ALJDEC

00F-RF0527-ROC · Registrar of Contractors · 2001-06-26

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: June 13, 2001 APPEARANCES: Fred Davidson, Esq., was present on behalf of the Plaintiffs Carlos Estrada, Esq., was present on behalf of the Defendant Virginia Martin, Assistant Attorney General, was present on behalf of the Residential Contractors’ Recovery Fund ADMINISTRATIVE LAW JUDGE: Allen Reed _____________________________________________________________________ _____________________________________________________________________ For the purpose of this Recommended Decision, references to the Defendant corporation shall include the corporate president, Gene Mitcham (Mitcham). In addition, the terms Plaintiff and Defendant as used in this Recommended Decision, include the terms Complainant and Respondent as used during other stages of the Registrar’s proceedings. Findings of Fact 1. In December 1998, the Plaintiffs and Defendant began discussing certain remodeling work to be done at a home in Desert Highlands in Scottsdale, Arizona. The parties walked through of the home which had been vacant for an extended period of time. They discussed improvements that should be made in and around the home. 2. The parties never entered into a written contract and the evidence does not show there was a specific agreement of the exact work to be done. However, there appears to have been some understanding of the total budget for work which was to be done. This was approximately $73,000.00. 3. According to the Defendant, the agreement was a cost plus 20% agreement. This assertion was not refuted by the Plaintiffs. 4. The Respondent began the work and billed as the work progressed. The Plaintiffs paid $68,905.92, in seven payments. 5. On March 15, 1999, the Plaintiffs filed a complaint with the Registrar of Contractors (Registrar), which complaint alleged in relevant part and in general terms, failure to do certain work, poor workmanship and excessive cost. 6. The specific matters alleged in the Complaint (with a letter and addendum attached), and which are still relevant to this hearing, include a $2,000.00 association review fee which was paid by the Plaintiffs to the Defendant, but never paid to the association. The Defendant acknowledges that the fee was not paid but claimed the money was credited to other work. This assertion was not supported by any competent evidence. Other complained of items consist of an unfinished kitchen pantry including missing door hardware, inadequate shelving in a pantry, and a non matching door casing, an asserted credit due to the Plaintiffs for tiling which was not done on the kitchen island, an incorrect sink faucet, lack of a gas line hook up to the barbecue and fireplace, the need for plaster repair, clean out of plugged up toilet, damage caused to trees by the Defendant’s employees, and a failure to repair the watering system. 7. Inspector Robert Dragoon (Dragoon), performed a site inspection on April 21, 1999. A Corrective Work Order (CWO) was issued June 25, 1999. 8. To the extent relevant in this case, the CWO did not verify landscaping issues including tree damage and water system complaints, the gas pipes to the fireplace, firepit and barbecue and the lack of door hardware. Cabinet drawers required no action. Cabinet shelving and ceiling plaster were already completed by the Plaintiff at the time of the inspection. The island sink faucet and door casing needed to be corrected. 9. For the purpose of this hearing, much of the work complained of in the complaint had already been caused to be completed by the Plaintiffs by the time of the complaint and the site inspection. Other items in the complaint were not verified because there was no written contract and Dragoon was unable to determine whether they were part of the agreement between the parties. Dragoon believed the parties had a time and materials agreement. 10. On August 16, 1999, the Registrar issued a Citation and Complaint to the Defendant in Case No. 99-2631 (the case underlying this Recovery Fund case). The alleged violations consisted of A.R.S. §32-1154(A)(3)/A.A.C.R4- 9-108, workmanship, (A)(7), wrongful or fraudulent act, (A)(18), contracting while the license is suspended or inactive, (A)(23), failure to take corrective action. 11. On September 9, 1999, the Registrar deemed the allegations of the Citation and Complaint admitted under A.R.S. §32-1155 (B), for failure of the Defendant to file an answer to the Citation and Complaint. 12. The Registrar’s Order provides that the Defendant’s license is suspended until the Defendant has “…appropriately rectified the items involved and detailed in the complaint and the agency’s directive.” The Defendant’s motion for a rehearing was denied. The effective date of the Registrar’s Order was December 22, 1999. 13. In approximately January, 2000, the Defendant filed a motion to lift the suspension for failing to allow access. Apparently this was not ruled on by the Registrar (no copy of a ruling has been found in the file material). 14. On June 14, 2000, the Plaintiff filed a Recovery Fund (Fund) claim alleging damages of $27,468.65. 15. The Fund contested the claim based on its determination that the Plaintiffs had actually had a net gain because the work had been completed at an amount less than the contract amount. 