ALJDEC

01F-2286-ROC · Registrar of Contractors · 2001-11-02

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: October 3 and October 16, 2001. APPEARANCES: COMPLAINANT: by Nicholas Cornelius, Esq., with Yousif Rayis, and witnesses Jim Land and Amil Fornatura. RESPONDENT: by Michael Dulberg, Esq., with Gilberto Mancini, and witnesses Francesco Mancini, Aaron Kizer, and Harvey Lawrence, and interpreter Rocco Pezzano (for the testimony of Gilberto Mancini). REGISTRAR OF CONTRACTORS: Inspector Joseph Cotten, Inspector Dan Lafond, and Chief of Licensing Allan Felber.

ADMINISTRATIVE LAW JUDGE: Anthony Halas. _____________________________________________________________________ Hearing on these consolidated cases was convened to determine whether Respondent violated state law as alleged by Complainant and as cited by the Registrar of Contractors. Evidence and testimony were presented, and based on the entire record, the following Findings of Fact, Conclusions of Law, and Recommended Decision are made: FINDINGS OF FACT 1. Complainant Yousif Rayis (Rayis) is an owner/principal in two business entities (O & R Enterprises, L.L.C. and Weaver Investments) formed to renovate/build and operate gasoline station/convenience store sites. 2. Respondent Morival Construction, Inc. (Morival Construction) is a corporation which presently holds three Arizona Contractor’s Licenses issued by the Registrar of Contractors (Registrar): No. 131263, Class A (General Engineering), issued February 20, 1998. No. 136493, Class B-02 (General Small Commercial Contractor), issued June 26, 1998. No. 165423, Class B-01 (General Commercial Contractor), issued May 18, 2001. Gilberto Mancini (Mancini) is an officer in the corporation, and qualifying party on all three licenses.

3. Case No. 01-2288 (Docket No. 01F-2288-ROC) A. On February 2, 2000, owner O & R Enterprises, L.L.C. contracted with Respondent contractor Morival Construction to build a gas station/convenience store at 4995 North Granite Reef Road in Scottsdale, Arizona (the “Granite Reef” project). The price term for this contract was $818,587.00. (Initially, this project was to include a Shell gas station, but O & R Enterprises, L.L.C. never finalized the arrangement with that third party petroleum company or any other petroleum company). The contract did not itemize the cost value of construction elements according to the scope of Respondent’s A (General Engineering) and B-2 (Small Commercial) licenses (Exhibits 2 and A (duplicates)). B. On February 9, 2001, Complainant Rayis sent correspondence to Respondent stating that, per agreement, the construction contract for the Granite Reef project was canceled, due in part to financing problems (Exhibit 8). Only a limited amount of demolition and grading had been done by Respondent to that point in time. Since then, O & R Enterprises, L.L.C. has not contracted with any contractor for any further construction work to be done on that project. C. On March 15, 2001, Complainant Rayis filed a complaint with the Registrar against Morival Construction alleging the company was contracting beyond the scope of its license(s) on the Granite Reef project, and that the company had billed and been paid for grading work not completed. D. On April 3, 2001, the Registrar’s inspector Dan Lafond conducted a jobsite inspection with Complainant and Respondent’s representatives present. E. On April 17, 2001, Inspector Lafond issued a Corrective Work Order (CWO) to Respondent, with the following terms:

Complaint 1. Contractor is bidding beyond the scope of his license. Contractor shall provide separate contracts for the work involved under each of his licenses so the exact monetary value of the work performed under each license can be determined.

Complaint 2. Complainant was billed and paid for grading work, which was not completed. The exact amount of funds due for the specific work performed is in dispute and is not within the jurisdiction of the Registrar of Contractors.

F. On May 18, 2001, the Registrar issued License No. 165423, Class B-01 to Respondent. G. When the complaint was not administratively resolved and Complainant requested hearing, the Registrar issued CITATION AND COMPLAINT to Respondent on August 8, 2001, charging the contractor with possible violations of A.R.S. § 32-1154.A.1, A.2, A.7, A.17, and A.23. After Respondent’s timely written answer and motion to dismiss,[1] the matter was set for hearing (consolidated with Case No.01-2286 (Docket No. 01F-2286- ROC)).

