Opinion
B228093
09-27-2011
ARKIUS, INC., Plaintiff and Appellant, v. HYUNDAE HEALTH CENTER, INC., et al., Defendants and Respondents.
Law Offices of J. John Oh and J. John Oh for Plaintiff and Appellant. David D. Kim & Associates, David D. Kim, Daniel A. De Soto and Mark M. Higuchi for Defendants and Respondents.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. BC415114)
APPEAL from an order of the Superior Court of Los Angeles County. Zaven V. Sinanian, Judge. Reversed.
Law Offices of J. John Oh and J. John Oh for Plaintiff and Appellant.
David D. Kim & Associates, David D. Kim, Daniel A. De Soto and Mark M. Higuchi for Defendants and Respondents.
The license of a contractor who fails to obtain or maintain workers' compensation insurance coverage will be suspended automatically by operation of law. (Bus. & Prof. Code, § 7125.2.) An unlicensed contractor may not sue for unpaid work that requires a license. (§ 7031, subd. (a).)
Further unspecified statutory references are to the Business and Professions Code.
Here we consider whether a corporate licensed contractor that may have underreported its payroll to the State Compensation Insurance Fund is subject to the sanctions of section 7031, subdivision (a), because of an automatic forfeiture of its existing workers' compensation insurance and automatic suspension of its license under section 7125.2. We conclude in this situation no suspension of the contractor's license occurred, and the trial court erred in granting nonsuit against the contractor on that ground. We shall therefore reverse the trial court's judgment in favor of defendants.
BACKGROUND
From October 2008 to January 2009, plaintiff Arkius, Inc., a general contractor, entered into several agreements with defendant Charles Yeh by which it agreed to provide construction services on Ardmore Plaza, commercial real property located in Los Angeles. Arkius provided all services pursuant to the agreements but Yeh failed to pay for the work. Arkius filed a complaint alleging causes of action for breach of contract and common counts against several defendants. After several defaults were taken the only remaining defendants were Charles and Christine Yeh. Defendants answered, asserting general denials and the affirmative defenses of failure to state a cause of action, offsetting damages, and unclean hands.
Plaintiff served form interrogatories individually on the Yehs and requests for admission on Mr. Yeh. Interrogatory No. 14.1 asked if defendants contended that any person violated any statute, ordinance or regulation. Interrogatory No. 50.5 asked if defendants contended that any agreement alleged in the pleadings was unenforceable. Mr. Yeh answered no to both. Mrs. Yeh answered that she did "not have personal knowledge as to any of the facts and circumstances of the subject Complaint of Plaintiff's case." Request for Admission No. 1 asked that Mr. Yeh admit the truth of the allegations in the first paragraph of the complaint. In that paragraph, plaintiff alleged it was at all relevant times a California corporation and licensed general contractor. Mr. Yeh made the admission. The record does not reflect that a corresponding request was made of Mrs. Yeh.
Notwithstanding Mr. Yeh's admission to the contrary, the Yehs in their trial brief contended plaintiff was not a licensed contractor and therefore could not seek to enforce the construction agreements. This was so, defendants argued, because plaintiff had paid some of its employees in cash for work on Ardmore Plaza, which meant it underreported its payroll to the State Compensation Insurance Fund, causing its workers' compensation insurance to lapse and resulting in automatic suspension of its license by operation of law.
The trial court bifurcated the trial and ordered that the issue of plaintiff's licensure be tried first.
Plaintiff submitted a copy of its corporate contractor's license and called Pius Kim, its principal owner and the qualifier for the license. Mr. Kim testified he had been a licensed general contractor in good standing continuously for approximately 17 years. He had never received any notice from the State Contractor's Licensing Board that his license was suspended. Plaintiff also called Justine Yi, its controller, who testified that she fully reported plaintiff's payroll, including amounts paid to employees in cash, to the State Compensation Insurance Fund and had obtained workers' compensation coverage for all relevant time periods. Yi produced a copy of plaintiff's State Compensation Insurance Fund Certificate demonstrating coverage.
