ALJDEC

00F-2674-ROC-res · Registrar of Contractors · 2001-02-06

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: January 29, 2001. APPEARANCES: Jack Daniel Klausner, Attorney, for Complainants, and Marie Cunning for Respondent. ADMINISTRATIVE LAW JUDGE: Dorinda M. Lang. _____________________________________________________________________ Because the Complainants in this matter have established violations of the statutes governing Respondent’s license resulting in their substantial financial injury, and because Respondent is in bankruptcy with its license suspended and all of its officers resigned, I recommend that Respondent’s license be revoked. FINDINGS OF FACT 1. On September 22, 1999, Jack and Mary Altschuler contracted with Renaissance Custom Homes, Incorporated (“Renaissance”) for the construction of a new home for $455,759.00. The contract did not provide for a specific start date but stated that construction would begin within three weeks of obtaining a building permit. Renaissance obtained a building permit from the city of Scottsdale on or about January 21, 2000 and construction began within three weeks. On March 21, 2000, the Altschulers terminated their contract with Renaissance. Renaissance considered this to be a breach of contract. 2. The reason given for terminating the contract by Altschulers was that constant change of vendors and re-bidding by Renaissance unreasonably delayed construction and that the Altschulers believed that Renaissance was in financial difficulty and would be unable to complete the project in time. 3. At hearing, the Altschulers also argued that Renaissance was unreasonably slow in getting the house plans, originally provided by the Altschulers, approved by the city of Scottsdale and the architectural committee of the homeowner’s association. Renaissance argued that the reason for the delays was the Altschulers’ insistence on including all plan changes in the plans before submitting them for approval. 4. When the Altschulers terminated the contract, Renaissance sent them a letter demanding additional payment, beyond the $30,000 down payment and other payments made. An itemization of expenses provided by Renaissance totaled $45,931.81. The Altschulers argue that it is they who have lost money due to Renaissance’s actions in this matter and that they have been substantially harmed by Renaissance. They provided proof of additional expenses they incurred in having to hire another builder. They were also greatly inconvenienced by having to make other living arrangements while the home was being built. Renaissance argued that it also incurred extra expenses due to the delays and complications caused by Altschulers. Renaissance denies breaching the parties’ contract or any other wrongdoing. 5. Renaissance agreed in its contract to pay for building permits. The Impact Fee portion of the permit ($8,229.17) was charged to Altschulers. They disagreed with this charge. Renaissance argued that this charge is always borne by the homeowner because it is unique to each project and cannot be included in a builder’s estimate. 6. Renaissance’s check to the city of Scottsdale for the building permit was returned with insufficient funds. This caused the Altschulers to have to pay for the permit for the new builder. It also meant that Renaissance was working on the home for a short time without a permit. Renaissance argued that it was the Altschulers’ refusal to pay the Impact Fee portion of the permit that caused them to have insufficient funds to cover the check. The contract, however, states that Renaissance is responsible for the building permit and does not provide for an adjustment for Impact Fees. Therefore, it must be concluded that the Altschulers were not responsible for this item. 7. The Altschulers demanded an accounting and proof of payment for all items charged to the project. Renaissance submitted a cost statement that included charges that the Altschulers argued were not paid and not in the contract. It included “supervision”, which they argued was not included in the contract or provided, profit, which they argued was excessive, general and administrative fees, which they argued were not in the contract, and a charge for truss calculations, to which they objected because the truss calculations were not given to them. The cost statement also listed an amount for profit, which the Altschulers argued was excessive. Renaissance argued that it was not asking at this time for payment of its cost overages but was showing by the cost list that it expended more or is responsible for more than was paid by the Altschulers (but its letter does state that the additional money is owed to Renaissance). 8. The Altschulers also incurred additional expenses in hiring a new builder. They had to pay more for the home itself in the new contract. They had to pay an additional $6,000 to adjust the plans to suit the elevations shown in the plan drawings, an item that would have been included in the Renaissance contract at no extra charge. The new builder had to modify a truss, add drainage under the house, enlarge the pad that was on the site, and re-stake the house. Renaissance argued that the pad and excavation were not complete when Renaissance was fired, and that the other additional costs were not its responsibility since it was the Altschulers who breached the contract by terminating it. 9. The Altschulers discovered that some subcontractors were not paid on the project and believe they may be at risk of having to pay them. They also paid $1,300 to subcontractors during the contract with Renaissance. Additionally, it is unclear whether Renaissance properly paid the sales tax for which it was responsible for this project. Some of the subcontractors may never be paid because of Renaissance’s bankruptcy. 