4. Case No. 01-2286 (Docket No. 01F-2286-ROC). A. On September 20, 2000, owner Weaver Investments contracted with contractor Morival Construction to renovate an existing facility into a new (Chevron) gas station/food mart at 5107 West Buckeye Road, in Phoenix, Arizona (the “Buckeye” project). The price term for this contract was $718,669.22. The contract did not itemize the cost value of construction elements according to the scope of Respondent’s A (General Engineering) and B-2 (Small Commercial) licenses (Exhibits 3 and B (duplicates)). However, on November 2, 2000, Respondent did prepare a general itemization listing the contract price for many elements of the contract (Exhibit 4). B. In correspondence dated March 15, 2001, counsel for Weaver Investments terminated Respondent from the Buckeye project, asserting the contract was null and void because Respondent had exceeded the scope of its license (Exhibit 13). A few weeks later, Weaver Investments contracted to have the project completed by II K S Commercial Contracting, License No. 155963, Class B-01.[2] C. On that same date, March 15, 2001, Complainant Rayis filed a complaint with the Registrar against Morival Construction alleging the company was contracting beyond the scope of its B-02 license on the Buckeye project. D. The complaint was assigned to the Registrar’s Inspector Joe Cotten. No jobsite inspection was conducted, nor was any Corrective Work Order issued. E. On May 18, 2001, the Registrar issued License No. 165423, Class B-01 to Respondent. F. When the complaint was not administratively resolved and Complainant requested hearing, the Registrar issued CITATION AND COMPLAINT to Respondent on May 25, 2001, charging the contractor with possible violations of A.R.S. § 32-1154. A.7 and A.17. Respondent timely filed its written answer (and motion to dismiss: see footnote 1), and the matter was set for consolidated hearing. 5. A. At hearing, Complainant Rayis appeared and testified, represented by counsel, and presented testimony by Jim Land and Amil Fornatura. Complainant offered Exhibits A - D, which were marked and admitted without objection. B. Respondent appeared through counsel, and presented testimony by Gilberto Mancini, Francesco Mancini, Aaron Kizer, and Harvey Lawrence. Respondent offered Exhibits tabbed as 1 - 5, 7 - 9, 11 - 21, 24 - 27, 31, 33 - 34, 36, and 38, which were marked and admitted without objection. C. The Registrar’s Inspectors Cotten and Lafond, and Chief of Licensing Allan Felber, also appeared and testified (Cotten and Felber by subpoena; Lafond voluntarily). 6. On the testimony and evidence presented, Complainant’s primary contention is that at the times the parties executed each of the two contracts, Respondent’s principal, Gilberto Mancini (qualifying party on the company’s Class A and B-02 licenses then in effect), knowingly contracted beyond the scope of those licenses, particularly the B-02, as restricted by A.A.C. R4-9-108-101.C, in violation of A.R.S. § 32-1154.A.17. To that end, Complainant further asserts that such violation relative to each contract was a wrongful act, in violation of A.R.S. § 32-1154.A.7. 7. Relative to Case No. 01-2288, the Granite Reef project, Complainant also contends that Respondent failed to comply with the Registrar’s Corrective Work Order directive issued on April 17, 2001, and therefore violated A.R.S. § 32-1154.A.23. 8. Complainant did not present any material and probative evidence relative to Case No. 01-2288 to prove the other charges in the Registrar's Citation, i.e., that Respondent abandoned or refused to perform on the Granite Reef project in violation of A.R.S. § 32-1154.A.1, or that Respondent departed from or disregarded plans and specifications in violation of A.R.S. § 32-1154.A.2. 9. A. Complainant Rayis testified to describe his prior experience (in Michigan) in operating gas station/convenience store facilities, conceding the Buckeye and Granite Reef projects were the first in which his companies acted as owner/builder. B. Rayis described his referral to Gilberto Mancini of Morival Construction through a mutual business acquaintance, resulting in the Granite Reef contract in February 2000 and the Buckeye contract in September, 2000. He stated that Mancini had not provided any information about his contracting licenses, nor had he (Rayis) researched Respondent’s licensure or background, prior to entering the contracts. C. Rayis explained his dissatisfaction with Respondent’s progress, particularly on the Buckeye project (since only limited grading and demolition was ever accomplished on the Granite Reef site), such that in late February, 2001, he hired Jim Land (Land) and Amil Fornatura (Fornatura) of CFC, L.L.C., a construction consulting company, to deal with Respondent relative to coordinating the ongoing work on the Buckeye project and scheduling payment for that work. (The Granite Reef contract had been canceled on February 9, 2001 (Exhibit 8), prior to Complainant's retention of CFC, L.L.C). D. Rayis stated that the consultants’ review of the contract documents and investigation in late February and early March, 2001, soon resulted in their conclusion that the scope of the work on each contract exceeded the scope of the $250,000.00 limit on Respondent's B-02 license, as well as the bond on either its Class A or B-02 licenses. For that reason, and others (related to payment, lien, and completion issues), Respondent was terminated from the