Contractors State License Board Stings More Than 100 in Series of Simultaneous Undercover Sting Operations

The Contractors State License Board (CSLB) has wrapped up five simultaneous undercover sting operations around the state. The annual fall "California Blitz” was conducted by 20 CSLB investigators during a three-day period, September 15, 16, and 17, 2009. A total of 113 people received Notices to Appear (NTA) in court or administrative citations. One went to jail for a $20,000 warrant for domestic violence, and two others for having outstanding traffic warrants.

CSLB’s Statewide Investigative Fraud Team (SWIFT) conducts these multi-county blitzes every fall and spring to enhance its smaller sting operations, which take place on a weekly basis. These operations crack down on the underground economy that harms consumers and legitimate, licensed contractors. The fall 2009 Blitz involved stings in Los Angeles, Monterey, Riverside, Sacramento, and Yolo Counties.

SWIFT investigators posed as business owners, landlords, or tenants at commercial properties in Monterey and Riverside, and as homeowners in Saugus (Los Angeles County), Sacramento, and Woodland (Yolo County). They solicited bids for a variety of projects, ranging from landscaping, concrete, fencing, painting, and flooring to wrought iron and installation of a swimming pool safety fence.

Investigators primarily targeted those who were previously caught contracting without a license. Six of the people arrested had been caught before. Fortunately, a majority of those contacted for bids said they either had gotten out of the business or the job sounded too big for them to perform—possibly an indication that enforcement operations conducted by CSLB and its partner agencies are improving awareness of state contracting laws. By law, all contractors who perform work that totals $500 or more for labor and materials must be licensed by CSLB.

Other targets were identified from advertisements in various local publications and online, and those identified from leads from local law enforcement or trade associations.

Joining CSLB in the operation were local police and sheriffs’ departments, district attorney offices, local building officials, and the California Department of Toxic Substances Control. Those who received NTAs will be required to appear in court in November and December to face misdemeanor charges. The charges carry a maximum of six months in jail or a $1,000 fine for the first offense. A second violation carries a mandatory 90-day jail sentence.

"Consumers must realize that they are taking a risk when they hire an unlicensed contractor to work on their home or business," said CSLB Registrar Steve Sands. "Not only are licensed contractors required to demonstrate competence in their trade, but they also must carry workers’ compensation and bonds to protect home or business owners in the event something goes wrong."

Unlicensed contractors often submit lower bids than their licensed counterparts because they do not carry insurance or bonds, and they pay their employees in cash, "under the table." If a worker is injured during a construction project, the home or business owner could be legally and financially responsible.

Education is another important component of the Blitz and all of CSLB’s sting operations. "We don’t want to stop people from earning a living," said Sands. "But, if they’re going to be in business, they need to follow the law." Those arrested during the sting operation were encouraged to get a license, and given an application package with information and all the necessary forms.

Here are some highlights from the various sting sites:

Sacramento

• One suspect arrested on $20,000 domestic violence warrant.

Saugus

• One suspect, who was just released after serving four years in state prison for possession and sale of methamphetamines, showed up with his toddler son to give a bid.
• One suspect who provided a bid for laminate flooring has two unpaid administrative citations with a total civil penalty of $3,000. He was also driving with an expired driver’s license.
• One suspect who provided a bid for a block wall was a previous offender who had paid his prior citations.

Riverside

• One suspect arrested was on probation for his prior conviction for contracting without a license.
• Another repeat offender also had an arrest warrant for failing to appear on his previous charge of contracting without a license.
• One suspect ran from the sting site to avoid getting an NTA. Fortunately, our backup from the Riverside Police Department positively identified the suspect, who will now still face charges.

Monterey

• One suspect arrested had previously received two CSLB administrative citations. He’ll now face criminal charges.
• Another suspect who was previously cited showed up at the sting with a "partner" who is a licensed plumber. Both men were arrested and received an NTA.
• One suspect was arrested for a third time on charges of contracting without a license.

Woodland

• Two individuals were arrested on traffic warrants and released on a promise to appear.