Defendants called Alex Valles, who had worked for plaintiff on several projects simultaneously, one of which was Ardmore Plaza. Valles testified he and other employees generally worked six days a week, spent "[a]bout three or four days a week" at Ardmore Plaza, and were paid half in cash for their work and half by check. He did not know if the cash payments were for work on Ardmore Plaza or the other jobs, but testified the employees worked more than 70% of the time at Ardmore Plaza and received 50% of their overall wages in cash. Valles was not asked whether there had been any payroll withholdings.
Respondents also called Mr. Yeh, who testified he was unaware of any cash payments made to employees working at Ardmore Plaza.
Following argument, the trial court stated it was not convinced by the evidence that plaintiff's employees were not paid cash for work performed at Ardmore Plaza and that payroll taxes were paid. "So, in my opinion," the court concluded, "there is a violation." The court found plaintiff "had not met its burden of showing that [its] employees . . . were subjected to the payroll taxes required by the workers' compensation insurance fund" and concluded plaintiff's license was therefore automatically suspended by operation of law at the time it performed construction work on Ardmore Plaza. The court then granted defendants' motion for nonsuit. Arkius appeals from the judgment.
DISCUSSION
Arkius contends (1) Mr. Yeh's admission that plaintiff's licensure was not disputed precluded litigation of the issue; (2) no evidence suggested plaintiff's workers' compensation coverage had lapsed; and (3) the court failed to determine whether plaintiff was in substantial compliance with the licensing statutes.
A. Mr. Yeh's Admission Was Conclusive As To Him
Any party may obtain discovery by a written request that another party "admit the genuineness of specified documents, or the truth of specified matters of fact, opinion relating to fact, or application of law to fact." (Code Civ. Proc., § 2033.010.) "Any matter admitted in response to a request for admission is conclusively established against the party making the admission in the pending action, unless the court has permitted withdrawal or amendment of that admission under Section 2033.300." (Code Civ. Proc., § 2033.410, subd. (a).)
A request for admission is more than a mere discovery device; it also serves a function similar to the pleadings in that it is aimed primarily at setting to rest a triable issue to save the time and expense of preparing for unnecessary proof. (Cembrook v. Superior Court (1961) 56 Cal.2d 423, 429; Valerio v. Andrew Youngquist Construction (2002) 103 Cal.App.4th 1264, 1272.) Absent a court-permitted amendment or withdrawal, no contradictory evidence may be introduced because the admission constitutes an incontrovertible judicial admission. (Murillo v. Superior Court (2006) 143 Cal.App.4th 730, 735-736.)
In the first paragraph of the complaint, plaintiff alleged it was a California corporation and licensed general contractor. Mr. Yeh admitted the allegations of the first paragraph were undisputed. This admission effectively removed the status of plaintiff's license from dispute. Mr. Yeh could not revive the issue without first seeking and obtaining permission to amend his response. He did not do so. The trial court's grant of nonsuit based on the status of plaintiff's license was therefore error requiring reversal.
Mr. Yeh does not deny he admitted plaintiff was a licensed contractor. He argues that because he is neither a contractor nor an attorney he could not and did not "know" plaintiff's license had been suspended, and therefore did not admit any fact as to whether plaintiff was licensed.
The argument is meritless. The purpose of the request was not to ascertain Mr. Yeh's knowledge or determine ultimate facts, it was to settle Yeh's contentions. As a party defendant, only Mr. Yeh knew what his contentions were, and plaintiff had the right to rely on his admission regarding them. Neither can Mr. Yeh object that the request for admission concerned a legal question. Even when a request calls for a conclusion of law, the respondent must make the admission if he does not in good faith intend to contest the issue at trial, thereby setting at rest a triable issue, or he must set forth in detail the reasons why he cannot truthfully admit or deny the request. (Burke v. Superior Court (1969) 71 Cal.2d 276, 282; Hillman v. Stults (1968) 263 Cal.App.2d 848, 887 [the fact that a request for admission calls for an opinion is of no moment].) If some time after making the admission Mr. Yeh realized he did in fact contest plaintiff's licensure, he was obligated to seek leave to serve an amended response to that effect. (Jahn v. Brickey (1985) 168 Cal.App.3d 399, 404.) His failure to do so concluded the matter for purposes of trial.
