ALJDEC

00F-2455-ROC · Registrar of Contractors · 2000-09-06

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: September 6, 2000 APPEARANCES: Helen and Wally Voight, Complainants in their own behalf Darryl Starling, Respondent, in his own behalf ADMINISTRATIVE LAW JUDGE: Allen Reed _____________________________________________________________________ Findings of Fact 1. The parties in this case had previous contracting transactions with each other, and those transactions were satisfactory to each of them. At the time of the prior transactions, the Respondent was a subcontractor and not a general contractor. 2. In 1998, the Complainants decided to build a home on a lot they owned in Phoenix, Arizona. The Complainants knew a number of subcontractors and apparently had some thought of building the home as owner-builders. 3. The Complainants contacted the Respondent to do site preparation work. At this time the Respondent had a general contractor’s license and after some discussion between the parties, the Complainants decided to have the Respondent build the home subject to certain conditions. 4. Initially, the Complainants had set the total cost for construction at $186,916.00. This was based on the plan for the home and the itemized costs for labor and materials to construct the home according to that plan. 5. The Respondent submitted his contract for construction on a cost per square foot basis of 2800 square feet at $68.50 per square foot. The parties entered into a contract on July 5, 1999, whereby they incorporated both the itemized costs and square foot costs. The contract provided that modifications of the contract would be on a time and cost basis. The total cost of the construction was initially set at $191,800.00 based on the square footage cost. A block fence added another $4,950.00 for a total of $196,750.00. The parties modified this agreement by deducting $74,000.00 from the total amount, for certain items from the Complainant’s itemized list, which items would be the Complainants’ direct responsibility. This would bring the amount owed to the Respondent, including the block fence, to $122,750.00. 6. Construction began on or about on July 12, 1999, and was to be completed on or about October 12, 1999. Construction was not completed as scheduled. 7. The Complainants had paid $20,000.00 on July 5, 1999, and additional sums adding up to a total of $127,500.00, were paid through December 1, 1999. The Complainants were able to view progress on the construction on an almost daily basis. The Respondent did not provide, and the Complainants did not request an itemization of costs as work progressed. The Respondent requested payment when funds were required, and the Complainants paid. 8. At the beginning of construction, the Respondent found that the terrain was not level and that the plans for the foundation required modification. According to the Respondent, this added nearly $11,000.00 in material costs for the footing and concrete cost. At the hearing, the Respondent presented evidence for a cost increase of less than $3,000.00 for the footing and concrete. Even this evidence is of limited weight in that it was simply a summary prepared by the Respondent without any supporting documentation. 9. The Respondent also testified there was additional cost for moving a kitchen window which was in place. This required some framing modifications and reinforcement. A dining room window was also referenced but no particular facts were presented regarding moving this window. 10. According to Respondent, the additional labor cost for the concrete and footing modifications and moving the kitchen window, was $11,500.00. No substantial evidence was presented to support the amount asserted by the Respondent. The total of the additional costs for material and labor which is claimed by the Respondent for the footing and concrete is $22,500.00, with evidence at the hearing supporting a $3,000.00 increase at best. Finally, the Respondent testified certain Vega poles had to be replaced at the Complainants’ request. The Complainants testified the original poles did not meet specifications. In any event, the Respondent claimed that additional lumber costs came to $3,838.00. This amount was not supported by any competent evidence. 11. According to the Respondent’s figures, the total additional costs come to $26,248.67. The Respondent did not inform the Complainants of the amount of these extra costs until possibly sometime in January, 2000, which was after the Respondent had stopped working on the project. 12. On or about December 1, 1999, the home was still not completed and the Respondent told the Complainants he required additional money because of the additional costs. Some of the subcontractors who were to be paid by the Respondent were not being paid. At this point the Complainants who had already paid $120,000.00 paid another $7,500.00, which was their last payment to the Respondent. 13. On or about December 13, 1999, the Respondent submitted an invoice to the Complainants for extra charges on the construction. At the time, those extra charges amounted to $7,027.50 ($6,977.50 after certain adjustments). The Complainants agreed to add these costs to the cost of the contract which would bring the amount payable to the Respondent under the contract to $129,727.50 ($122,750.00 plus $6,977.50). The question was not asked and it was not otherwise explained how the extra charges of December 13, 1999 increased almost fourfold after that date when little if any additional work was done after December 13, 1999. The question is even more pointed when the assertion of $22,500.00 of increased material cost for concrete, footing and labor is considered (paragraphs 8 and 10 of these findings). Based on the evidence, the concrete and footing work was completed long before the December 13, 1999 invoice. Nevertheless, the claimed additional material and labor cost for the footing and concrete was not addressed in that invoice. 14. During construction, the Complainants’ son (Greg) worked on the home and was paid $15.00 an hour by his parents. According to the Complainants the work done was as specified on the plans but the Respondent either did not, or could not do it. The amount paid to Greg was $1,395.00 and the Complainants seek to include this amount as part of their claim for restitution. 15. In mid-January, 2000, the Respondent sent a list of subcontractors and amounts owed to the subcontractors, to the Complainants. The amounts owed to the subcontractors came to nearly $32,000.00. At about this time the parties had a meeting at which point the Respondent again stated he required more money and that the subcontractors had to be paid. According to the Respondent, this was the only project he was working on and absent payment by the Complainants he was unable to pay the subcontractors or otherwise continue with the construction. The Complainants paid no additional money to the Respondent and the Respondent did no more work on the home. 16. The Complainants paid $17,131.58 ($15,736.58 if deducting $1,395.00 paid to their son Greg) to various subcontractors for work which was to have been paid by the Respondent. In addition, the Complainants had the wiring completed, plumbing trimmed out and air conditioning-heating units and registers installed. 17. When the construction of the home was not completed by October 12, 1999, the Complainants were initially able to extend their stay at the home they were renting, through November 1999. They then had to move to another residence and were not able to move into the subject home until approximately March, 2000. 18. The Complainants filed their complaint with the Registrar of Contractors (Registrar), on April 14, 2000. The complaint is dated as having been signed on January 31, 2000. Conclusions of Law The allegations of the Citation and Complaint concern A.R.S. §32- 1154(A)(1), abandonment; (A)(3)/AAC R4-9-108, workmanship; (A)(7), wrongful or fraudulent act; (A)(9), failure to complete for price stated; and (A)(11), failure to pay for services or materials. 1. The allegation relating to workmanship was incorrectly cited and is not relevant to this case and (A)(3)/A.A.C. R4-9-108, will be recommended for dismissal. 2. Although much of the Respondent’s evidence is given little weight, Starling testified he had no other projects and no financial ability to continue the construction once the Complainants stopped paying. The amounts owed to subcontractors toward the end of the project tend to support the testimony and this defense was not challenged by the Complainants. The same defense is pertinent to the allegation of non- payment. Both (A)(1) and (A)(11) will be recommended for dismissal. 3. The evidence establishes violations of (A)(7) and (A)(9). The amount payable by the Complainants to or on behalf of the Respondent for the completion of the home was $129,727.50 (the original contract amount including the block fence, less the $74,000.00 for those things to be paid directly by the Complainants and the amount agreed to under the December 13, 1999 invoice). The amount actually paid by the Complainants was $143,236.58 ($127,500.00 to the Respondent and $15,736.58 to subcontractors). This amount does not include the $1,395.00 paid to the Complainants’ son. Based on the above figures, the overpayment is at least $13,509.08 and was not shown as being agreed to by the Complainants, or otherwise justified. This constitutes a violation of A.R.S. §32-1154(A)(9). The Respondent’s claim of $26,248.67 in additional costs without any satisfactory evidence to justify the figure and the fact that said amount was not disclosed to the Complainants as late as the December 13, 1999 invoice, when the majority if not all the additional costs were or should have been known, casts serious doubt on the legitimacy of those costs. The evidence is insufficient to prove fraud but evidence clearly establishes a wrongful act with substantial injury under A.R.S. §32-1154(A)(7). 4. The final question is whether the evidence and case is such that restitution is appropriate. The general purpose of restitution is equitable in nature and it is often used when there is no formal contract between the parties. Restitution is used to require a party who has received a benefit and has been unjustly enriched at another’s expense, to make compensation, Murdock-Bryant Construction, Inc. V. Pearson, 146 Ariz. 48 (1985). In that case the Arizona Supreme Court gave an expansive definition and application to restitution when it stated:

”…the remedy of restitution is not confined to any particular circumstances or set of facts. It is rather, a flexible equitable remedy available whenever the court finds that ‘the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity’ to make compensation for benefits received…

“our question is simply whether under the facts of this case…(defendants) received a benefit and whether it is unjust that they retain that benefit without being required to compensate plaintiff for the value received.”

Section 1 of the Restatement of Restitution which provides:

“(a) person who has been unjustly enriched at the expense of another is required to make restitution to the other.” 5. Blacks Law Dictionary, 1180 (5th ed. 1979), provides a general definition of restitution and its application to contracts. Under that definition the purpose of restitution is to make a party whole or to restore a party to as good a position as if no contract had been made. Under the above principles it would seem that in order to assess restitution, it must either be shown the Respondent in this case received certain benefits and was unjustly enriched outside the scope of the contract or that the Complainants should be restored to a status quo, or otherwise compensated for their loss, damage or injury, within the context of the contract. Since the parties entered a formal contract and the facts do not establish unjust enrichment by the Respondent, the matter of restitution must be considered in the contractual context. 6. In order to properly grant restitution it is essential that any monetary amounts should be somewhat accurately determined. Otherwise, if the amount is excessive, restitution becomes something other than what it is meant to be by becoming a traditional damages remedy or possibly taking on the elements of punitive damages. If the amount is insufficient, restitution is incomplete. In Murdock-Bryant Const., Inc., supra, the Court stated:

“If there is any one rational principle that might be used to guide restitutionary measurements it is that the measure of restitution should reflect the substantive law purposes that call for restitution in the first place.” 7. Based on the most competent evidence presented in this case, it is concluded that under the contract as modified, the Respondent has failed to account for the $13,509.08 overpayment made by the Complainants to the Respondent and subcontractors. The subcontractors had to be paid by the Complainants because of the Respondent’s failure pay them and complete the work on the Complainants home. RECOMMENDED Order In view of the foregoing it is recommended that commencing on the effective date of the Order entered in this matter that the Class B license of the Respondent shall be revoked unless the Registrar of Contractors receives written proof that the Respondent has paid, tendered payment or made arrangements satisfactory to the Complainants for the payment of $13,509.08 or such other amount as may be agreed to by the Complainants. It is further recommended that if the Respondent pays, tenders payment or makes satisfactory arrangements with the Complainants as required by the Order entered in this matter, then the aforementioned revocation shall not take place but that the Respondent shall be placed on probation for a period of One Hundred and Eighty (180) Days. Done this day, September 22, 2000

______________________________________ Allen Reed Administrative Law Judge

Original transmitted by mail this ____ day of September, 2000, to:

Registrar of Contractors Michael P. Goldwater Attn: Joyce Armijo 800 West Washington, 6th Floor Phoenix, AZ 85007

By ___________________________

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Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826