Thursday, August 27, 2020
Court of Appeal:
Opinion Says Action for Disgorgement of Monies Paid Must Be Brought Within One Year of Completion of Work
By a MetNews Staff Writer
An action for disgorgement of funds from an unlicensed contractor must be brought within one year of the completion of the project, and that time is not extended by late-discovery of defects in the work, the Court of Appeal for this district held yesterday.
Acting Presiding Justice Thomas L. Willhite Jr. wrote the opinion which affirms a judgment by Los Angeles Superior Court Judge Huey Cotton.
The plaintiff, Eisenberg Village of the Los Angeles Jewish Home for the Aging, sought a refund of the more than $49 million it paid for work done by the Suffolk Construction Company, Inc., founding its claim on Business & Professions Code §7031(b), which provides that, subject to an exception that was not applicable:
“[A] person who utilizes the services of an unlicensed contractor may bring an action in any court of competent jurisdiction in this state to recover all compensation paid to the unlicensed contractor for performance of any act or contract.”
That section, Cotton held, is subject to the one-year statute of limitation contained in Code of Civil Procedure §340(a) which applies to a suit “upon a statute for a penalty or forfeiture.”
“In this case this court agrees with defendant that the claim is subject to a one-year statute of limitations- B&P § 7031(b) applies without regard to harm. It is a penalty not compensation for damages. An unlicensed contractor could do a wonderful job but still be required to disgorge any money paid to him.”
Agreeing, Willhite said §7031 does create a penalty, rather than constituting restitution as argued by Suffolk, because the amount to be returned bears no relationship to actual harm caused to the party for which the work was done. He noted that the statute “deprives the contractor of any compensation for labor and materials used in the construction while allowing the plaintiff to retain the benefits of that construction.”
Work was completed in June 2010. On June 30, 2013, Eisenberg brought an action against the firm that did architectural work for the project, and on March 25, 2014, amended its complaint to name Eisenberg as defendant, amending it further on May 15, 2015, to seek disgorgement.
Eisenberg contended in the trial court, as on appeal, that that even if the one-year statute applies, that statute did not begin running until it discovered, in early 2015, that Suffolk had been unlicensed, and added its cause of action for disgorgement with one year of that realization.
Cotton granted summary adjudication to Suffolk on the disgorgement claim, saying that he need not determine whether the late-discovery rule applies to an action under §7031(b) because “the evidence here shows that the plaintiffs knew the facts making up the claim or could have easily discovered those facts more than a year prior to making its claim under Section 7031.”
Willhite took a different approach, declaring that the late-discovery rule has no applicability to an action under §7031(b).
‘Makes Little Sense’
“In light of the equitable basis for the discovery rule, it makes little sense to apply the rule to claims for disgorgement under section 7031(b). A section 7031(b) claim does not require that the plaintiff suffer any injury, or at least an injury in the sense used by the courts to justify an equitable exception to the ordinary rules of accrual. The fact that a contractor does not have a valid license does not, by itself, cause the plaintiff harm (other than, perhaps, some sort of psychic harm in knowing that he or she hired someone who was not in compliance with the law).”
The jurist continued:
“Moreover, the disgorgement mandated by section 7031(b) is not designed to compensate the plaintiff for any harm, but instead is intended to punish the unlicensed contractor. Thus, holding that the discovery rule does not apply to section 7031(b) claims does not produce a harsh result for plaintiffs. To the extent a plaintiff does suffer an injury caused by an unlicensed contractor that is not easily or immediately discoverable, the discovery rule would continue to apply to other claims seeking recovery for any damages the plaintiff suffered.”
Eisenberg’s three other causes of action were dismissed with prejudice pursuant to a settlement agreement, and Suffolk obtained a judgment on the cause of action for disgorgement.
The case is Eisenberg Village of the Los Angeles Jewish Home for the Aging v. Suffolk Construction Company, Inc., B297247.
Robert Begland and Robert Campbell of Los Angeles, partners in Cox, Castle & Nicholson, acted for Eisenberg. Hector H. Espinosa, Kevin S. Asfour, Samira F. Torshizi and Timothy L. Pierce of the Century City office of K&L Gates represented Suffolk.
Copyright 2020, Metropolitan News Company