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White v. Cridlebaugh

October 20, 2009

ROBERT D. WHITE ET AL., PLAINTIFFS AND APPELLANTS,
v.
TERRY E. HARPER CRIDLEBAUGH ET AL., DEFENDANTS AND RESPONDENTS.



APPEAL from a judgment of the Superior Court of Kern County. Sidney P. Chapin, Judge. (Super. Ct. No. CV258815).

The opinion of the court was delivered by: Dawson, J.

Opinion following rehearing

CERTIFIED FOR PARTIAL PUBLICATION*fn1

OPINION

Homeowners sued a building contractor, supplier, surety, and individuals involved in the construction of their retirement home for breach of contract, negligence, fraud, and violations of California's licensure requirements. The trial court allowed certain theories against the building contractor to go to the jury but granted non-suit and directed verdicts on the rest. The jury then found against the homeowners and for the building contractor. After entry of judgment against the homeowners, they appealed.

In the published portion of this opinion, we conclude the corporation that acted as the building contractor on the project violated California's licensure requirements and, based on that violation, the homeowners are entitled under Business and Professions Code section 7031, subdivision (b) (section 7031(b))*fn2 to recover all compensation paid to the contractor for the unlicensed work. Also, as a matter of statutory construction, we conclude that the recovery authorized by section 7031(b) may not be reduced by an unlicensed contractor's claim of offset for materials and services provided in connection with the unlicensed work. We note that the latter conclusion qualifies for publication because, among other things, some secondary authorities create the impression that an unlicensed contractor may assert offset as a defense to the liability imposed by section 7031(b).

In the unpublished portion of this opinion, we conclude that (1) the homeowners' pleading adequately stated their section 7031(b) reimbursement claim, (2) the homeowners failed to demonstrate the trial court committed reversible error in granting non-suit on certain claims and directed verdicts on others, (3) the trial court's determinations regarding alter ego are supported by substantial evidence, (4) the trial court's exclusion of certain testimony under Evidence Code section 352 was not an abuse of discretion, and (5) the homeowners, as the prevailing party, are entitled to recover their court costs from the contractor.

Accordingly, the judgment will be modified.

FACTS AND PROCEEDINGS

Robert D. White (White) and Carole K. White wanted to build a retirement home on an empty lot in Pine Mountain Club, California. Terry E. Harper Cridlebaugh (Cridlebaugh), Vickie Harper Cridlebaugh, Robert Paul Diani, JC Master Builders, Inc., and Building Technology are individuals and entities involved in the initial phases of building that home. Surety Company of the Pacific provided the contractor's bond for JC Master Builders, Inc.

The Construction Project

The Whites purchased the empty lot in Pine Mountain Club in 2005 for the purpose of building their retirement home. The Whites had been looking at log homes for a number of years, and White obtained estimates on log home packages.

The Whites met the Cridlebaughs at church. In February 2006 or earlier, Carole White attended a women's prayer meeting at their church and Vickie Cridlebaugh told her that they, the Cridlebaughs, desperately needed work. They prayed about it and decided that since the Whites needed to have a house built and the Cridlebaughs needed work, it might be a good fit. The Whites also went and looked at a log home that Cridlebaugh was building.

When they reached the point of entering a contract, White suggested a time and materials contract. Cridlebaugh drafted an initial contract which, after making a few changes, the parties signed on March 14, 2006. Prior to signing the contract, the parties reviewed the plans and specifications for the project. Although the contract listed the owners as the general contractor, White testified that his understanding with Cridlebaugh was that Cridlebaugh would do the actual work on the site and was responsible for reading the plans and doing the work on the drawings. They also discussed the foundation, which "was a slab on grade walkout first floor."

In March 2006, Cridlebaugh began work by clearing brush from the site. The rough grading was complete by April 21st. At about that time, White became concerned with the amount of excavating that Cridlebaugh was doing and asked him to get a soils engineer to test the site. Cridlebaugh responded that he would know when to get a soil test.

Cridlebaugh excavated to a depth of seven feet or more. He testified that the excavation was necessary because of the top soil, the slope, and Kern County grading regulations. He also testified the excavation was consistent with the elevations indicated on the plans, which showed that the soil at one corner of the house was six and half feet lower than an uphill corner. In contrast, the Whites contend that the pad staking document prepared by Prewitt Land Surveying indicated a cut and fill excavation for the slab-on-grade pad for the first floor and that Cridlebaugh did not follow that document or the other plans. Also, White testified that JC Master Builders, Inc., substantially exceeded the budget that he, White, had established for site preparation.

White's concerns led him to request Cridlebaugh to subcontract the grading work to L & M Construction, which was familiar with the area and had equipment on the hill where the Whites' lot was located. White also asked Cridlebaugh to get a rebar contractor to do the rebar because Cridlebaugh did not have anyone experienced to do the work. White was concerned with paying Cridlebaugh to drive back and forth between the job site and Frazier Park, which is where Cridlebaugh bent the rebar. White believed the rebar should be bent on site.

