Opinion
NOT TO BE PUBLISHED
Super. Ct. No. 157941
HULL, J.Defendants E.J. Thompson (Thompson) and Midstate Properties, Inc. (Midstate), appeal from a judgment of the trial court confirming an arbitration award in favor of plaintiff Vestra Resources, Inc. Defendants contend the arbitrator had no authority to render a decision in this matter, because the contracts on which the arbitration was based were not enforceable. Defendants argue the contracts were not enforceable because, among other things, plaintiff failed to comply with the requirement of Business and Professions Code section 6738, subdivision (a)(1), that a licensed civil, electrical or mechanical engineer be an officer in charge of the engineering practice of the business. (Unspecified section references that follow are to the Business and Professions Code.) We agree plaintiff failed to comply with the indicated provision and further agree this defect rendered the contracts on which the arbitration was based unenforceable. We therefore reverse the judgment of the trial court.
Facts and Proceedings
Plaintiff is an employee-owned corporation that provides various professional services to its clients, including “civil engineering, geology, forestry, GIS analysis, etc.” At all times relevant to this dispute, Susan Goodwin was a licensed civil engineer, the managing engineer in charge of all of plaintiff’s civil engineering projects, and a shareholder of plaintiff. Alan Hill was a licensed civil engineer who worked closely with Goodwin and became a member of plaintiff’s board of directors in 2003.
Between October 2003 and February 2005, plaintiff entered into six written contracts with defendants to provide civil engineering services on construction projects being undertaken by defendants. Each contract consisted of two parts: (1) a proposal and cost estimate, signed by Goodwin; and (2) a document entitled “Environmental Services Agreement,” signed by one of plaintiff’s vice-presidents. Each contract contained an arbitration clause that read: “Any dispute between the parties arising from this Agreement will be resolved through arbitration pursuant to the rules of the American Arbitration Association. The prevailing party shall be entitled to reimbursement of all costs and expenses, from the other party, incurred as a result of the dispute, including reasonable attorney fees.”
A dispute arose over five of the six contracts and, on November 10, 2005, plaintiff demanded arbitration pursuant to the arbitration clauses. Plaintiff sought total payment of $42,917.90. Midstate responded by demanding arbitration of its own claim against plaintiff for $300,000.
The arbitration was scheduled for April 24 through April 27, 2006. However, on April 18, 2006, defendants informed the arbitrator that plaintiff was not properly licensed and, therefore, the contracts on which the arbitration was based were illegal. Defendants sought to have the arbitration dates vacated. On April 21, defendants informed the arbitrator they would not be attending the arbitration.
The arbitration took place as scheduled, but defendants did not attend. On May 9, 2006, the arbitrator issued an interim award in which he found: (1) defendants forfeited objections to the arbitration by failing to object on a timely basis; (2) the contracts were not rendered illegal by plaintiff’s lack of a license, because corporations cannot be licensed, only individuals can be; (3) plaintiff substantially complied with a requirement of section 6738, former subdivision (c), to file an “organization record form” with the Board for Professional Engineers and Land Surveyors; (4) any defect in filing the organization record form was not a bar to recovery; (5) plaintiff proved its claims; and (6) Midstate failed to prove its counterclaim. The arbitrator awarded plaintiff $45,517.90, plus costs and attorney fees.
On July 18, 2006, the arbitrator issued a final award, incorporating his earlier findings and awarding plaintiff $22,575.68 in costs and attorney fees and $7,440.53 in arbitration expenses.
Plaintiff filed a petition to confirm the arbitration award. Defendants responded, arguing plaintiff could not enforce the contracts, and hence the arbitration clauses, because it had not complied with the requirements of section 6738. The trial court granted plaintiff’s petition. The court concluded that, at all relevant times, plaintiff was in compliance with the licensing requirements of section 6738. The court further concluded any other defects in plaintiff’s compliance with section 6738 or other requirements did not provide a sufficient basis for precluding plaintiff from enforcing the contracts.
The court entered judgment for plaintiff pursuant to the arbitration award in the amount of $75,534.11, plus costs and attorney fees in the amount of $4,532.50.
Discussion
Defendants contend the trial court erred in enforcing the arbitration award, because the contracts on which the arbitration was based are illegal and unenforceable. Defendants argue, as they did below, the contracts are illegal because plaintiff was not properly licensed to perform the work in question. In particular, defendants argue plaintiff failed to comply with two requirements of section 6738: (1) that a civil engineer in charge of the engineering practice be an officer of the corporation (§ 6738, subd. (a)(1)); and (2) that plaintiff file an organization record with the Board for Professional Engineers and Land Surveyors (§ 6738, former subd. (c)). Defendants further argue plaintiff failed to comply with several requirements of section 6749 regarding who may sign a contract for engineering work and what must be included in the contract.
Plaintiff counters that the contracts were legal, because plaintiff was not required to be licensed. According to plaintiff, only individuals, not corporations, can be licensed as engineers. Plaintiff further argues, in any event, it complied with the requirements of section 6738, subdivision (a)(1). Plaintiff also argues its failure to file an organization record as required by section 6738, former subdivision (c), did not render the contracts illegal and unenforceable. Finally, plaintiff argues the contracts were properly signed and satisfied the requirements of section 6749.