16. Prior to the hearing, the parties (Plaintiff, Defendant and Fund) stipulated that the contract amount used by the Fund was incorrect. The Plaintiff and the Fund stipulated to damages of $7,271.78. The Defendant did not agree and this amount and the matter proceeded to hearing. Conclusions of Law A.R.S.32-1132(A) provides in pertinent part that the Recovery Fund is established to award actual damages to a person injured as a direct result of an act of a residential contractor which is a violation of the contracting law. The award shall not exceed the amount required to complete or repair a residential structure or appurtenance. A.R.S.§32-1154(E) provides in pertinent part that if a contractor’s license has been suspended or revoked as a result of an order to remedy a violation of the applicable contracting law and the contractor refuses or is unable to comply with the order of the Registrar to remedy the violation, the Registrar may order payment from the Recovery Fund to remedy the violation. A.R.S.§32-1155 (A) provides in pertinent part that the Registrar may issue a citation directing the licensee to file a written answer to the complaint. Service of the citation is effected by mailing it with a copy of the complaint. Subsection (B) provides in pertinent part that failure of a licensee to answer the complaint shall be deemed to be an admission of the act or acts charged in the complaint. 1. The Plaintiff’s position is that the deeming of admissions includes all the items in the complaint as filed by the Plaintiffs, irrespective of whether those items were required to be corrected in the CWO. According to the Plaintiff, the language in A.R.S. §32-1155(B) “…shall be deemed an admission of the act or acts charged in the complaint” means that all allegations, whether or not corroborated by the Registrar or otherwise valid, are deemed admitted. Counsel argues that the deeming of admissions has a preclusive effect and constitutes an estoppel whereby the defense is limited to amounts claimed but not whether the item for which the amount is claimed, is properly claimed. 2. The Plaintiff’s argument is interesting in the context of this case. It should be understood without a great deal of discussion, that the argument, even if applicable to a Defendant, would not merit the same application to the Fund if it contests whether an item is properly claimed as damages. The Fund is not deemed to have admitted the allegations and arguably it would not be estopped from questioning the legitimacy of any item for which damages are claimed and for which the Fund might be liable. By way of example, assume a Plaintiff mistakenly alleges a violation of the contracting laws and the allegation is not corroborated by the Registrar’s inspector. However, the allegation is deemed admitted by operation of law. It is not a reasonable application of the relevant law that a Plaintiff should recover damages from the Fund for something which is not an actual violation or is not attributable to the Defendant. This would be an unjustified windfall to the Plaintiff at the expense of the Fund. Although the Defendant is ultimately responsible for any Fund expenditures, there is no assurance that the Fund will ever be reimbursed by the Defendant. The legal interpretation which the Plaintiff proposes could make the Fund liable for non violations for which there are no actual damages. 3. Although the Fund is represented by counsel who will presumably protect its interest, it does not mean that the State and Plaintiff can foreclose the Defendant’s legal rights in defending against the legitimacy of a claim. This is especially true in the instant case where the majority of the corrective work was done by others at the prompting of the Plaintiff, before the complaint was even filed. Normally, the work to be corrected by the Registrar’s Order does in fact need to be corrected. In other words the corrective work normally remains to be done at the time of the Order. The Registrar’s Order suspending the Defendant’s license until the Defendant “…appropriately rectified the items involved and detailed in the complaint and the agency’s directive”, could not be literally carried out since much of the work complained of, had already been completed. An Order which cannot be executed cannot be the basis of an award from the Fund. This conclusion in no way affects the disciplinary suspension pursuant to the Order of the Registrar, since that Order became final because it was not appealed by the Defendant. 4. Yet another reason for declining to accept the Plaintiff’s position in this case, is based on the Registrar’s Order which deemed the Defendant to be in violation of A.R.S. §32-1154(A)(18), offering to contract or submitting a bid while the license is suspended or inactive. A.R.S.