White also was concerned with the billings he received from JC Master Builders, Inc., which he considered convoluted. For example, Cridlebaugh would convert the time of laborers he hired into time that was billed at his hourly rate. Cridlebaugh said it was easier to do on his computer than having a separate hourly rate for each laborer. With respect to billing for materials, the invoices showed a lump sum instead of indicating how many units of the material were used and the cost per unit. Also, the invoices indicated the source of the material was Building Technology*fn3 and did not state where the items had been purchased. White asked Cridlebaugh for the invoices from the suppliers at least five times but they were not provided. White was concerned that unpaid suppliers might place a lien on the lot.

Through mid-May, 2006, White paid the bills of JC Master Builders, Inc., because "I had no reason to believe that they would not perform and keep their agreement to operate the business with ... integrity ...."

On June 19, 2006, White sent Cridlebaugh a memo confirming his oral instructions to Cridlebaugh to stop all construction activities until he provided the original documents requested by White to verify the billings. On June 22, 2006, White sent Cridlebaugh a letter stating that the relationship was finished. White testified that Cridlebaugh finished returning rebar and then stopped work.

On July 14, 2006, JC Master Builders, Inc., filed a mechanic's lien in the amount of $13,561.62 against the Whites' lot.

Contractor's License

A July 2006 printout from the Web site of the California State Licensing Board indicated that JC Masters Builders, Inc., was a corporation with a class A (general engineering contractor) and class B (general building contractor) license that was issued in October 2002 and would expire in October 2006. The contractor's license was No. 814144. The printout listed the contractor's bond as No. 6059576 issued by Surety Company of the Pacific in the amount of $10,000. The printout identified Robert Paul Diani as the qualifying individual and the responsible managing officer, who had certified that he owned 10 percent or more of the voting stock of the corporation.

Diani testified that (1) he was the registered owner of JC Master Builders, Inc., (2) he had been an absentee officer of the corporation, and (3) he had turned over any dealings and daily work of JC Master Builders, Inc., to Cridlebaugh. Diani went to Peru in 2004 to act as an independent missionary. In the two and half years before his deposition, Diani had returned to the United States twice.

The last time Diani had taken active control of JC Master Builders, Inc., was prior to leaving in August 2004 and after that he had left all management and supervision decisions to Cridlebaugh. For example, Diani had not discussed the contract between the Whites and JC Master Builders, Inc., with Cridlebaugh until after the lawsuit was filed. Also, Diani had not been aware that Cridlebaugh had used JC Master Builders, Inc., to sue the Whites and place a mechanic's lien on their property.

Cridlebaugh has never held a California contractor's license. Ownership and Control of JC Master Builders, Inc.

Diani testified that (1) he did not own any stock in JC Master Builders, Inc., (2) "Terry should own the stock," (3) he gave the stock to Cridlebaugh, and (4) he did not have any documents showing such a transfer of stock.

Cridlebaugh testified that he did not own any voting stock in JC Master Builders, Inc., and that Diani owned all of the voting stock. Cridlebaugh testified that JC Master Builders, Inc., held board of directors meetings and that Diani and he attended those meetings. Diani testified that board meetings had not been held in the last couple of years.

Cridlebaugh identified his roles with JC Master Builders, Inc., as chief financial officer, secretary, and employee.

Diani also testified that he did not receive any compensation or profits from JC Master Builders, Inc., and stated that he hoped Cridlebaugh was making an income from JC Master Builders, Inc., because that was why he let Cridlebaugh use the license.

PROCEEDINGS

In early August 2006, the Whites filed a complaint. Their operative pleading in this case is a second amended complaint that alleged 10 causes of action and named the Cridlebaughs, Diani, JC Master Builders, Inc., Building Technology, and Surety Company of the Pacific as defendants. The causes of action were labeled (1) breach of contract, (2) negligence, (3) breach of express and implied warranties, (4) strict liability, (5) fraud, fraudulent transfer and concealment, (6) intentional and negligent misrepresentation, (7) construction and trade practice, state license law and action against surety, (8) punitive damages, (9) attorney fees and costs, and (10) alter ego theory.

In October 2006, JC Master Builders, Inc., filed a complaint against the Whites for breach of contract, quantum meruit, and foreclosure of the mechanic's lien for $13,561.62 it recorded against the Whites' parcel in mid-July 2006 (the mechanic's lien action).

The Whites filed a demurrer to JC Master Builders, Inc.'s complaint in the mechanic's lien action, contending the claims should have been asserted as a cross-complaint in their lawsuit. In January 2007, the trial court ordered the two actions consolidated, with the Whites' action being the lead case.

The jury trial began on July 2, 2007. The next day, the trial court held an Evidence Code section 402 hearing on defendants' motion in limine to exclude the testimony of Robert Rosen. Rosen also had entered into a contract with JC Master Builders, Inc., had become embroiled in a dispute with the company and Cridlebaugh, and had had a mechanic's lien recorded against his property. Counsel for the Whites argued that Rosen's experience shared 11 points in common with the Whites', and Rosen's testimony demonstrated a common plan or design, which qualified it for an exception to the general exclusion of character evidence contained in Evidence Code section 1101.*fn4 At the end of the hearing, the trial court granted the motion and excluded the testimony of Rosen.