As we shall explain, we agree with defendants that plaintiff failed to comply with the licensing requirements of section 6738, subdivision (a)(1), because the engineer in charge of plaintiff’s engineering practice was not an officer of the corporation. We further agree that this defect rendered the contracts unenforceable. Finally, having so concluded, we need not address defendants’ other contentions.
I
Contractual Arbitration
Under the California Arbitration Act (Code Civ. Proc., § 1280 et seq.) there is a strong public policy in favor of using arbitration to resolve legal disputes. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9.) Consistent with this policy, the grounds for vacating or refusing to enforce an arbitration award are very limited. (See Code Civ. Proc., § 1286.2.) Our Supreme Court has stated: “[B]oth because it vindicates the intentions of the parties that the award be final, and because an arbitrator is not ordinarily constrained to decide according to the rule of law, it is the general rule that, ‘The merits of the controversy between the parties are not subject to judicial review.’ [Citations.] More specifically, courts will not review the validity of the arbitrator’s reasoning. [Citations.] Further, a court may not review the sufficiency of the evidence supporting an arbitrator’s award. [Citations.] [¶] Thus, it is the general rule that, with narrow exceptions, an arbitrator’s decision cannot be reviewed for errors of fact or law.” (Moncharsh v. Heily & Blase, supra, at p. 11.)
Notwithstanding the strong public policy in favor of arbitration, an award may be vacated if the court determines “[t]he arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.” (Code Civ. Proc., § 1286.2, subd. (a)(4).) Under California law, an arbitrator exceeds his or her powers if the contract on which the arbitration was based is illegal or unenforceable. (Loving & Evans v. Blick (1949) 33 Cal.2d 603, 609-610 (Loving & Evans); Hotels Nevada, LLC v. Bridge Banc, LLC (2005) 130 Cal.App.4th 1431, 1436.) If the contract itself is unenforceable, then the arbitration clause within that contract is also unenforceable.
II
Licensing Requirement
Defendants contend the contracts at issue here are illegal and unenforceable, because plaintiff, a corporation, was not properly licensed at the time of contracting. Plaintiff counters that it cannot be licensed to perform engineering work, only people can be. However, these arguments miss the mark.
It is undisputed the contracts at issue involved work that could only be performed by licensed civil engineers. Therefore, the question is not whether plaintiff was properly licensed as a civil engineer but whether plaintiff satisfied the requirements for performing civil engineering work in a corporate form.
At all times relevant to this dispute, section 6738 read in relevant part:
“(a) This chapter does not prohibit one or more civil, electrical, or mechanical engineers from practicing or offering to practice within the scope of their registration, civil, electrical, or mechanical engineering as a sole proprietorship, partnership, firm, or corporation (hereafter called business), if all of the following requirements are met:
“(1) A civil, electrical, or mechanical engineer currently registered in this state is an owner, part owner, or officer in charge of the engineering practice of the business.” (Stats. 2000, ch. 1006, § 14.)
At first glance, this provision appears to permit one or more civil engineers to practice in a corporate form if a licensed engineer in charge of the engineering practice of the corporation is an owner, part owner or officer. In other words, it is enough if the engineer in charge is a part owner of the corporation, i.e., a shareholder. Here, it is undisputed Susan Goodwin became a part owner of plaintiff after joining the company in 2002. However, as we shall explain, a close look at the evolution of section 6738, coupled with its apparent purpose, reveals that this reading of the statute does not reflect the intent of the Legislature.
“The rules governing statutory construction are well settled. We begin with the fundamental premise that the objective of statutory interpretation is to ascertain and effectuate legislative intent. [Citations.] To determine legislative intent, we turn first to the words of the statute, giving them their usual and ordinary meaning. [Citations.] When the language of a statute is clear, we need go no further. However, when the language is susceptible of more than one reasonable interpretation, we look to a variety of extrinsic aids, including the ostensible objects to be achieved, the evils to be remedied, the legislative history, public policy, contemporaneous administrative construction, and the statutory scheme of which the statute is a part.” (Nolan v. City of Anaheim (2004) 33 Cal.4th 335, 340.)
At the time of contracting in this matter, section 6738 stated that licensed engineers may operate in a corporate form if an engineer is “an owner, part owner, or officer” who is in charge of the engineering practice of the “business.” (§ 6738, subd. (a)(1); see Stats. 2000, ch. 1006, § 14.) “Business” was defined in the statute as “a sole proprietorship, partnership, firm, or corporation.” (§ 6738, subd. (a); see Stats. 2000, ch. 1006, § 14.) Read broadly, this provision could mean that licensed engineers may operate under any of the business forms mentioned as long as an engineer is either an owner, a part owner or an officer of that business.
The dissent suggests this is the “plain and ordinary meaning” of the statute. (Dis. opn., post, at p. 10.) But an engineer cannot be a part owner of a sole proprietorship which, by definition, is owned by one person. Nor can an engineer be an owner of a partnership which, by definition, requires more than one owner, or an officer of either a sole proprietorship or a partnership.
More importantly, the Legislative history of the provision suggests a different meaning. As originally enacted in 1951, section 6738, subdivision (a)(1), read: “A civil engineer is the partner, member, or directing officer in charge of the engineering practice of the partnership, firm, or corporation.” (Stats. 1951, ch. 1709, § 2, p. 3987.) As so written, this provision identified three roles--partner, member, and directing officer--and three business forms--partnership, firm and corporation. The symmetry of this language suggests the Legislature intended that the licensed engineer must be a partner of a partnership, member of a firm, or directing officer of a corporation.