§32- 132(A) provides in pertinent part that “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…or suspended at the time of the contract.” If the Defendant is estopped from raising a defense to the violations as a consequence of deemed admissions, it would seem the Plaintiffs, based on counsel’s argument regarding the effect of the admission, are similarly estopped and therefore precluded from any recovery from the Fund. Prior to the suspension for the underlying case, the Registrar’s computer records show a suspension of the Respondent’s license from 7/28/96-4/8/97. There is no evidence that the license was suspended or inactive at the time the parties entered their agreement. This does not nullify the violation which is a final agency decision in Case No. 99-2361. However, it is not considered a final decision so as to preclude the Plaintiff from any recovery from the Fund if the evidence does not show that the statutory disqualification applies. 5. The distinction to be made in the application of the statute is that for the reasons stated above, the statutory deeming of admissions has a different effect for the purpose of imposing discipline under the regulatory scheme than it does for awarding actual damages through the Fund. 6. It is concluded that neither the Plaintiff nor the Defendant are estopped from presenting or defending their respective claims in this case. This is because the law, even in the context of deeming admissions, should be construed so that it relates to actual facts and circumstances. In the instant case, the statutory violations were deemed admitted against the Respondent for the purpose of exercising regulatory jurisdiction. However, this does not require that certain complaints, including the deemed violation of (A)(18) cannot be challenged to show that the deemed admission is inappropriate for purposes of recovery or a denial of recovery from the Fund. In short, the original violations cannot be challenged but the legitimacy of any recovery or preclusion to recovery from the Fund, based on the deeming of admissions, may be challenged. 7. The Defendant must accept the major responsibility for the lack of certainty which is the consequence of having no written contract. A.R.S. §32-1158 requires that a contractor have certain provisions in a written contract for projects from $750.00 to $150,000.00. To the extent that the statutory provision applies directly to contractors, it places a greater responsibility on the Defendant than the Plaintiffs. 8. Inspector Dragoon found no tree damage and the Plaintiffs did not present satisfactory evidence that the Defendant was responsible for such damage or otherwise liable for the landscaping costs. The same conclusion applies to the asserted water system costs. The Plaintiffs made an assertion that the damage to the system was caused by the Defendant but no specific evidence of how the damage was caused, was presented. In fact the evidence indicated the system was not functional at the time the parties began their business relationship. The repair to the air conditioning, completion of the gas line piping, cabinets and tile credit were also not shown to be chargeable to the Defendant because of a lack of specific, probative and competent evidence. The evidence tended to show this was a cost plus contract and it was not shown these items had been paid for, that the Defendant was responsible for inadequate work or that the claimed credit was due. The evidence regarding the asserted tile credit of $1,406.00 was based on a telephone conversation by Mrs. Louma with someone at the tile company. This is not considered reliable evidence in light of the Defendant’s claim that the Plaintiffs had received the tile credit. Mere assertions do not constitute competent evidence for either party. 9. Based on the evidence, the Plaintiff is entitled to the kitchen faucet replacement cost of $192.00 and $2,000.00 for the association review fee. Although the Fund and the Plaintiff agreed to $1,000.00 for the association fee, that amount was based on the overall agreement between the Fund and the Plaintiffs, in the amount of $7,271.78, which was not accepted by the Defendant. To the extent that the Defendant was not bound and is able to challenge the agreement between the Fund and the Plaintiff, the Plaintiff is released from the $1,000.00 limit which was part of that agreement. In addition, the drywall repair and painting ($855.00), is satisfactorily supported by the evidence (Exhibit F- Proposal Chris Bridge Painting). Pest control ($150.00) was agreed to by the Defendant. The door casing issue was uncertain as to cost. Mr. Louma testified the $1,698.07 claim included work beyond the scope of the Defendant’s work. According to the Defendant the cost to replace the casing is between $75.00 and $100.00. Absent more complete evidence showing the Defendant had greater responsibility, the $100.00 for the replacement of the casing only, is accepted. $75.05 to clear toilet stoppage is supported by the evidence. Based on the above conclusions and amounts, the total amount recoverable is set at $3,372.05 Recommended Order In view of the foregoing, it is recommended on the effective date of the Order entered in this matter, the agency shall commence and finalize payment procedures from the Contractors’ Recovery Fund, to the Plaintiffs in the amount of Three Thousand-Three Hundred-Seventy Two and 05/100’s ($3,372.05) Dollars for actual damages.

Done this day, June 26, 2001

______________________________________ Allen Reed 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 ___________________________

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