Reversing a trial court order confirming an arbitration award, a California appellate court vacated an arbitration award on public policy grounds, holding that Cal. Bus. & Prof. Code § 6738 prohibits an unlicensed business from enforcing its contracts and, by extension, arbitration agreements found in those unenforceable contracts.

In Vestra Resources, Inc. v. Thompson, No. C054241, 2008 WL 193252 (Cal. Ct. App. Jan. 24, 2008), Midstate hired Vestra to provide civil engineering services for construction projects undertaken by Midstate. A dispute arose between the parties and Vestra demanded arbitration. Before the arbitration hearing, Midstate informed the arbitrator it would not participate in arbitration because it learned that Vestra lacked the required licenses and therefore the contracts containing the arbitration provision were illegal.

Nonetheless, the arbitration took place, but Midstate did not attend. The arbitrator awarded Vestra $45,517.90 along with costs and attorney fees, finding that Vestra's lack of a license did not render the contracts illegal and unenforceable. Vestra moved to confirm the award. Midstate opposed the motion, arguing Vestra could not enforce the contract and the arbitration provision for failing to comply with the licensing requirements of section 6738. The trial court granted the motion.

On appeal, the Court held that Vestra's failure to obtain the proper licenses precluded it from enforcing its contracts against Midstate. Under section 6738, a corporation may not perform engineering functions "unless an officer of the corporation is a licensed engineer in charge of its engineering practice." The California Legislature enacted the statute "to protect the public from a corporation performing engineering work under circumstances where a licensed engineer is subject to oversight and control by unlicensed persons."

The statute prohibits businesses that fail to satisfy the licensing requirement from enforcing their contracts. Consequently, Vestra could not enforce the contract or the contract's arbitration agreement.