Opinion
G061856
12-05-2023
DIBATECH, INC., et al., Plaintiffs and Appellants, v. BIN HOANG et al., Defendants and Respondents
Manning Construction Law and Kimberly J. Manning for Plaintiffs and Appellants. Prosperous Law Group, David T. Tran and Kristin Cable for Defendants and Respondents.
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County No. 30-2017-00938142, David A. Hoffer, Judge. Affirmed.
Manning Construction Law and Kimberly J. Manning for Plaintiffs and Appellants.
Prosperous Law Group, David T. Tran and Kristin Cable for Defendants and Respondents.
OPINION
MOTOIKE, J.
If a contractor performs any portion of a project without a valid license, the customer may seek disgorgement of the compensation paid for the entire project. (Bus. &Prof. Code, § 7031, subd. (b).) In this case, we hold disgorgement of the compensation for the entire project is appropriate when the majority of the work is performed by a company whose license was suspended during the project, while some work is performed by its licensed alter ego.
FACTS AND PROCEDURAL HISTORY
Alireza Rezazadeh Dibaei is a contractor who did business as a sole proprietor under the name Elite Builders and Remodeling (Elite). In 2015, the Contractors State License Board (the Board) ordered Dibaei to obtain and maintain a disciplinary bond in the amount of $60,000 for three years. Dibaei obtained a bond from Philadelphia Insurance Companies.
In January 2017, Philadelphia Insurance Companies cancelled the disciplinary bond it had issued to Dibaei. The Board notified Dibaei he had 30 days to obtain a new disciplinary bond, or Elite's license would be suspended. Dibaei paid loan broker Alan Yousefi $9,000 to obtain a disciplinary bond from Platte River Insurance Company (Platte River) in order to maintain Elite's contractor's license. Dibaei filled out an application containing several false statements about his and Elite's financial and license history. Yousefi provided Elite with a Platte River disciplinary bond certificate, which the parties agree was a forgery. Yousefi stole the $9,000 from Dibaei. Elite's license was suspended by the Board on March 14, 2017, retroactive to February 12, 2017.
Dibaei incorporated Dibatech, Inc. on April 11, 2016. Dibatech received a license from the Board on March 27, 2017. Platte River issued a valid $60,000 disciplinary bond to Dibatech.
In 2016, Bin Hoang contracted with Elite to build a dental office in San Juan Capistrano on property owned by San Juan Cottage, LLC (San Juan Cottage). Actual construction began in September 2016 and was completed with a final sign off on April 13, 2017. After obtaining its license, Dibatech did some of the work on the project, including the installation of cabinets and countertops. When Hoang learned that Elite had not been licensed through the entire construction period, he stopped payment on several disbursements and refused to reimburse either Elite or Dibatech for the cabinets and countertops. Dibatech recorded a mechanic's lien.
On August 16, 2017, Dibatech sued Hoang and San Juan Cottage for breach of contract, common counts, and foreclosure of a mechanic's lien. On October 4, 2017, Hoang and San Juan Cottage filed a cross-complaint against Dibaei, Dibatech, and Elite for disgorgement, breach of contract, negligence, declaratory relief, common counts, and claims on the contractor's license and disciplinary bonds. Platte River interpled Dibatech's disciplinary bond in the amount of $60,000 in November 2021. The trial court conducted a bench trial and issued a statement of decision detailing its findings.
The trial court found against Dibatech on all claims in the complaint because Dibatech had no contractual relationship with Hoang and San Juan Cottage. The court ruled Dibatech should take nothing on its complaint, and expunged the mechanic's lien Dibatech had recorded. On the cross-complaint, the court found in favor of Hoang and San Juan Cottage and ordered disgorgement of $159,840, the amount Elite collected on the contract with Hoang. The court also ordered the $60,000 in interpled funds on the disciplinary bond were to be paid to Hoang and San Juan Cottage. (On May 22, 2023, the trial court granted a motion to disburse the funds in interpleader in the amount of $60,000 to Hoang and San Juan Cottage.)
Judgment was entered August 15, 2022. Dibatech, Dibaei, and Elite filed an appeal from the judgment on September 28, 2022.
On April 20, 2023, Dibaei filed for Chapter 7 bankruptcy. This court stayed the appeal as to Dibaei only, but later stayed the entire appeal as to all parties. The stay was lifted after the bankruptcy court issued an order of discharge.
DISCUSSION
I. SUBSTANTIAL EVIDENCE SUPPORTS THE JUDGMENT FOR DISGORGEMENT ON THE CROSS-COMPLAINT
In order to bring a lawsuit or recover money, a contractor must have been duly licensed at all times during the performance of the contract. (Bus. &Prof. Code, § 7031, subd. (a).) If a contractor is not licensed during any period the customer may bring an action to disgorge all of the compensation paid for the entire project, not only the period in which the contractor was unlicensed. (Id., § 7031, subd. (b).) Elite was not licensed between February 12, 2017 and April 17, 2017.