In 1967, section 6738 was expanded to include electrical and mechanical engineers, but otherwise the provision remained unchanged. (Stats. 1967, ch. 1463, § 12, p. 3407.) That same year, the Legislature added former section 6738.1, which allowed the name of a deceased engineer to be used in the name of a business if that engineer had been “a member of such partnership, firm, or corporation.” (Stats. 1967, ch. 740, § 1, p. 2112.)
Perhaps because of the ambiguity of the term “member” in former section 6738.1, the Legislature amended the provision in 1972 to permit use of a deceased or retired engineer’s name if “the deceased or retired person shall have been a partner of such partnership, member of such firm, shareholder of such corporation, or a partner, member, or shareholder of such predecessor in interest of the partnership, firm, or corporation.” (Stats. 1972, ch. 365, § 2, p. 684.)
In 1987, the Legislature amended section 6738 such that subdivision (a)(1) read as it did at the time of contracting in this matter. (Stats. 1987, ch. 671, § 1, p. 2132.) The Legislature also repealed former section 6738.1 (Stats. 1987, ch. 671, § 2, p. 2134) and added a new subdivision (f) to section 6738, which permitted the use of a deceased or retired engineer’s name if “[t]he person shall have been an owner, part owner, or officer of the business, or an owner, part owner, or officer of the predecessor in interest of the business.” (§ 6738, former subd. (f)(2); see Stats. 1987, ch. 671, § 1, p. 2133.)
There is nothing in the legislative history of the 1987 amendments to section 6738 and repeal of former section 6738.1 to suggest that when the Legislature replaced former section 6738.1 with section 6738, former subdivision (f), it intended to expand the scope of permissible use of deceased or retired engineers’ names. On the contrary, with the replacement of “shareholder” with “officer,” the Legislature reduced the breadth of the provision. Thus, when the Legislature replaced language reading “partner of such partnership, member of such firm, shareholder of such corporation” in former section 6738.1 (Stats. 1972, ch. 365, § 2, p. 684) with “owner, part owner, or officer of the business” in section 6738, former subdivision (f)(2) (Stats. 1987, ch. 671, § 1, p. 2133), there is no reason to believe it intended anything other than that the deceased or retired person must have been an owner of a sole proprietorship, part owner of a partnership or firm, or officer of a corporation.
“The meaning of the words of a statute . . . can only be determined with reference to the context in which the words are used; that is, with reference to such purpose as may be discerned from examining the entire enactment of which the words are part.” (Leslie Salt Co. v. San Francisco Bay Conservation etc. Com. (1984) 153 Cal.App.3d 605, 614, fn. omitted.) At the time of contracting in this matter, section 6738, subdivision (a)(1), used essentially the same phrase as section 6738, former subdivision (f)(2), to define the required role of a licensed engineer in the business. It is therefore reasonable to assume the Legislature intended the same meaning, i.e., that the engineer must be an owner of a sole proprietorship, part owner of a partnership or firm, or officer of a corporation.
The dissent suggests this interpretation violates a cardinal rule of statutory interpretation that when the Legislature changes the language of a provision it intends a change in meaning as well. (Dis. opn., post, at p. 6.) We cannot agree. The 1987 amendments replaced the language “partnership, firm, or corporation” in section 6738, subdivision (a)(1), with “business,” where “business” is defined as “a sole proprietorship, partnership, firm, or corporation.” (§ 6738, subd. (a).) The only change here is to add sole proprietorships to the list of permissive business forms. The addition of section 6738, former subdivision (f), and the corresponding repeal of section 6738.1, with the change in language from “partner of such partnership, member of such firm, shareholder of such corporation” to “owner, part owner, or officer in charge of the engineering practice of the business” can be seen merely as a conformity of the language in this provision with that used in section 6738, subdivision (a). There is no reason to read anything more into these changes.
The interpretation suggested by the foregoing legislative history is also consistent with the apparent purpose of the statute. The Board for Professional Engineers and Land Surveyors has interpreted section 6738, subdivision (a)(1), to require that a corporation offering engineering services have as a corporate officer a duly licensed engineer in charge of the engineering practice. An administrative agency’s interpretation of a statute should be accepted unless clearly erroneous. (See Southern Cal. Lab. Management etc. Committee v. Aubry (1997) 54 Cal.App.4th 873, 884.)
As described in a 1991 memorandum from the legal office of the Department of Consumer Affairs, the purpose of section 6738, subdivision (a)(1), is twofold: “First, the Professional Engineers Act requires an engineer to be in responsible charge of all engineering work. Secondly, the engineer in responsible charge should not be a subordinate of an unlicensed person. If an engineer were to be subordinate to an unlicensed person, the engineer’s ability to exercise responsible charge over the engineering work could be limited or countermanded by an unlicensed superior. . . .” (Donald Chang, Staff Counsel to Dept. of Consumer Affairs, mem. to Peg Pigeon, Bd. of Registration for Prof. Engineers & Land Surveyors, July 2, 1991.)
Although, as the dissent points out, this memorandum reflects only the opinion of one attorney in the legal office of the department in charge of regulating professional engineers, it nevertheless gives some insight into the thinking of the agency. It is also the most logical reason for including the statutory requirements for performing licensed engineering work in a business form. Neither plaintiff nor the dissent suggests a contrary intent or objective.