The CSLB urges consumers to follow these tips when hiring a contractor:

• Be especially hesitant when approached by someone offering home improvement services door-to-door.
• Verify the contractor's license by checking online at http://www.cslb.ca.gov/ or via CSLB’s automated phone service at 1-800-321-CSLB (2752).
• Don't pay more than 10% down or $1,000, whichever is less.
• Don't pay in cash, and don't let the payments get ahead of the work.
• Check references, obtain three bids, and ask for a written contract.
• Contact CSLB if you have a complaint against a contractor.

Construction Managers on Private Works Do Not Need to Be Licensed

By Attorney Sam Abdulaziz
Abdulaziz, Grossbart & Rudman
Reprinted with permission

It has always been thought that a Construction Manager needs to be licensed on public works. However, in a recent case, The Fifth Day, LLC, v. James P. Bolotin, held that this may not be the case. The Court of Appeal reversed the judgment that was entered by the Los Angeles Superior Court. This ruling, which was not a unanimous decision, may be considered factually specific. There was one very strong dissenting opinion.

The Plaintiff (Fifth Day) had entered into an agreement to give some "industrial real estate development and construction project management" services on private work property. Fifth Day sued Bolotin for compensation owed to Fifth Day for services rendered. Fifth Day was also responsible for financing some of the construction. Some of the duties that Fifth Day was to perform was to assist, on behalf of the owner in coordinating activities to complete assigned tasks, to maintain various records such as financial books and insurance certificates, keep the owner up to date on the project as well as be the on-site "point person", responding to issues that may arise. Fifth Day was not responsible for performing any of the construction work. Fifth Day performed all of its duties under the contract and construction was completed. Fifth Day stated that they were not paid all of the monies due to it.

When the case went to appeal, the main question was if Fifth Day provided Construction Management services to a private owner of property; Did Fifth Day have to be licensed in accordance with the Contractors’ State License Law? The law itself, does not classify Construction Managers as requiring a license.

The main areas of the law that were discussed were Business and Professions Code Sections 7026 and 7057. Section 7026 defines the term "contractor" and explicitly states different activities in the law. It was an undisputed fact that Fifth Day did not contract with the Owner to perform any of the activities that are listed in Section 7026, nor to perform any of those activities.

Bolotin also cited Section 7057 of the Business and Professions Code. This section basically defines what a general building contractor is. The Court of Appeal felt that "Section 7057 provides that any contractor who engages in the listed activities is a general building contractor….If Plaintiff is not a contractor (because it does not perform the activities listed in section 7026 which defines a contractor), it is, by definition, not a general contractor."

Basically when the Court of Appeal rendered its decision, they stated that the Legislature is empowered to determine whether a Construction Manager on a private works project needs to be licensed as they do for public works and that unless and until the Legislature does this through the proper channels, Construction Managers do not need to be licensed.

The dissenting judge felt that this decision leaves room for unqualified, unscrupulous, and unlicensed contractors, to use a loophole in the license requirement by calling themselves Construction Managers instead of Contractors, which is not what the Contractor’s License Law is intended to mean.

Be very careful using the term Construction Manager.

Attorney General and CSLB Stop Massive Statewide Home Repair Scheme

SAN DIEGO - California Attorney General Edmund G. Brown Jr. and the Contractors State License Board (CSLB) have finalized an agreement that will stop a massive service and repair scheme that unfairly overcharged thousands of Californians for "shoddy and woefully inadequate" home repair work.

"This massive scheme defrauded thousands of California homeowners who were charged exorbitant fees for shoddy and woefully inadequate home repair work by unlicensed and unskilled contractors," Attorney General Brown said. "The agreement stops the illegal practices and gives homeowners a chance to recover some of their losses."

A months-long investigation by the Attorney General's Office and the Contractors State License Board found that SRVS Charge Inc. and its affiliated companies had been cheating some 6,000 customers each year for overpriced and substandard home repair work since 1989.

