ALJDEC

00F-A0205-ROC · Registrar of Contractors · 2000-06-12

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: June 6, 2000 APPEARANCES: G.A. Sean Davidson and Frank Lieberman, Complainants, in their own behalf Art Guenther, Respondent, in his own behalf ADMINISTRATIVE LAW JUDGE: Allen Reed _____________________________________________________________________

Findings of Fact 1. This matter came on for hearing at the time, date and place set forth in the Notice of Hearing. 2. The complaint in this case was filed by Thomas Nantais (Nantais), attorney on behalf of the real parties in interest, G.A. Sean Davidson (Davidson) and Frank Lieberman (Lieberman), who will be referred to as the Complainants for the purpose of this Recommended Decision. 3. Nantais has no standing in this case, and although licensed to practice law in California, he is not licensed and has not qualified to practice in Arizona. 4. For the purpose of providing a summary of the Complainants’ case, Nantais was allowed to make a preliminary presentation prior to the swearing of witnesses. Nantais did not actively participate after the formal hearing and testimony commenced. The Complainants represented themselves with Davidson presenting the majority of the case. 5. The Complainants and Respondent are current property owners in a community called Montezuma Estates. The majority of the community consists of undeveloped lots, although the community has been in existence since the late 1960’s. 6. Montezuma Estates has had its own public water system since the late 1960’s. 7. The Respondent purchased property in Montezuma Estates in 1994. In 1997 he was elected to the board of the Montezuma Estates Property Owners Association (MEPOA), and became the president. The board had only five members at the time. 8. MEPOA had been created in 1979 as a voluntary association. A 1987 Yavapai County Superior Court decision had granted a motion to dismiss a claim brought by MEPOA on the ground that MEPOA had no lawful authority to enforce its will on other property owners. The Respondent was unaware of the court decision and MEPOA’s lack of authority. 9. The MEPOA board had been responsible for the water system which needed upgrading and repair. The Respondent took over the water maintenance responsibility after two other board members left. The Board now had only three members. 10. More property owners were building in the subdivision and water hook ups were required. There were problems with demand on the system due to its age which resulted in water supply failures. More attention had to be given to upgrading, maintenance and repair. Income for the water utility was limited. 11. An attempt to raise funds by special assessment on property owners and threatening liens for nonpayment, was challenged by Davidson and it was shown MEPOA did not have authority to make such assessments or file a lien for non-payment of the assessment . 12. The Respondent has a Class B-02 (General Small Commercial) license. The Respondent on behalf of MEPOA, hired Maynard Pump and Well (Maynard), to install new tanks and pumps. According to the Respondent, Maynard had a well driller’s (possibly an A-4) license. In addition, the Respondent testified that other licensed contractors (Southwest Equipment, Johnny Ray, MacDonald Brothers) were used to do work on the system. The evidence on this is too imprecise to make a clear determination of what work, if any, was done by properly licensed contractors. 13. The Respondent and remaining board members authorized the expenditure of funds to pay the Respondent and three of his sons for work related to the water system. Over time, the amounts paid came to over $7,500.00. Additional amounts paid to the Respondent’s wife are not considered relevant in the context of the allegations of this case because there is no evidence that such payment was for work which would be considered to be contracting. The Respondent testified payments to his wife, who was the Treasurer of MEPOA, were bookkeeping related. 14. The billing for the work done by the Respondent and his sons was sent to MEPOA on separate invoices with the headings for Art Guenther Construction, Charlie Guenther Enterprises, Eric Guenther Construction and Henry Guenther Construction. None of the Respondent’s sons are licensed contractors. Copies of their invoices (Exhibit 5) show over $4,000.00 was billed for specific work that was done. The invoices list installation of valves, meters and main line taps, repairs at a break in the well, repair of a water leak and repair of six inch main line. 15. According to the Respondent, Maynard did the preponderance of the work on the water system and the majority of the payments to the Respondent (nearly $2,000.00) were reimbursement for administrative related expenses such as travel and costs associated with trying to get the water system, which is a public utility, in compliance with the requirements of the Corporation Commission and Department of Environmental Quality. He further testified that the payment to his sons was for work done by them as general laborers and not for work done as purported contractors. 16. Exhibit 7, which is a rather basic accounting summary of MEPOA finances from January 1, 1998 through May 31, 1999, does not show any payments to Maynard but does show expenses of nearly $32,000.00 for plants and equipment. Exhibit A, which is titled MEPOA Ledger 1999, shows approximately $14,000.00 paid to Maynard in May, 1999. It should be noted that MEPOA accounting practices are rather basic. 17. Exhibit 5, shows that the Respondent submitted an invoice for $615.00 to MEPOA, which included 12% for overhead and profit. According to the Respondent, this invoice was submitted in order that MEPOA could be reimbursed by Arizona Public Service (APS), which had damaged the system and caused the severe leak referenced in the following paragraph. The Respondent admitted the invoice did not accurately reflect work that was done but was prepared because he was told this was the only way MEPOA could be reimbursed by APS. The invoice also shows labor costs billed at $25.00 an hour when the Respondent asserted he worked as a volunteer and his sons worked for $8.00 to $10.00 an hour as laborers. 18. The Respondent acknowledges that the headings of his sons’ invoices were inaccurate. He also acknowledged that he and his sons connected some of the water lines for new homes being built in Montezuma Estates, repaired some valves and did emergency repairs on the system when it had a severe leak and a properly licensed contractor was not available. 19. It should be noted that there is a certain amount of conflict between the Complainants and Respondent. This is based on issues unrelated to the laws governing contracting, but rather to matters of the control, direction and authority of MEPOA. Conclusions of Law The allegations of this Citation and Complaint concern A.R.S. §32- 1154(A)(7), a wrongful or fraudulent act resulting in substantial injury to another, (A)(10), aiding or abetting an unlicensed person to evade the provisions of the law governing contracting, (A)(14), knowingly entering a contract with a contractor who is not licensed to do the work which is to be performed, and (A)(17), knowingly contracting beyond the scope of the license. 1. The initial issue is whether the Complainants have standing to present this case. As explained in the findings of fact, Davidson and Lieberman are the real parties in interest. The complaint was filed in their behalf by Nantais, who has no interest. It was determined by this Administrative Law Judge (ALJ), that the hearing could proceed and the real parties substituted as complainants because the allegations of the complaint were not altered and there was no undue prejudice to the Respondent with respect to being informed of what he was called upon to defend. It was further determined that although Davidson and Lieberman had not suffered any present material harm, they had a cognizable interest in presenting their case because if the allegations were found to be true, any unlicensed contracting work done on the water system is presumptively not done in a workmanlike manner and creates a potential for future harm to the Complainants. This would be a wrongful act with substantial injury as envisioned by (A)(7). It does not matter that the Complainants did not have a direct relationship with the Respondent. If the Respondent was acting in the capacity of contractor under the statutes, and if his acts created the potential for the harm to the Complainants, then violation would be established. 2. A Class A or Class A-16 license allows the type of work which the Respondent described was done on the water system. The Respondent is not licensed to do this type of work. 3. It is unknown how much of the work on the system needed to be done by a properly licensed contractor, how much of that work was actually done by a properly licensed contractor, and how much of that work was done by Respondent and his sons. The evidence did show that the Respondent and his sons did some work on the system which required the appropriate license. The hook up to an unspecified number of homes, repair and installation of main line taps, valves and meters, the nature of the billing for the leak caused by APS, the total amounts paid to the Respondent and his sons, the evidentiary discrepancy in what his sons were paid as laborers, the submission of invoices by the Respondent’s sons using “Enterprise” and “Construction” as a business designation with the attendant implication of contracting more than general labor, all point to the conclusion that the Respondent was not a volunteer and he and his sons were acting as a “Contractor” as defined by A.R.S. §32- 1101(A)(3), and required a Class A or A-16 license. This establishes a violation of (A)(10) for aiding and abetting an unlicensed person and (A)(17) for contracting beyond the scope of the Respondent’s license. 4. In view of the above conclusion, and for reasons previously set forth, there is also a violation of A.R.S. §32-1154(A)(7) wrongful conduct, with respect to the Complainants who, although they have not incurred a specific measurable present injury, have sustained an injury as discussed in paragraph 1 of these Conclusions. 5. No violation of (A)(14) is found because it is unnecessary. With respect to the Respondent’s sons, a violation of (A)(14) would simply duplicate the violation of (A)(10). [1] 6. The Respondent’s defense, including the apparently thankless task of attempting to run MEPOA and the water system, the crisis nature of events related to the system and the purported difficulty in obtaining the properly licensed contractors to do some of the work, has been considered but is not found persuasive in light of all the evidence. Some of the Respondent’s actions amounted to self-dealing on behalf of himself and his family and included the contracting violations discussed above. 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 Respondent’s Class B-02 license be suspended for a period of ten (10) days to be followed by a period of one hundred-twenty 120 days of probation. Done this day, June 15, 2000.

______________________________________ Allen Reed Administrative Law Judge

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

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

By _______________________________

----------------------- [1] Additionally the application of (A)(14) to the instant case is problematical because the Respondent’s sons were not licensed contractors and the Respondent entered into the contract (with himself), on behalf of MEPOA and not as a contractor. The sanctions of A.R.S. §32-1154(A) can only be imposed on a licensed contractor or a person named on a license. To find a violation, one would have to conclude that the Respondent as a contractor entered into a contract with himself and his sons, as contractors, to do work for which he and his sons were not licensed in the required classification. Such circular reasoning is neither necessary or desirable in this case.

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