ALJDEC

00F-G0251-ROC-com · Registrar of Contractors · 2001-01-25

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: January 4, 2001; 9:05 A.M.; Phoenix, Arizona APPEARANCES: Complainants: Frederick E. Davidson, Esq. and Ivan Kolesik, Jr., Esq. Respondent: Michael D. Wallace, Secretary and Treasurer Michael E. Gottfried, Esq. ADMINISTRATIVE LAW JUDGE: George A. Schade, Jr.

This is a compliance proceeding pursuant to Arizona Revised Statutes (“A.R.S.”) § 32-1154. Based upon the evidence presented at the hearing, Administrative Law Judge (“ALJ”) George A. Schade, Jr. submits this Recommended Decision and Order to the Arizona Registrar of Contractors (“Registrar”). FINDINGS OF FACT PROCEDURAL BACKGROUND 1. On May 31, 2000, the Office of Administrative Hearings forwarded to the Registrar ALJ Schade’s recommended decision regarding Citation and Complaint No. G00-0251. A related matter involving the general contractor (Docket No. 00F-G0230-ROC) was held before ALJ Allen W. Reed. 2. On June 12, 2000, the Registrar adopted ALJ Schade’s recommended decision except that it modified the time period for the completion of the mandated corrective actions. ALJ Schade had recommended giving Respondent Swartz Concrete, Inc. (“Swartz”) ten days after the effective date of the Registrar’s order to complete the corrective actions. The Registrar mandated completion of corrective actions “on or before the effective date of the Order.”[1] The Registrar provided that its order would become effective on July 22, 2000. 3. The Registrar directed Swartz to complete the following corrective actions: “1. Application of the “Sealflex” chemical product to the area which Swartz poured in the interior of the Damesek residence. Swartz may retain other licensed contractors to complete this application. The application of this product shall be in lieu of the installation of a vapor barrier below the existing concrete slab.

2. Repairing or removing the 12” step in the closet, under the front stairs, which does not belong there.

3. Repairing the wall in the kitchen which extends 1” to 5/8” past the framing.

4. Repairing all the honeycombed areas where the floor and stem walls were not properly poured.”

The Registrar further ordered that “the following actions shall be executed: 1. Written credit or waiver of payment from Mr. and Mrs. Damesek of $3,573.00 due Swartz for the exterior concrete work not done.

2. Payment of $3,707.00 to Mr. and Mrs. Damesek.”

4. On July 17, 2000, Swartz filed a Motion for Rehearing pursuant to Rule R4-9-120 (Rehearing or Review of Decision), Ariz. Admin. Code. On July 31, 2000, Mr. and Mrs. Damesek filed a response to the motion. 5. On August 1, 2000, the Office of Administrative Hearings forwarded to the Registrar ALJ Schade’s recommended decision denying Swartz’s Motion for Rehearing. 6. On August 8, 2000, the Registrar adopted the recommendation denying a rehearing and indicating that the June 12, 2000, order would become effective on September 17, 2000. 7. On July 17, 2000, Swartz filed a complaint for judicial review with the Maricopa County Superior Court (Docket No. CV2000013349). This judicial review action did not come to the attention of Mr. and Mrs. Damesek until a few days prior to the compliance hearing. As of the date of the compliance hearing, the complaint had not been served upon any party. Mr. Wallace testified he was not aware of this judicial review action. 8. On August 28, 2000, Mr. and Mrs. Damesek informed the Registrar that Swartz had not complied with the Registrar’s June 12, 2000 order. 9. On October 5, 2000, the Registrar issued an order stating: “IT IS ORDERED that the suspension imposed on October 3, 2000, be lifted and the license of Respondent be reinstated as of October 4, 2000. IT IS FURTHER ORDERED that this case be scheduled for a compliance hearing in the normal course of docketing in the Phoenix area.” (Emphasis in order.)[2]

