Home Depot, U.S.A., Inc. v. Contractors' State License Bd.

• Decision Date: 26 January 1996
• Docket Number: No. D021809,D021809
• Citation: 49 Cal.Rptr.2d 302,41 Cal.App.4th 1592
• Court: California Court of Appeals Court of Appeals
• Parties: , 96 Cal. Daily Op. Serv. 599, 96 Daily Journal D.A.R. 916 HOME DEPOT U.S.A., Inc., Plaintiff and Respondent, v. CONTRACTORS' STATE LICENSE BOARD, Defendant and Appellant.

Page 302

49 Cal.Rptr.2d 302

41 Cal.App.4th 1592, 96 Cal. Daily Op. Serv. 599,

96 Daily Journal D.A.R. 916

HOME DEPOT U.S.A., Inc., Plaintiff and Respondent, v. CONTRACTORS' STATE LICENSE BOARD, Defendant and Appellant.

No. D021809.

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

Jan. 26, 1996.

Daniel E. Lungren, Attorney General, Robert L. Mukai, Chief Assistant Attorney General, Ron Russo, Assistant Attorney General, Anthony M. Summers and Samuel K. Hammond, Deputy Attorneys General, for Defendant and Appellant.

Bartlett & Kirch, Bradley A. Bartlett, Escondido and Jacques J. Kirch, San Diego, for Plaintiff and Respondent.

HALLER, Associate Justice.

At issue here is the validity of a regulation adopted by the Contractors' State License Board (Board) prohibiting a licensed general building contractor from taking a contract or subcontract unless (1) the contract involves at least three unrelated building trades or crafts, or (2) the contractor holds the required specialty license. The regulation is Title 16, California Code of Regulations, section 834(b), ¹ and, for the reasons explained below, we conclude it is invalid under these circumstances.

FACTUAL AND PROCEDURAL BACKGROUND

Home Depot, U.S.A., Inc., which is headquartered in Atlanta, Georgia, sells home improvement products in more than 200 stores nationwide, including 64 stores in California at the time of the administrative proceedings here.

In 1990, Home Depot hired Peter Smith to institute a "We can install it" program on a test basis in the San Diego stores. Under the program, Home Depot hires specialty contractors to perform installation of certain products it sells if the customer so desires. Home Depot does not undertake the installation work. Home Depot screens the specialty contractors in the program to make sure they are properly licensed and carry appropriate insurance.

Before the program began, Home Depot inquired with Board's Sacramento office about license requirements and was told that a class B general contractor's license would be necessary. Since September 12, 1990 In 1991, Home Depot's installation services included interior and exterior doors, floor and wall coverings, window treatments, plumbing fixtures, garage door openers, electrical, kitchen cabinets, storage sheds and full kitchen and bath remodels. Approximately 65 percent of Home Depot's installation jobs in 1991 involved three or more trades.

Home Depot has been licensed in California as a class B general contractor. Peter Smith is the responsible managing employee on the license.

Home Depot does not consider itself to be in the business of a general contractor. Home Depot represents to its customers that through its "We can install it" program Home Depot is in control of the installation process and considers itself responsible to the customer for both the product and the installation.

On October 23, 1991, Marian Naylor purchased a water heater from a Home Depot store in San Diego and entered into a written agreement with Home Depot for installation of the water heater. Naylor paid Home Depot $269.89 for the water heater and installation. Home Depot arranged for Beatty Service, a licensed plumbing contractor, to install the water heater; the installation took place on October 25, 1991. Beatty Service failed to obtain a permit for the installation of the water heater.

Naylor made a complaint to Board through her son, who works with a plumbing company that competes with Home Depot.

On April 23, 1992, Board filed Citation No. 2913218 against Home Depot for failing to obtain a permit before installation of the water heater (Bus. & Prof.Code, § 7110) and for acting as a plumbing contractor (C-36 specialty license) while licensed only as a general building contractor. A permit was subsequently obtained for the Naylor water heater.

Also on April 23, 1992, Board filed Citations Nos. 2913216 and 2913217 in connection with advertising by Home Depot for floor covering installation without the proper specialty contracting license in violation of Business and Professions Code section 7026.7, subdivision (a). ² These citations stemmed from complaints made by competitors of Home Depot.

A hearing on the citations was conducted before an administrative law judge on November 23 and 24, 1992. On February 22, 1993, the administrative law judge issued a proposed decision affirming Citations Nos. 2913216 and 291238 and dismissing Citation No. 2913217. On March 4, 1993, the Registrar adopted the administrative law judge's proposed decision and set April 3, 1993 as the effective date of the decisions on the citations.