Mr. Yeh also argues the request was ambiguous. We disagree. "Although admissions are dispositive in most cases, a trial court retains discretion to determine their scope and effect. An admission of a fact may be misleading. In those cases in which the court determines that an admission may be susceptible of different meanings, the court must use its discretion to determine the scope and effect of the admission so that it accurately reflects what facts are admitted in the light of other evidence." (Fredericks v. Kontos Industries (1987) 189 Cal.App.3d 272, 277.) But here, Mr. Yeh's admission is not susceptible of different meanings—it could mean only that he did not intend to contend plaintiff was unlicensed. We realize that at the time he made the admission Mr. Yeh did not know plaintiff's license might be subject to forfeiture for failure to secure or maintain workers' compensation insurance, but the request sought to elicit only his contentions, not his knowledge. Once his knowledge increased and contentions changed, he was obligated to amend his response.
B. Mr. Yeh's Admission Was Not Conclusive As To Mrs. Yeh
The above discussion does not apply to Mrs. Yeh, because Mr. Yeh's admission was not binding on her. (Code Civ. Proc., § 2033.410, subd. (b) [an admission made by a party is binding only on that party].)
C. Plaintiff's License Was Not Suspended
The trial court granted nonsuit after finding plaintiff presented insufficient evidence to indicate it fully reported its payroll to the State Compensation Insurance Fund and therefore failed to show that its workers' compensation insurance had not automatically lapsed and that its contractor's license was not automatically suspended. This was error.
At the outset we note that although defendants moved for and the trial court purported to grant "nonsuit," and the parties on appeal refer to the motion as being for nonsuit, a motion for nonsuit is not available in a court trial after evidence has been presented. (Code Civ. Proc., § 581c; Lingenfelter v. County of Fresno (2007) 154 Cal.App.4th 198, 206.) Defendants actually moved for judgment pursuant to Code of Civil Procedure section 631.8, which provides in pertinent part that "[a]fter a party has completed his presentation of evidence in a trial by the court, the other party . . . may move for a judgment."
"The standard of review of a judgment and its underlying findings entered pursuant to [Code of Civil Procedure] section 631.8 is the same as a judgment granted after a trial in which evidence was produced by both sides. In other words, the findings supporting such a judgment 'are entitled to the same respect on appeal as are any other findings of a trial court, and are not erroneous if supported by substantial evidence.' [Citations.]" (San Diego Metropolitan Transit Development Bd. v. Handlery Hotel, Inc. (1999) 73 Cal.App.4th 517, 528.) "The appellate court views the evidence in the light most favorable to the respondents [citation], resolves all evidentiary conflicts in favor of the prevailing party and indulges all reasonable inferences possible to uphold the trial court's findings [citation]." (Ibid.) But "when the decisive facts are undisputed, the reviewing court is confronted with a question of law and is not bound by the findings of the trial court. [Citation.] In other words, the appellate court is not bound by a trial court's interpretation of the law based on undisputed facts, but rather is free to draw its own conclusion of law." (Ibid; Plaza Home Mortgage, Inc. v. North American Title Co., Inc. (2010) 184 Cal.App.4th 130, 135.)
Where, as here, the decisive facts are undisputed, our review is de novo.
