ALJDEC

00F-RF0525-ROC-res · Registrar of Contractors · 2001-09-19

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: September 11, 2001 at 9:00 a.m. APPEARANCES: Plaintiff Janette A. Collins appeared on her own and her husband Don Collins’ behalf; Defendant Ronald Norman Dean appeared on his own and Dean Fencing Co.’s behalf; Defendant Dean Fencing Specialists, Inc. did not appear; the Arizona Registrar of Contractors appeared through Victoria J. Martin, Esq., Assistant Attorney General. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

Mr. Dean and the Registrar presented evidence and argument on whether Mr. and Mrs. Collins’ claim to the Residential Contractors’ Recovery Fund should be charged against Mr. Dean’s contractor’s license or Dean Fencing Specialists, Inc.’s contractor’s license. The Administrative Law Judge makes the following Findings of Fact, Conclusions of Law and Recommended Order to the Registrar. FINDINGS OF FACT Background The Registrar issued License No. 035885, Class C-14, to Mr. Dean dba Dean Fence Company on July 3, 1972. Mr. Dean was the qualifying party and only person listed on the license. Over the next 26 years, Mr. Dean’s business prospered and he developed an excellent business reputation in the area around Kingman and along the Colorado River. Mr. Dean’s son Ray started his own fence company. In approximately 1994, Mr. Dean hired a young woman, Lisa Marie, as his secretary. Two years later, Lisa Marie married Frank Lloyd Jacques, Jr. Mr. Dean first got Mr. Jacques a job with his son Ray Dean’s company. Later, Mr. Dean hired Mr. Jacques, who seemed like a hard-working, likable fellow. Mr. Dean taught Mr. Jacques how to bid jobs and build fences. In 1998, Mr. Dean’s doctor diagnosed him with skin cancer on his face and told him he should avoid being outdoors in the sun. Because Ray Dean’s fence business was doing well, on September 28, 1998, Mr. Dean agreed to sell his own fence business and office building to Mr. and Mrs. Jacques and they agreed to pay him, respectively, $110,000.00 and $150,000.00, at a rate of $2,200 per month plus 10% annual interest. On September 22, 1998, the federal Internal Revenue Service issued an employer identification number to Dean Fencing Specialists, Inc., care of Mr. Jacques, its president. On October 23, 1998, Mr. Jacques filed articles of incorporation to the Arizona Corporation Commission for Dean Fencing Specialists, Inc. On December 12, 1998, Mr. Jacques contracted with Plaintiffs, using a Dean Fence Co. proposal form, to install an electric gate and wrought iron fence at their residence for a total cost of $1,700.00. Mr. Jacques last performed work on the project in March 1999. Mr. and Mrs. Collins paid Mr. Jacques with checks made payable to Dean Fencing Company, which were endorsed by Dean Fencing Specialists, Inc. On February 1, 1999, the City of Bullhead City issued a business license to Dean Fencing Specialists, Inc. On June 9, 1999, Mr. Jacques obtained a transaction privilege tax license from the Arizona Department of Revenue for Dean Fencing Specialists, Inc. On July 1, 1999, the Registrar issued License No. 146396, Class K-14, to Dean Fencing Specialists, Inc. Mr. Jacques was listed as the qualifying party and Mrs. Jacques was listed as the secretary-treasurer. On July 29, 1999, Mr. Dean canceled License No. 035885. On August 22, 1999, Plaintiffs made a complaint to the Registrar against Mr. Dean’s contractor’s license, which the Registrar designated Case No. H00-0054. On August 24, 1999, Mr. and Mrs. Dean instructed the title company to cancel escrow on their sale of Dean Fence Co. to Mr. and Mrs. Jacques because they had failed to comply with the terms of the sales contract. On September 27, 1999, the Registrar adopted Administrative Law Judge M. Douglas’ recommended decision in Case No. H99-0219, Carlton v. Dean Fence Co. That case found that, although Mr. Jacques had made and performed the contract with Mr. and Mrs. Carlton and Mr. Dean had no personal involvement, he was responsible for the poor workmanship because he did not cancel his license but, instead, allowed Mr. Jacques to work under it. The Registrar subsequently denied Mr. Dean’s motion for rehearing. On September 30, 1999, Mr. Dean’s attorney informed the Registrar that Mr. Jacques’ performance of the contract with Mr. and Mrs. Collins was unauthorized and done without Mr. Dean’s knowledge. The Registrar then directed the complaint in Case No. H00-0054 toward Dean Fencing Specialists, Inc.’s contractor’s license. On January 20, 2000, the Registrar issued a Citation and Complaint against Dean Fencing Specialists, Inc.’s contractor’s License No. 146396 in Case No. H00-0054, charging violations of A.R.S. § 32-1154.A.7, .23, and .3. Dean Fencing Specialists, Inc. did not timely answer the Citation and Complaint. On February 13, 2000, the Registrar issued a Decision and Order in Case No. H00-0054, finding the charged violations and revoking Dean Fencing Specialists, Inc.’s License No. 146396.