EISENBERG VILLAGE OF THE LOS ANGELES JEWISH HOME FOR THE AGING, Plaintiff and Appellant, v. SUFFOLK CONSTRUCTION COMPANY, INC., Defendant and Respondent.
B297247
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION FOUR
Filed 8/26/20
CERTIFIED FOR PUBLICATION; (Los Angeles County Super. Ct. No. LC100462)
APPEAL from a judgment of the Superior Court for Los Angeles County, Huey Cotton, Judge. Affirmed.
Cox, Castle & Nicholson, Robert Begland and Robert Campbell for Plaintiff and Appellant.
K&L Gates, Hector H. Espinosa, Kevin S. Asfour, Samira F. Torshizi and Timothy L. Pierce for Defendant and Respondent.
In the present case, plaintiff Eisenberg Village of the Los Angeles Jewish Home for the Aging (Eisenberg) asserted a section 7031(b) claim for disgorgement against Suffolk Construction Company, Inc. (Suffolk) five years after Suffolk completed construction of Eisenberg’s 108-unit assisted living facility in Reseda (the Project). The trial court granted Suffolk’s motion for summary adjudication of the claim, finding that
We hold that the one-year statute of limitation applies to claims for disgorgement under section 7031(b). We also hold that the discovery rule does not apply, and that a section 7031(b) claim accrues upon the completion or cessation of the performance of the act or contract at issue. Because Eisenberg failed to bring its section 7031(b) claim within one year after the completion or cessation of Suffolk’s performance, we affirm the judgment.
BACKGROUND
In late 2007, Eisenberg entered into a contract with Suffolk (the Contract) to construct the Project, which had been designed by architectural firm DLR Group (DLR).2 The first page of the Contract provided Suffolk’s California contractor’s license number. The Contract included a provision entitled
violation, or complaints regarding a latent act or omission as to structural defects filed within 10 years of the alleged violation. Most importantly, the provision stated, again in all capital letters and as required by statute, that any questions regarding a contractor may be referred to the Registrar of the CSLB, and provided the mailing address for doing so.
Suffolk completed construction of the Project in June 2010. Eisenberg paid Suffolk just over $49 million for its work.
After residents had moved into the Project shortly after its completion, problems developed with the hot water supply to the residences. Suffolk worked to remedy the problems. As more residents moved into the Project, the problems returned, and Suffolk continued to try to remedy the problems. In March 2012, Eisenberg received a citation from the California Department of Social Services for supplying hot water to residential units at a temperature above the level allowed by law. Eisenberg contacted DLR and Suffolk to see what could be done to fix the problems with the hot water system. Suffolk agreed to work with Eisenberg to try to fix the problem; DLR did not.
In June 2013, Eisenberg filed a complaint for breach of contract and negligence against DLR, alleging that certain issues Eisenberg experienced at the Project regarding the HVAC system, hot water delivery system, plumbing, and plumbing fixtures were caused by DLR’s work. Eisenberg did not name Suffolk in the complaint because Suffolk had agreed to try to fix the hot water issue. Instead, Eisenberg and Suffolk entered into a dispute resolution and tolling agreement in
which the parties agreed to try to resolve their disputes in mediation and to toll any applicable statute of limitations while they did so.
The tolling agreement expired in 2014, and in March of that year Eisenberg amended its complaint to add Suffolk as a defendant, alleging breach of contract and negligence claims against it based upon the same issues alleged in the original complaint against only DLR. In January 2015, Eisenberg and Suffolk attempted to resolve the dispute in mediation, but were unsuccessful. According to Eisenberg’s Chief Executive Officer and President, it was not until the mediation failed in early 2015 that Eisenberg “began to investigate the merits of its claims against Suffolk . . . [and] discovered for the first
Suffolk filed a demurrer to the disgorgement cause of action, asserting several grounds, including that it was barred by the one-year statute of limitation. The trial court overruled the demurrer; as to the statute of limitation, the court found it was not possible to determine at that stage when Eisenberg should have been aware of the facts supporting its claim. Two days after the court ruled, Eisenberg filed a motion for summary adjudication of its disgorgement claim, which the trial court denied.
