JMS Air Conditioning & Appliance Serv., Inc. v. Santa Monica Cmty. Coll. Dist.

• Decision Date: 17 December 2018
• Docket Number: B284068
• Citation: 242 Cal.Rptr.3d 197,30 Cal.App.5th 945
• Parties: JMS AIR CONDITIONING AND APPLIANCE SERVICE, INC., Plaintiff and Appellant, v. SANTA MONICA COMMUNITY COLLEGE DISTRICT et al., Defendants and Respondents; Bernards Bros., Inc., Real Party in Interest and Respondent.
• Court: California Court of Appeals Court of Appeals

30 Cal.App.5th 945

242 Cal.Rptr.3d 197

JMS AIR CONDITIONING AND APPLIANCE SERVICE, INC., Plaintiff and Appellant,

v.SANTA MONICA COMMUNITY COLLEGE DISTRICT et al., Defendants and Respondents;

Bernards Bros., Inc., Real Party in Interest and Respondent.

B284068

Court of Appeal, Second District, Division 1, California.

Filed December 17, 2018

Pitre & Teunisse and Randall J. Pitre, San Dimas, for Plaintiff and Appellant JMS Air Conditioning and Appliance, Inc.

Carpenter, Rothans & Dumont, Justin Reade Sarno, and Louis R. Dumont, Los Angeles, for Defendants and Respondents Santa Monica Community College District and Greg Brown.

Pepper Hamilton, Ted R. Gropman, and Luke N. Eaton, Los Angeles, for Real Party in Interest and Respondent Bernards Bros., Inc.

ROTHSCHILD, P. J.

Plaintiff and appellant JMS Air Conditioning and Appliance, Inc. (JMS) appeals from the superior court’s June 5, 2017 denial of JMS’s petition for writ of administrative mandate. That petition asked the superior court to set aside an administrative decision by defendant and respondent Santa Monica Community College District (the District) that allowed a contractor with the District, real party in interest and respondent Bernards Bros., Inc., to substitute another subcontractor in the place of JMS on a construction project for the District. The court denied JMS’s petition, and for the reasons discussed below, we affirm the court’s denial.

FACTUAL AND PROCEDURAL BACKGROUND

JMS challenges a decision the District issued pursuant to procedures in the Subletting and Subcontracting Fair Practices Act (the Act) ( Pub. Contract Code, § 4100 et seq. ).¹

The Act stems from legislative concerns about the practices of "bid shopping" and "bid peddling" on public works projects. "Bid shopping" is "the use of the low bid already received by [a] general contractor to pressure other subcontractors into submitting even lower bids." ( Southern Cal. Acoustics Co. v. C. V. Holder, Inc. (1969) 71 Cal.2d 719, 726, fn. 7, 79 Cal.Rptr. 319, 456 P.2d 975 ( Southern Cal. Acoustics ).) A subcontractor engages in "bid peddling" when it attempts to "undercut known [subcontract] bids already submitted to the general contractor in order to procure the job." ( Ibid. ) The Legislature found that these practices result in "poor quality of material and workmanship to the detriment of the public, deprive the public of the full benefits of fair competition among prime contractors and subcontractors, and lead to insolvencies, loss of wages to employees, and other evils." (§ 4101.)

The Act seeks to prevent these evils by "provid[ing] an opportunity to the awarding authority to investigate and approve the initial subcontractors and any proposed substitutions." ( Southern Cal. Acoustics , supra , 71 Cal.2d at pp. 725–726, 79 Cal.Rptr. 319, 456 P.2d 975.) It requires that a general contractor specifically list in a bid for public work the subcontractors it intends to use for the project. (§ 4104.) Once the awarding authority accepts a bid, the Act permits the general contractor to substitute out a listed subcontractor only on certain enumerated bases, all but one of which relate to the subcontractor’s ability or willingness to perform the work, or to perform it appropriately.² (§ 4107, subd. (a).) The general contractor must receive approval from the awarding authority for any such substitution, and the Act establishes procedures for such requests. (Ibid. ) These procedures require that a subcontractor receive written notice of a substitution request and, if the subcontractor timely objects, "the awarding authority" must hold a hearing to decide if it will allow the substitution. (Ibid. )

A. JMS’s Work for the District

The District contracted with the general contractor Bernards Bros., Inc. (Bernards) to construct a new facility. In Bernards’s bid to the District for this work, it listed JMS as the subcontractor to install the heating, ventilation, and air conditioning system at the facility, per division 23 of the project specifications (the HVAC Specification). JMS holds a C-20 California contractor’s license to perform "warm-air heating, ventilating and air-conditioning" work. (Capitalization omitted.) Bernards and JMS entered into a subcontractor agreement in November 2014, and JMS commenced work in April 2015. The scheduled payment for all work JMS was to perform under the subcontract is approximately $8.2 million.