[1] On April 27, 2000, the Registrar revoked Mr. Dean’s License No. 035885 as a result of the violations found in Case No. H99-0219, the workmanship complaint filed by Mr. and Mrs. Carlton. Claims to the Residential Contractors’ Recovery Fund On June 4, 2000, Mr. and Mrs. Collins made a claim against “Dean Fence Co.,” License No. 146396, for the cost of completing repairs on their electric gate and fence, which was designated Case No. RF00-0525. Attached to the claim were three bids from appropriately licensed contractors, including the low bid of $4,518.75 from Hazlewood Welding, License No. 102111, Class C-17R. On August 25, 2000, the Registrar’s Inspector William A. Redman recommended that Mr. and Mrs. Collins’ claim in RF00-0525 against License No. 146396, which in fact had been issued to Dean Fencing Specialists, Inc., be denied because Mr. and Mrs. Collins were not aware that they were dealing with Dean Fencing Specialists, Inc. and Dean Fencing Specialists, Inc. lacked a contractor’s license at the times the contract was made, the work was performed, and payment was made. On September 29, 2000, the Recovery Fund Manager denied Mr. and Mrs. Collins’ claim to the Recovery Fund against Dean Fencing Specialists, Inc.’s contractor’s License No. 146396 in Case No. RF00-0525 because their contract was with a contractor who was unlicensed at the time of contracting. On October 7, 2000, Mr. and Mrs. Collins requested an administrative hearing in Case No. RF00-0525 and informed the Registrar that their business was with Dean Fence Co., License No. 035885, not Dean Fencing Specialists, Inc. On January 12, 2001, the Registrar issued a Notice of Recovery Fund Payout Hearing to Dean Fencing Specialists, Inc., License No. 146396, in Case No. RF00-0525, setting a hearing on February 7, 2001 in Tucson before Judge Douglas. Mr. Collins subsequently moved to change venue in Case No. RF00-0525 to Kingman. On February 1, 2001, Judge Douglas granted the motion, informing the parties that the date of the hearing would be scheduled in the normal course of docketing. On March 5, 2001, Judge Douglas issued an order in Case No. RF00-0525, scheduling a hearing on May 7, 2001 in Kingman before Administrative Law Judge Brian Tully. On May 1, 2001, the Registrar moved to vacate the hearing in Case No. RF00- 0525 and remand the case back to the Registrar to allow consolidation with Mr. Collins’ claim against Dean Fence Co.’s License No. 035885. The motion indicated that Mrs. Collins did not oppose the motion. Judge Tully granted the motion to vacate. On May 17, 2001, the Registrar issued a consolidated notice of claim for administrative payout to Dean Fencing Specialists, Inc., License No. 146396 in Case No. RF00-0525 and to Mr. Dean dba Dean Fence Co., License No. 035885 in Case No. RF01-0673. The consolidated hearings were referred to the Office of Administrative Hearings and a hearing scheduled on September 11, 2001 before the undersigned Administrative Law Judge. Mr. Collins filed a motion to allow his wife to represent the marital community at the hearing and, on September 4, 2001, the caption was amended to show Janette A. Collins as a co-plaintiff. A short hearing was held the morning of September 11, 2001, at which the Registrar had admitted into evidence 16 exhibits and Mr. Dean and Inspector Redman testified. Mrs. Collins was present but did not testify, since no one disputed her right to recovery or the amount of her damages. The parties agreed the only issue was which contractor’s license should be charged with the payout. Additional Hearing Evidence Inspector Redman testified that Corrective Work Orders had been issued to both Dean Fencing Specialists, Inc. and Mr. Dean dba Dean Fence Co. in Mr. and Mrs. Collins’ workmanship complaint, Case No. H00-0054. Inspector Redman testified that the Registrar had received numerous complaints against Dean Fence Co., which he later learned were for contracting jobs performed by Dean Fencing Specialists, Inc. Dean Fencing Specialists, Inc. took over Dean Fence Co.’s office building, letterhead, bid forms, contract forms, and office telephone number. Mr. Jacques told people that he was related to Mr. Dean or was his son-in-law. Most property owners thought they were dealing with Dean Fence Co., which had an excellent reputation for many years, rather than Dean Fencing Specialists, Inc. Owners were duped into thinking they were dealing with a reputable company. Since Dean Fence Co. had not canceled its license, a call to the Registrar’s office would not have disabused property owners of Dean Fencing Specialists, Inc.’s true role and license status. Inspector Redman testified that Dean Fencing Specialists, Inc. made no attempt to secure permits on jobs where they were required. On the Collins job, Mrs. Collins signed the permit. Inspector Redman never was able to speak to Mr. Jacques, who avoided Inspector Redman. Inspector Redman testified that, in his opinion, Dean Fencing Specialists, Inc. grossly underbid many jobs, including the one at the Collins’ residence. Where a contractor grossly underbid a job and its work on the job was seriously deficient, it is not uncommon for the lowest qualified bid in a claim to the Recovery Fund to be higher than the original contract amount. Inspector Redman testified that, although many claims to the Recovery Fund had been made or paid and charged to Dean Fencing Specialists, Inc.’s license,[2] total payouts were still significantly less than $100,000.00.[3] Mr. Dean testified that Mr. and Mrs. Jacques took every dime he had. He has almost paid off all suppliers after two and one-half years. Mr. Dean had to raid his savings to reactivate his insurance to repair poor workmanship on the Carlton job. Mr. Dean and his son have corrected the problems at that job that led to revocation of his contractor’s license in Case No. H99-0219.