“[S]tatutes must be given a reasonable construction that conforms to the apparent purpose and intention of the law makers . . . .” (Nunn v. State of California (1984) 35 Cal.3d 616, 624.) The purpose of assuring that a licensed engineer’s judgment cannot be countermanded by an unlicensed person would not be served if the licensed engineer were a mere “part owner,” i.e., shareholder, of a corporation. The holder of a single share of a corporation with thousands of outstanding shares would technically be a part owner of the corporation but would have no practical control over its operations. The dissent suggests the same can be said of a minority partner of a partnership or firm. (Dis. opn., post, at p. 10.) However, while this is technically correct, it is not a practical concern. Even a minority partner would have some control over the partnership.
Finally, the dissent suggests the true concern of the statute is that a licensed engineer be in charge of the engineering practice of the corporation. And, according to the dissent, an engineer holding one share of a corporation with thousands of outstanding shares would not really be in charge of the engineering practice. (Dis. opn., post, p. 10.) Whether or not that is true, the Legislature has required that the licensed engineer be an owner, a part owner, or a shareholder. It would have been a simple matter for the Legislature to require only that a licensed engineer be in charge of the engineering practice of the business if it had wished to do so.
The trial court acknowledged the requirement that a corporation providing civil engineering services have a licensed engineer as an officer. However, that court found the requirement had been met here, explaining: “[S]ection 6738 requires only that a licensed engineer be an officer of the corporation and that a licensed engineer be in responsible charge of any engineering work performed by the corporation. The declaration of Alan Hill establishes that he was a licensed engineer and an officer of the corporation at all relevant times. The declaration of Susan Goodwin establishes that she was a licensed engineer and in responsible charge of the engineering work performed by the corporation at all relevant times.”
The trial court’s partition of the two requirements of section 6738, subdivision (a)(1), is not supported by the language of that provision. At all times relevant to this dispute, it read: “A civil, electrical, or mechanical engineer currently registered in this state is an owner, part owner, or officer in charge of the engineering practice of the business.” A civil engineer must be an officer who is in charge of the engineering practice. It does not say a civil engineer must be an officer and a civil engineer must be in charge of the engineering practice.
Nor is the trial court’s interpretation consistent with the purpose of the provision to assure independence of the licensed engineer. The licensed engineer in charge of the engineering practice must himself or herself be an officer of the corporation in order to prevent undue influence from unlicensed individuals.
Plaintiff contends it was in compliance with section 6738, subdivision (a)(1), because Alan Hill and Susan Goodwin were “partners of the firm.” Plaintiff cites the declaration of Wendy Johnston, a vice-president and member of plaintiff’s board of directors, who stated plaintiff “is an employee owned company with senior members of the organization holding company stock.” This statement does not support a claim that either Hill or Goodwin was a member or a partner of a firm. It is undisputed plaintiff is a corporation, not a firm. Goodwin was not a member, but a shareholder. Hill was a member of the board of directors.
Plaintiff next argues: “Susan Goodwin was in responsible charge of [plaintiff]’s engineering work and signed plans and documents prepared under her direction, including contracting documents. [Citation.] Engineering work was performed under her direction and, at times, with the assistance of Alan Hill. [Citation.] Ms. Goodwin was not subordinate to any unlicensed individual in the company and had the final word on all engineering work on MIDSTATE’s projects[.] [Citation.] Ms. Goodwin, as a licensed civil engineer[] in good standing, held a position of trust and responsibility within [plaintiff] and was never limited and/or countermanded by any unlicensed individual within [plaintiff]. [Citation.] Ms. Goodwin is more than a ‘mere employee,’ she was and is a senior member of the organization, manager of engineering services and now a ‘corporate officer.’”
The foregoing may all be true, but it does not satisfy the express requirement that the licensed engineer in charge of plaintiff’s engineering practice be an officer of the corporation. Goodwin may now be an officer, but there is no evidence she was an officer at the time of contracting or at the time the work was performed. Plaintiff cites no authority for the principle, implicit in its argument, that compliance with the purpose of a statute, but not its express terms, is sufficient.
At oral argument, plaintiff asserted for the first time, in direct contradiction to the foregoing argument, that it was Alan Hill, a member of plaintiff’s board of directors, who was in charge of its engineering practice. However, in the interest of fairness to the opposition and the trial court, we do not normally consider arguments made for the first time at oral argument. (See People v. Harris (1992) 10 Cal.App.4th 672, 686.) At any rate, this assertion is belied by the declaration of Hill himself. He states: “In 2003, I was elected to the Board, in part, to provide direction and expertise relating to the civil engineering practice and that portion of VESTRA’s business enterprise. Although Ms. Goodwin is in responsible charge of most of the engineering work conducted by VESTRA, Ms. Goodwin consults with me on a regular basis concerning various aspects [of] engineering projects.” Likewise, Goodwin states: “I am and have been the managing engineer in responsible charge of all engineering projects performed by VESTRA Resources, Inc. since I joined the firm in 2002.”
Finally, plaintiff argues it had “experienced, competent licensed civil engineers performing the work described in the contracts,” “had two civil engineers who held positions of authority and responsibility in the business overseeing engineering services,” and “was in full compliance with the ‘licensing requirements’ requiring engineering work be performed by licensed, registered civil engineers.” This again may be true. However, plaintiff did not have a licensed civil engineer in charge of its engineering practice who was an officer of the corporation, as required by section 6738, subdivision (a)(1). And this makes all the difference.
