ALJDEC

01-12298-AFR · Office of Alternative Fuel Recovery · 2001-08-28

STATE OF ARIZONA IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: August 28, 2001 APPEARANCES: Appellant : Steven Ball appeared at the hearing pro se. State of Arizona : Pat Irvine, Assistant Attorney General, appeared the Office of Alternative Fuel Recovery. ADMINISTRATIVE LAW JUDGE: Gary B. Strickland _____________________________________________________________________

A hearing convened as scheduled at the Office of Administrative Hearings to address whether Appellant, MPB Holdings, L.L.C./Steven Ball, has a cognizable claim under the Arizona Alternative Fuel Recovery Act. The State having denied Appellant’s claim, a claim founded upon an executory promissory note concerning which Appellant is Promisor thereunder, Appellant must demonstrate actual monetary loss as a result of the purchase or lease of a vehicle operating on alternative fuel in order to recover part or all of Appellant’s alleged loss. This hearing and the Recommended Decision that follows is issued under the authority of Laws 2000, Seventh Special Session, Chapter 1, ( 31(F) and A.R.S. (( 41-1092, 41-1092.07 and 41-1092.08. Having heard the testimony of the witnesses and having read and considered the entire record, the undersigned Administrative Law Judge makes Findings of Fact, renders Conclusions of Law, and issues the following Recommended Decision to the Director of the Arizona Department of Administration.

FINDINGS OF FACT 1. MPB Holdings, L.L.C.[1] is an Arizona company formed by Steven Ball and two other individuals in 1999 for the purpose initially to engage in real estate transactions and later to enter into contracts for the purchase of vehicles for conversion from gasoline engine to alternative energy source. 2. In April 2000, the Arizona state legislature enacted a subsidy program for alternative fuel vehicles and related devices.[2] The program offered grants or tax credits to individuals or entities that would purchase alternative fuel vehicles or would convert vehicles to an alternative fuel source. 3. On October 20, 2000, the State Legislature placed a moratorium on subsidies for purchases of or conversion to alternative fuel vehicles because of the unanticipated number of persons who sought to take advantage of the benefits of the program.[3] The number of persons participating was placing or threatening to place a significant strain on the public fisc. 4. Further, on November, 13, 2000, the Legislature convened another special session to address the issue(s) created by the earlier legislation. The session concluded on December 4, 2000 with passage of a bill that significantly modified eligibility for subsidies under the program.[4] The bill limited subsidization to vehicles in the possession of the buyer or paid in full by the purchaser prior to December 1, 2000.[5] 5. The Legislature additionally provided remedy to those who might lose deposits on prospective alternative fuel purchases.[6] 6. Governor Jane D. Hull created an Office of Alternative Fuel Recovery to process claims for those seeking reimbursement of actual monetary losses attributable to and resultant from cancellation of the alternative fuel incentive program.[7] 7. Appellant herein filed an Alternative Fuel Loss Reimbursement Application on March 8, 2001[8] wherein was asserted a loss totaling $1,350,000. 8. Appellant’s reimbursement claim has been denied by the Office of Alternative Fuel Recovery. It is from that denial that Appellant has filed this appeal.[9] 9. Steven Ball is currently the sole managing member of MPB Holdings, L.L.C. 10. On October 11, 2000, MPB Holdings, L.L.C., by and through Steven Ball, entered into a contract with Arizona Alternative Fuel, L.L.C. whereby MPB Holdings, L.L.C. agreed to pay Arizona Alternative Fuel, L.L.C. $13,050,000. for the conversion of 900 Chevy S-10 or Ford Ranger vehicles to an electric power source.[10] 11. Under the parties’ agreement, MPB Holdings, L.L.C. was required to deposit with Arizona Alternative Fuel, L.L.C. the sum of $1,350,000.[11]