To stop the companies' illegal practices and provide restitution to those who were victimized, Brown and the CSLB reached a settlement with:

• SRVS Charge Inc. and its affiliates;
• Principal owner, Sarkis Terabelian, 43, of Burbank;
• General manager, Zohrab "Rob" Mkhitarian, 40, of Burbank; and
• Associates Marine Metspakyan, 33, Avetik Avo Gyandzhyan, 38, Lilit Lusparyan, 28, Alisa Oganyan, 35, Estine Akopyan, 28, and Vardui Terabelian, 45

The defendants operated various service and repair companies that employed electricians, plumbers, and heating and air-conditioning technicians in Southern California, the San Francisco Bay Area, and the Sacramento region. These companies routinely targeted elderly Californians.

Exorbitant customer fees enabled Sarkis Terabelian, Mkhitarian, and his associates to purchase two helicopters, a Mercedes-Benz, and real property valued in excess of $1 million. Title to these vehicles and real property were seized by the Attorney General's Office last year and will be released as a result of the settlement.

SRVS Charge Inc.'s scheme worked like this:

• The company placed millions of dollars in telephone directory advertising, including many full-page ads. The ads, which listed different company names, claimed a 100% satisfaction guarantee and senior discounts. When customers called the numbers listed in any of the ads, they would be directed to a central call center.
• Many times repairmen would be dispatched from a different company than the customer called.
• Often, these workers had not undergone the criminal background check required of all contractors and Home Improvement Salespeople licensed by the Contractors State License Board since January 1, 2005.
• Customers were charged high prices for emergency home service and repair, often unrelated to the actual home repair work. Much of the work was poorly done or never completed.
• If a customer refused to pay, the company would file a lien against the home to force payment.

Because the company used multiple business names, it was difficult, if not impossible, for customers to seek recourse for incompetent workmanship, incomplete work, or any other issue that arose on their project. Customers were often denied refunds, despite the existence of the "100% satisfaction guarantee" promised in the ads.

Over several years, the Attorney General and the CSLB shut down affiliates of SRVS Charge, Inc. But instead of ending their scheme, the defendants continued to run their company under a labyrinth of business names and fraudulent contractor license numbers that were interchangeable. When CSLB either revoked a license or received an excessive number of complaints, the company would establish a new corporate identity and business would continue without interruption.

As part of its investigation, CSLB conducted undercover stings against service technicians suspected of using these fraudulent licenses and referred instances of the illegal activity to the San Diego, Los Angeles, Santa Clara, and Sacramento County district attorney's offices. In one instance, the San Diego District Attorney's Office found that a service technician had also committed burglary and theft and is now being prosecuted for his crimes.

Attorney General Brown entered into a final agreement with the defendants in San Diego Superior Court on March 12, 2009, and the agreement was made public today. The settlement provides for the following.

A permanent injunction against the defendants' prior illegal activities. This includes:

• CSLB monitoring of the defendants' operations for one year;
• Mandatory registration of all company service technicians with CSLB. This requires technicians to undergo a criminal background check;
• Capping the number of business licenses that the defendants can use to a maximum of five;
• Preventing the defendants from charging exorbitant fees or fees that have nothing to do with the actual work that is performed;
• Fully disclosing to CSLB the names of the directors, officers, and employees of their company;
• Mandatory customer complaint tracking with proper complaint investigation and reasonable efforts to resolve them; and
• Prohibiting the defendants from engaging in false advertising.

$3 million in penalties and restitution to be distributed as follows:

• $1.3 million to be used for consumer restitution;
• $450,000 to be assessed in penalties for state Business and Professions Code violations; and
• The remainder to be used to reimburse CSLB for investigative costs, legal costs, and costs of monitoring future compliance with the judgment.

"This settlement is a victory for California consumers and legitimate contractors, and brings resolution to thousands of hours of investigative work," said CSLB Registrar Steve Sands. "Victims will now be able to regain some of their money, and CSLB will be able to watch this company closely so others aren't harmed."

If the terms of the settlement are violated, the defendants could face jail time.