III
Enforcement of the Contracts
Having concluded plaintiff failed to comply with the requirements of section 6738, the question remains what impact this had on plaintiff’s right to enforce the contracts and, in particular, the arbitration agreements.
In Loving & Evans, supra, 33 Cal.2d 603, an unlicensed partnership entered into an agreement to repair and remodel the defendant’s premises. The agreement contained an arbitration clause. A dispute arose and the matter was submitted to arbitration. The arbitrator entered an award in favor of the partnership. (Id. at pp. 604-605.)
The partnership sought enforcement of the award, and the defendant objected that the arbitrator had failed to make a determination on its defense that the partnership was not licensed. The trial court ruled in favor of the partnership and entered judgment on the arbitration award. (Loving & Evans, supra, 33 Cal.2d at pp. 605-606.)
The state high court reversed. The court concluded that, because the partnership was not in compliance with the state contracting requirements, it could not enforce the contract, including the arbitration clause. At the time, section 7031 provided that no person engaged in the contracting business may bring or maintain an action to collect on a contract for which a license is required without proving he was duly licensed during the performance of the contract. (Loving & Evans, supra, 33 Cal.2d at p. 607.) According to the court: “‘[A] contract made contrary to the terms of a law designed for the protection of the public and prescribing a penalty for the violation thereof is illegal and void, and no action may be brought to enforce such contract.’” (Ibid.)
In All Points Traders, Inc. v. Barrington Associates (1989) 211 Cal.App.3d 723 (All Points Traders), Barrington, an investment banking firm specializing in mergers and acquisitions, entered into an agreement with All Points, a supplier of pipe fittings, couplings and valves, to obtain a buyer for the latter’s business. A buyer was ultimately found by All Points itself, but Barrington initiated arbitration to obtain a commission on the sale. All Points objected, claiming Barrington did not possess a real estate broker’s license. The arbitrator ruled in favor of Barrington. (Id. at pp. 726-727.)
All Points filed a petition to vacate the arbitration award, but the trial court denied the petition and affirmed the award. (All Points Traders, supra, 211 Cal.App.3d at p. 727.) On appeal, All Points argued that because Barrington was not licensed as a real estate broker, the brokerage agreement was illegal and could not be enforced. The Court of Appeal agreed. Relying on a specific provision of the Business and Professions Code prohibiting an unlicensed real estate broker or salesman from bringing or maintaining an action for the collection of a commission (§ 10136), the court concluded enforcement of the contract through arbitration would be in direct contravention of the statute and against public policy. (All Points Traders, supra, at p. 738.)
Plaintiff contends Loving & Evans and, by implication, All Points Traders, are distinguishable because in each case there was a specific statute providing that an unlicensed person performing services under a contract for which a license is required may not enforce the contract. In Loving & Evans, section 7031 provided: “‘No person engaged in the business or acting in the capacity of a contractor, may bring or maintain any action in any court of this State for the collection of compensation for the performance of any act or contract for which a license is required by this chapter without alleging and proving that he was a duly licensed contractor at all times during the performance of such act or contract.’” (Loving & Evans, supra, 33 Cal.2d at p. 607.) In All Points Traders, section 10136 read: “‘No person engaged in the business or acting in the capacity of a real estate broker or a real estate salesman within this State shall bring or maintain any action in the courts of this State for the collection of compensation for the performance of any of the acts mentioned in this article without alleging and proving that he was a duly licensed real estate broker or real estate salesman at the time the alleged cause of action arose.’” (All Points Traders, supra, 211 Cal.App.3d at p. 738.)
In 1990, after the foregoing cases were decided, the Legislature enacted section 143. (Stats. 1990, ch. 1207, § 1.5, p. 5045.) Subdivision (a) of section 143 reads: “No person engaged in any business or profession for which a license is required under this code governing the department or any board, bureau, commission, committee, or program within the department, may bring or maintain any action, or recover in law or equity in any action, in any court of this state for the collection of compensation for the performance of any act or contract for which a license is required without alleging and proving that he or she was duly licensed at all times during the performance of that act or contract, regardless of the merits of the cause of action brought by the person.” This provision applies to persons required to have a license issued by the Board for Professional Engineers and Land Surveyors. (See §§ 23, 101, subd. (i), 6710, 6730.)
Plaintiff contends section 143 has no bearing on this matter, because it applies only to a “person” required to have a license, and plaintiff is not a person but a corporation. However, the same could have been said of section 7031 in Loving & Evans, yet the state high court had no trouble applying that provision to a partnership.
Plaintiff also contends section 143 does not apply because plaintiff was not required to have a license, inasmuch as engineering licenses are only issued to individuals. We disagree. While engineering licenses may only be issued to individuals, we have concluded section 6738 prohibits a corporation from performing engineering functions unless an officer of the corporation is a licensed engineer in charge of its engineering practice. In other words, the corporation is not properly licensed to perform engineering work if it does not have an officer in charge of its engineering practice who is licensed.