12. On October 11, 2000, MPB Holdings, L.L.C., by and through Steven Ball, signed a Demand Promissory Note[12] in the interest of and for the benefit of Arizona Alternative Fuel, L.L.C. wherein the former committed to payment of the sum of $1,350,000., demand for payment of the note restricted to a date on or subsequent to the 1st day of May 2001. 13. To date, Arizona Alternative Fuel, L.L.C. has not demanded payment on the note. The owner of that company, Robert Riley, is a very close personal friend of Steven Ball. Nevertheless, according to Mr. Ball, Mr. Riley refuses to release MPB Holdings, L.L.C. from its obligations under the note. 14. At no time has MPB Holdings, L.L.C. made purchase of any of the vehicles projected for conversion. Neither has MPB Holdings, L.L.C. entered into any contracts for the purchase of vehicles intended to undergo conversion under its contract with Arizona Alternative Fuel, L.L.C. 15. Arizona Alternative Fuel, L.L.C. has performed no service in furtherance of its ostensible contractual responsibilities with and to MPB Holdings, L.L.C. 16. Mr. Ball currently is under contract with Mr. Riley, owner of a company identified as EV Quick Stop, whereby Ball is to receive $1,200,000. for the provision of electric fueling stations. 17. The weight and sufficiency of the evidence preponderates that MPB Holdings, L.L.C. has not suffered identifiable loss as a result of the Legislature’s termination of the alternative fuel recovery program.

APPLICABLE LAW

Senate Engrossed -------------------------- State of Arizona Senate Forty-fourth Legislature Seventh Special Session 2000 -------------------------- CHAPTER 1 -------------------------- SENATE BILL 1004 --------------------------

Sec. 30. Exemption from rule making

A. The department of revenue shall establish procedures and make such forms as are necessary to process tax credits pursuant to this act.

B. The department of administration shall establish procedures and make such forms as are necessary to process claims pursuant to this act.

C. For purposes of this section, the department of revenue and department of administration are exempt from the rule making requirements of title 41, chapter 6, Arizona Revised Statutes.

Sec. 31. Cost reimbursement procedures

A. A person is eligible to present a claim for reimbursement to the department of administration if the person might have been eligible for a tax credit under section 43-1086, 43-1086.01, 43-1086.02, 43-1174, 43- 1174.01 or 43-1174.02, Arizona Revised Statutes, before the applicable section was amended by this act but does not meet the requirements imposed by this act and both of the following apply:

1. The person canceled a contract or purchase order to purchase or lease a vehicle or to convert a vehicle to operate on alternative fuel, or to purchase, install or construct a vehicle refueling apparatus or an alternative fuel delivery system.

2. The person suffered actual monetary loss directly related to the purchase or lease of a vehicle, to the conversion of a vehicle to operate on alternative fuel or to the purchase, installation or construction of a vehicle refueling apparatus or an alternative fuel delivery system.

B. Any person who is reimbursed for a claim through this procedure waives the right to claim a tax credit pursuant to section 43-1086, 43- 1086.01, 43-1086.02, 43-1174, 43-1174.01 and 43-1174.02, Arizona Revised Statutes, and waives the right to claim or collect any additional monies from this state and releases this state in full of all claims and rights resulting from this act and Laws 2000, chapter 405.

C. All claims must be filed with the department of administration on a form prepared by the department. To qualify, the claim must be filed with the department or postmarked no later than March 9, 2001.

D. The claim shall be signed by the applicant and shall include the name and address of the claimant, the amount claimed, a copy of the claimant's original purchase order or contract and other information required by the department of administration in order to determine eligibility and the amount of the reimbursement. An applicant's phone number, social security number, taxpayer identification number, vehicle identification number, driver license number and vehicle license plate number shall not be publicly disclosed. If the director of the department of administration or the director's designee believes that information submitted pursuant to this subsection may constitute fraud, the director or the director's designee shall provide that information to the attorney general.

E. The department of administration shall determine the amount of the reimbursement in accordance with section 32 of this act. The department of administration promptly shall notify applicants of its determination by certified mail to the last known address provided by the claimant. If the claim is denied, in whole or in part, the department of administration shall also provide an explanation of an applicant's rights to seek review of the denial. A claim is deemed denied six months after the filing of the claim unless the claimant is advised of the denial before the expiration of six months.

