ALJDEC

01F-2004-ROC · Registrar of Contractors · 2001-07-02

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: June 28, 2001. APPEARANCES: Thomas and Kim Mergen, Complainants; Nelson Ewing II, Complainants’ attorney; Lyndon Steimel, Respondent’s attorney; Randy and Christina Healy, Respondent’s president and vice president; Patrick Davis, Jeff Embry, and Shirley Rankin, witnesses. ADMINISTRATIVE LAW JUDGE: Dorinda M. Lang. _____________________________________________________________________ The Mergen’s filed a complaint against Healy Homes, Inc. regarding contracting without a license, working under a suspended license, using an unlicensed subcontractor, and not performing work correctly or per plans. At hearing, the Complainants failed to establish a substantial violation of the applicable Arizona statutes. Therefore, I recommend that this complaint be dismissed in its entirety. FINDINGS OF FACT 1. Complainants Thomas and Kim Mergen hired Healy Homes, Inc. to build the showroom for their new light fixture and interior design business. Shortly after signing their first contract and submitting it to the lender for approval, the bank and the company acting on behalf of the Small Business Association both notified the Respondent and informed Mr. Healy that there was no record of a commercial license at the Registrar of Contractors. Both parties also told him that Mrs. Mergen now demanded a resume from him to show that he had sufficient experience to build the building. 2. Mr. Healy immediately called his accountant and inquired why his license was not on file. The accountant then discovered that she had made a mistake and had not submitted the application and documents to the Registrar of Contractors in the fall of 1999 when they were prepared. Mr. Healy took the documents to the Registrar of Contractors that day and his license became effective shortly thereafter. He did not intend to seek work or contract for work without an active license but had been under the impression that his residential license was now a dual license with the same number because he had completed his application in 1999 and had given it to his accountant to send in, and he believed that all had been finalized. When he received some papers from the Registrar of Contractors with the residential contractors license number on it, he assumed that the licensing had gone as planned and he now had a dual license. Once the error was discovered, he rectified the situation immediately and submitted a resume in response to Mrs. Mergen’s request. 3. Construction began after the license was in force. Unfortunately, Mr. Healy and Mrs. Mergen did not get along well. She ordered him to stop work on the project twice because she was angry or suspicious about something. This caused major delays in coordinating subcontractors. Mr. Healy also stopped construction three times when Mrs. Mergen refused to sign the bank draws. (She had demanded invoices prior to signing and would not believe that she was not entitled to them according to the terms of the contract.) This caused delays as well. 4. In January, Mrs. Mergen hired an attorney to write a letter to Mr. Healy to inform him that he was discharged from the project because he did not have an active license when the contract was signed. At hearing, she testified that the real reason was that she felt the work done under the direction of Mr. Healy was of poor quality. Her husband testified that the real reason for the discharge was that the project was not getting done on time and there were too many problems. Complainants offered extensive testimony regarding the workmanship on the project. In all cases, the problem was either corrected or Respondent was not given an opportunity to correct them. 5. Although Complainants alleged that Mr. Healy deviated from the plans during the course of building, they did not offer evidence of any significant deviation by Respondent. The grading and drainage were very problematic, but all parties with knowledge of the problem testified that it was done according to the plans. Unfortunately, the plans had been done poorly or with the wrong information. This was not the Respondent’s responsibility. 6. Complainants offered no evidence to show that the Respondent worked under a suspended license. Respondent did explain in his response to the complaint that this was due to an error by the bonding company. Respondent had rectified this error immediately upon learning of it, and the Complainant did not address it any further at hearing. 7. Complainants’ attorney argued that the Complainants want the Registrar of Contractors to revoke or suspend Respondent’s license so that they can go to the Respondent’s bonding company and be reimbursed for the cost of completing the project after they fired the Respondent. CONCLUSIONS OF LAW 1. This matter is within the jurisdiction of the Registrar of Contractors pursuant to A.R.S. §§32-1104(A)(4), 32-1154(B) and 32-1156. 2. The Citation and Complaint issued by the Registrar of Contractors in this matter alleged potential violations of A.R.S. §32-1154(A)(2), (7), (10), (18) and (20) and A.A.C. R4-9-108. 3. The Arizona Revised Statutes at §32-1154(A)(2) provides grounds for suspension or revocation of a contractor’s license for departure from or disregard of plans or specifications or building codes without consent of the owner or his or her representative. 4. The Arizona Revised Statutes at §32-1154(A)(7) provides for suspension or revocation of a contractor’s license for the “doing of a wrongful or fraudulent act by the licensee as a contractor resulting in another person being substantially injured”. 5. The Arizona Revised Statutes at §32-1154(A)(10) provides grounds for suspension or revocation of a contractor’s license for aiding or abetting a licensed or unlicensed person to evade the requirements of that chapter. 6. The Arizona Revised Statutes at §32-1154(A)(18) provides grounds for suspension or revocation of a contractor’s license for contracting or offering to contract or bid while the contractor’s license is under suspension or is on inactive status. 7. The Arizona Revised Statutes at §32-1154(A)(20) provides grounds for suspension or revocation of a contractor’s license for subsequent discovery of facts which would be grounds for denial of a license if known at the time of issuance. 