Buckeye project on March 15, 2001 (Exhibit 13). E. Rayis stated that in order to complete the Buckeye project, he hired II K S Commercial Contracting within a few weeks after Morival Construction was terminated; II K S was one of several companies suggested by CFC, L.L.C. Rayis conceded he had not investigated the scope or status of that company’s license, but stated the Buckeye project had been completed by II K S. 10. A. The Registrar's Inspector Joe Cotton (Cotton) testified to describe his investigation of the complaint in Case No. 01-2286, the Buckeye project, and his determination that Respondent's work on that contract appeared to exceed the scope of its B-02 license, based on his understanding that the Registrar's policy in applying A.A.C. R4-9-101.C precluded a B-02 licensee from contracting for a total contract price exceeding $250,000.00, even if the contractor also had a Class A license and the labor and materials on the project did not exceed $250,000.00. B. Inspector Cotten confirmed his handwritten note (Exhibit 27) made during the course of his investigation, in which he attempted a cursory separation of the Class A items on the Buckeye project from the B- work (and his more recent re-evaluation of those items in which he would change $168,091.00 for "petro piping" from B-02 to Class A scope of work). C. Based on his understanding of the scope of work to be done pursuant to the Buckeye contract, Inspector Cotten opined that the appropriate licenses for that work would be Class A and B-01; he conceded he did not know how a contractor could correct a scope of license issue once the contract had been terminated ( in this instance, on March 15, 2001, the same day the complaint was filed). He also noted that II K S, the replacement contractor, had only a B-01 license (although he was uncertain to what extent the Class A work had already been completed when II K S was hired). 11. A. The Registrar's Inspector Dan Lafond (Lafond) testified to describe his investigation of the complaint in Case No. 01-2288, the Granite Reef project, including his jobsite inspection and subsequent issuance of the Corrective Work Order on April 17, 2001, after discussion with his supervisors (including the chief of licensing) relative to the scope of work permitted under Respondent's Class A and B-02 licenses. B. Inspector Lafond explained his conclusion that when the Granite Reef contract was made (even though never substantially performed prior to cancellation), Respondent's scope of work on the appeared to exceed the scope of its B-02 license, based on his understanding (consistent with Inspector Cotten) that the Registrar's policy in applying A.A.C. R4-9-101.C precluded a B-02 licensee from contracting for a total contract price exceeding $250,000.00, even if the contractor also had a Class A license and the labor and materials on the project did not exceed $250,000.00. C. Inspector Lafond also explained his understanding, reached after conferring with supervisory and executive staff, and as memorialized in his notes (Exhibit 17) that Respondent could resolve its apparent technical scope of license violation by either providing separate contracts for each license (as per his CWO directive on April 17, 2001, notwithstanding that the prior cancellation of the contract on February 9, 2001 rendered this an exercise in futility), or by acquiring a B-01 license, which Respondent had in fact obtained on May 18, 2001. 12. A. The Registrar's Chief of Licensing, Alan Felber (Felber), testified to describe his experience and duties in that capacity, and his understanding that the Registrar's policy relative to the scope of a B-02 license was that a contractor would exceed that scope if the total contract price (and not just labor and materials) exceeded $250,000.00. B. For that reason, Felber opined that Respondent was out of scope of its B-02 license at the time it contracted on the Buckeye and Granite Reef projects, with the problem then corrected when the B-01 license was issued. C. Felber also provided his recollection of meeting with Gilberto Mancini and his wife in 1998; he recalled that they had primarily discussed Mancini's concerns about testing for his Class A license given his limited ability to speak, read, or write English. Felber did not recall much, if any, discussion about the class of license Mancini's company should get to build gas station/convenience stores in Arizona, or what license(s) the company might otherwise be qualified for based on its work history in Canada. 13. A. Jim Land (Land) testified for Complainant to describe his experience in construction work, and the nature of the work he and Amil Fornatura did for CFC, L.L.C., the construction consulting company of which he was a principal. He described such work both in general terms and specifically relative to the company’s retention by Complainant on the Buckeye project.[3] B. It was based on his research of Respondent’s licensing and bond information gained from the Registrar’s database that Land concluded that the work done by Morival Construction exceeded the individual or combined scope of those licenses, on his understanding that the $250,000.00 limit on the B-02 license was based on total contract price, and that amount was exceeded in both the Buckeye and Granite Reef contracts. Land opined that the appropriate licensure for the scope of each of Complainant’s two projects would be a Class A and B-01 together. C. