Question:

    Ken,
We do business in a state where burglar alarm companies must have a state 
license, and a separate, different, state license is required for fire alarm work.
Recently we have discovered that some of our competitors are unlicensed.
In one case it seems that several years ago the alarm company underwent some 
type of business restructuring resulting in the parent 'holding' corporation 
retaining all of the required licenses, and the 'operating' corporation being 
unlicensed.
In another case, it appears the alarm company is advertising, and using, the 
licenses issued to another company.
Thus it appears that these unlicensed alarm companies are unfairly competing 
against all of the other companies that are properly licensed, and consumers 
are doing business with unlicensed entities pursuant to, I presume, 
unenforceable and uninsurable subscriber agreements.
What are the possible ramifications of this?
What remedies are available to consumers or competitors?
Do your contracts address the licensing aspects of this?
Thanks,
___________________________

Answer:

    First let's deal with the what you as a licensed alarm company can and 
should do about unlicensed competitors.  Report them.  The governmental agency 
that is responsible for licensing will be able to handle your complaint of 
unlicensed persons or companies, or refer you to the proper authority for 
enforcing the licensing statute.  The penalty for conducting business without a 
license varies, from monetary fines to stiff criminal sanctions.  The remedy however 
is almost always action by the licensing authority or the State, and not an 
individual or private right or cause of action.  In other words, you must 
likely have no right to enforce the licensing requirements.  In New York your 
complaint could be made to the Secretary of State, who licenses the alarm 
companies, the local District Attorney, who enforces the criminal laws, and the State 
Attorney General, who also enforces State laws and pursues deceptive trade 
practices.  Other states have the equivalent of these official officers.
    The general rule is that if a company is not licensed then its contracts 
are not enforceable and terminable at will by the consumer.  Therefore, an 
unlicensed contractor will not be able to sue and collect on the contract.  This 
is the case if the licensing statute is considered a consumer protection 
statute, and not merely revenue raising.  I would think that all alarm licensing 
statutes would be considered consumer protection statutes, and unlicensed 
contractors could not enforce the contract.  While a consumer may not be able to 
recover money paid for services already rendered, the contractor would not be 
able to enforce future payments and the subscriber could cancel at will.  The 
contractor would also be liable for the cost of removing the equipment and 
replacement if the subscriber decided to cancel the relationship once learning that 
the contractor was not licensed.
    If there was a loss suffered by the subscriber the unlicensed alarm 
company may still be able to rely on the contract terms for protection.  The fact 
that the contractor is unlicensed will be one of the facts raised in the case, 
but negligence will still have to be proved, and unless the contract itself 
violates some statute or public policy the court is likely to enforce it until 
the subscriber actually terminates it upon learning that the contractor is 
unlicensed.  Keep in mind that I am merely expressing my personal opinion about 
this issue and different facts could change this opinion.
    You also raise the issue of insurance coverage.  I do not know whether an 
insurance company would be able to disclaim based on no license, or if it 
would.  That would depend on how the policy is written and whether coverage is 
conditioned on a license and maintaining that license.  Absent that kind of 
provision, there would probably be insurance cover.  More than likely the policy 
would be canceled if the carrier discovers there is no valid license.
   The bottom line is that it is not acceptable to operate without a required 
license under any circumstances.