(SAN FRANCISCO, August 20, 2015)—The Judicial Council of California today achieved an important victory in the California Court of Appeal, which reaffirmed that the Contractors’ State License Law (CSLL) is a tough measure intended to protect the public from contractors who allow their licenses to lapse. Paul D. Fogel and Dennis Peter Maio of Reed Smith represented the Judicial Council in the appeal.

In Judicial Council of California, Administrative Office Of The Courts v. Jacobs Facilities, Inc., et al., the First District Court of Appeal held that under the CSLL, a contractor must remain licensed for the entire term of the contract, subject to strict penalties for failure to do so.

The case dates back to 2009, when Jacobs Facilities, Inc. (JFI) violated the CSLL by intentionally allowing its contractor’s license to expire while still under a multi-year contract with the Judicial Council to provide millions of dollars in construction, operations, and management services for California court facilities.

The Judicial Council later discovered that JFI had been unlicensed for nearly a year, in violation of a law whose purpose is to protect the public from adverse consequences of a contractor who performs work while unlicensed. The Council sued JFI for violation of the CSLL, seeking to recoup the millions of dollars it had paid JFI for unlicensed work, and to be relieved of further payments covering the period in question. At trial, however, JFI persuaded a San Francisco jury that its CSLL violation could be excused because—without the knowledge or the required consent of the Judicial Council—JFI had assigned the Judicial Council’s contract to a sister company. The trial court entered judgment in favor of JFI.

However, today’s unanimous opinion—authored by Associate Justice Sandra L. Margulies, with Associate Justice Robert L. Dondero and Presiding Justice Barbara J.R. Jones, concurring—reverses that judgment, but allows JFI to try to prove a “substantial compliance” defense on remand to the trial court, which has been directed to determine the matter in a bench hearing rather than in a jury trial. The opinion also agreed with the Judicial Council’s arguments that the trial court erroneously relied on various contract provisions to award the defendants attorney’s fees, with the Court of Appeal ruling that unless there is some other basis for fees—and JFI offered none—no fees are awardable to the prevailing party, as the Judicial Council argued.

“In demanding strict adherence to the CSLL, rather than embracing elaborate arguments for avoiding compliance, the court sent a clear message today,” said Mr. Fogel, one of the Judicial Council’s appellate counsel. “The CSLL is crystal clear, and its sanctions admittedly harsh. But the consequences of nonlicensure—the loss of workers’ compensation and other insurance protections—are potentially serious, and the courts have made it clear that contractors may not seek ways to avoid the law’s clear requirements.”

Mr. Fogel expressed confidence that JFI won’t be able to prove its substantial compliance defense. “After all,” he said, “JFI would have to prove that it made an effort to keep its license and to have it reinstated once it expired. However, at trial, a JFI vice president admitted that JFI intentionally allowed its license to expire and never attempted to get it back.”

About the Judicial Council

The California court system is the nation’s largest, serving some 36 million people with more than 2,000 judicial officers and 19,700 court employees working in 451 courts located around the state. The Judicial Council is the constitutionally created, 28-member policymaking body of the California courts, and is supported by Judicial Council staff (formerly called the Administrative Office of the Courts).