F. Denial of a claim, in whole or in part, is an appealable agency action as defined in section 41-1092, Arizona Revised Statutes.

G. The director of the department of administration or the director's designee shall consider the fiscal needs of the state and any hardship to the applicant. When considering any hardship to the applicant for any actual documented losses, to the extent possible, the goal of the director or the director's designee shall be to make the applicant whole.

H. Allowed claims shall be paid in their entirety within sixty days of final approval of the claim.

Sec. 32. Reimbursable monetary losses

A. Only the following actual monetary losses directly related to the purchase or lease of a vehicle or to the conversion of a vehicle to operate on alternative fuel shall be reimbursed by the state:

1. Any forfeited down payment or deposit paid by the claimant to a motor vehicle dealer or a conversion company, or both.

2. The fair market value of a vehicle traded to a motor vehicle dealer in lieu of a down payment or deposit.

3. Any financial penalty imposed by a motor vehicle.

B. The following actual monetary losses directly related to the purchase, installation or construction of a vehicle refueling apparatus or an alternative fuel delivery system shall be reimbursed:

1. Any forfeited down payment or deposit paid for equipment or installation, or both, of the vehicle refueling apparatus or alternative fuel delivery system.

2. The cost of a vehicle refueling apparatus or alternative fuel delivery system equipment if purchased but not installed, if the apparatus or equipment is transferred to this state.

3. Any financial penalty imposed by an installer of a vehicle refueling apparatus or alternative fuel delivery system because of cancellation of contract, if the original terms of the contract signed on the date of the installation agreement require that such a penalty be paid.

C. Except as provided in subsection D of this section, in no event shall the reimbursement paid under this section exceed, as applicable, the amount of the credit that would have been allowed under section 43-1086, 43- 1086.01, 43-1086.02, 43-1174, 43- 1174.01 or 43-1174.02, Arizona Revised Statutes, as amended by this act.

D. The amount of reimbursement may exceed the limit prescribed in subsection C of this section only if the director of the department of administration or the director's designee determines that both of the following apply:

1. On or before December 1, 2000, the claimant actually paid amounts directly related to the purchase, lease or conversion of a vehicle greater than the limit prescribed in subsection C of this section.

2. The claimant acted in good faith to minimize the actual monetary losses directly related to the purchase, lease or conversion of the vehicle.

Sec. 33. Opt out option

If a taxpayer qualifies for a tax credit pursuant to section 43-1086 or 43-1174, Arizona Revised Statutes, as amended by this act, but the taxpayer does not want to comply with the possession, registration and use requirements prescribed in section 43-1086, subsection E, Arizona Revised Statutes, as amended by this act, or section 43-1174, subsection E, Arizona Revised Statutes, as amended by this act, the taxpayer may elect to receive a payment equal only to the cost of conversion if the vehicle is converted or the incremental cost as defined in section 43-1086, Arizona Revised Statutes, as amended by this act, if the vehicle is an original equipment manufactured alternative fuel vehicle. This payment is in lieu of a grant pursuant to section 41-1516, Arizona Revised Statutes, or a tax credit pursuant to section 43-1086 or 43-1174, Arizona Revised Statutes. If a taxpayer elects to receive a payment pursuant to this section, the taxpayer shall apply for payment to the department of administration as provided in section 31 of this act and irrevocably waives any right to a grant pursuant to section 41-1516, Arizona Revised Statutes, or a tax credit pursuant to section 43-1086 or 43-1174, Arizona Revised Statutes, and waives the right to claim or collect any additional monies from this state and releases this state in full of all claims and rights resulting from this act and Laws 2000, chapter 405. Claims pursuant to this section shall be paid from monies in the consumer loss recovery fund established by section 41-622.02, Arizona Revised Statutes, as added by this act.

Sec. 34. Contracts

This act does not require the cancellation of any contract by any party.