Four months later, Suffolk brought its own motion for summary adjudication of the disgorgement claim. As we explain in more detail in
section A.3.c., post, the trial court found that the one-year statute of limitation applicable to claims for penalties or forfeitures applied, and that Eisenberg’s claim was time-barred because it knew or easily could have discovered the facts giving rise to the claim more than a year before it filed its claim against Suffolk. The court ultimately entered judgment in favor of Suffolk,3 from which Eisenberg now appeals.
DISCUSSION
A. Preliminary Matters
To facilitate our discussion of the parties’ contentions on appeal, we begin with a summary of the applicable law, an explanation of Eisenberg’s disgorgement claim, and a more detailed discussion of the summary adjudication motion.
1. Applicable Law
Contractors in California are governed by the Contractors’ State License Law (the contractors’ law). (
At the time of construction at issue in this appeal, the contractors’ law provided that the qualifier “shall be responsible for exercising that direct supervision and control of his or her employer’s or principal’s construction operations as is necessary to secure full compliance with the provisions of this chapter and the rules and regulations of the board relating to the construction operations.” (Former
provide that “‘direct supervision and control’ includes any one or any combination of the following activities: supervising construction, managing construction activities by making technical and administrative decisions, checking jobs for proper workmanship, or direct supervision on construction job sites.” (Cal. Code Regs., tit. 16, § 823, subd. (b).)
One of the primary purposes of the contractors’ law is to protect the public. (See
subdivision (e), 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.” (Subdivision (e) addresses substantial compliance with licensure requirements, and is not at issue here.)
Section 7031(b) does not require the plaintiff seeking disgorgement to have suffered any injury. That is because “‘“[s]ection 7031 represents a legislative determination that the importance of deterring unlicensed persons from engaging in the contracting business outweighs any harshness between the parties, and that such deterrence can best be realized by denying violators the right to maintain any action for compensation [or requiring them to disgorge compensation already paid].“’” (MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412, 423 (MW Erectors), italics omitted; see also White v. Cridlebaugh (2009) 178 Cal.App.4th 506, 518-520.)
2. Eisenberg’s Disgorgement Claim
The facts relevant to Eisenberg’s section 7031(b) claim for disgorgement are as follows. Gregory Hescock was Suffolk’s RME under Suffolk’s license at the time the Contract was signed. At that time, Hescock worked out of Suffolk’s Irvine office.6 In the last half of
2008, Hescock transferred to Suffolk’s Boston office and moved to Massachusetts; nevertheless, he remained Suffolk’s designated RME on its California license.
Eisenberg alleges in its complaint that it was not aware at any time during the construction of the Project that Hescock was the RME under Suffolk’s California license, and that it first discovered a potential issue regarding the status of Suffolk’s RME in February 2015. Eisenberg alleges that, after Hescock transferred to Suffolk’s Boston office, he did not attend any meetings concerning the Project, did not communicate with any representative of Eisenberg (including the project manager for the Project) or DLR, and did not exercise direct supervision and control over anyone at Suffolk in connection with the Project. As a result, according to Eisenberg, Suffolk did not have a
3. Suffolk’s Motion for Summary Adjudication
a. Suffolk’s Motion
Suffolk sought summary adjudication of Eisenberg’s section 7031(b) claim on four grounds.
First, Suffolk contended the claim was barred by the one-year statute of limitations applicable to actions under a statute for a penalty
or forfeiture (
Second, Suffolk argued that Eisenberg’s claim failed as a matter of law because section 7068.1 does not provide for automatic—and retroactive—suspension of a contractor’s license upon its violation, namely, the RME’s failure to “exercis[e] that direct supervision and control of his or her employer’s or principal’s construction operations as is necessary to secure full compliance with the provisions of this chapter and the rules and regulations of the board relating to the construction operations” (former
“unlicensed contractor,” Suffolk argued Eisenberg’s claim necessarily failed.
Suffolk’s third and fourth arguments related to whether the evidence was such that Eisenberg would not be able to prove that Hescock fulfilled the requirements of an RME.
