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It is an all-too-common situation in New York: homeowners hire a home improvement contractor only to find out, after a contract dispute arises, that the contractor was unlicensed in violation of local ordinances. While court decisions in these disputes have generally gone in favor of homeowners, a body of case law suggests that the results are by no means so favorable to homeowners when arbitration awards to unlicensed home improvement contractors come up for review. In those cases, the deference of courts to the decisions of a construction litigation attorney creates tension with the public policy of protecting homeowners from unlicensed contractors.
An unlicensed home improvement contractor cannot collect from a homeowner either for a breach of contract or under a quasi-contract theory. Licensing laws for home improvement contractors are remedial, being intended to protect homeowners against abusive and deceptive practices of home improvement contractors. For that reason, they are construed strictly. 
Reviewing cases involving unlicensed home improvement contractors, courts have acknowledged “the firm public policy of expelling the unlicensed from the home improvement field.”  It is therefore well-settled that public policy forbids unlicensed home improvement contractors from obtaining relief from homeowners. Courts reviewing judgments in favor of homeowners and against unlicensed home improvement contractors possess broad powers to review lower court decisions and enforce the public policy discussed above.
In reviewing trial court decisions, the appellate courts are able to inquire into the merits of the underlying case, analyzing whether support in the record supports the trial court’s findings. Indeed, the Appellate Division has the power in reviewing a lower court’s judgment to “render the final judgment which the trial court should have rendered.” Under this standard, the appellate courts have frequently overturned lower court rulings against homeowners based on erroneous interpretations of the home improvement contractor licensing statutes or misapplication of the licensing statutes to the facts.
While appellate courts reviewing the full record of a trial court frequently rectify errors of law or fact, the standard for review of arbitration awards is much more deferential. Under the “extremely limited” judicial review permitted by the CPLR (New York Civil Practice Law and Rules), courts do not pass upon the merits of an arbitration proceeding, upholding an award so long as the construction litigation attorney (arbitrator) offers at least a “colorable justification” for the award.  Alleged errors of law or fact are not sufficient to justify vacating an arbitration award.
The CPLR provides only four limited situations in which an arbitration award can be vacated, including fraud in procuring the award, bias on the part of the arbitrator, and the arbitrator exceeding his power or failing to follow the procedures established in CPLR Article 75. The courts have also ruled that an arbitration award should be vacated if “it violates public policy, is irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator’s power.”
Despite the public policy exception regarding judicial deference to arbitration awards, homeowners have not been able to obtain relief from arbitration awards that arguably permit improper recovery to unlicensed home improvement contractors. Courts have been loath to countermand a construction litigation attorney’s decision even on public policy grounds for fear that the exception might become a means for courts to improperly intrude upon the merits of the underlying decision.  Thus, a court will vacate an arbitration award on public policy grounds only when the award on its face demonstrates that it goes against public policy.
Following this standard, the courts have yet to overturn an arbitration award on the basis of it violating the public policy against recovery by unlicensed home improvement contractors. In Matter of Hirsch Construction Corp. v. Anderson, for example, the homeowner sought to vacate an arbitration award on public policy grounds due to the temporary lapse of his contractor’s home improvement license during the construction. The homeowner argued that the amount awarded by the arbitrator included payment for work performed during the period when the contractor was unlicensed, but the court refused to delve into the facts of the case and confirmed the arbitration award, noting that the award did not discuss findings with respect to the contractor’s licensing status or state on its face that the contractor was being awarded monies for work performed while it was unlicensed. In essence, so long as an arbitration award does not expressly state that a contractor was unlicensed, the court cannot inquire further, regardless of any argument the homeowner might bring, no matter how persuasive.
In cases such as Hirsch, courts have confronted competition between two public policies: on the one hand, public policy forbids an unlicensed home improvement contractor from recovering; but on the other hand, equally compelling public policy prohibits a court from lightly second-guessing the arbitration process when the parties have agreed to submit to it. Arguably, the reserve of the judiciary has allowed unlicensed home improvement contractors to collect in situations where a court would have denied them recovery, but at the same time, the importance of upholding the bargained-for outcome of an arbitration proceeding cannot be overstated. While compelling arguments could be made on both sides of the issue, construction litigation attorneys must take a practical approach and discuss both the advantages and disadvantages of arbitration with their homeowner clients, keeping in mind the realities of current law.
The author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: [email protected] or (631) 608-1346.
This is a general information article and should not be construed as legal advice or a legal opinion. The content above has been edited for conciseness and additional relevant points are omitted for space constraints. Readers are encouraged to seek counsel from a construction lawyer who has experience with Long Island construction law for advice on a particular circumstance.
 Chosen Constr. Corp. v. Syz, 138 A.D.2d 284, 285 (1st Dept 1988).
 George Piersa, Inc. v. Rosenthal, 72 A.D.2d 593, 594 (2d Dep’t 1979).
 Millington v. Rapoport, 98 A.D.2d 765, 766 (2d Dep’t 1983).
 Williams v. Roper, 269 A.D.2d 125, 126-27 (1st Dep’t 2000).
 O’Connor v. Papertsian, 309 N.Y. 465, 470 (1956).
 E.g., Blake Elec. Contracting Co., Inc. v. Paschall, 222 A.D.2d 264, 266 (1st Dep’t 1995); Flax v. Hommel, 40 A.D.3d 809, 810-11 (2d Dep’t 2007).
 Matter of Sheriff Officers Assn., Inc. v. Nassau County, 113 A.D.3d 620, 621 (2d Dep’t 2014) (quoting Wien & Malkin LLP v. Helmsley-Spear, Inc., 6 N.Y.3d 471, 479 ).
 Matter of Matra Building Corp. v. Kucker, 2. A.D.2d 732, 734 (2d Dep’t 2003).
 CPLR § 7511(b).
 Matter of Sheriff Officers Assn., Inc., 113 A.D.3d at 621 (quoting Matter of Shenendehowa Cent. Sch. Dist. Bd. of Educ. [Civil Servs. Empls. Assn., Inc., Local 1000, AFSCME, AFL-CIO, Local 864] 20 N.Y.3d 1026, 1027 ).
 Matter of Hirsch Constr. Corp. v. Anderson, 180 A.D. 2d 604, 604 (1st Dep’t 1992).