10. On October 26, 2000, the Registrar issued a Notice of Compliance Hearing scheduling a hearing on January 4, 2001, before the Office of Administrative Hearings. 11. On January 4, 2001, a compliance hearing was held. Mr. and Mrs. Damesek presented the testimony of Mr. Wallace, Secretary and Treasurer of Swartz, and of Mr. Damesek and submitted twelve exhibits which were admitted. Swartz presented the testimony of Mr. Wallace and of Mr. Joseph E. Giannetti, Sr. and submitted one exhibit which was admitted. Mr. Wallace called Mr. Gottfried during the hearing, and Mr. Gottfried arrived prior to the presentation of closing statements. ALJ Schade allowed the parties to submit closing statements in writing, which both parties filed on January 16, 2001. The record of the hearing was closed on January 16, 2001. COMPLIANCE ISSUES A. Application of Sealflex 12. Neither Swartz nor any other licensed contractor working with or at the direction of Swartz has installed the Sealflex chemical product. 13. By letter dated June 22, 2000, Mr. Damesek informed Swartz that “The actual interior square footage [for the application of Sealflex] is 3,974.”[3] At the initial hearing, Mr. Damesek testified that the area to be covered was 3,000 square feet, and that he had received an estimate of $11,500.00, or $3.83 per square foot, for Sealflex.[4] At the compliance hearing, Mr. Damesek testified that the area on which Sealflex should be applied is 3,974 square feet. 14. In this same letter, Mr. Damesek informed Swartz that “Due to the current conditions and the problems I have had with your company, I do not feel it is appropriate for you to do any further work on my property…According to the Sealflex Company, only people trained by their company are authorized to install their product.”[5] As a “suggested resolution,” Mr. Damesek offered to settle all claims for a payment of money, and he specified a total amount. 15. Mr. Wallace testified that he interpreted the June 22, 2000, letter to mean that Mr. and Mrs. Damesek did not wish Swartz to do any physical corrective work at the Damesek’s home. Mr. Damesek testified that he intended to state he wanted a trained and approved contractor to install the Sealflex. 16. On June 23, 2001, Swartz received from Fiesta Floors an estimate of $3.25 per square foot for the installation of Sealflex to cover 3,091 square feet. Swartz based this square footage on the interior area on which it had poured concrete excluding the garage. This estimate did not include “sales tax, if any, and excessive floor preparation.”[6] 17. Fiesta Floors is a licensed flooring contractor, located in Tucson, Arizona, that is approved by the manufacturer to install the Sealflex chemical product. 18. In early June, most likely prior to June 12, 2000, Mr. and Mrs. Damesek’s tile subcontractor (Art of Italy) began installing floor tile. The tile was delivered to the site prior to May 25, 2000, in several shipments, and was stored inside the garage. 19. According to Mr. Damesek, the tile subcontractor began installing floor tile in the first floor. When the tile contractor began laying tile in the first floor, Mr. Damesek testified he directed him to move to the second floor. Mr. Damesek wanted to continue construction on schedule, and the tile subcontractor wanted to begin installing the floor tile. During this time, other tradesmen were working inside the house. 20. Mr. Damesek testified that he telephoned Swartz several times stating that the floor tile was going to be installed, and Mr. Damesek wanted the Sealflex applied. 21. Mr. Giannetti, a licensed residential contractor whom Mr. and Mrs. Damesek retained as a consultant from December, 1999, through August 4, 2000, testified that the tile subcontractor began installing tile in the first floor on or about June 2, 2000 (the date of a revised contract between the Dameseks and Art of Italy). By June 10th or the 11th, “maybe a half of the great [living] room [was] done.”[7] When Mr. Giannetti terminated his working relationship with Mr. and Mrs. Damesek, on August 4, 2000, the tile work in the house was not finished. 22. Mr. Giannetti disagreed with Mr. Damesek’s testimony that the tile subcontractor went to work on the second floor after being directed, according to Mr. Damesek, not to continue laying tile in the first floor. According to Mr. Giannetti, he and not Mr. Damesek directed the tile subcontractor to stop laying tile in the first floor and, further, the tile work in the second floor “wasn’t done for several weeks after that,”[8] or after the tiling of the first floor had begun. 23. Mr. Giannetti testified that he advised Mr. Damesek to stop the tile work until the issue regarding the Sealflex was resolved. Mr. Giannetti testified as follows: “The other problem I brought up to him was the issue of the Sealflex. I continuously told him, ‘Look, you know, you’ve gone and you’ve gone through all this trouble to get the Sealflex litigated. Why don’t you just wait until you find out what’s going to happen?