The Whites rested their case on July 9, 2007. Defendants began their case with Cridlebaugh's testimony, but the testimony was interrupted when the trial court considered two motions. First, the trial court denied as premature the Whites' motion for a directed verdict. Second, the trial court heard arguments on defendants' written motion for judgment of non-suit. The court granted the motion for non-suit on the fraudulent transfer and breach of express warranty claims and denied it as to all other claims.

On July 10, 2007, the testimony of Cridlebaugh was completed and the defense rested its case. The trial court admonished the jurors, told them to report at 1:00 p.m. the next day, and then discussed evidentiary issues with counsel. The court also severed the alter ego claim from the claims to be presented to the jury.

The next morning, counsel for the Whites filed a motion under Code of Civil Procedure section 630 for relief under Business and Professions Code section 7031. After hearing arguments on the motion and taking a recess to review the authorities cited, the trial court granted the Whites' motion for a directed verdict in the mechanic's lien action. The trial court orally explained its ruling as follows:

"[I]t's not a matter of equity, it's not a matter of balance, it's a matter of policy behind the licensing laws and the results are harsh. They have become harsher since 200[1] with the amendment to that section because the Court's motion for directed verdict will include not only a judgment [sic] for dismissal of the affirmative claims of JC Master Builders, an order to dissolve the mechanic's lien, but an order for disgorgement of all amounts received under the contract by JC Master Builders; that being the $84,000 and change as provided in [section 7031(b)]. The sub paragraph speaking to recovery by the owner of the property."

The trial court discussed the potential harshness of this result, recognizing that the jury could conclude from the evidence and arguments that JC Master Builders, Inc., had done a good job and an appropriate job with the Whites getting a better place than originally contemplated.

In the afternoon, the trial court instructed the jury, and counsel for the parties presented their closing arguments. Out of the presence of the jury, the trial court heard argument on the issues relating to the alter ego claims and took that matter under submission.

The jury returned its verdict during the afternoon of July 12, 2007. The verdict forms set forth the jury's findings with respect to specific questions regarding (1) breach of contract, (2) negligence, (3) intentional misrepresentation, (4) concealment, and (5) negligent misrepresentation.

The jury found JC Master Builders, Inc., did not conceal an important fact from the Whites or make a false representation of an important fact to the Whites. The jury also found for JC Master Builders, Inc., on the breach of contract claim, specifically finding (1) the Whites did not do substantially all of the things the contract required and (2) they were not excused from doing those things.

The jury determined JC Master Builders, Inc., was negligent, but the negligence was not a substantial factor in causing harm to the Whites. The verdict form for negligent misrepresentation shows the jury found that JC Master Builders, Inc., falsely represented an important fact to the Whites without a reasonable ground for believing the representation was true. The jury, by a ten-to-two vote, found JC Master Builders, Inc., did not intend the Whites to rely on the misrepresentation. As a result, the jury did not address whether the Whites reasonably relied on the misrepresentation or whether the misrepresentation was a substantial factor in causing harm to the Whites.

On July 16, 2007, the trial court filed a judgment on verdict, directed verdicts, and court's judgment on alter ego. The document (1) stated judgment was granted for the Whites in the mechanic's lien action based on the order granting their motion for directed verdict against JC Master Builders, Inc.; (2) ordered the mechanic's lien dissolved; and (3) pursuant to section 7031(b), stated JC Master Builders, Inc., was to reimburse the Whites $84,621.45, plus interest from and after July 1, 2006.

The document granted judgment in the Whites' action as follows. JC Master Builders, Inc., was granted judgment in its favor on all of the Whites' claims submitted to the jury. The Cridlebaughs, Diani, and Building Technology received judgment in their favor and against the Whites on all causes of action, except the seventh and tenth, based on the orders granting motions for non-suit and directed verdict. On the tenth cause of action (alter ego), the defendants received judgment in their favor based on the trial court's determination that the Whites did not carry their burden of proof. Surety Company of the Pacific was granted judgment in its favor and against the Whites on the seventh cause of action.

The parties subsequently filed memoranda of costs. The Whites requested costs totaling $7,764.10 and the defendants requested costs totaling $10,688.79. Each side also filed a motion to tax the costs requested by the other side. Ultimately, the trial court determined that the parties would bear their own costs.

In August 2007, each side filed a motion for new trial. Defendants also filed a motion for judgment notwithstanding the verdict. The trial court heard argument on these motions in late August, took them under submission, and issued its ruling on September 10, 2007.

The ruling is set forth in the register of action/docket that is part of the appellate record. The trial court denied both motions for a new trial and partially denied defendants' motion for judgment notwithstanding the verdict. The partial grant of JC Master Builders, Inc.'s motion for judgment notwithstanding the verdict vacated the prior judgment granting the Whites reimbursement of the money paid to JC Master Builders, Inc., which reimbursement was the only recovery the Whites had achieved in the litigation.

Also on September 10, 2007, the trial court filed an amended judgment on verdict, directed verdicts, and court's judgment on alter ego that ...


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