The following companies are affiliated with the defendants and are included in the settlement:

• American Electric (CSLB #834398)
• American Home Repairs, Inc. (CSLB #834206)
• 59 Minute Service (CSLB #837697)
• Cal Repair Services, Inc., dba Pick Red Plumbing (CSLB #797241)
• Answering Resources, Inc., dba Thrifty Electric (CSLB #723375)
• Orbell Enterprises, Inc., dba Plumbing One (CSLB #713006)
• USA Services, Inc. (CSLB #775863)
• Love My Home, Inc. (CSLB #811361)
• Electric Avenue, formerly A Plus Electric Company (CSLB #569322)
• American Electric 911 Fast Inc. (CSLB #826916)
• Pro Electric Co. (CSLB #670171)
• RG Electric (CSLB #516892)
• Pacific West Heating & Air Conditioning (CSLB #604150)

If you think you have been the victim of fraud by this company and its affiliates, please contact the Contractors State License Board at 1-800-321-CSLB (2752) and press 7.

Attachments:

• Complaint for Civil Penalties & Injunctive Relief
• Stipulation for Entry of Final Judgment
• Final Judgment

Quick Work Leads to Arrest in Fresno County Paving Scam

Contractors State License Board urges additional victims to come forward

SACRAMENTO — A joint investigation by the Contractors State License Board (CSLB) and the Fresno County District Attorney’s Office into an illegal paving operation has led to the arrest of 35-year-old Quirt Davis, of Clovis. CSLB received an anonymous tip on Wednesday, February 25, 2009, that a contractor was scamming an elderly man in the Selma area.

At the site, district attorney investigators discovered that the 82-year-old, hearing impaired property owner was told he was getting a deal with materials left over from another job. But, he was not given a price for the project until after work had begun. He was then told that the price was thousands of dollars more than he expected. Authorities arrived before any money was paid. The workers at the site said they were employed by Q.E. Davis and/or Davis Paving.
Business operator Quirt Davis showed up at the site and provided a contractor’s license he indicated was his (#831486). The suspended license actually belongs to his 77-year-old mother in Missouri.

It is a felony, punishable by prison and/or fines of up to $10,000, to use another person’s contractor license. Davis was arrested and charged with illegally using another’s license, contracting without a license, illegal advertising, and faces workers’ compensation violations* and possibly other charges relating to fraud. His equipment was also seized by Fresno County authorities.

Investigators from CSLB’s Statewide Investigative Fraud Team (SWIFT) believe there are other victims, since Davis Paving may have been illegally operating in the Fresno area for a number of months.

A common contracting scam used by transient paving crews is to take exorbitant amounts of money for substandard materials and work, and then quickly move on to more victims. Anyone who has had contact with, has knowledge of, or has been taken advantage of by Davis Paving or a similar traveling crew should contact SWIFT investigators immediately at (916) 255-2924.

Scammers usually approach property owners, saying they have leftover materials, and offer to fix potholes or pave driveways at bargain rates. Then, they raise the price after the work has been completed with no written contract, use defective materials, and/or the quality of their work is poor. They often ask for payment up front, and will cash checks and leave the area before victims know they’ve been ripped off.

CSLB urges consumers to be wary of transient solicitors and to watch for these "red flags":

• No CSLB-issued contractor license
• Door-to-door solicitations
• Unsolicited offers to do painting, roofing or paving work
• Claims of leftover materials
• High pressure or scare tactics
• Reluctance to sign a written contract
• Demand for payment in cash
• Brand new vehicles, dump trucks, or other heavy road construction equipment with out-of-state license plates, no plates at all or obscured license plates
• Toll-free business telephone number, instead of a local contact number

The Contractors State License Board operates under the umbrella of the California Department of Consumer Affairs. CSLB licenses and regulates California's 316,000 contractors and is regarded as one of the leading consumer protection agencies in the United States. In fiscal year 2007-08, CSLB helped recover $35.2 million in ordered restitution for consumers.

*Business & Professions (B&P) Code

• 7027.3 – Using another’s license with intent to fraud
• 7027.1 – Illegal Advertising
• 7028 – Contracting without a license

Labor Code

• 3700.5 – Workers’ compensation violation

2009 Brings Changes to State Laws for California Contractors

The Contractors State License Board (CSLB) is advising contractors about some of the changes in California law during the 2008 legislative session that may impact them and/or their business practices.