10. Renaissance filed for bankruptcy status on August 22, 2000. The Altschulers received a relief from the stay in bankruptcy to proceed with their complaint against Renaissance at the Registrar of Contractors. CONCLUSIONS OF LAW 1. This matter is within the jurisdiction of the Registrar of Contractors pursuant to A.R.S. §§32-1104(A)(4), 32-1154(B) and 32-1156. 2. The Citation and Complaint issued by the Registrar of Contractors in this matter alleged potential violations of A.R.S. §32-1154(A)(2), (3), (7) and (9) and A.A.C. R4-9-108. 3. The Arizona Revised Statutes at §32-1154(A)(2) provides grounds for suspension or revocation of a contractor’s license for departure from or disregard of plans or specifications or building codes without consent of the owner or his or her representative. Working for a time without a permit violates building codes and is a violation of this portion of the statute. Therefore, the Altschulers have established a violation of this provision. 4. The Arizona Revised Statutes at §32-1154(A)(3) provides grounds for suspension or revocation of a contractor’s license for “[v]iolation of any rule adopted by the registrar”. The only applicable rule in the Arizona Administrative Code in this case requires contractors to meet minimum workmanship standards. A.A.C. R4-9-108. Regarding the pad, drainage, excavation, and plan adjustments, Renaissance did not get an opportunity to finish the work or correct it; therefore, the Registrar of Contractors should find no violation for these items. Regarding its failure to promptly complete the plans’ approval and begin construction, I can find no statute or rule requiring a contractor to do so. Working without a permit does not meet minimum workmanship standards, however, so Renaissance did violate this section of the statute when it worked without a permit. Failure to cover the check for the permit also should be considered a violation. 5. The Arizona Revised Statutes at §32-1154(A)(7) provides for suspension or revocation of a contractor’s license for the “doing of a wrongful or fraudulent act by the licensee as a contractor resulting in another person being substantially injured”. It appeared that the Altschulers were most offended by Renaissance’s cost list and its demand for additional payment for breaching the contract. Demanding damages for breach of contract, however, is not a wrongful or fraudulent act and cannot be a basis for finding a violation. Granted, some of the items in the cost list had not been paid yet to the subcontractors; however, they were charges incurred by Renaissance for which it might have been held responsible. Supervision, administrative fees, and profit were also items that Renaissance might have honorably argued were due it for breach of contract as well. Actual determination of whether there was breach of contract or whether the contract was properly terminated by the Altschulers is a determination best made in civil court since a legitimate dispute appears to exist between the parties. There is no separate violation of the licensing statutes here. 6. Failure to pay subcontractors does expose the Altschulers to potential liability for their charges, as does failure to pay the sales tax. The Altschulers have already paid subcontractors approximately $1300. Renaissance’s bankruptcy further exposes them to the risk of additional costs. Failure to cover the payment for the permit also caused them to incur additional costs when they had to pay for the permit for the new builder to begin working. On the face of the contract, the Impact Fees would not have been the Altschulers responsibility, increasing the injury involved significantly. For these items, the Registrar of Contractors should consider Renaissance in violation of the statute. 7. The Arizona Revised Statutes at §32-1154(A)(9) provides grounds for suspension or revocation of a contractor’s license for failure to complete a project or operation for the price stated in the contract. Failure to pay the permit is a violation of this portion of the statute. Failure to pay subcontractors and taxes is also a violation. 8. The delay in starting construction was not a violation of any provision of the contract. It was not established at hearing that the delay was entirely the fault of Renaissance. Therefore, there is no separate violation of the Registrar of Contractors rules or statutes in this. 9. Renaissance has a record of several complaints with the Registrar of Contractors and is now in bankruptcy. All of its officers have resigned. It’s license has been suspended since November 22, 2000 for lack of bond. The Altschulers argued that since Renaissance’s former qualifying party is still working for former Renaissance employees, the bankruptcy is a fraudulent way of escaping responsibility. Since the Altschulers terminated the contract before the bankruptcy, this was not established. RECOMMENDED DECISION Based upon the foregoing considerations, I recommend that Renaissance’s license be revoked.

Done this day, February 7, 2001.

OFFICE OF ADMINISTRATIVE HEARINGS

_____________________________________ Dorinda M. Lang Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 2001, to:

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

By ___________________________

-----------------------

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