On July 19, 1993, Home Depot filed a petition for writ of mandate and declaratory relief.

On July 26, 1994, judgment was entered granting a peremptory writ of mandate commanding Board to set aside Citations Nos. 2913216 and 2913218 as invalid and unenforceable and declaring rule 834(b) invalid and void.

On August 17, 1994, Board filed this appeal of the judgment.

DISCUSSION

I. Overview of Statutory Scheme

The Contractors' State License Law (Law) (§ 7000 et seq.) provides a comprehensive scheme governing contractors ³ doing business The Law reflects a strong public policy in favor of protecting the public against unscrupulous and incompetent contracting work. (Vallejo Development Co. v. Beck Development Co. (1994) 24 Cal.App.4th 929, 938, 29 Cal.Rptr.2d 669.) As our Supreme Court recently noted:

                in California.  The Law is administered by the Board, which is composed of 13 [41 Cal.App.4th 1598] members--seven public members and six members who are contractors subject to the Law, including one member who belongs to a labor organization representing the building trades.  (§§ 7000.5, 7001, 7002.)   The Board is given general authority to adopt rules and regulations reasonably necessary to carry out the provisions of the Law.  (§ 7008.)
                

"The purpose of the licensing law is to protect the public from incompetence and dishonesty in those who provide building and construction services. [Citation.] The licensing requirements provide minimal assurance that all persons offering such services in California have the requisite skill and character, understand applicable local laws and codes, and know the rudiments of administering a contracting business." (Hydrotech Systems, Ltd. v. Oasis Waterpark (1991) 52 Cal.3d 988, 995, 277 Cal.Rptr. 517, 803 P.2d 370.)

This case involves the statutory classifications of contractors and the interaction of the classifications with rule 834(b), which Board promulgated pursuant to its rule-making authority. The pertinent statutory provisions are as follows:

Section 7055, which provides:

"For the purpose of classification, the contracting business includes any or all of the following branches:

"(a) General engineering contracting.

"(b) General building contracting.

"(c) Specialty contracting." ⁴

Section 7057, which provides in pertinent part:

"A general building contractor is a contractor whose principal contracting business is in connection with any structure built, being built, or to be built, for the support, shelter and enclosure of persons, animals, chattels or movable property of any kind, requiring in its construction the use of more than two unrelated building trades or crafts, or to do or superintend the whole or any part thereof."

Section 7058, which provides in pertinent part:

"(a) A specialty contractor is a contractor whose operations as such are the performance of construction work requiring special skill and whose principal contracting business involves the use of specialized building trades or crafts."

Section 7059, which provides in pertinent part:

"(a) The board may adopt reasonably necessary rules and regulations to effect the classification of contractors in a manner consistent with established usage and procedure as found in the construction business, and may limit the field and scope of the operations of a licensed contractor to those in which he or she is classified and qualified to engage, as defined by Sections 7055, 7056, 7057 and 7058. A licensee may make application for classification and be classified in more than one classification if the licensee meets the qualifications prescribed by the board for such additional classification or classifications. The application shall be in a form as prescribed by the registrar and shall be accompanied by the application fee fixed by this chapter. No license fee shall be charged for an additional classification or classifications.

"Nothing contained in this section shall prohibit a specialty contractor from taking and executing a contract involving the use of two or more crafts or trades, if the performance of the work in the crafts or trades, other than in which he or she is licensed, is incidental and supplemental to the performance of the work in the craft for which the specialty contractor is licensed."

Rule 834(b) provides "A licensee classified as a general building contractor, as defined in Section 7057 of the Code, shall not take a prime contract (excluding framing and carpentry) unless it requires at least three unrelated building trades or crafts, or unless he/she holds the required specialty license(s). A general building contractor shall not take a subcontract (excluding framing or carpentry) involving less than three unrelated trades or crafts unless he/she holds the required specialty license(s)."

II. Standard of Review

The interpretation of administrative regulations, as well as statutes, presents questions of law. (Delta Air Lines, Inc. v. State Bd. of Equalization (1989) 214 Cal.App.3d 518, 525, 262 Cal.Rptr. 803.) These questions of law are subject to independent review on appeal. (Board of Retirement v. Lewis (1990) 217 Cal.App.3d 956, 964, 266 Cal.Rptr. 225.)

III. Statutory Construction

The linchpin of Board's defense of rule 834(b) is Board's contention that the Legislature intended general building contractors to be limited to...