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    There have been two recent decisions governing Business and Professions Code Sec. 7031(b) that bring “bad” news and some “good” news for contractors.

    First the “bad” news — Alatriste v. Cesar’s Exterior Designs, Inc., filed April 6, 2010, Cal. Court of Appeals, Fourth District, Div. One, is the first case to substantially review the disgorgement provision of §7031(b).  The court held that disgorgement applies to all work regardless of whether the work was performed with a license or not.  Thus, if a contractor cannot meet the substantial compliance test [§7031(e)] and it is not licensed for even one day, it must take steps to affirmatively protect itself. 

    The “good” news comes from the bankruptcy court which held that a disgorgement award against a contractor under Sec. 7031(b) is a dischargeable debt in bankruptcy.  In Ghomeshi v. Sabban (in re Sabban) filed April 13, 2010, U.S. Court of Appeals, 9th Cir., the “good” news, sadly, is that if a contractor gets hit with disgorgement under §7031(b), it can always file for bankruptcy to have the debt discharged.

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