CONCLUSIONS OF LAW The burden of proof generally at an administrative hearing falls to the party asserting a claim, right or entitlement or seeking to impose a penalty.[13] Further, the standard of proof is that of the “preponderance of the evidence”.[14] Proof by a preponderance means that the evidence is sufficient to persuade the finder of fact that the proposition is “…more likely true than not.”[15] The evidence taken as a whole must convince the decision maker that the party who bears the overall burden of persuasion, in this case the Appellant, is more probably correct on the issue(s) in dispute. Observing these standards, Appellant has failed to carry its burden of demonstration, by a preponderance of the evidence, that Respondent has violated statute, regulation or general principle of law by denying Appellant’s claim for reimbursement of a loss attributable to termination of the Alternative Fuel Recovery Program. Appellant has not shown that Appellant has sustained actual monetary loss directly related to the purchase of a vehicle(s) for conversion to operation on an alternative fuel source as is required by the controlling statute. 2. The provisions of SB 1004 supersede the eligibility requirements under the Alternative Fuel Recovery program that were previously established by SB 1504. Appellant has filed this application for reimbursement after SB 1004 became effective. Therefore, SB 1004 sets forth the law governing Appellant’s claim. 3. Appellant has not established that its claim of $1,350,000. is reimbursable under SB 1004, ( 32(B)(1). Appellant has not shown that it has been caused to forfeit a down payment or deposit as a result of this legislation. Appellant has not sustained actual monetary loss. Therefore, Appellant has not proven that the Office of Alternative Fuel Recovery has improperly denied its application for alternative fuel loss reimbursement. 4. First, it is highly questionable whether MPB Holdings, L.L.C. was eligible for a tax credit under either A.R.S. (( 43-1086 or 43-1174 as is required by Senate Bill 1004. The moratorium on the tax credits went into effect on October 20, 2000. At no time prior to that date, or at any time for that matter, has MPB Holdings, L.L.C. owned vehicles, or been party to a contract for the purchase of such vehicles, intended for fuel conversion. 5. Second, Appellant has not demonstrated identifiable loss recoverable through the reimbursement program. The holder of the promissory note has not demanded payment on the note and there is no certainty that the holder will ever do so. 6. Third, it is questionable whether the promissory note at issue is enforceable. Where is the consideration supporting the note? No work has been expended or materials furnished by the holder of the note. Further, Appellant has done nothing to further expectations underlying its obligations pertinent to the note. An illusory promise is not supported by consideration and is, therefore, not enforceable. Arizona Alternative Fuel, L.L.C. made no commitment to perform any vehicular conversion on behalf of MPB Holdings, L.L.C. by a date certain. The consideration asserted in support of the note is a citation to “value received.”[16] Therefore, it is questionable whether the note was executed in exchange for a consideration.

7. Fourth, it is highly suspicious that this contract was executed by signature only nine days prior to the Legislature’s 6th Special Session of the year 2000. The question arises whether this exchange of promises was made in earnest. 8. Fifth, it should be noted that these parties failed to allocate risk of unforeseen events that may have rendered performance frustrated as to purpose. Here, MPB Holdings, L.L.C.’s primary purpose in entering into the ostensible agreement was to benefit from the credits afforded by the Alternative Fuel Recovery program. Perhaps unforeseeable to MPB Holdings, L.L.C., the Legislature terminated the program shortly after the agreement. Particularly when there has been no performance by either party, as is the case here, a party whose purpose has been frustrated by external events, such as is also the case here, may be relieved of its obligations under the contract at issue. The doctrines of impracticability of performance and frustration of purpose may have relevance to this analysis.[17] But, these are concerns that may be addressed in contract in the appropriate forum.[18] It is sufficient to note that it is doubtful that MPB Holdings, L.L.C. has sustained actual monetary loss or is legally susceptible to loss exposure attributable to SB 1004. 9. Accordingly, this appeal should be denied and the determination of the Office of Alternative Fuel Recovery to deny the claim for reimbursement be affirmed.

RECOMMENDED DECISION IT IS RECOMMENDED that the Director of the Arizona Department of Administration dismiss this appeal.

