Date: 08-30-2020

Case Style:

Case Number: B297247

Judge: Willhite, Acting P.J.

Court: California Court of Appeals Second Appellate District, Division Four on appeal from the Superior Court, County of Los Angeles

Plaintiff's Attorney: Robert Begland and Robert Campbell

Defendant's Attorney: Hector H. Espinosa, Kevin S. Asfour, Samira F. Torshizi and Timothy L. Pierce

Description: Section 7031 of the Business and Professions Code1 was enacted to
deter unlicensed building contractors by (1) preventing them from
bringing or maintaining an action to collect compensation for
performance of any work for which a license is required (§ 7031, subd.
(a)), and (2) allowing any person who utilizes the services of an
unlicensed contractor to bring an action for disgorgement of all
compensation paid for the performance of any act or contract,
regardless whether there was any fault in the contractor’s work (§ 7031,
subd. (b), hereafter section 7031(b)). This case presents two issues of
first impression related to claims for disgorgement under section
7031(b). First, what statute of limitation applies to such claims? And
second, when do those claims accrue?
In the present case, plaintiff Eisenberg Village of the Los Angeles
Jewish Home for the Aging (Eisenberg) asserted a section 7031(b) claim
for disgorgement against Suffolk Construction Company, Inc. (Suffolk)
five years after Suffolk completed construction of Eisenberg’s 108-unit
assisted living facility in Reseda (the Project). The trial court granted
Suffolk’s motion for summary adjudication of the claim, finding that
Code of Civil Procedure section 340, subdivision (a), the one-year
statute of limitation applicable to penalties or forfeitures, applied and
that Eisenberg knew or easily could have discovered the facts giving
rise to the claim more than one year before it filed its claim. Eisenberg
appeals, contending the trial court erred by applying the one-year
1 Further undesignated statutory references are to the Business and
Professions Code.
3
statute and by misapplying the discovery rule, and that triable issues of
material fact existed regarding whether Eisenberg knew or should have
known of the wrongful conduct at issue.
We hold that the one-year statute of limitation applies to claims
for disgorgement under section 7031(b). We also hold that the discovery
rule does not apply, and that a section 7031(b) claim accrues upon the
completion or cessation of the performance of the act or contract at
issue. Because Eisenberg failed to bring its section 7031(b) claim
within one year after the completion or cessation of Suffolk’s
performance, we affirm the judgment.
BACKGROUND
In late 2007, Eisenberg entered into a contract with Suffolk (the
Contract) to construct the Project, which had been designed by
architectural firm DLR Group (DLR).
2 The first page of the Contract
provided Suffolk’s California contractor’s license number. The Contract
included a provision entitled “Contractor’s License.” In that provision,
Suffolk represented and warranted that all contractors and
subcontractors performing work on the Project would be validly licensed
during the performance of that work. The provision also stated, in all
capital letters (and as required by statute), that contractors are
required by law to be licensed and are regulated by the Contractors’
State License Board, which has jurisdiction to investigate complaints
regarding a patent act or omission filed within four years of the alleged
2 DLR is the successor in interest to the original architectural firm.
4
violation, or complaints regarding a latent act or omission as to
structural defects filed within 10 years of the alleged violation. Most
importantly, the provision stated, again in all capital letters and as
required by statute, that any questions regarding a contractor may be
referred to the Registrar of the CSLB, and provided the mailing address
for doing so.
Suffolk completed construction of the Project in June 2010.
Eisenberg paid Suffolk just over $49 million for its work.
After residents had moved into the Project shortly after its
completion, problems developed with the hot water supply to the
residences. Suffolk worked to remedy the problems. As more residents
moved into the Project, the problems returned, and Suffolk continued to
try to remedy the problems. In March 2012, Eisenberg received a
citation from the California Department of Social Services for supplying
hot water to residential units at a temperature above the level allowed
by law. Eisenberg contacted DLR and Suffolk to see what could be done
to fix the problems with the hot water system. Suffolk agreed to work
with Eisenberg to try to fix the problem; DLR did not.