Business and Professions Code section 7031 permits the contractor to retain the compensation, however, if substantial compliance is proven. (Alatriste v. Caesar's Exterior Designs, Inc. (2010) 183 Cal.App.4th 656, 672.) "[T]he court may determine that there has been substantial compliance with licensure requirements under this section if it is shown at an evidentiary hearing that the person who engaged in the business or acted in the capacity of a contractor (1) had been duly licensed as a contractor in this state prior to the performance of the act or contract, (2) acted reasonably and in good faith to maintain proper licensure, and (3) acted promptly and in good faith to remedy the failure to comply with the licensure requirements upon learning of the failure." (Bus. &Prof. Code, § 7031, subd. (e).) "The substantial compliance exception to the forfeiture rule is 'extremely narrow' and applies 'only where a contractor was without a license owing to circumstances truly beyond his control.'" (Pacific Caisson &Shoring, Inc. v. Bernard Bros, Inc. (2015) 236 Cal.App.4th 1246, 1257.)
The trial court found the first criterion of the substantial compliance rule - prior licensure - had been established. The court then found the two other criteria had not been established. Substantial evidence supports those findings.
First, the trial court found Elite did not act reasonably and in good faith to maintain its license. Dibaei "flagrantly lied on the bond application." Specifically, the bond application stated neither Elite nor Dibaei had ever declared bankruptcy, when in fact Dibaei had declared bankruptcy twice before that time. Additionally, the bond application stated Elite and Dibaei had never had a license suspended or denied, although Elite's license had previously been suspended three or four times. Finally, the bond application stated neither Elite nor Dibaei had been cancelled by a surety, when Elite had been cancelled by a surety three or four times. The court's finding was amply supported by the evidence.
Second, the trial court found Elite did not act promptly and in good faith to remedy the failure to comply with the license requirement after learning of the problem. Dibaei was notified of the suspension of Elite's license when he received a letter from the Board dated March 14, 2017. Dibaei did nothing in response and did not even contact the Board. Although Dibaei testified he called Yousefi and other bond companies, the trial court found that testimony was not credible. The court's finding was supported by the evidence.
II.
THE TRIAL COURT DID NOT ERR BY ORDERING THE INTERPLED FUNDS ON DIBATECH'S DISCIPLINARY BOND PAID TO HOANG AND SAN JUAN COTTAGE FOR DIBAEI'S LIABILITY
The trial court ordered the funds from the disciplinary bond issued to Dibatech by Platte River be paid to Hoang and San Juan Cottage. Dibatech argues the trial court erred because there was no judgment against it. Hoang and San Juan Cottage argue the trial court properly ordered the funds be paid to them because Dibatech was the alter ego of Elite and Dibaei.
Dibatech contends the alter ego theory was not raised at trial. Hoang and San Juan Cottage raised the issue of alter ago in the cross-complaint and both parties addressed the issue in posttrial briefing. An alter ego may be added after trial as a judgment debtor (Code Civ. Proc., § 187), and indeed a trial court errs if it refuses to apply the alter ego doctrine based solely on a party's unreasonable delay in asserting it (Highland Springs Conference &Training Center v. City of Banning (2016) 244 Cal.App.4th 267, 286).
In determining whether to apply the alter ego doctrine, the trial court must consider factors including "identical equitable ownership, comingling of funds, use of the same offices, disregard of formalities, and use of one entity as a mere shell for the affairs of another," as well as whether the corporate entity is undercapitalized to the extent it is unlikely to have sufficient assets to meet its debts. (Butler America, LLC v. Aviation Assurance Co., LLC (2020) 55 Cal.App.5th 136, 146.) The party attempting to rely on the doctrine must establish the results will be inequitable "if the acts are treated as those of the entity alone." (Ibid.) "The essence of the alter ego doctrine is that justice be done. 'What the formula comes down to, once shorn of verbiage about control, instrumentality, agency, and corporate entity, is that liability is imposed to reach an equitable result.'" (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 301.)
The weight of the evidence makes clear the trial court did not err in finding Dibatech was the alter ego of Elite, and properly ordered Dibatech's bond be used to pay Elite's judgment creditors. Dibatech and Elite shared a business address. Dibatech issued invoices and Hoang's payments on the contract with Elite were made to Dibatech "[b]ecause [Dibatech] was in the process of incorporating," although Elite was still the general contractor on the San Juan Cottage project and all work orders were submitted by Elite. Conditional waivers and releases were sometimes submitted by Elite alone and sometimes jointly in the names of Elite and Dibatech. Invoices from third party providers were sent to both Elite and Dibatech. Dibatech was required to have a disciplinary bond because Elite had a disciplinary bond and Dibaei was the responsible managing officer for each.
At trial, Dibaei testified he and Dibatech were the same and he was the only responsible party for both Elite and Dibatech. Dibaei was asked whether the workers who performed construction work on Hoang's property between February 12 and March 27, 2017, were working for Elite or Dibatech by asking which company's hat they were wearing. Dibaei responded: "I am the hat. I'm Elite or Dibatech."
"Q. ... Mr. Dibaei, did you, more or less, treat Dibatech and Elite as though they were the same entity? "
A. Everyone does. All entities do."
The trial evidence also showed when Elite filed an application to inactivate its contractor's license in February 2017, it noted it was "in the process of obtaining a new license." It's "new" license was in the name of Dibatech.
The trial court properly found Dibatech to be the alter ego of Elite and Dibaei. Therefore, the court did not err by ordering the funds from Dibatech's disciplinary bond paid to Hoang and San Juan Cottage for Dibaei and Elite's liability.
DISPOSITION
The judgment is affirmed. Respondents to recover costs on appeal.
WE CONCUR: BEDSWORTH, ACTING P. J. DELANEY, J.