Section 6738 permits one or more civil, electrical or mechanical engineers to operate in a corporate form as long as a licensed engineer is an officer of the corporation in charge of its engineering practice. The apparent purpose of this provision is to protect the public from a corporation performing engineering work under circumstances where a licensed engineer is subject to oversight and control by unlicensed persons. Plaintiff failed to comply with this provision, because the licensed engineer in charge of its engineering practice was not an officer of the corporation. Having failed to satisfy this licensing requirement, plaintiff was prohibited by section 143 from enforcing its contracts with defendants. And because plaintiff could not enforce its contracts, the arbitration provisions of those contracts were also unenforceable.
While this result may appear harsh under the circumstances, given there is no claim by defendants that any unlicensed person ever did any engineering work on the various projects, the Legislature has deemed this result necessary in order to protect the interests of the public. It is for the Legislature to decide what is fair under these circumstances. If Midstate is obtaining a windfall by virtue of our decision, it is a windfall mandated by section 6738.
Having concluded plaintiff could not enforce the arbitration provisions of the contracts because it failed to comply with section 6738, subdivision (a)(1), we need not consider defendants’ other claims of defect in the contracts.
Disposition
The judgment of the trial court enforcing the arbitration award is reversed and the matter is remanded to the trial court for entry of a new judgment denying enforcement of the award. Defendants are awarded their costs on appeal.
I concur:
CANTIL-SAKAUYE , J.
I respectfully dissent.
In my view, the majority opinion results in a manifest injustice.
Here, respondent Vestra Resources, Inc., entered into a series of six contracts with appellant MidState Properties, Inc., to perform engineering services on five parcels of land subject to development. The six contracts at issue were entered into between October 2003 and February 2005.
Vestra performed the work. All work was performed under the direction and supervision of Susan Goodwin, who was at all times a licensed engineer in good standing and a shareholder in Vestra. So far as the record discloses, the engineering services were provided competently and professionally.
Following an arbitration hearing (at which MidState failed to appear) an arbitrator who had taken evidence awarded Vestra $42,917.90. The arbitrator rejected MidState’s counter claim for $300,000.
Thus, on this record, Vestra performed more than $40,000 worth of professional, competent engineering services under the direction and supervision of a licensed engineer. On the other hand, on this record, the evidence showed that MidState simply stiffed Vestra for its fees and fell back on the last desperate hope of someone who does such a thing: attacking the validity of the underlying contracts.
Unfortunately, the majority agrees with MidState. The majority says the contracts are illegal because they violate former Business and Professions Code section 6738. In order to conclude that Vestra violated former section 6738, the majority undertakes an intricate and complex process of statutory interpretation that takes them far from the plain meaning of the statute. In my view, as I shall explain in a moment, the plain meaning of the statute should be applied. There is no warrant for the majority’s long and convoluted voyage that leads away from the plain meaning of former section 6738.
Undesignated statutory references are to the Business and Professions Code.
Moreover, even assuming other contractual violations by Vestra, there is no warrant for applying section 143 to void the contracts. As I shall explain, any violations by Vestra were not licensing violations so that section 143, which applies to work performed without a license, does not apply at all. I would find no statutory violations by Vestra sufficient to support voiding their contracts, which simply gives MidState an undeserved windfall.
I
Vestra did not violate former section 6738, subdivision (a).
At the time the subject contracts were entered into, between 2003 and 2005, former section 6738, subdivision (a), provided as pertinent as follows:
“This chapter does not prohibit one or more civil, electrical, or mechanical engineers from practicing or offering to practice within the scope of their registration, civil, electrical, or mechanical engineering as a sole proprietorship, partnership, firm, or corporation (hereinafter called business), if all of the following requirements are met:
“(1) A civil, electrical, or mechanical engineer currently registered in this state is an owner, part owner, or officer in charge of the engineering practice of the business.” (Stats. 2000, ch. 1006, § 14, p. 93.)
“As in all cases of statutory interpretation, we begin with the language of the governing statute.” (Beal Bank, SSB v. Arter & Hadden, LLP (2007) 42 Cal.4th 503, 507.) I would give this statute its plain meaning. A “part owner” of a corporation performing engineering services is a shareholder. Thus, Corporations Code section 184 says, “shares” are “units into which the proprietary interests in a corporation are divided in the articles.” Black’s Law Dictionary (7th ed. 1999) at page 816, column 2, defines “proprietary interest” as: “The interest held by a property owner together with all appurtenant rights, such as a stockholder’s right to vote the shares.” (Italics added.) Corporations Code section 185 says, “a shareholder” is “one who is a holder of record of shares.”
Thus, as is commonly understood in common parlance, a shareholder is a “part owner” of a corporation.
In this case, Susan Goodwin was a shareholder and therefore a part owner of Vestra at all relevant times. The evidence is uncontradicted that she was a licensed civil engineer in good standing and that she was the managing engineer in charge of all civil engineering products for Vestra, including the MidState project. Thus, to track the language of former section 6738, subdivision (a)(1): “A civil . . . engineer currently registered in this state [Susan Goodwin] is a . . . part owner . . . in charge of the engineering practice of the business.”
I think this is the way any lay person would read the statute. In addition, it is how I read the statute.
The majority work mightily to defeat this plain and straightforward reading of the statute. However, with respect, I do not think the majority’s arguments stand up to close scrutiny.