In June 2013, Eisenberg filed a complaint for breach of contract
and negligence against DLR, alleging that certain issues Eisenberg
experienced at the Project regarding the HVAC system, hot water
delivery system, plumbing, and plumbing fixtures were caused by
DLR’s work. Eisenberg did not name Suffolk in the complaint because
Suffolk had agreed to try to fix the hot water issue. Instead, Eisenberg
and Suffolk entered into a dispute resolution and tolling agreement in
5
which the parties agreed to try to resolve their disputes in mediation
and to toll any applicable statute of limitations while they did so.
The tolling agreement expired in 2014, and in March of that year
Eisenberg amended its complaint to add Suffolk as a defendant,
alleging breach of contract and negligence claims against it based upon
the same issues alleged in the original complaint against only DLR. In
January 2015, Eisenberg and Suffolk attempted to resolve the dispute
in mediation, but were unsuccessful. According to Eisenberg’s Chief
Executive Officer and President, it was not until the mediation failed in
early 2015 that Eisenberg “began to investigate the merits of its claims
against Suffolk . . . [and] discovered for the first time . . . a potential
issue with respect to Suffolk’s compliance with the California
contractor’s state license laws.” Based upon this investigation,
Eisenberg filed a second amended complaint in May 2015 that added a
section 7031(b) claim for disgorgement against Suffolk.
Suffolk filed a demurrer to the disgorgement cause of action,
asserting several grounds, including that it was barred by the one-year
statute of limitation. The trial court overruled the demurrer; as to the
statute of limitation, the court found it was not possible to determine at
that stage when Eisenberg should have been aware of the facts
supporting its claim. Two days after the court ruled, Eisenberg filed a
motion for summary adjudication of its disgorgement claim, which the
trial court denied.
Four months later, Suffolk brought its own motion for summary
adjudication of the disgorgement claim. As we explain in more detail in
6
section A.3.c., post, the trial court found that the one-year statute of
limitation applicable to claims for penalties or forfeitures applied, and
that Eisenberg’s claim was time-barred because it knew or easily could
have discovered the facts giving rise to the claim more than a year
before it filed its claim against Suffolk. The court ultimately entered
judgment in favor of Suffolk,3 from which Eisenberg now appeals.
DISCUSSION
A. Preliminary Matters
To facilitate our discussion of the parties’ contentions on appeal,
we begin with a summary of the applicable law, an explanation of
Eisenberg’s disgorgement claim, and a more detailed discussion of the
summary adjudication motion.
1. Applicable Law
Contractors in California are governed by the Contractors’ State
License Law (the contractors’ law). (§ 7000 et seq.) Under that law, all
contractors must be licensed by the Contractors’ State License Board
(the Board or CSLB). If the contractor is an individual, that individual
must qualify for a license by passing a written examination to show
that he or she has the requisite degree of knowledge and experience in
3 More than a year and half after the trial court granted Suffolk’s motion
for summary adjudication, Eisenberg dismissed the other causes of action
against Suffolk in accordance with a settlement agreement.
7
the classification applied for4 and general knowledge of the building,
safety, health, and lien laws of the state. (§§ 7065, subd. (a), 7068,
subd. (a).) If the contractor is a corporation (such as Suffolk), it must
qualify for a license through one person, referred to as a qualifier.
(§§ 7068, subd. (b)(3), 7025, subd. (c).) That qualifier must be “a
responsible managing officer [RMO] or responsible managing employee
[RME] who is qualified for the same license classification as the
classification being applied for.” (§ 7068, subd. (b)(3).) An RME is “an
individual who is a bona fide employee of the applicant and is actively
engaged in the classification of work for which that [RME] is the
qualifying person on behalf of the applicant.” (§ 7068, subd. (c).)