Increased Penalties SB 797 (Ridley-Thomas) Business & Professions Code § 490. Expands the penalties for individuals who contract without a license if they were named on a revoked license and were found to be culpable in the license revocation. (Amended Stats 2008 ch 33 § 2, effective January 1, 2009.)

Sunset Dates SB 963 (Ridley-Thomas) Business & Professions Code § 7000.5. Extends the legislative sunset date for the Contractors State License Board until January 1, 2011.The original sunset date for CSLB was July 1, 2009. (Amended Stats 2008 ch 385 §1, effective January 1, 2009.)

Contractor Bonds SB 1432 (Margett) Business & Professions Code § 7071.5, § 7071.10 and § 7071.11. Requires that a contractor's bond and the qualifying individual's bond be available to a property owner whose single-family dwelling is damaged as the result of a violation of the state Contractors License Law, if the dwelling is not intended or offered for sale at the time the damages were incurred. (Amended Stats 2008 ch 157 §1 (1), §3 (c) (2), effective January 1, 2009.)

Small Claims Code of Civil Procedure § 116.220. Increases the small claims court filing against a defendant guarantor that charges a fee for its guarantor or surety services from $4,000 to $6,500. (Amended Stats 2008 ch 157 §4 (4) (c) (3), effective January 1, 2009.)

Owner-Builder Declarations AB 2335 (Nakanishi) Health and Safety Code § 19825. Streamlines the law covering the owner-builder permit process. Expands the requirements for an owner-builder to acknowledge the risks of contracting with unlicensed contractors when obtaining permits. (Repeals Sections 19825 §1, 19830 §3, 19831 §4, and 19832 §5 of the Health and Safety Code, and Added Stat 2008 ch 66 H&S 19825 §2 (a), effective January 1, 2009.)

These laws will are included in the 2009 California Contractors License Law and Reference Book. Additional details of each legislative change is available by looking up the California code and section number on the following state Web site: http://www.leginfo.ca.gov/.

Funding is Frozen for Public Projects

By Michael Gardner, San Diego Union-Tribune

With the state nearly broke, California’s top money managers yesterday froze almost $4 billion worth of loans for public building projects.

The unprecedented move is expected to dramatically slow or halt construction of roads, schools and housing throughout the state and San Diego County at a time when many officials say California desperately needs to ignite its sluggish economy.

“This is going to tear into the heart of California’s recovery efforts,” said state Controller John Chiang, a member of the money-management panel.

Putting a stop to the funding also could cause chaos, particularly for projects nearing completion.

In San Diego County, several major transportation projects under construction or ready to start could be shut down, said Gary Gallegos, executive director of the San Diego Association of Governments, a regional planning agency.

Specifically, the state’s action could disrupt projects along Interstate 15 and State Routes 52 and 905, Gallegos said. Immediately, 2,600 transportation construction jobs could be lost, with up to 8,000 jobs affected if funding for pending projects remains frozen, he said.

“This will be a big job impact to the region,” Gallegos said.

In all, $734 million in county transportation projects could be affected by the state’s action, Gallegos said.

The Pooled Money Investment Board voted unanimously yesterday to stop loans for about 2,000 projects statewide through June, contending that the money is not available because of the Legislature’s failure to close a huge budget gap.

The total value of the projects potentially affected comes to more than $16 billion. They involve highways, parks, schools, levees, hospitals, prisons, fire stations and more. State officials have estimated that those projects could have involved 200,000 workers.

The investment board – Chiang, Treasurer Bill Lockyer and Department of Finance chief Mike Genest – urged lawmakers to act quickly, or state bond funds could be useless for some time.
“We don’t think we can sell a bond until there is a legitimate, balanced budget. . . . If not, we can’t borrow. We can’t pay for these projects,” Lockyer said.

The board, which provides loans to bond-funded infrastructure projects and to the state general fund to help meet cash-flow needs, plans next month to consider $500 million in funding to keep essential projects going.

In San Diego, a project sponsored by Father Joe Carroll and his locally based charity was counting on $12 million from the state to help repay construction loans on two apartment buildings.

“They’re being finished,” Carroll said. “The question is whether we can afford to open them up.”
Carroll said he will be forced to renegotiate his loan, a big “if” given today’s credit market. Father Joe’s Villages could have to cut services just to pay the interest, he said.