Done this day, August 31, 2001. OFFICE OF ADMINISTRATIVE HEARINGS

______________________________________ Gary B. Strickland Administrative Law Judge

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

Department of Administration - Office of Alternative Fuel Recovery J. Elliott Hibbs, Director ATTN: Michael Murphy 1700 W. Washington, Suite 103 Phoenix, AZ 85007

By ___________________________

----------------------- [1] When asked on cross-examination what the “MPB” represented in the name of the company, Mr. Ball indicated that the letters represented the first letter of the last names of the principals, Ball himself, a “Peterson”, and he was unable to remember the name of the other party to the transaction. [2] Laws 2000, Ch. 405 (“SB 1504”). [3] Laws 2000, 6th S.S., Ch. 1. [4] Laws 2000, 7th S.S., Ch. 1; (“SB 1004”). [5] S.B. 1004, (16, amending A.R.S. ( 43-1086(E). [6] Laws 2000, 7th S.S., Ch. 1; S.B. 1004, (( 31 and 32. [7] Executive Order 00-21. [8] Hearing Exhibit 3. [9] Laws 2000, Seventh Special Session, Chapter 1, ( 31(F) and A.R.S. (( 41- 1092, 41-1092.07 and 41- 1092.08. [10] Hearing Exhibit 1. [11] Id. [12] Id. [13] Culpepper v. Arizona Board of Nursing, 187 Ariz. 431, 930 P.2d 508 (App. 1997); See also Ariz. Admin. Code R2-19-119 (B). [14] Smith v. Arizona Department of Transportation, 146 Ariz. 430, 706 P.2d 756 (App. 1985); See also Ariz. Admin. Code R2-19-119 (A). [15] In re Arnold and Baker Farms, 177 B.R. 648, 654 (9th Cir. BAP (Ariz.) 1994). See also, J. Livermore, R. Bartels, & A. Hameroff, LAW OF EVIDENCE ( 301.1(4th ed. 2000) (One party bears the overall burden of persuasion on each fact material to the party’s claims and defenses. Further, the party with the burden of persuasion on a particular fact is required to satisfy the burden of production of enough qualitative evidence sufficient to support a finding of the existence of the fact, following a reasonable person standard.) [16] Hearing Exhibit 1. [17] See 7200 Scottsdale Rd. Gen. Partners v. Kuhn Farm Mach., 184 Ariz. 341, 909 P.2d 408 (App. 1995) (an excellent discussion of the applicability of the two doctrines in the context of force majeure, as well as a review of the limited relief afforded by Arizona courts to those parties to a contract successfully demonstrating frustration-in-fact; “[f]rustration-in- fact results when, because of events subsequent to formation of a contract, the desirability of the performance for which a party contracted diminishes. The issue then becomes: should legal consequences flow from a contracting party’s failure to realize the expected benefit from a contract?); Lloyd v. Murphy, 25 Cal. 2d 48, 153 P.2d 47, 50 (Cal. 1944) (Under the doctrine of frustration of purpose, “[p]erformance remains possible but the expected value of performance to the party seeking to be excused has been destroyed by a fortuitous event, which supervenes to cause an actual but not literal failure of consideration.”) See also RESTATEMENT (SECOND) OF CONTRACTS (1981) (( 261 and 265. [18] An Arizona court would probably analyze the facts of this case under the doctrine of frustration of purpose by following RESTATEMENT ( 265 comment a: First, “the purpose that is frustrated must have been a principal purpose of that party” and must have been so to the understanding of both parties. Second, “the frustration must be substantial . . . ; [it] must be so severe that it is not to be regarded as within the risks assumed . . . under the contract.” Third, “the non-occurrence of the frustrating event must have been a basic assumption . . . . Fourth, relief will not be granted if it may be inferred from either the language of the contract or the circumstances that the risk of the frustrating occurrence, or the loss caused thereby, should properly be placed on the party seeking relief. 7200 Scottsdale Rd. Gen. Partners v. Kuhn Farm Mach., 184 Ariz. 341, 909 P.2d 408 (App. 1995).

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

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