Court Hammers Contractor In Dispute With Homeowners; Results In Free Home Improvements & More

The following is based on a report written by the late Bob Bruss, real estate author, broker, and attorney, on California state law regulating home improvement contractors:

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Two homeowners hired a home improvement contractor to do remodeling work at their residence. They paid him approximately $27,000. Later, the contractor sued them for an additional $11,000. The homeowners countersued for fraud, claiming that the contractor underreported his payroll to his workers' compensation insurer which resulted in an automatic suspension of his California state contractor's license, according to state law.

Because his ostensibly valid contractor's license was treated as having automatically lapsed because he underreported his payroll to his workers' comp insurer, the contractor was legally considered to be unlicensed at the time he performed the improvements on his customers' home. Accordingly, the court decided that not only was he not entitled to the $11,000 he sued for, he was also not entitled to the $27,000 that the homeowners had already paid him and was ordered to refund it to them. In addition, the contractor was also ordered to pay the homeowners $10,000 in punitive damages, plus $90,000 for the homeowners' attorney fees and $7,000 in court costs.

According to the judge:

• "The importance of deterring unlicensed persons from engaging in the contracting business outweighs any harshness between the parties."

To view the Bob Bruss report, see Unlicensed remodeler makes costly mistake.

To view the California appeals court decision, see Wright v. Issak, 58 Cal.Rptr. 3d 1 (Cal. App. Ct., 6th Dist., March 20, 2007) (Court decision available online courtesy of Findlaw.com).

Postscript:

The text of the actual court decision describes the nature of the payroll underreporting resulting in the temporary invalidation of the home improvement contractor's license as follows:

• "[the contractor] reported, under penalty of perjury, a payroll of $312 while having an actual payroll of $135,000. [State Compensation Insurance Fund records] show that [the contractor] reported zero or next to zero payroll for every payroll period between his initial application for workers' compensation insurance in May 2002 and the end of 2004. [The contractor's] underreporting was not inadvertent. It was his pattern and practice from the first moment he applied for workers' compensation insurance."

By bringing a lawsuit against the homeowner inspite of his self-created "achilles' heel" of illegally (and grossly) underreporting his payroll to his workers' comp insurer, the contractor in this case also appears to have violated the long-standing cautionary advisory, "Be careful who you pick a fight with." I wonder how many other "licensed" contractors have a similar "achilles' heel."