Here is the majority’s first argument: “Read broadly, this provision [former section 6738, subdivision (a)] could mean that licensed engineers may operate under any of the business forms mentioned as long as an engineer is either an owner, a part owner, or an officer of that business. [But an engineer cannot] be a part owner of a sole proprietorship which, by definition, is owned by one person. Nor can an engineer be an owner of a partnership which, by definition, requires more than one owner, or an officer of either a sole proprietorship or a partnership.” Frankly, I do not think the argument makes sense. Apparently the argument is asserting that if an engineer is the sole owner of an engineering firm, he does not fall within former section 6738 because he cannot be a part owner. The fallacy in this reasoning is that the owner or owners of the firm simply have to fall into one of the categories enumerated in former section 6738, subdivision (a). Thus, a sole proprietorship owner would fit within the former statute because he would be “an owner.” A partner would fit within the statute because he or she would be a “part owner” and so forth. And, as I have suggested, a shareholder of a corporate engineering firm would fit within the statute because he or she would be a “part owner” of the business.
The majority recognizes that section 6738, subdivision (a), in its earlier incarnations, proffered a meaning more in line with that now proffered by the majority. Thus, at page 9, the majority opinion says: “As originally enacted in 1951, section 6738, subdivision (a)(1), read: ‘A civil engineer is the partner, member, or directing officer in charge of the engineering practice of the partnership, firm, or corporation.’ (Stats. 1951, ch. 1709, § 2, p. 3981.) As so written, this provision identified three roles--partner, member and directing officer--and three business forms--partnership, firm and corporation. The symmetry of this language suggests the Legislature intended that the licensed engineer must be a partner of a partnership, member of a firm, or directing officer of a corporation.”
The majority’s interpretation of the old statute is faithful to its original language. The majority’s view--which requires that, if a corporation is involved, an officer must be the licensed engineer in charge of engineering services, is precisely what the old statute provided.
However, the majority’s interpretation overlooks the fact that in 1987, and again in 2000 (which produced the statute applicable to this case) section 6738, subdivision (a)(1), was amended to read as follows: “A civil, electrical, or mechanical engineer currently registered in this state is an owner, part owner, or officer in charge of the engineering practice of the business.” (Stats. 1987, ch. 671, § 1, p. 2132; Stats. 2000, ch. 1006, § 14.)
When the majority gives the amended statute the same meaning it had before the amendment, it violates a cardinal rule of statutory interpretation, to wit, “We presume the Legislature intends to change the meaning of the law when it alters the statutory language. [Citations.]” (Dix v. Superior Court (1991) 53 Cal.3d 442, 461; followed in People v. Mendoza (2000) 23 Cal.4th 896, 916.)
No party has proffered any legislative history whatsoever indicating that the Legislature did not intend to change the meaning of former section 6738, subdivision (a)(1), when it amended the statute in 1987 and in 2000 to provide the different language that applied to the contracts at issue in this case.
The majority then argues that when the Legislature amended section 6738, subdivision (a)(1), it also made a similar amendment of section 6738.1 providing when there could be a permissible use of deceased or retired engineers’ names. The majority argues, “There is nothing in the legislative history of the 1987 amendments to section 6738 and repeal of former section 6738.1 to suggest that when the Legislature replaced former section 6738.1 with section 6738, subdivision (f), it intended to expand the scope of permissible use of deceased or retired engineers’ names.” Of course, on this record, there is no legislative history indicating that the Legislature did not intend to change the meaning of former section 6738.1. Where legislative history presents a lacuna, we should apply the classic cannon of statutory interpretation holding that where the Legislature changes the language of a statute, it intends to change the meaning of the statute.
The majority then argues that its interpretation “is also consistent with the apparent purpose of the statute.” For this proposition, appellant MidState and the majority seize upon a legal opinion written by an attorney in the Department of Consumer Affairs. The majority then argues, “Finally, the Board for Professional Engineers and Land Surveyors has interpreted section 6738, subdivision (a)(1), to require that a corporation offering engineering services has as a corporate officer a duly licensed engineer in charge of the engineering practice. An administrative agency’s interpretation of a statute should be accepted unless clearly erroneous. [Citations.]”
However, under settled law, the legal opinion of a single attorney in the Department of Consumer Affairs is not entitled to deference as a formal administrative interpretation of a statute. Thus, in Jones v. Tracy School Dist. (1980) 27 Cal.3d 99, our Supreme Court was asked to give deference to a so-called “administrative interpretation” based on a policy statement issued by the Department of Industrial Relations. Our Supreme Court rejected any notion that the policy statement could rise to the level of a formal administrative interpretation, which would bear upon the interpretation of the applicable statute, saying, “Although we ordinarily defer to the administrative interpretation of a statute adopted by the agency charged with its enforcement [citations], such deference is not appropriate here. The foregoing interpretation of section 1192.7 occurs in an internal memorandum, rather than in an administrative regulation which might be subject to the notice and hearing requirements of proper administrative procedure. [Citation.]” (Id. at p. 107; see also Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 576; Mackey v. Bristol West Ins. Services of Cal., Inc. (2003) 105 Cal.App.4th 1247, 1263.)
There are additional reasons for rejecting the staff attorney’s interpretation of former section 6738. First, the attorney’s opinion letter cites no legislative history whatsoever. The opinion letter is simply the attorney’s idea as to what makes sense under the statute. In the view of the attorney, “First, the Professional Engineers Act requires an engineer to be in responsible charge of all engineering work. Secondly, the engineer in responsible charge should not be a subordinate of an unlicensed person. If an engineer were to be subordinate to an unlicensed person, the engineer’s ability to exercise responsible charge over the engineering work could be limited or countermanded by an unlicensed superior . . . .”