At the time of construction at issue in this appeal, the contractors’
law provided that the qualifier “shall be responsible for exercising that
direct supervision and control of his or her employer’s or principal’s
construction operations as is necessary to secure full compliance with
the provisions of this chapter and the rules and regulations of the board
relating to the construction operations.” (Former § 7068.1, subd. (a); see
Stats. 1991, ch. 145 (Assem. Bill No. 425), § 1.)5 CSLB regulations
4 There are three branches of contracting: (1) general engineering
contracting; (2) general building contracting; and (3) specialty contracting.
(§ 7055.) A specialty contractor is a contractor whose principal contracting
business involves the use of specialized building trades or crafts. (§ 7058,
subd. (a).)
5 The current version of section 7068.1 provides that the qualifier “shall
be responsible for exercising that direct supervision and control of his or her
employer’s or principal’s construction operations to secure compliance with
this chapter and the rules and regulations of the board.” (§ 7068.1, subd. (a).)
8
provide that “‘direct supervision and control’ includes any one or any
combination of the following activities: supervising construction,
managing construction activities by making technical and
administrative decisions, checking jobs for proper workmanship, or
direct supervision on construction job sites.” (Cal. Code Regs., tit. 16,
§ 823, subd. (b).)
One of the primary purposes of the contractors’ law is to protect
the public. (See § 7000.6.) To that end, one of its provisions requires all
contractors to include certain language prominently in their contracts
informing those with whom they contract that all contractors are
required to be licensed, and providing information about how to contact
the CSLB to file a complaint or obtain information about the contractor.
(§ 7030.) The contractors’ law also includes several provisions designed
to deter contractors from operating without a valid license: it provides
for citations to be issued by the CSLB against unlicensed contractors
assessing civil penalties (§ 7028.7); criminal proceedings against
unlicensed contractors that could result in jail time, criminal fines, and
restitution orders (§ 7028); and a unique provision, section 7031.
Subdivision (a) of section 7031 provides that no person engaged in
the business or acting in the capacity of a contractor may bring or
maintain any action for the collection of compensation for the
performance of any act or contract where a license is required without
alleging that he or she was a duly licensed contractor at all times
during the performance of that act or contract. Subdivision (b)—the
provision at issue in this appeal—provides: “Except as provided in
9
subdivision (e), a person who utilizes the services of an unlicensed
contractor may bring an action in any court of competent jurisdiction in
this state to recover all compensation paid to the unlicensed contractor
for performance of any act or contract.” (Subdivision (e) addresses
substantial compliance with licensure requirements, and is not at issue
here.)
Section 7031(b) does not require the plaintiff seeking
disgorgement to have suffered any injury. That is because “‘“[s]ection
7031 represents a legislative determination that the importance of
deterring unlicensed persons from engaging in the contracting business
outweighs any harshness between the parties, and that such deterrence
can best be realized by denying violators the right to maintain any
action for compensation [or requiring them to disgorge compensation
already paid].”’” (MW Erectors, Inc. v. Niederhauser Ornamental &
Metal Works Co., Inc. (2005) 36 Cal.4th 412, 423 (MW Erectors), italics
omitted; see also White v. Cridlebaugh (2009) 178 Cal.App.4th 506, 518-
520.)
2. Eisenberg’s Disgorgement Claim
The facts relevant to Eisenberg’s section 7031(b) claim for
disgorgement are as follows. Gregory Hescock was Suffolk’s RME
under Suffolk’s license at the time the Contract was signed. At that
time, Hescock worked out of Suffolk’s Irvine office.
6 In the last half of
6 Suffolk apparently has offices in several places, including outside of
California; its official address for its California license is in San Francisco.
10
2008, Hescock transferred to Suffolk’s Boston office and moved to
Massachusetts; nevertheless, he remained Suffolk’s designated RME on
its California license.
Eisenberg alleges in its complaint that it was not aware at any
time during the construction of the Project that Hescock was the RME
under Suffolk’s California license, and that it first discovered a
potential issue regarding the status of Suffolk’s RME in February 2015.