B. Bernards’s Substitution Request and the Substitution Hearing

On March 30, 2016, Bernards requested in writing that the District permit it to "substitute another [s]ubcontractor for JMS" because JMS had "failed or refused to perform its subcontract obligations and may not be properly licensed for a portion of its work pursuant to the [c]ontractors [l]icense [l]aw." Bernards cited section 4107 subdivisions (a)(3) and (a)(6) as the statutory bases for its request, but provided no further detail. (Ibid. ) The District forwarded a copy of the request to JMS that same day. In an April 5, 2016 letter to the District, JMS objected to Bernards’s request. This objection triggered JMS’s right to a section 4107 substitution hearing. (See § 4107.)

On April 12, 2016, the District proposed a hearing date of April 18, identified the "[h]earing [o]fficer" as Greg Brown, and set forth time limitations for the hearing. Brown is the facilities manager for Santa Monica Community College and thus "generally knowledgeable about the [p]roject."

JMS objected to the April 18 date and the proposed time restrictions, and requested the District reschedule the hearing to no earlier than May 2. The District ultimately rescheduled the hearing for May 6, 2016. Brown informed the parties in advance that the hearing would be limited to two hours and that neither "[t]echnical rules of evidence" nor a right to cross-examine witnesses would apply.

At Brown’s invitation, JMS and Bernards each submitted written statements detailing their positions. Brown set no page limits on these statements, nor did he restrict the number of exhibits or written witness statements the parties could submit. In JMS’s April 25, 2016 "Statement of Position," JMS denied that it had refused to perform any work. As to Bernards’s claim that JMS lacked the proper license to do "a portion of " work, JMS assumed that the claim related to the hydronic plumbing work listed in the HVAC Specification. JMS contended that this claim lacked merit because JMS’s C-20 HVAC license covered such plumbing work as "incidental and supplemental" or "essential" to HVAC work. JMS relied on Business and Professions Code section 7059, permitting specialty contractors to perform work that is "incidental and supplemental to the performance of the work in the craft for which the specialty contractor is licensed," ( Bus. & Prof. Code, § 7059, subd. (a) ), as well as a California State Licensing Board (CSLB) regulation that defines "incidental and supplemental" as "essential to accomplish the work in which the contractor is classified." ( Cal. Code Regs., tit. 16, § 831.)

Bernards submitted a May 3, 2016 "Statement of Position," which JMS counsel purports to have received on May 4, 2016, that describes the factual basis for Bernards’s substitution request. In it, Bernards identified two types of work it contended JMS was not licensed to perform: The hydronic boiler work and the hydronic plumbing work listed in the HVAC Specification. The statement attaches a 250-page "Exhibit Book," which contains, among other materials, documents detailing 21 "Performance Deficienc[ies]," and a written statement of Robert B. Berrigan, a lawyer and former licensing deputy for CSLB.

In this unsworn statement, Berrigan stated that, while working at CSLB, he "reviewed the plans and specifications for all public work projects performed by" several public agencies "to determine the proper classification of contractor to perform the work involved." He described his role there as "the ultimate administrative authority in [s]tate [g]overnment for determining whether a contractor’s license was required for any project or type of work," and noted he often gave "expert testimony" in administrative hearings and civil litigation on this topic.

Berrigan opined that JMS is not licensed to perform the boiler work listed in the HVAC Specification. He concluded that boiler work is not "incidental and supplemental" or "essential" to HVAC work. On this basis, he further concluded that such boiler work is not covered by JMS’s C-20 HVAC contractor license and would instead require a C-4 boiler license. Berrigan noted that he "ha[d] not formed an opinion" on whether JMS required a separate C-36 plumbing license to perform the hydronic plumbing work JMS had performed to date.

On May 6, 2016, Brown conducted the substitution hearing assisted by campus counsel, who "serv[ed] as [a] legal advisor to [Brown]." At the hearing, Brown accepted the written materials from both sides and afforded each side 40 minutes to present its case, as well as a 10-minute right of reply and brief closing arguments. Bernards offered two of its employees as witnesses: Michael Toepfer, a senior project manager, and Dave Iman, a superintendent. None of the witnesses who spoke at the hearing did so under oath, nor did either party object to this. Both Toepfer’s and Iman’s statements focused on complaints about the quality and timeliness of JMS’s work. Toepfer, however, stated that JMS had not delayed the overall "critical path" of the project. Neither of Bernards’s witnesses disputed JMS’s contention that JMS had completed all work under the contract.

At the hearing, JMS provided Brown with written responses to the alleged performance deficiencies detailed in Bernards’s Exhibit Book. JMS president, Joe Messica, was JMS’s sole witness at the hearing. Messica is the "qualifier on JMS’s [C-20 contractor] license," meaning he possesses "the degree of knowledge and experience in the [C-20 HVAC] classification ... and the general knowledge of the...