And you know, he said, ‘I don’t care about the Sealflex.’ He says, ‘I’m not going to hold the job up. I want this job to get going. I got to get in here.”[9]

24. According to Mr. Giannetti, the installation of floor tile is the “absolute last thing” that gets done in a custom home.[10] In his opinion, the installation of floor tile in the Damesek’s house should have been done later than when it was done. 25. In mid-August, Swartz learned that floor tile had been installed. 26. In a letter dated September 11, 2000, Swartz sent Mr. and Mrs. Damesek a check in the amount of $10,045.75, or $3.25 per square foot for 3,091 square feet. This amount excluded the garage area. The Dameseks did not cash this check. 27. Swartz excluded the garage area because it claimed that Fiesta Floors had informed it that Sealflex can not be installed on garage floors. Subsequently, on September 18, 2000, Mr. Damesek spoke with Sealflex Industries, Inc. and was informed “that it is acceptable to install the SealflexTM 2000 in a garage area. ”[11] On the following day, Mr. Damesek confirmed this information with Fiesta Floors. Mr. Damesek informed Swartz of these conversations. 28. By letter dated September 29, 2000, Swartz sent Mr. and Mrs. Damesek a check in the amount of $12,408.50, or $3.25 per square foot for 3,818 square feet, for the installation of Sealflex. This amount included the garage area. The Dameseks did not cash this check. 29. Mr. Damesek testified that a reason they did not cash either check was because the amounts did not include sales taxes, for which Mr. and Mrs. Damesek did not wish to be responsible. On October 12, 2000, Mr. and Mrs. Damesek returned both checks to Swartz. 30. Mr. Wallace credibly testified that Swartz poured 3,818 square feet of concrete at the Damesek’s house. B. The 12” Step in the Closet 31. In his June 22, 2000, letter to Swartz, Mr. Damesek stated that, “The 12” step in the closet has been removed and repaired. The cost to do this was $1,750.00.”[12] 32. In its letter dated September 29, 2000, Swartz sent Mr. and Mrs. Damesek a separate check for $600.00, which represented tender of $400.00 for the step repairs and $200.00 for the repairs of the honeycombed areas in the stem wall. The Dameseks did not cash this check, and on October 12, 2000, they returned the check to Swartz. 33. Mr. Giannetti testified that Renaissance Homes, who prepared the building plans, had repaired the step at its own expense, and that Mr. and Mrs. Damesek had not paid any monies for this repair work. 34. Mr. Damesek testified that he had not paid anything for repairing the step, but he testified that he obtained the amount of $1,750.00 from Mr. Giannetti when Mr. Giannetti was his construction consultant. 35. The evidence shows that the step was most likely repaired prior to June 12, 2000, when the Registrar issued its order. C. The Wall in the Kitchen 36. In his June 22, 2000, letter to Swartz, Mr. Damesek stated that, “The repair to the wall in the kitchen has been done. The cost to do this was $150.00.”[13] 37. According to Mr. Damesek, the framer completed this repair as part of other work done after Swartz had attempted to repair the wall. Mr. Damesek “paid the framer additional monies,” but does not know what portion of the monies paid to the framer was attributable to the repair of the wall.[14] No evidence was presented showing how much Mr. and Mrs. Damesek paid the framer. 38. When Mr. Giannetti was working for the Dameseks, he estimated that the reasonable cost of the wall repairs was $150.00. D. The Honeycombed Areas in the Stem Wall 39. In his June 22, 2000, letter to Swartz, Mr. Damesek stated that, “The repair to the honeycombed areas will be done. The cost to do this is $500.00.”[15] 40. By letter dated September 29, 2000, Swartz sent Mr. and Mrs. Damesek a separate check for $600.00, of which $200.00 represented payment for the repairs of the honeycombed areas in the stem wall. The letter stated that, “Alternatively, we will have this work done at a time of your choosing - certainly before September 17th.”[16] The Dameseks did not cash this check. 41. Mr. Giannetti testified that the stucco subcontractor repaired the honeycombed areas in the stem wall. Mr. Damesek, however, testified that the stucco subcontractor did not repair all the deficient areas, and some repairs have failed. 42. Swartz is willing to complete the repairs of the honeycombed areas. As stated in its closing statement: “Regardless, Swartz tendered to Damesek an appropriate amount to do this work and if allowed on the property to do the work, as indicated in the compliance hearing, Swartz stands ready to make the repairs.”[17]