Eisenberg alleges that, after Hescock transferred to Suffolk’s Boston
office, he did not attend any meetings concerning the Project, did not
communicate with any representative of Eisenberg (including the
project manager for the Project) or DLR, and did not exercise direct
supervision and control over anyone at Suffolk in connection with the
Project. As a result, according to Eisenberg, Suffolk did not have a bona
fide qualifier as RME, and therefore Suffolk was not duly licensed as a
contractor at all times during Suffolk’s performance of the Contract.
Thus, Eisenberg alleges that under section 7031(b), Suffolk must
disgorge all payments Eisenberg made as compensation for Suffolk’s
work on the Project.
3. Suffolk’s Motion for Summary Adjudication
a. Suffolk’s Motion
Suffolk sought summary adjudication of Eisenberg’s section
7031(b) claim on four grounds.
First, Suffolk contended the claim was barred by the one-year
statute of limitations applicable to actions under a statute for a penalty
11
or forfeiture (Code Civ. Proc., § 340). It argued that under Eisenberg’s
theory of the case, the claim accrued in 2008, when Hescock moved to
Massachusetts and allegedly failed to fulfill the requirements of an
RME, or at the latest in June 2010, when the construction was
completed. It asserted that the discovery rule did not apply to claims
brought under section 7031(b) because that rule is an equitable rule,
and there is no equitable basis for applying it to a section 7031(b) claim,
which does not require any injury to the plaintiff. But even if the
discovery rule applied, Suffolk argued Eisenberg’s claim nevertheless
would be time-barred because Eisenberg knew in 2008 that Hescock
had moved and no longer was attending meetings regarding the Project,
and his status as Suffolk’s RME was a matter of public record.7
Second, Suffolk argued that Eisenberg’s claim failed as a matter of
law because section 7068.1 does not provide for automatic—and
retroactive—suspension of a contractor’s license upon its violation,
namely, the RME’s failure to “exercis[e] that direct supervision and
control of his or her employer’s or principal’s construction operations as
is necessary to secure full compliance with the provisions of this chapter
and the rules and regulations of the board relating to the construction
operations” (former § 7068.1, subd. (a)). Instead, findings must be made
and disciplinary action taken to suspend the contractor’s license. And,
because section 7031(b) provides for disgorgement only against an
7 We note that a contractor’s license is a public record, and that the
CSLB offers a free online service that allows any member of the public to
check the status of a contractor’s license and to obtain information regarding
the contractor’s qualifying individual.
12
“unlicensed contractor,” Suffolk argued Eisenberg’s claim necessarily
failed.
Suffolk’s third and fourth arguments related to whether the
evidence was such that Eisenberg would not be able to prove that
Hescock fulfilled the requirements of an RME.
b. Eisenberg’s Opposition
Eisenberg argued in opposition to Suffolk’s motion that its claim
was not barred by the statute of limitation, and that there were
disputed facts regarding whether Hescock satisfied his duties as
Suffolk’s RME and whether his conduct would result in automatic
suspension of Suffolk’s license. With regard to the statute of limitation,
Eisenberg argued that the discovery rule applied to section 7031(b)
claims because the rule applies to all invasions of legal rights. It
argued that it did not know (and had no duty to inquire into) the
identity of Suffolk’s RME until its attorney advised it of the potential
claim in 2015. But Eisenberg argued that, in any event, its claim was
timely filed because a section 7031(b) claim is really a claim for
rescission, which is subject to a four-year statute of limitation under
Code of Civil Procedure section 337, subdivision (c) (or the four-year
statute applicable to claims under the unfair competition law (§ 17208)),
or it falls under the three-year statute of limitation that governs claims
upon a liability created by statute, other than a penalty or forfeiture
(Code Civ. Proc., § 338, subd. (a).)
