Naughty or Nice. Contractor Receives Two Lumps of Coal in Administrative Dispute

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So, how were your holidays? Hopefully you were good and didn’t receive a lump of coal from Santa. For one contractor, 2018, wasn’t such a good year. And as its name, Black Diamond, suggests, it did indeed receive a black diamond from the courts. Actually, two of them.

Contractors’ State License Board v. Superior Court (Black Diamond No. 1)

In Contractors’ State License Board v. Superior Court, Court of Appeals for the First District, Case No. 1154476 (October 11, 2018), the Contractors State License Board (“CSLB”) brought disciplinary proceedings against Black Diamond Electric, Inc. (“Black Diamond”), a C-10 Electrical Contractor, for violating: (1) Labor Code section 108.2, which requires individuals performing work as electricians to be certified; and (2) Labor Code section 108.4, which permits uncertified persons seeking on-the-job experience to perform electrical work so long as they are under the direct supervision of a certified electrician.

The CSLB filed an accusation against Black Diamond in March 2017. In response, Black Diamond filed a “Notice of Defense” claiming that “the work its employees were performing required neither certification nor supervision” and that the CSLB’s interpretation of the applicable Labor Code sections were erroneous. In its request for relief, Black Diamond sought a “permanent injunction barring any disciplinary action for violation of Labor Code sections 108 et seq.”

In April 2018, an administrative law judge heard the accusation and found that Black Diamond had violated the Labor Code by having individuals perform electrical work without certification or direct supervision by a certified electrician and recommended revocation of Black Diamond’s contractor’s license. The CSLB Registrar adopted the proposed decision, but before the decision became effective, Black Diamond asked the CSLB to stay entry of the decision so it could file a motion for reconsideration. The CSLB granted the request.

Meanwhile, while the administrative proceeding was pending, Black Diamond filed a complaint in the Contra Costa County Superior against the CSLB seeking a declaration that the CSLB was “knowingly enforcing Labor Code § 108, et seq. illegally” and seeking a “permanent injunction enjoining and restraining the [CSLB] from seeking to enforce the ‘direct supervision’ provision of Labor Code section 108.4(a)(3) until the [State Legislature] provides the [CSLB] with further clarification.”

In response, the CSLB filed a demurrer to the complaint arguing that the Superior Court lacked jurisdiction because Black Diamond had not yet exhausted its administrative remedies in the parallel administrative proceeding. The trial court overruled the demurrer on the ground that Black Diamond’s complaint for declaratory relief was “not limited to the pending administrative proceeding, but is based on the [CSLB’s] interpretation of [Labor Code] section 108 and how the [CSLB] will apply its interpretation to [Black Diamond] going forward.” The CSLB appealed.

On appeal, the First District Court of Appeal overturned the decision of the trial court finding that the Administrative Procedure Act permitted Black Diamond to object to an accusation not the ground that it “does not state acts or omissions upon which the agency may proceed” and to “[o]bject to the form of the accusation . . . on the ground that it so indefinite or uncertain that the respondent cannot identify the transaction or prepare a defense.” The Court of Appeal also noted that the Administrative Procedure Act allows Black Diamond to conduct discovery and to move to compel discovery if necessary.

As such, held the Court of Appeal, “[s]ince the relevant statutes provide [Black Diamond] with an administrative remedy, it must first exhaust that remedy before it may seek redress in court.”

Lump of coal number one.

Contractors’ State License Board v. Superior Court (Black Diamond No. 2)

In Contractors’ State License Board v. Superior Court (2018) 23 Cal.App.5th 125, while Black Diamond’s action with the Contra Costa County Superior Court was pending, Black Diamond served interrogatories and a request for production of documents on the CSLB and noticed the deposition of David R. Fogt, the Registrar of the CSLB.

In response, the CSLB filed a motion for protective order to prevent deposition, arguing that: (1) the deposition was improper before the court heard the CSLB’s demurrer; (2) the deposition was noticed for the purpose of harassing Mr. Fogt and was burdensome because the deposition sought to depose Mr. Fogt on the definition of statutory terms, which are issues of law, not fact; and (3) the deposition notice was improper because top government executives are normally not subject to deposition. In opposition to the motion, Black Diamond argued that it’s deposition notice was permissible.

In February 2018, the trial court issued a tentative ruling denying the CSLB’s motion for protective order finding that Mr. Fogt “has direct factual information and that he was directly involved in issues related to this case before his appointment as Executive Officer.” The CSLB appealed.

On appeal, the First District Court of Appeal noted that “[t]he general rule in California and federal court is that agency heads and other top governmental executives are not subject to deposition absent compelling reasons” unless: (1) “the deposing party . . . show[s] that the government official ‘has direct personal factual information pertaining to material issues in the action . . . ” (emphasis in original); and (2) “the deposing party  . . . also show[s] “the information to be gained from the deposition is not available through any other source.”

In response to Black Diamond’s argument that it was not seeking to depose Mr. Fogt in his executive capacity, but rather, was seeking  information that Mr. Fogt had gained during his earlier career with the CSLB, the Court of Appeals held that “[I]t does not matter that [Black Diamond] claims to seek information Fogt gained before he was elevated to his current position. The rule prohibiting the deposition of agency heads and other highly placed public officials is grounded on the concern that such proceedings will consume the officials’ time and hamper them in the conduct of government business.”

Further, held the Court of Appeal, Black Diamond’s purported purpose of deposing Mr. Fogt “to inquire about the CSLB’s] prior administrative interpretations fo the statute, and prior applications to it, that occurred by his direction, through his authority since his appointment as Enforcement Chief,” sought information on issues of law alone, thereby precluding his deposition, not facts. “The only information relevant to the [CSLB’s] interpretation of the Labor Code will be the text of the statutes, legislative history, and perhaps official administrative interpretations,” explained the Court, and “[Black Diamond] is not permitted to ask agency officials how they personally interpret statutes administered by the [CSLB], since their personal views are irrelevant to the purely legal issue of statutory construction.”

Lump of coal number two.

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