “burdened" costs – an incremental share of the overhead for the agency's work: staff employment benefits, physical plant, telecommunications capabilities, etc. These apportioned costs will not be broken out separately.

Contractors are always shocked at the amount of CSLB's demand for costs reimbursement. Routine cases can sometimes result in a costs demand of $30,000 – 40,000 and more. There is no law or rule setting any cap or ceiling for the amount of the reimbursement demand.

Licensees have the right to challenge the amount of the claim for reimbursement of costs, but not the fact of the obligation for reimbursement. The amount for CSLB costs reimbursement is often substantially reduced by the Administrative Law Judge in the evidentiary hearing decision. And CSLB cannot override the ALJ's decision as to the amount of reimbursement. Moreover, no costs will be ordered reimbursed where the contractor successfully defends against the Accusation or Citation(s) and no disciplinary action penalty is upheld. Where the contractor is successful on some but not all defenses in an evidentiary hearing, the amount of costs to be reimbursed will be reduced proportionately, most often favorably to the contractor.

Of course, the costs of defending against a reimbursement of costs order or challenging the amount must be compared to the anticipated result of the defense and degree of reduction of costs that can be reasonably expected. It may not serve the licensee to spend $15,000 in legal fees to challenge a $20,000 costs order if there is significant doubt in strength of the contractor's case and the anticipated outcome. Unless the contractor is successful in the hearing, CSLB's costs for defending the costs order may be claimed as additional amounts to be reimbursed, causing the total to exceed reductions won before the ALJ.

CSLB is ordinarily flexible as to a payment plan over time. The outer limit is generally three years and license renewal can sometimes be delayed or even denied if there is an outstanding costs order.

Plainly, skilled legal advice should always be sought re the relative cost effectiveness of the contractor's options whenever there is the prospect of a cost order of significant amount. For some contractors, an important consideration will be whether an order for cost reimbursement is dischargeable in bankruptcy. Contractors should seek the advice of bankruptcy counsel on this issue.

6. Surrender or abandonment of the CSLB license.

It is important for contractors and licensees to know that that CSLB's jurisdiction and powers are not terminated, cancelled or made moot by a voluntary surrender of the license, nor by abandonment of the license or failure to renew. Even where revocation and corrections orders may be mooted by the voluntary actions of the contractor, all fines, penalties, orders for reimbursement for corrections and completions, and costs orders for agency reimbursement are fully effective and enforceable, as is any on-going criminal investigation or prosecution.

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