13
c. Trial Court’s Ruling
After requesting, and receiving, supplemental briefing on certain
issues, including the applicability of the delayed discovery rule to the
statute of limitations, the trial court granted Suffolk’s motion on the
statute of limitation ground. The court found that the one-year statute
governing claims for penalties or forfeitures applied. Although the
court declined to decide if the discovery rule applied, it found that even
if it did, Eisenberg knew or easily could have discovered the facts
making up the claim more than a year before Eisenberg filed its section
7031(b) claim because (1) the Contract provided Suffolk’s license
number (on the first page); (2) the identity of Suffolk’s RME was public
information that easily could be accessed; and (3) the undisputed
evidence showed that Eisenberg knew that Hescock had moved to
Massachusetts in late 2008 and did not participate in meetings
regarding the construction or visit the construction site.
B. The Parties’ Contentions on Appeal
On appeal, Eisenberg contends the trial court erred in finding the
one-year statute of limitation applies, arguing that a four-year or threeyear statute should apply because (1) there is no statute specifying the
limitation period for disgorgement, so Code of Civil Procedure section
343 applies; (2) a section 7031(b) claim is akin to a restitution claim
under the unfair competition law (section 17200 et seq.), which specifies
a four-year limitation period; (3) other provisions in the contractors’ law
specify a four-year or three-year limitation period; and (4) disgorgement
14
is similar to a refund or restitution, to which Code of Civil Procedure
section 338, subdivision (a) applies. But even if the one-year statute
applies, Eisenberg argues that it did not discover its claim until its
lawyer conducted an investigation after receiving discovery in 2014. In
essence, Eisenberg argues that, as a lay person, it could not be expected
to know the intricacies of the licensing laws, and therefore it had no
obligation to conduct an investigation to determine the identity of
Suffolk’s RME.
As it argued in its summary adjudication motion, Suffolk argues
in its respondent’s brief that the one-year statute of limitation applies
to a section 7031(b) claim, and that Eisenberg’s claim accrued in 2008,
when Hescock moved to Massachusetts, or no later than June 2010,
when construction was completed. It also argues that the discovery rule
does not apply because (1) it is an equitable rule; (2) the claim does not
involve an “injury”; (3) the facts necessary to establish the elements of
the claim were not hidden; and (4) the Legislature did not provide for
application of the rule. It also argues that even if the discovery rule
applies, the facts giving rise to the claim were known or publicly
available in 2008, and Eisenberg’s ignorance of the law did not toll the
running of the statute of limitation.8
8 Alternatively, Suffolk argues that we should affirm on the ground that
Eisenberg has no section 7031(b) claim as a matter of law because there is no
automatic suspension of a contractor’s license for a violation of section
7068.1, and therefore Sullfolk was never unlicensed, or on the ground that
Eisenberg failed to raise a triable issue of material fact as to whether
Hescock complied with the duties required of an RME. In light of our
conclusion that Eisenberg’s claim is time-barred, we need not address these
arguments.
15
Suffolk has the better argument.
1. Which Statute of Limitation Applies?
Title 2 of Chapter 2 of the Code of Civil Procedure sets forth
statutes of limitation applicable to civil actions. The first provision of
that title states: “Civil actions, without exception, can only be
commenced within the periods prescribed in this title, after the cause of
action shall have accrued, unless where, in special cases, a different
limitation is prescribed by statute.” (Code Civ. Proc., § 312.) Because
section 7031(b) does not prescribe a limitation period, the applicable
statute of limitation must be found in this title of the Code of Civil
Procedure.9
The parties identify three such statutes that might apply: (1) the
three-year statute applicable to “[a]n action upon a liability created by
statute, other than a penalty or forfeiture” (Code Civ. Proc., § 338, subd.
(a) (hereafter CCP 338(a)); (2) the one-year statute applicable to “[a]n
action upon a statute for a penalty or forfeiture, if the action is given to
an individual, or to an individual and the state, except if the statute
imposing it prescribes a different limitation” (Code Civ. Proc., § 340,
subd. (a) (hereafter CCP 340(a)); or (3) the four-year statute that
9 For this reason, we decline Eisenberg’s invitation to apply to section
7031(b) claims the four-year statute of limitation applicable to claims for
restitution under California’s unfair competition law, which statute is found
in the Business and Professions Code, since section 7031(b) is not part of the
unfair competition law.