[4] Mr. Dean testified that, just before Mr. and Mrs. Jacques left town, they stole checks from his shop, which is located next door to the office involved in the sale transaction. Mr. Dean filed criminal charges and hired an attorney. Mr. and Mrs. Jacques have been located in Colorado, with a new trailer and “dualie” truck. Mr. Dean had co-signed for the truck. After Mr. Dean sold his business and office building to Mr. and Mrs. Jacques, Mr. Dean gave Mr. Jacques a letter to the Registrar canceling Dean Fence Co.’s license to mail. Instead of mailing it, however, Mr. Jacques just tore up the letter. Mr. Dean is trying to take care of homeowners whom Dean Fencing Specialists, Inc. injured, to keep his reputation intact, and, if possible, to have his contractor’s license canceled, not revoked. CONCLUSIONS OF LAW Mr. and Mrs. Collins are entitled to recovery from the Residential Contractors’ Recovery Fund for the amount of their damages, up to $20,000.00, caused by “an act, representation, transaction or conduct of a residential contractor that is in violation of this chapter or the rules adopted pursuant to this chapter . . . .”[5] Mr. and Mrs. Collins bear the burden of proof and must establish their right to recover from the Residential Contractors’ Recovery Fund and the amount of their damages by a preponderance of the evidence.[6] As noted above, neither Mr. Dean nor the Recovery Fund disputed that Mr. and Mrs. Collins’ damages were the amount of the low bid to repair Dean Fencing Specialists, Inc.’s poor workmanship, $4,518.75. The only issues were whether they should recover the amount of their undisputed damages and, if so, which contractor’s license should be charged. Because the Recovery Fund is funded by assessments against contractors that they must pay as a condition of obtaining or renewing their licenses, homeowners may not recover from the Recovery Fund damages caused by unlicensed contractors.[7] Because Dean Fencing Specialists was not licensed and had paid no assessments at the time that it made, performed, and was paid for its contract with Mr. and Mrs. Collins, the license it subsequently obtained, No. 146396, cannot be charged for the damages caused by the statutory violations it committed in performing the contract. “The goals and objectives of the registrar of contractors are to protect the public health, safety and welfare by licensing, bonding and regulating contractors engaged in residential construction . . . .”[8] “[T]he Registrar is charged with the overall responsibility of protecting the welfare of the public dealing with persons engaged in the building contracting vocations and afford the public protection against incompetent, inexperienced, unlawful and fraudulent acts of building contractors.”[9] Consistent with these goals and objectives, Dean Fencing Specialists, Inc.’s license was properly revoked in Case No. H00-0054 for its failure to correct work that was performed in an unprofessional and unworkmanlike manner before the license was issued. This penalty protected the public but did not involve payment from a fund not earmarked for this purpose. The evidence shows that Mr. Dean is an honorable, competent, and scrupulous businessman who for nearly thirty years has been a credit to the contracting profession. Mr. Dean did not know about or benefit from the statutory violations of Dean Fencing Specialists, Inc. Mr. Dean also may have been distracted by his battle with skin cancer when he trusted Mr. and Mrs. Jacques to carry on the honorable tradition of Dean Fence Co. and to maintain its excellent reputation. The evidence also shows that Mr. Dean did not tell the Registrar that he had sold Dean Fence Co. to Mr. and Mrs. Jacques and did not make sure that his contractor’s license was canceled when ownership changed, as he was required to do by statute and regulation.[10] This statutory duty cannot be delegated. Mr. Dean’s failure to make sure that his license was canceled allowed Mr. and Mrs. Jacques and Dean Fencing Specialists, Inc. to cut a wide swath of poor workmanship, if not outright fraud, in the Kingman area and along the Colorado River. The evidence shows that Mr. and Mrs. Collins thought they were dealing with a reputable company, Dean Fence Co. Since Mr. Dean did not tell the Registrar otherwise, Mr. and Mrs. Collins could not have called the Registrar or otherwise have ascertained the change in ownership. Mr. Dean’s statutory violation in failing to apprise the Registrar of the sale injured Mr. and Mrs. Collins as much as Dean Fencing Specialists, Inc.’s unlicensed and unworkmanlike performance of the contract. As between innocent homeowners like Mr. and Mrs. Collins and an honest licensed contractor like Mr. Dean, who could have but did not prevent those homeowners from being duped by an unscrupulous and unlicensed contractor like Dean Fencing Specialists, Inc., the licensed contractor must bear the cost of repairing the damage. RECOMMENDED ORDER In view of the foregoing, it is recommended that the Registrar of Contractors order the Residential Contractors’ Recovery Fund to pay $4,518.75 to Plaintiffs. It is further recommended that the Registrar in Case No. RF01-0673 charge this amount to License No. 035885, Class C-14, that had been issued to Dean Fence Co. and Ronald Norman Dean. It is further recommended that the Registrar close Case No. RF01-0525 against Dean Fencing Specialists, Inc.’s License No. 146396 without any payout. Done this day, September 19, 2001.