43. Mr. Damesek is willing to allow Swartz to enter the premises to complete the necessary repairs. E. The $3,573.00 Credit Due to Swartz 44. There is no dispute that Mr. and Mrs. Damesek have credited Swartz the amount of $3,573.00. This item is not an issue in this compliance proceeding.[18] F. The Payment of $3,707.00 45. In a letter dated September 11, 2000, Swartz sent Mr. and Mrs. Damesek a check in the amount of $3,707.00, but the check was made payable to both the Dameseks and Yankee Builders (Mr. Giannetti’s business). 46. Mr. and Mrs. Damesek did not cash this check, and on October 12, 2000, they returned the check to Swartz. The Dameseks did not cash this check because it was copayable to Yankee Builders, and Yankee Builders had not submitted to the Dameseks the invoices associated with this amount. Moreover, Mr. Damesek, in his June 22, 2000, letter to Swartz, stated that the amount of $3,707.00 in ALJ Schade’s recommended decision “is a typo,” and the correct amount is $5,163.00.[19] At the compliance hearing, ALJ Schade informed the parties that $3,707.00 was not a “typo.” The calculation of $3,707.00 was explained in footnote 17 on page of the recommended decision. 47. In the letter dated October 12, 2000, in which Mr. and Mrs. Damesek returned all the checks to Swartz, Mr. Damesek stated that they were “withdraw[ing their] claim to this amount” because Yankee Builders had not billed them, but if and when it did, the Dameseks “will forward the bill” to Swartz.[20] 48. No evidence was presented showing that Yankee Builders has billed Mr. and Mrs. Damesek for the work related to the $3,707.00 payment, but it is noted that the evidence presented at the initial hearing supported a factual finding that “Mr. and Mrs. Damesek are currently paying the total in monthly payments.”[21] CONCLUSIONS OF LAW 1. The filing of the pending complaint for judicial review does not preclude the Registrar from issuing an appropriate order in this compliance proceeding, as the complaint has not been served on any party. 2. Swartz failed to comply with the Registrar’s order issued on June 12, 2000, and for which a rehearing was denied. Swartz’s failures to comply with the order were, however, neither egregious nor shocking. The excessiveness of a disciplinary sanction imposed by a regulatory agency is judged by whether the penalty is “so ‘disproportionate to the offense as to shock one’s sense of fairness’.”[22] Applying this standard to Swartz’s actions does not lead to a conclusion that Swartz’s failures to comply with the Registrar’s order are shocking to a sense of fairness. 3. Equitable restitution is the appropriate remedy in this matter. As stated in the Registrar’s Conclusion of Law No. 6 adopted in the order issued on June 12, 2000: “The Registrar has authority to award restitution but not compensatory damages either in tort or in contract.[23] Compensatory damages must be sought in a court of competent jurisdiction or in an appropriate arbitration forum (if the contract requires arbitration of disputes). The Registrar may order full or partial restitution of monies paid and may order the completion of corrective work, but it is not the place to adjudicate contested issues of contractual money claims and award compensatory damages. In short, the Registrar is not a forum for the resolution of contractual money claims between private parties and licensed contractors.

In Sunpower, the Court of Appeals upheld the Registrar’s order directing the contractor “to remove the solar equipment it sold and installed and to return the monies paid for the sales and installations.”[24] The Court of Appeals held that “the Registrar’s order was a restitutionary remedy contemplated by the legislature as part of the Registrar’s regulatory authority to take appropriate disciplinary action against those who violate the licensing standards.”[25]

Restitution is an “equitable remedy under which a person is restored to his or her original position prior to loss or injury, or placed in the position he or she would have been, had the breach not occurred.”[26] The Arizona Supreme Court has called it “a flexible, equitable remedy” available in construction cases.[27] The remedy restores a party to the position the party would have been if the other party had not breached the contract. In breach of contract cases, the remedy is associated with the return of monies paid.”

4. Careful consideration has been given to the judicial opinions Mr. and Mrs. Damesek’s attorney presented regarding the “cost of repair” measure of damages or performance and “economic waste” that the Dameseks consider to be the manner of arriving at the appropriate compliance remedy.[28] This measure of damages and its exceptions apply in judicial actions when a party seek compensatory damages. In light of the evidence presented in this matter and the extent of the Registrar’s disciplinary authority, this measure of damages would best apply in a judicial or arbitration forum and not in this proceeding.[29] RECOMMENDED ORDER It is recommended that the Registrar: I. Suspend Swartz’s License No. 039539, Class C-09, for a period of ten consecutive days, unless on or before the effective date of the Registrar’s order, the Registrar receives written notification that Swartz has completed or has caused to be completed through other licensed contractors, in a professional and workmanlike manner, the following corrective actions: 1. The payment of $12,408.50 plus any applicable taxes. The amount of $12,408.50 represents the installation of Sealflex in an area of 3,818 square feet at a cost of $3.25 per square foot. 2. The payment of $150.00 for the cost of repairing the wall in the kitchen. 3. Repairing all the honeycombed areas where the floor and stem walls were not properly poured. The parties may negotiate a monetary settlement of this item but only if they are able to do so on or before the effective date of the Registrar’s order. 4. The payment of $3,707.00 directly and solely to Mr. and Mrs. Damesek. II. Close Citation and Complaint No. G00-0251 without suspension, if these corrective actions are completed on or before the effective date of the Registrar’s order. SUBMITTED this 25th day of January, 2001.

George A. Schade, Jr. Administrative Law Judge The original Recommended Decision and Order of the Administrative Law Judge was mailed on January 25, 2001, for distribution to the parties, to:

Michael P. Goldwater Arizona Registrar of Contractors 800 West Washington, 6th Floor Phoenix, Arizona 85007

George A. Schade, Jr. ----------------------- [1] Complainants’ Exhibit No. 2. [2] The ALJ took official notice of this order to prepare the procedural history. [3] Complainants’ Exhibit No. 3, p. 1. [4] Recommended Decision, Finding of Fact No. 28, pp. 4 - 5. [5] Id. [6] Respondent’s Exhibit No. 1, p. 2. [7] Hearing Transcript (“H. T.”), p. 135, lns. 15 - 18. [8] H. T., p. 136, lns 1 - 15. [9] H. T., p. 118, lns. 6 - 15. [10] H. T., p. 128, lns. 19 - 24. [11] Complainants’ Exhibit No. 9, p. 1. [12] Complainants’ Exhibit No. 3, p. 1.

[13] Complainants’ Exhibit No. 3, p. 1. [14] H. T., p. 151, lns. 12 - 19. [15] Complainants’ Exhibit No. 3, p. 1. [16] Complainants’ Exhibit No. 7. [17] Swartz’s Closing Statement, p. 8, lns. 3 - 5. [18] Complainants’ Exhibit No. 11. [19] Complainants’ Exhibits No. 3, p. 1, and 12. [20] Complainants’ Exhibit No. 12. [21] Recommended Decision, Finding of Fact No. 37, p. 7, ln. 2. [22] Culpepper v. State, 187 Ariz. 431, 438, 930 P.2d 508, 515, citing Schillerstrom v. State, 180 Ariz. 468, 471, 885 P.2d 156, 159 (App. 1994) (“An administrative penalty is excessive only if it is so ‘disproportionate to the offense as to shock one’s sense of fairness’.”); Bear v. Nicholls, 142 Ariz. 560, 563, 691 P.2d 326, 329 (App. 1984). [23] Sunpower of Arizona v. Registrar of Contractors, 166 Ariz. 437, 803 P.2d 430 (App. 1990), review denied (1991); see A.R.S. § 32-1156.01 (effective July 18, 2000). [24] Sunpower, 166 Ariz. at 440, 803 P.2d at 433. [25] Sunpower, 166 Ariz. at 441, 803 P. 2d at 434. [26] BLACK’S LAW DICTIONARY 1313 (6th ed. 1990). [27] Murdock-Bryant Construction, Inc. v. Pearson, 146 Ariz. 48, 53, 703 P.2d 1197, 2002 (1985), cited with approval in Commercial Cornice & Millwork, Inc. v. Camel Construction Services Corp., 154 Ariz. 34, 39, 739 P.2d 1351, 1356 (App. 1987). [28] Complainants’ Compliance Hearing Closing Memorandum, p. 4. [29] The Registrar is not a court of law for the resolution of all legal claims but is an Executive agency responsible for licensing and disciplining residential contractors. Its powers are limited to those granted by the Arizona Constitution or by statute. Kendall v. Malcolm, 98 Ariz. 329, 404 P.2d 414 (1965).

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