With respect, this opinion makes no sense to me. The end to be accomplished by this interpretation is, in fact, accomplished by the plain meaning of the statute itself. Thus, former section 6738, subdivision (a)(1), provides that the owner, part owner, or officer must be “in charge of the engineering practice of the business.” This statutory language, in and of itself, eliminates the possibility that unlicensed higher-ups would countermand a licensed professional. If that were so, the licensed professional would not be “in charge” of the engineering practice of the business.
In fact, when I consider the purpose of section 6738, which is to allow engineering professionals to do business by fictitious names, it makes sense to me that, in order to do so, there must be a nexus between licensed professional engineers and the work performed by the firm. This occurs when a shareholder of the firm is a licensed engineer in charge of the engineering practice of the business.
The majority argues that a minor shareholder in a corporate engineering firm might be subject to control by majority shareholders. There are two answers to this argument. One is that the minor shareholder (a part owner) would then not be “in charge of the engineering practice of the business,” as the statute requires. Another answer is that if there is a problem in this respect, there is an equal problem with partnerships. Indeed, by the majority’s interpretation of the statute, a partner can satisfy the statute by being in charge of the engineering practice of the business. But partnerships often have different share allocations, with some partners holding more shares that other partners in the firm. Consequently, a minor licensed partner could come under the sway of a majority unlicensed partner. However, in my view, that would not happen where the minor partner was “in charge of the engineering practice of the business.”
So, all in all, I would give former section 6738 its plain and ordinary meaning. Here, Vestra satisfied the statute because its licensed engineer, Susan Goodwin, was a part owner in charge of the engineering practice of the business. MidState’s attempts to wriggle out of its contractual obligations on this basis should be rejected.
II
On appeal, MidState also asserts, “Vestra’s contracts failed to meet the requirements of the Business and Professions Code.”
MidState argues that section 6749 provides as follows:
“(a) A professional engineer shall use a written contract when contracting to provide professional engineering services to a client pursuant to this chapter. The written contract shall be executed by the professional engineer and the client, or his or her representative, prior to the professional engineer commencing work, unless the client knowingly states in writing that work may be commenced before the contract is executed. The written contract shall include, but not be limited to, all of the following:
“(1) A description of the services to be provided to the client by the professional engineer.
“(2) A description of any basis of compensation applicable to the contract, and the method of payment agreed upon by the parties.
“(3) The name, address, and license or certificate number of the professional engineer, and the name and address of the client.
“(4) A description of the procedure that the professional engineer and the client will use to accommodate additional services.
“(5) A description of the procedure to be used by any party to terminate the contract.”
MidState asserts that the contracts at issue were signed on behalf of Vestra by John Andrews and Wendy Johnston as vice-presidents. MidState argues there is no evidence that either John Andrews or Wendy Johnston was a registered civil engineer. However, the record shows that Vestra substantially complied with this statutory requirement. Thus, the record shows that, because Vestra offers both engineering and non-engineering services, Vestra’s contracts combine its standard terms and conditions with a “scope of work” describing the services to be rendered by a member of its professional staff. The scope of work is determined by the type of work to be performed, engineering, geology, forestry, etc. The scope of work for each project is negotiated and executed by the licensed engineer who is responsible and in charge of the project or some other licensed professional such as a geologist or forester. In this case, licensed engineer Susan Goodwin signed all “scope of work” contracts at issue. In my view, Vestra substantially complied with the contract requirement of section 6749 and it would be a great injustice to void the contracts on this basis.
This leaves the question whether section 143 applies to this situation. Section 143 provides as follows:
“(a) No person engaged in any business or profession for which a license is required under this code governing the department or any board, bureau, commission, committee, or program within the department, may bring or maintain any action, or recover in law or equity in any action, in any court of this state for the collection of compensation for the performance of any act or contract for which a license is required without alleging and proving that he or she was duly licensed at all times during the performance of that act or contract, regardless of the merits of the cause of action brought by the person.
“(b) The judicial doctrine of substantial compliance shall not apply to this section.
“(c) This section shall not apply to an act or contract that is considered to qualify as lawful practice of a licensed occupation or profession pursuant to Section 121.”
There is no evidence in this record that any work by Vestra for MidState was performed by any unlicensed person. Indeed, all evidence is to the contrary. If there was a technical violation of section 6749 in this case, it is not a licensing violation. As Vestra properly points out, Vestra, as a corporation, cannot be duly licensed by the Board of Professional Engineers. In California, professional engineers are “registered,” not licensed, and there is no provision for “registering” or “licensing” an engineering corporation. (See §§ 6701, 6704, 6730, 6734; People v. Allied Architects Assn. of Los Angeles (1927) 201 Cal. 428, 434; Binford v. Boyd (1918) 178 Cal. 458, 462.)
Section 143 is not implicated. Accordingly, there is no prohibition on the court’s reliance on the doctrine of substantial compliance to affirm the contracts at issue in this case.
I would hold that, by executing the “scope of work” agreements with MidState, licensed engineer Susan Goodwin substantially complied with section 6749 on behalf of Vestra.
There is no reason in law or equity to void Vestra’s agreements with MidState. The majority’s conclusion allows MidState to reap an unjust windfall based on legal technicalities that are, unfortunately, wrong.
I respectfully dissent. I would affirm the judgment of the trial court.
SIMS , Acting P.J.