Eisenberg argued in opposition to Suffolk’s motion that its claim was not barred by the statute of limitation, and that there were disputed facts regarding whether Hescock satisfied his duties as Suffolk’s RME and whether his conduct would result in automatic suspension of Suffolk’s license. With regard to the statute of limitation, Eisenberg argued that the discovery rule applied to section 7031(b) claims because the rule applies to all invasions of legal rights. It argued that it did not know (and had no duty to inquire into) the identity of Suffolk’s RME until its attorney advised it of the potential claim in 2015. But Eisenberg argued that, in any event, its claim was timely filed because a section 7031(b) claim is really a claim for rescission, which is subject to a four-year statute of limitation under
c. Trial Court’s Ruling
After requesting, and receiving, supplemental briefing on certain issues, including the applicability of the delayed discovery rule to the statute of limitations, the trial court granted Suffolk’s motion on the statute of limitation ground. The court found that the one-year statute governing claims for penalties or forfeitures applied. Although the court declined to decide if the discovery rule applied, it found that even if it did, Eisenberg knew or easily could have discovered the facts making up the claim more than a year before Eisenberg filed its section 7031(b) claim because (1) the Contract provided Suffolk’s license number (on the first page); (2) the identity of Suffolk’s RME was public information that easily could be accessed; and (3) the undisputed evidence showed that Eisenberg knew that Hescock had moved to Massachusetts in late 2008 and did not participate in meetings regarding the construction or visit the construction site.
B. The Parties’ Contentions on Appeal
On appeal, Eisenberg contends the trial court erred in finding the one-year statute of limitation applies, arguing that a four-year or three-year statute should apply because (1) there is no statute specifying the limitation period for disgorgement, so
is similar to a refund or restitution, to which
As it argued in its summary adjudication motion, Suffolk argues in its respondent’s brief that the one-year statute of limitation applies to a section 7031(b) claim, and that Eisenberg’s claim accrued in 2008, when Hescock moved to Massachusetts, or no later than June 2010, when construction was completed. It also argues that the discovery rule does not apply because (1) it is an equitable rule; (2) the claim does not involve an “injury“; (3) the facts necessary to establish the elements of the claim were not hidden; and (4) the Legislature did not provide for application of the rule. It also argues that even if the discovery rule applies, the facts giving rise to the claim were known or publicly available in 2008, and Eisenberg’s ignorance of the law did not toll the running of the statute of limitation.8
Suffolk has the better argument.
1. Which Statute of Limitation Applies?
Title 2 of Chapter 2 of the Code of Civil Procedure sets forth statutes of limitation applicable to civil actions. The first provision of that title states: “Civil actions, without exception, can only be commenced within the periods prescribed in this title, after the cause of action shall have accrued, unless where, in special cases, a different limitation is prescribed by statute.” (
The parties identify three such statutes that might apply: (1) the three-year statute applicable to “[a]n action upon a liability created by statute, other than
applies to “[a]n action for relief not hereinbefore provided for” (
Given that the disgorgement at issue here is a liability created by statute, the applicable limitation statute must be either CCP 338(a) (if the disgorgement is not a penalty or forfeiture) or CCP 340(a) (if it is a penalty or forfeiture). Thus, contrary to Eisenberg’s assertion, the catch-all statute does not apply to a section 7031(b) claim. The issue to be resolved, then, is whether section 7031(b) disgorgement is a penalty or forfeiture.
Eisenberg contends that section 7031(b) disgorgement is not a penalty, but rather is restitution. In making this contention, it points to the Supreme Court’s definition of restitution in Clark v. Superior Court (2010) 50 Cal.4th 605 (Clark): “The word ‘restitution’ means the return of money or other property obtained through an improper means to the person from whom the property was taken. [Citations.] ‘The object of restitution is to restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest.’ [Citation.]” (Id. at p. 614.) The Supreme Court contrasted restitution, which it noted “is not a punitive remedy” (ibid.), with a penalty, which it described as “a recovery ‘“without reference to the actual damage sustained.“’” (Ibid.)
Eisenberg argues that, since section 7031(b) measures the recovery as “what was taken from the plaintiff,” it constitutes restitution rather than a penalty. However, contrary to Eisenberg’s characterization, recovery under section 7031(b) is not of something
that was “taken“; it is recovery of compensation paid under the terms of a contract. Section 7031 does not invalidate that contract. Rather, it precludes an unlicensed contractor (but not the other party to the contract) from enforcing the contract (
(Clark, supra, 50 Cal.4th at p. 614.) Accordingly, we hold that CCP 340(a), the one-year statute of limitation, applies to disgorgement claims brought under section 7031(b).