"If a corporation applies for a contractor's license, the corporation must qualify through either a responsible managing officer or a responsible managing employee (qualifier), who is qualified for the licensing classification for which the corporation is applying. (§ 7068, subd. (b)(3).) The qualifier must be a bona fide officer or employee of the corporation and must be actively engaged in the work covered by the license. (Id., subd. (c).) The qualifier must exercise direct supervision over the work for which the license is issued to the extent necessary to secure full compliance with the provisions of the law. (§ 7068.1.)" (Wright v. Issak (2007) 149 Cal.App. 4th 1116, 1123 (Wright).)
The Contractors' State License Law (CSLL; § 7000 et seq.) imposes strict penalties for the unlicensed performance of contracting services. "Among other things, the CSLL states a general rule that, regardless of the merits of the claim, a contractor may not maintain any action, legal or equitable, to recover compensation for 'the performance of any act or contract' unless he or she was duly licensed 'at all times during the performance of that act or contract.' [Citation.]" (MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412, 418.)
A contractor's license will be suspended automatically by operation of law if the contractor fails to obtain or maintain workers' compensation insurance coverage. (§ 7125.2.)
Plaintiff acknowledges that the work at Ardmore Plaza required a contractor's license and admits that unless it was licensed it could not sue defendants for money due because of the work. But plaintiff contends it possessed both workers' compensation insurance and a contractor's license while performing work at Ardmore Plaza.
The record supports the contention. Pius Kim, plaintiff's principal owner and the qualifier for its contractor's license, testified he and plaintiff were licensees in good standing during the Ardmore Plaza construction. Plaintiff's controller testified plaintiff maintained workers' compensation coverage and never received notice that its coverage had lapsed or its license was suspended due to failure to maintain coverage. Plaintiff provided copies of its corporate contractor's license and a State Compensation Insurance Fund certificate. This evidence satisfied its burden of showing it was licensed.
Defendants did not challenge the admissibility or probity of plaintiff's evidence or dispute that plaintiff ostensibly possessed both a contractor's license and a certificate of workers' compensation insurance during the time it worked at Ardmore Plaza. Instead, defendants argue plaintiff "failed to prove that its employees were not paid cash or that its unlicensed employees were subjected to the requisite payroll taxes, and consequently [plaintiff] did not have workers compensation insurance, triggering the automatic suspension of its license under [section] 7125.2."
Defendants' argument fails at the outset, as no evidence suggests plaintiff underreported its payroll to the State Compensation Insurance Fund. On the contrary, Ms. Yi, plaintiff's controller, testified plaintiff fully reported all payroll, including amounts paid in cash, biannually to the Fund to establish plaintiff's workers' compensation insurance premium. Defendants offered no evidence in rebuttal. They merely assume that because plaintiff paid half of its workers' wages in cash, it underreported its payroll. The trial court had no ground to conclude plaintiff underreported its payroll.
Assuming for the sake of argument that plaintiff underreported its payroll, that would not result in automatic forfeiture of existing workers' compensation insurance. Defendants rely on Wright for the proposition that it would, but neither Wright nor any authority we have found supports the proposition.
In Wright, the plaintiff, a contractor, while having an actual payroll of $135,000, reported to the State Compensation Insurance Fund a payroll of only $312. The plaintiff "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. Plaintiff's underreporting was not inadvertent. It was his pattern and practice from the first moment he applied for workers' compensation insurance." (149 Cal.App.4th at p. 1119.) The record in Wright suggested the contractor there intentionally underreported his payroll so that he would be excluded from the requirement of obtaining a policy of workers' compensation insurance, and never had such a policy. (See Lab. Code, § 3352, subd. (h) [any person earning less than $100 per 90 days not considered an employee]; Bus. & Prof. Code, § 7125, subd. (b) [contractor who has no employees need not obtain workers' compensation insurance as a condition precedent to the issuance or continued maintenance of a contractor's license]; see generally Heiman v. Workers' Comp. Appeals Bd. (2007) 149 Cal.App.4th 724, 734-735.)