“The state is supposed to be a guarantee. . . . I don’t know how they can cancel. They’re not immune to the law,” Carroll said.

Also at risk of losing state loans are dozens of schools in the region with millions of dollars in ongoing projects.

Several San Diego County school administrators said they still were figuring out what effect the freeze would have on their projects.

“We’re moving forward as if the money would be there,” said Jaime Ortiz, program manager for Proposition O, the $644 million bond measure passed by Sweetwater Union High School District voters in 2006. “I think that by the time we ask for it, this budget situation will have resolved itself.”

But Ortiz said that if the funds aren’t released after several months, Sweetwater officials will have to consider whether the district can issue major construction contracts.

In the Grossmont Union High School District, planning and design for refurbishing 175 classrooms – new floors, ceilings, alarms, clocks, windows and technology – will continue. But should the state’s freeze extend for an additional four months, it would delay construction, said Scott Patterson, Grossmont’s deputy superintendent for business services.

The investment board’s action didn’t seem to change the stalemate between anti-tax Republican legislators and the Republican governor and Democratic leaders who have advocated a combination of tax increases and deep cuts.

“Today’s decision by the Pooled Money Investment Board doesn’t make the case for raising taxes,” Senate Minority Leader Dave Cogdill, R-Modesto, said in a statement. Republicans believe tax increases will be a long-term drag on the economy.

Gov. Arnold Schwarzenegger, who has touted public-works investment as a way to add jobs, again sharply criticized lawmakers.

“It’s terrible the kind of pain that the Legislature is causing to the people of California,” Schwarzenegger said. “They were sent to Sacramento to solve problems, not create them.”

Staff writer Chris Moran contributed to this report.

Contractors State License Board Warns Consumers to Check License Before Hiring Contractors

Suspect arrested for installing peep cameras in Rancho Cucamonga was not licensed

The Contractors State License Board (CSLB) is warning consumers to be vigilant in checking out the credentials of contractors after an unlicensed electrician was arrested for installing hidden cameras without homeowners' knowledge in Rancho Cucamonga.

David Mitchell Clark, 34, was arrested this week by Rancho Cucamonga Police after he allegedly installed hidden cameras in the bathrooms of unsuspecting customers who hired him for electrical work. There are no records of David Mitchell Clark or his company DMC Electrical with CSLB licensing. The Police Department has warned consumers, in a press release, to check their electrical outlets for possible hidden cameras, if they hired David Clark to perform work.

"We can't stress this enough, for property owners to be careful about who they hire to perform contracting work," said CSLB Registrar Steve Sands. "It only takes a few minutes to check out a contractor's license status. Ask for the contractor's plastic pocket license and photo identification, then go online or call the CSLB’s automated phone system to verify the status of the license."

Anyone with complaints about David Clark or any other unlicensed operator can file a complaint with the CSLB Statewide Investigative Fraud Team (SWIFT) in Southern California at: Office numbers (562) 345-7600 / FAX (562) 466-6065.

The CSLB urges consumers to follow these tips when dealing with any contractor:

• Don't rush into decisions and don't hire the first contractor who comes along.
• Be especially hesitant when approached by someone offering home improvement services door-to-door, especially when they will use material they claim is left over from another job.
• Verify the contractor's license by checking online at http://www.cslb.ca.gov/OnlineServices/CheckLicense/LicenseRequest.asp or via CSLB's automated phone service at 1-800-321-CSLB (2752).
• Get three references for each contractor and three bids.
• Make sure the contract for work to be done is in writing and that you understand all terms before you sign it.
• Never pay more than 10% or $1,000, whichever is less, as a down payment.
• Don't pay in cash, and don't let the payments get ahead of the work.
• Contact the CSLB if you have a complaint against a contractor.

The Contractors State License Board operates under the umbrella of the California Department of Consumer Affairs. The CSLB licenses and regulates California's 316,000 contractors, and investigates more than 20,000 complaints against contractors annually. In fiscal year 2007-08, the CSLB obtained nearly $35.2 million in ordered restitution for consumers.