2. When Does a Disgorgement Claim Accrue?
Having determined that the one-year statute of limitation applies, we must determine when a section 7031(b) claim accrues. (See
courts (and, in some instances, the Legislature) have altered the traditional accrual rule for certain kinds of causes of action by applying the discovery rule.
The Supreme Court has explained that “the discovery rule most frequently applies when it is particularly difficult for the plaintiff to observe or understand the breach of duty, or when the injury itself (or its cause) is hidden or beyond what the ordinary person could be expected to understand.” (Shively v. Bozanich (2003) 31 Cal.4th 1230, 1248 (Shively); see also April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 831 [“A common thread seems to run through all the types of actions where courts have applied the discovery rule. The injury or the act causing the injury, or both, have been difficult for the
plaintiff to detect“].) It is an equitable rule, intended to avoid unjustly depriving plaintiffs of a remedy for their injuries when they have been diligent in seeking to protect their rights. (Shively, supra, 31 Cal.4th at pp. 1249-1250.)
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).11 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
In contrast, if we were to hold that the discovery rule applied, it would be nearly impossible to formulate rules for its application that could be consistently applied while staying true to the policies underlying statutes of limitation, i.e., “protecting parties from ‘defending stale claims, where factual obscurity through the loss of time, memory or supporting documentation may present unfair handicaps’ . . . [and] stimulat[ing] plaintiffs to pursue their claims diligently.” (Fox, supra, 35 Cal.4th at p. 806.) Since section 7031(b) does not require any injury to the plaintiff, what kinds of facts would give rise to a reason to suspect a factual basis for the claim? If the plaintiff has no duty to investigate whether the contractor was properly licensed absent some sort of facts that would put him or her on notice, there would be, in effect, no time limitation at all in most cases.
For example, say a plaintiff contracts with a contractor to construct a building for several million dollars. Unbeknownst to the plaintiff, the contractor either did not have a valid license, or its license was suspended during part of the construction. The building is built, and there are no problems with the construction or the building. Ten years later, the plaintiff’s business is failing and he or she is looking for a source of funds. He or she happens to come across an article about a section 7031(b) case, or speaks to an attorney who happens to have knowledge of section 7031(b), so the plaintiff decides to check the contractor’s license records and discovers that the license had lapsed or been suspended during the construction, i.e., the plaintiff “discovers” the “wrongdoing.” If the discovery rule applied, the plaintiff could file a
section 7031(b) claim and get back all the compensation paid for construction of a building that the plaintiff has used (and presumably will continue to use) without any problems for 10 years. An absurd result, to be sure, but there would be no principled way to avoid it under the discovery rule, because there was no reason for the plaintiff to suspect that the contractor’s license had lapsed or been suspended during the construction.
To avoid such absurd results, and because there is no reason in equity to apply it, we hold that the discovery rule does not apply to section 7031(b) claims. Thus, the ordinary rule of accrual applies, i.e., the claim accrues “‘when the cause of action is complete with all of its elements.’” (Fox, supra, 35 Cal.4th at p. 806
3. Application to This Case
In the present case, Suffolk completed its construction of the Project in June 2010. Thus, Eisenberg’s section 7031(b) claim ordinarily would be time-barred after June 2011. In this case, however,
Suffolk apparently did some additional work to remedy the hot water problem Eisenberg was experiencing immediately after completion of construction and in 2012, although it is unclear from the record whether such work would be considered to be work under the original Contract or under a new agreement. In any event, however, it is clear that by the time Eisenberg amended its complaint to allege claims against Suffolk for breach of contract and negligence, Suffolk had ceased all performance under any agreement with Eisenberg. That amended complaint was filed on March 25, 2014. Eisenberg did not allege its section 7031(b) claim until it filed its second amended complaint on May 18, 2015, more than a year later. Thus, the trial court correctly found that Eisenberg’s section 7031(b) claim is barred by the one-year statute of limitation set forth in CCP 340(a).
DISPOSITION
The judgment is affirmed. Suffolk shall recover its costs on appeal.
CERTIFIED FOR PUBLICATION
WILLHITE, Acting P. J.
We concur:
COLLINS, J. CURREY, J.