ALJDEC

01-12299-AFR · Office of Alternative Fuel Recovery · 2001-09-06

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: August 27, 2001 at 1:30 p.m. APPEARANCES: Claimant AFV Conversion, L.L.C., appeared through Steven R. Ball, Managing Partner; the State of Arizona did not appear at the hearing but submitted a post-hearing memorandum through John E. Lundin, Esq. and Winton D. Woods III, Esq., Gallagher & Kennedy, P.A. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

Mr. Ball presented evidence on AFV Conversion, L.L.C.’s $3.15 million claim for promissory notes it and Mr. Ball personally gave as deposits on alternative fuel vehicles and, after the hearing, the State submitted legal argument that the claim was not compensable. Based on this evidence and argument, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law, and Recommended Order to the Arizona Department of Administration. FINDINGS OF FACT When the legislature passed laws creating subsidies for certain alternative fuel vehicles, Mr. Ball spent hundreds of hours doing due diligence to determine the viability of the program. He was encouraged to become involved in the program and put alternative fuel vehicles on the road. Mr. Ball and his wife formed AFV Conversion, L.L.C., an Arizona limited liability company, and became its sole members to purchase and market alternative fuel vehicles. On October 10, 2000, Mr. Ball as the managing partner of AFV Conversion, L.L.C., signed contracts with Arizona Alternative Fuel, L.L.C., to purchase a total of $23.4 million worth of converted vehicles.[1] Each of the four contracts provided: [AFV Conversion, L.L.C.] assumes responsibility for determination of tax incentive eligibility under State and Federal law. This is a binding contract on both parties and the customer deposit is nonrefundable. The conversion shall be scheduled on a mutually convenient date. 50% of the balance, per vehicle, is due 15 days prior to start of conversion onset. Any unpaid balance is due and payable upon completion of conversion.

4. On October 10, 2000, Mr. Ball as managing partner of AFV Conversions, L.L.C. and in his individual capacity, signed four promissory notes for the deposits, which totaled $3.15 million. Each of the four “Demand Promissory Notes” were unsecured and provided: FOR VALUE RECEIVED, the undersigned jointly and severally promise to pay to the order of Arizona Alternative Fuel, L.L.C., [a sum certain, that collectively totaled $3,150,000.00), together with interest of 12% per annum on the unpaid balance. The entire unpaid principal and any accrued interest shall be fully and immediately payable UPON DEMAND of any holder thereof. Demand for payment shall not be made prior to May 1st, 2001.

Upon default in making the payment within 180 days of demand, and provided this note is turned over for collection, the undersigned agree to pay all reasonable legal fees and costs of collection to the extent permitted by law. This note shall take effect as a sealed instrument and be enforced in accordance with the laws of the payee’s state. All parties to this note waive presentment, notice of non-payment, protest and notice of protest, and agree to remain fully bound notwithstanding the release of any party, extension of modification of terms, or discharge of any collateral for this note.

The Arizona Legislature enacted, on October 20, 2000, Laws 2000, 6th S.S., Ch. 1 and, shortly thereafter, Laws 2000, 7th S.S., Ch.1, which repealed substantial portions of the Alternative Fuels program and significantly restricted the subsidies available for such vehicles. Mr. Ball did not cancel AFV Conversions, L.L.C.’s order for alternative fuel vehicles. Mr. Ball made a $3.15 claim for the monetary loss that he believed the promissory notes represented. The Arizona Office of Alternative Fuel Recovery denied AFV Conversions, L.L.C.’s claim. Mr. Ball timely requested a hearing. Arizona Alternative Fuels, L.L.C. has not attempted to enforce the promissory notes but, instead, has extended the time for payment pending the outcome of Mr. Ball’s administrative appeal of the State’s denial of his claim. No evidence shows that Arizona Alternative Fuels, L.L.C. has converted or begun converting vehicles pursuant to its contracts with AFV Conversions, L.L.C. Mr. Ball testified at the hearing that, although he is personal friends with the owner of Arizona Alternative Fuels, L.L.C., which is based in Tucson, he has no financial involvement with the company. Mr. Ball feels he is responsible for the promissory notes and stands to lose all his personal assets if they are not paid according to their terms. Mr. Ball also testified that he believes that the State has paid other claims based on promissory notes. After the hearing had concluded, the State submitted the affidavit of Michael Murphy, the Manager of the Risk Management Section of the Arizona Department of Administration. Mr. Murphy alleged that specific evidence is required to establish an actual monetary loss. He is not aware of any claims that have been paid in which the only evidence of an actual monetary loss was a promissory note. CONCLUSIONS OF LAW Mr. Ball and AFV Conversions, L.L.C. bear the burden of proof and must establish entitlement to reimbursement by a preponderance of the evidence.[2] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[3] The legislature enacted emergency legislation to amend the statutes creating the Alternative Fuel Recovery program to avoid and mitigate potentially devastating financial consequences for the state. The amendments will be interpreted in light of that purpose, as well as Mr. Ball’s claimed hardship.[4] To be eligible for reimbursement, Mr. Ball must prove that AFV Conversions, L.L.C. canceled its contracts to purchase alternative fuel vehicles and that he “suffered actual monetary loss directly related to the purchase or lease of a vehicle . . . .”[5] Mr. Ball admitted at the hearing that he did not cancel AFV Conversions, L.L.C.’s contracts to purchase alternative fuel vehicles from Arizona Alternative Fuel, L.L.C. The evidence does not show whether Arizona Alternative Fuel, L.L.C. has partially or fully performed the contracts. Mr. Ball also has not shown that he suffered any “actual monetary loss directly related to” AFV Conversions, L.L.C.’s contracts to purchase alternative fuel vehicles or his executions of the promissory notes. Because the notes and contracts do not appear to be supported by mutual consideration and the intervening change in Arizona law renders performance impossible, the notes appear to be at least partially unenforceable and do not establish a liquidated actual monetary loss. Because no evidence shows Arizona Alternative Fuel, L.L.C. performed any part of the contract or incurred any loss for AFV Conversions, L.L.C.’s claimed breach, payment on the notes to Mr. Ball with Arizona taxpayers’ money would be unconscionable. RECOMMENDED ORDER Based on the foregoing, it is recommended that the Director of the Department of Administration deny and dismiss Steven R. Ball and AFV Conversions, L.L.C.’s appeal. Done this day, September 6, 2001.

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

Department of Administration - OAFR Elliott Hibbs, Director 1700 W. Washington, Suite 103 Phoenix, AZ 85007 ATTN: Michael Murphy

By ___________________________ ----------------------- [1] The breakdown among the four contracts was: (1) $1.5 million for 300 dedicated propane “Chevy 5.3 Tahoe/Suburban/P-U,” with a deposit of $450,000.00; (2) $2.4 million for 300 dedicated propane “Chevy 7.4,” with a deposit of $450,000.00, (3) $11.7 million for 900 electric “Chevy S-10 or Ford Ranger,” with a deposit of $1.35 million, and (4) $7.8 million for 600 electric “Chevy S-10 or Ford Ranger,” with a deposit of $900,000.00. [2] See A.A.C. R2-19-119; see also Culpepper v. State, 187 Ariz. 431, 438, 930 P.2d 508, 515 (App. 1996).

[3] Morris K. Udall, Arizona Law of Evidence § 5 (1960).

[4] See Laws 2000, 7th S.S., Ch. 1, § 31(G).

[5] See Laws 2000, 7th S.S., Ch. 1, § 31(A).

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