______________________________________ Diane Mihalsky Administrative Law Judge Original transmitted by mail this ____ day of September, 2001, to:

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

By ___________________________ ----------------------- [1] The Registrar also revoked Dean Fencing Specialists, Inc.’s license in Case Nos. H00-0053 (Walt Keza), H00-0079 (Judy Diaz), and L00-0055 (Donna Moore). [2] See RF00-0374 ($3,437.25 paid to Judy Diaz), RF00-0506 ($655.00 paid to Jeff and Debbie Buchanan), RF00-0536 ($8,000.00 paid to Walt Keza), RF01- 0058 ($2,000.00 paid to Donna Moore). See also RF00-0412 (hearing scheduled on payment to Gary and Linda Moyer).

[3] See A.R.S. § 32-1129.A, which limits the liability of the Recovery Fund to $100,000.00 per any one residential contractor’s license. [4] The Registrar’s records do not show that Mr. and Mrs. Carlton or that any homeowner other than the Collins has made a claim to the Recovery Fund against Mr. Dean’s contractor’s license.

[5] A.R.S. § 32-1132.A.

[6] See A.A.C. R2-19-119; see also Culpepper v. State, 187 Ariz. 431, 438, 930 P.2d 508, 515 (App. 1996). [7] Cf. id. (“An award from the fund shall not be available to persons injured by an act, representation, transaction or conduct of a residential contractor whose license was in an inactive status, expired, canceled, revoked or suspended at the time of the contract.”).

[8] Laws 1985, Ch. 334, § 1.

[9] Burrows v. Taylor, 129 Ariz. 212, 214, 630 P.2d 35, 37 (Ct. App. 1981) (citation omitted).

[10] See A.R.S. § 32-1151.01; A.A.C. R4-9-110.

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