Contractor licensing violations raise serious concerns for all parties. For an owner, an unlicensed contractor may affect financing options on one end and the contractor’s entitlement to recover profits on the other end. For contractors, a licensing violation can have a crippling effect on all projects, the ability to perform, and the ultimate ability to recover amounts owed under a contract. For subcontractors and suppliers, an alleged licensing violation can be used as leverage to secure payment for labor and materials.

In Mississippi State Board of Contractors v. Hobbs Construction, Inc. (Mar. 6, 2020), the Supreme Court of Mississippi recently held that the Board’s decision to revoke a contractor’s license violated its Due Process rights because the Board had based its decision, at least in part, on prior complaints and allegations—grounds which the contractor had not been provided notice.  In this case, the Board revoked the contractor’s certificate of responsibility (“COR”), and the contractor sought a preliminary injunction enjoining the Board from revoking the COR pending appeal.  The trial court granted the injunction and ultimately reversed the Board’s decision.

The original complaint to the Board had been filed by a supplier who had not been paid approximately $13,000 for materials on a commercial project.  Although the contractor and supplier had reached a settlement agreement for less than the disputed amount, ultimately the contractor did not pay the supplier the settlement payment. The Board proceeded on its hearing for the alleged licensing violation, and neither the contractor nor the supplier appeared.  The Board’s investigator presented evidence about the failure to pay the supplier, which formed the basis for the Board’s revocation of the contractor’s COR.

Although the contractor was not given notice that prior closed matters would be considered, the investigator testified about the contractor’s history before the Board, including eight prior complaints for failure to pay a subcontractor. While all of the prior complaints had been resolved in the contractor’s favor, a review of the hearing transcript demonstrated that Board members considered the contractor’s prior alleged licensing violations and its reputation in the contracting community.  One Board member commented, “We’ve seen this guy every meeting.” Another Board member stated, “We know this guy is irresponsible. You know, if we let him continue doing business like this, it’s just gonna be a matter of time before we see him again.”

The Board voted 5-1 to revoke the contractor’s COR.  Both the trial court and the appellate court found that a contract dispute between a prime contractor and a subcontractor or supplier is outside the Board’s authority to regulate.  In addition, both courts found that the Board’s decision violated the contractor’s procedural due process rights because the contractor was not given notice that the Board would consider the prior complaints in the revocation decision. The appellate court noted: “But the Board’s minutes reflect that its members decided, after learning from the investigator that [the contractor] had eight prior complaints, that they were tired of dealing with him and that his license should be revoked.” Following a lengthy analysis of due process, the appellate court affirmed the trial court’s reversal of the Board’s revocation.

A couple of practical lessons emerge from the Hobbs Construction decision. First, as a contractor, it is imperative for you to stay up to date with your licensing requirements, whether you are contracting within the state of your principal office, or acting as a foreign entity performing work in another state.  Next, recognize that each state may have a different complaint process and you should cooperate fully and truthfully with investigators.  Finally, and perhaps most importantly, understand that many state licensing boards are not interested in investigating payment disputes that can be brought in civil court, so you are well advised to address those disputes as quickly as possible to avoid a regulatory licensing violation.