16
applies to “[a]n action for relief not hereinbefore provided for” (Code
Civ. Proc., § 343 (the catch-all statute)).
Given that the disgorgement at issue here is a liability created by
statute, the applicable limitation statute must be either CCP 338(a) (if
the disgorgement is not a penalty or forfeiture) or CCP 340(a) (if it is a
penalty or forfeiture). Thus, contrary to Eisenberg’s assertion, the
catch-all statute does not apply to a section 7031(b) claim. The issue to
be resolved, then, is whether section 7031(b) disgorgement is a penalty
or forfeiture.
Eisenberg contends that section 7031(b) disgorgement is not a
penalty, but rather is restitution. In making this contention, it points
to the Supreme Court’s definition of restitution in Clark v. Superior
Court (2010) 50 Cal.4th 605 (Clark): “The word ‘restitution’ means the
return of money or other property obtained through an improper means
to the person from whom the property was taken. [Citations.] ‘The
object of restitution is to restore the status quo by returning to the
plaintiff funds in which he or she has an ownership interest.’
[Citation.]” (Id. at p. 614.) The Supreme Court contrasted restitution,
which it noted “is not a punitive remedy” (ibid.), with a penalty, which
it described as “a recovery ‘“without reference to the actual damage
sustained.”’” (Ibid.)
Eisenberg argues that, since section 7031(b) measures the
recovery as “what was taken from the plaintiff,” it constitutes
restitution rather than a penalty. However, contrary to Eisenberg’s
characterization, recovery under section 7031(b) is not of something
17
that was “taken”; it is recovery of compensation paid under the terms of
a contract. Section 7031 does not invalidate that contract. Rather, it
precludes an unlicensed contractor (but not the other party to the
contract) from enforcing the contract (§ 7031, subd. (a)), and, if the other
party to the contract brings a timely action, it requires the unlicensed
contractor to return all compensation received from that party,
regardless whether that party sustained any actual damage (§ 7031(b)).
Moreover, recovery of all compensation paid to the unlicensed
contractor does not—and is not intended to—“restore the status quo.”
(Clark, supra, 50 Cal.4th at p. 614.) Instead, for reasons of policy (to
deter contractors from operating without a valid license), it provides a
windfall to the plaintiff, at the expense of the unlicensed contractor,
since the plaintiff also retains the work completed by the contractor.
When viewed in this context, it is clear that the disgorgement
provided in section 7031(b) is a penalty. It deprives the contractor of
any compensation for labor and materials used in the construction
while allowing the plaintiff to retain the benefits of that construction.
And, because the plaintiff may bring a section 7031(b) disgorgement
action regardless of any fault in the construction by the unlicensed
contractor, it falls within the Supreme Court’s definition of a penalty:
“a recovery ‘“without reference to the actual damage sustained.”’”10
10 That section 7031 imposes a penalty or forfeiture has been recognized
by the Supreme Court, albeit not in the context of determining which statute
of limitation applies to claims for disgorgement under section 7031(b). For
example, in MW Erectors, supra, 36 Cal.4th 412, the Supreme Court
examined whether subdivision (a) of section 7310 precludes a contractor who
was unlicensed during only a part of the construction from suing to recover
18
(Clark, supra, 50 Cal.4th at p. 614.) Accordingly, we hold that CCP
340(a), the one-year statute of limitation, applies to disgorgement
claims brought under section 7031(b).
2. When Does a Disgorgement Claim Accrue?
Having determined that the one-year statute of limitation applies,
we must determine when a section 7031(b) claim accrues. (See Code
Civ. Proc., § 312 [“Civil actions . . . can only be commenced within the
periods prescribed in this title, after the cause of action shall have
accrued”].) “Generally speaking, a cause of action accrues at ‘the time
when the cause of action is complete with all of its elements.’” (Fox v.
Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806 (Fox).) The
plaintiff’s ignorance of the cause of action ordinarily does not delay the
running of the statute of limitation. (Neel v. Magana, Olney, Levy,
Cathcart & Gelfand (1971) 6 Cal.3d 176, 187.) However, over the years,
compensation for work completed while the contractor was licensed. The
court found the language of section 7031 “convey[ed] the Legislature’s
obvious intent to impose a stiff all-or-nothing penalty for unlicensed work.”
(Id. at p. 426.) And in an earlier case, the Supreme Court referred to “‘the
severity of this sanction and of the forfeitures which [section 7031]
necessarily entails’” in upholding the application of the substantial
compliance doctrine in construing section 7031. (Asdourian v. Araj (1985) 38
Cal.3d 276, 282.) (The Legislature subsequently amended the statute to limit
the application of the doctrine to a narrow category of cases, making it clear
it intended that section 7031 be a severe sanction. (Stats. 1994, ch. 550 (Sen.
Bill No. 1844), § 1).) Although both of these cases involved subdivision (a) of
section 7031, the legislative history of the amendment to added subdivision
(b) to the statute shows it was added to ensure that unlicensed contractors
“are not able to avoid the full measure of the [contractors’ law’s] civil
penalties.” (White v. Cridlebaugh, supra, 178 Cal.App.4th at p. 520.)
19
courts (and, in some instances, the Legislature) have altered the
traditional accrual rule for certain kinds of causes of action by applying
the discovery rule.
Under the discovery rule, accrual of a qualifying cause of action is
postponed “until the plaintiff discovers, or has reason to discover, the
cause of action, until, that is, [the plaintiff] at least suspects, or has
reason to suspect, a factual basis for its elements.” (Norgart v. Upjohn
Co. (1999) 21 Cal.4th 383, 389.) Or, put another way, the statute of
limitations does not begin to run until “the plaintiff suspects or should
suspect that her injury was caused by wrongdoing, that someone has
done something wrong to her.” (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d
1103, 1110.) “‘The policy reason behind the discovery rule is to
ameliorate a harsh rule that would allow the limitations period for
filing suit to expire before a plaintiff has or should have learned of the
latent injury and its cause.’” (Pooshs v. Philip Morris USA, Inc. (2011)
51 Cal.4th 788, 797-798.)
The Supreme Court has explained that “the discovery rule most
frequently applies when it is particularly difficult for the plaintiff to
observe or understand the breach of duty, or when the injury itself (or
its cause) is hidden or beyond what the ordinary person could be
expected to understand.” (Shively v. Bozanich (2003) 31 Cal.4th 1230,
1248 (Shively); see also April Enterprises, Inc. v. KTTV (1983) 147
Cal.App.3d 805, 831 [“A common thread seems to run through all the
types of actions where courts have applied the discovery rule. The
injury or the act causing the injury, or both, have been difficult for the
20
plaintiff to detect”].) It is an equitable rule, intended to avoid unjustly
depriving plaintiffs of a remedy for their injuries when they have been
diligent in seeking to protect their rights. (Shively, supra, 31 Cal.4th at
pp. 1249-1250.)
In light of the equitable basis for the discovery rule, it makes little
sense to apply the rule to claims for disgorgement under section
7031(b). A section 7031(b) claim does not require that the plaintiff
suffer any injury, or at least an injury in the sense used by the courts to
justify an equitable exception to the ordinary rules of accrual. The fact
that a contractor does not have a valid license does not, by itself, cause
the plaintiff harm (other than, perhaps, some sort of psychic harm in
knowing that he or she hired someone who was not in compliance with
the law).11 Moreover, the disgorgement mandated by section 7031(b) is
not designed to compensate the plaintiff for any harm, but instead is
intended to punish the unlicensed contractor. Thus, holding that the
discovery rule does not apply to section 7031(b) claims does not produce
a harsh result for plaintiffs. To the extent a plaintiff does suffer an
injury caused by an unlicensed contractor that is not easily or
immediately discoverable, the discovery rule would continue to apply to
other claims seeking recovery for any damages the plaintiff suffered.