Section 7125.2 states in pertinent part that "[t]he failure of a licensee to obtain or maintain workers' compensation insurance coverage, if required under this chapter, shall result in the automatic suspension of the license by operation of law . . . ." The court in Wright held that under section 7125.2, "a contractor's license is automatically suspended as of the date the contractor was required to obtain workers' compensation insurance but did not." (149 Cal.App.4th at p. 1121.) The language of section 7125.2 "cannot be clearer," the court stated. "Its effect is that, because plaintiff underreported his payroll and, thus, did not obtain workers' compensation insurance in 2004, plaintiff's license was suspended before, during, and after he performed work on defendants' home." (Ibid.) "A case about underreporting payroll is, by definition, a failure-to-obtain case . . . ." (Id. at p. 1122, italics added.)
Defendants argue plaintiff's license was automatically suspended under Wright. The same argument was rejected in a recent case that is indistinguishable from ours. In Loranger v. Jones (2010) 184 Cal.App.4th 847 (Loranger),property owners contended that a contractor who had inadvertently underreported his payroll automatically forfeited his workers' compensation insurance under Wright, which resulted in suspension of his contractor's license under section 7125.2. In rejecting the argument, then appellate court justice Cantil-Sakauye distinguished Wright: "'"It is the general rule that the language of an opinion must be construed with reference to the facts presented by the case, and the positive authority of a decision is coextensive only with such facts."' [Citation.] In Wright, supra, 149 Cal.App.4th at page 1119, the limited facts before the court strongly suggest the contractor there did not have and never had a policy of workers' compensation insurance, that he intentionally underreported the wages he was paying (reporting zero or next to zero payroll), and that he did so to be excluded from the requirement of obtaining such insurance. [Citations.] It is in this factual context that we understand the language of the opinion that 'underreporting payroll is, by definition, a failure-to-obtain case . . . .' (Wright, supra, at p. 1122.) The facts before the court in Wright are not the facts of the case before us. [¶] "Further, to the extent Wright can be read more broadly, we state our disagreement with the application of its reasoning to conclude that 'any' underreporting of payroll is a failure to 'obtain' workers' compensation insurance even though the contractor has in effect a policy of workers' compensation insurance covering his/her employees. . . . [W]e neither have been cited to nor have we found any authority for the proposition that a worker found to be an employee of a contractor (by virtue of Lab. Code, § 2750.5 or otherwise) will not be covered by the contractor's existing workers' compensation insurance policy if there is any discrepancy in the contractor's reporting of payroll. In the absence of any legal authority or evidence supporting such a conclusion, we will not reach it." (Loranger, supra, 184 Cal.App.4th at pp. 857-858, fn. omitted.)
We agree. Plaintiff, like the contractor in Loranger but unlike in Wright, held workers' compensation insurance while work proceeded at Ardmore Plaza. No authority supports the proposition that plaintiff's workers were not covered by plaintiff's existing workers' compensation insurance by virtue of plaintiff underreporting its payroll. That being the case, plaintiff's evidence of insurance and licensure was sufficient to meet its burden of proof. Because defendants presented no pertinent rebutting evidence, the trial court incorrectly granted defendants' motion for judgment.
Defendants attempt to distinguish Loranger on the ground that here (as in Wright), plaintiff deliberately, not inadvertently, underreported its payroll. As discussed above, no evidence suggests plaintiff underreported its payroll at all. The undisputed evidence was that it fully reported payroll amounts. At any rate, the point is immaterial because no authority suggests an employer automatically loses existing insurance when it underreports its payroll, even if it does so deliberately. The employer in Wright did not lose existing insurance because he underreported payroll, he underreported payroll for the sole purpose of not having to obtain insurance in the first place.
Given this conclusion, we need not reach plaintiff's argument that it substantially complied with licensure requirements under section 7031.
DISPOSITION
The judgment is reversed. Appellant is to recover its costs on appeal.
NOT TO BE PUBLISHED.
CHANEY, J. We concur:
MALLANO, P. J. ROTHSCHILD, J.