8. The Complainants spent considerable time testifying about workmanship. Considering the size of the project and the fact that the Respondent was fired before it was complete (the responsibility for the lateness of the project appearing to fall heavily on the shoulders of the Complainants), the corrections were not major. Previous deficiencies had been timely corrected. Further, there was no evidence that the items would not have been properly corrected had the Respondent been allowed to complete the project. Had Complainants not fired the Respondent, the cost of those corrections would have been Respondent’s responsibility. The amount of corrective work remaining at the time of the discharge would not reasonably cause alarm. Therefore, to whatever extent workmanship might have affected the deliberation of the Registrar of Contractors, I recommend that it be given no weight in this case. 9. The evidence did show, and Respondent admitted, that Mr. Healy did begin to contract, unknowingly, without a license. He did not do work without a license and obtained the license immediately upon learning there was none on record. The Citation and Complaint in this matter did not notify the Respondent of a potential violation of A.R.S. § 32-1151, the prohibition against contracting without a license. Despite that, substantial compliance with this statute has been held to be sufficient if the protective purpose of the statute is satisfied. City of Phoenix v. Superior Court, County of Maricopa, and Kleven Construction, Inc., 184 Ariz. 435, 909 P.2d 501(Court of Appeals, Division 1, 1996). Factors in determining substantial compliance were found in that case to include, among other things, whether the contractor knowingly ignored registration requirements, whether he immediately rectified the problem upon learning of it, and whether the party protected by the statute was prejudiced in any way. Here, an analysis of those factors reveals that the Mr. Healy did substantially comply with the statute. There was no evidence that he intentionally contracted without a license, and he corrected the problem by submitting the paperwork that day. Mr. Healy had reason to believe that the paperwork had been submitted because he received a letter from the Registrar indicating that everything was in order. Unfortunately, this only served to confuse him because it referenced his residential license, so he assumed that the Registrar had assigned him the same number for the commercial license and it served as a dual license number. This project was his first commercial job, so it had not been put to any kind of test yet. Although Mrs. Mergen denied being aware of the licensing problem during the contract negotiations, Mr. Healy’s testimony that she knew was more convincing because there were resumes in the loan paperwork (indicating that she had indeed asked for them in response to the information about his license). Over all, Mr. Healy’s testimony appeared likely to be more accurate. Giving proper weight to the evidence, Respondent was in substantial compliance. Therefore, I recommend finding no violation here. 10. Complainant argued that Respondent violated A.R.S. § 32- 1154(A)(20) by bidding and contracting to do work before his license was granted, a potential violation of A.R.S. § 32-1151. If this would have prevented the Registrar of Contractors from issuing Respondent’s license, then there is a violation. The Registrar of Contractors generally does not withhold the issuance of a license for previously contracting without a license when no harm has been done. This would defeat the purpose of bringing all contractors under the jurisdiction and protection of the Registrar. As argued above, Respondent was substantially in compliance with the requirement to be licensed, and no harm was done. Therefore, I recommend that there be no finding of a violation in the matter of A.R.S. § 32-1154(A)(20). 11. The Respondent did not violate A.R.S. § 32-1154(A)(18) because the license, not having been issued, was not suspended or inactive at the time of the contract. Respondent did not violate A.R.S. § 32-1154(A)(10) because he did not use an unlicensed subcontractor as Complainants had thought. There was no violation of A.R.S. § 32-1154(A)(7) because the Respondent performed his work well and responsibly and, despite the oversight regarding the license, no harm was done at all, much less “substantial” harm. Finally, there was no violation of A.R.S. § 32- 1154(A)(2) because the Complainants offered no evidence to show that the Respondent departed from the plans in any material respect. The one large problem with grading was admitted by Complainants’ own witness as being done according to the plans and was the error of the draftsman or his/her information. 12. The Complainants’ attorney argued strongly for revocation or suspension of Respondent’s license so that the Complainants could proceed to collect the costs of their second contractor from Respondent’s bond. He offered no justification for such extreme disciplinary action and only the slightest argument that any harm was done to the Complainants, that being that the public should be protected from the actions of unlicensed contractors. Complainants are also pursuing their claims against Respondent through mediation and arbitration. Evidently, the Respondent has incurred substantial legal fees in defending these actions already and will be incurring even more. Considering the weakness of Complainants’ claims and the aggressiveness with which they are asserting them, I recommend that, even if a violation is found, the Registrar of Contractors consider that the Respondent has suffered enough and impose no discipline in this matter.

RECOMMENDED DECISION Considering the totality of the circumstances set forth above, I recommend that this complaint be dismissed in its entirety as failing to establish any basis for imposing discipline against the Respondent’s KB-02 license. Done this day, July 2, 2001. OFFICE OF ADMINISTRATIVE HEARINGS

______________________________________ Dorinda M. Lang 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