11 We do not discount the fact that an unlicensed contractor may not have
the skills necessary to competently perform the job for which he or she was
hired, and thus might cause injury to the plaintiff by improperly performing
the job. But such an injury is not an element of a claim for disgorgement
under section 7031(b); all that is required is that the contractor performed an
act or contract and did not possess a valid license some time during that
performance.
21
In contrast, if we were to hold that the discovery rule applied, it
would be nearly impossible to formulate rules for its application that
could be consistently applied while staying true to the policies
underlying statutes of limitation, i.e., “protecting parties from
‘defending stale claims, where factual obscurity through the loss of
time, memory or supporting documentation may present unfair
handicaps’ . . . [and] stimulat[ing] plaintiffs to pursue their claims
diligently.” (Fox, supra, 35 Cal.4th at p. 806.) Since section 7031(b)
does not require any injury to the plaintiff, what kinds of facts would
give rise to a reason to suspect a factual basis for the claim? If the
plaintiff has no duty to investigate whether the contractor was properly
licensed absent some sort of facts that would put him or her on notice,
there would be, in effect, no time limitation at all in most cases.
For example, say a plaintiff contracts with a contractor to
construct a building for several million dollars. Unbeknownst to the
plaintiff, the contractor either did not have a valid license, or its license
was suspended during part of the construction. The building is built,
and there are no problems with the construction or the building. Ten
years later, the plaintiff’s business is failing and he or she is looking for
a source of funds. He or she happens to come across an article about a
section 7031(b) case, or speaks to an attorney who happens to have
knowledge of section 7031(b), so the plaintiff decides to check the
contractor’s license records and discovers that the license had lapsed or
been suspended during the construction, i.e., the plaintiff “discovers”
the “wrongdoing.” If the discovery rule applied, the plaintiff could file a
22
section 7031(b) claim and get back all the compensation paid for
construction of a building that the plaintiff has used (and presumably
will continue to use) without any problems for 10 years. An absurd
result, to be sure, but there would be no principled way to avoid it under
the discovery rule, because there was no reason for the plaintiff to
suspect that the contractor’s license had lapsed or been suspended
during the construction.
To avoid such absurd results, and because there is no reason in
equity to apply it, we hold that the discovery rule does not apply to
section 7031(b) claims. Thus, the ordinary rule of accrual applies, i.e.,
the claim accrues “‘when the cause of action is complete with all of its
elements.’” (Fox, supra, 35 Cal.4th at p. 806.) In the case of a section
7031(b) claim, the cause of action is complete when an unlicensed
contractor completes or ceases performance of the act or contract at
issue.12
3. Application to This Case
In the present case, Suffolk completed its construction of the
Project in June 2010. Thus, Eisenberg’s section 7031(b) claim
ordinarily would be time-barred after June 2011. In this case, however,
12 At oral argument, Suffolk’s counsel argued we should hold that a
section 7031(b) claim accrues at the time each payment is made under the
construction contract. Such a holding would be inconsistent with the statute,
however, since a plaintiff is entitled to recover all compensation paid to a
contractor under a contract if that contractor was unlicensed at any time
during the performance of the contract (except when subdivision (e) of section
7031 applies).
23
Suffolk apparently did some additional work to remedy the hot water
problem Eisenberg was experiencing immediately after completion of
construction and in 2012, although it is unclear from the record
whether such work would be considered to be work under the original
Contract or under a new agreement. In any event, however, it is clear
that by the time Eisenberg amended its complaint to allege claims
against Suffolk for breach of contract and negligence, Suffolk had
ceased all performance under any agreement with Eisenberg. That
amended complaint was filed on March 25, 2014. Eisenberg did not
allege its section 7031(b) claim until it filed its second amended
complaint on May 18, 2015, more than a year later. Thus, the trial
court correctly found that Eisenberg’s section 7031(b) claim is barred by
the one-year statute of limitation set forth in CCP 340(a).

Outcome: The judgment is affirmed. Suffolk shall recover its costs on
appeal.

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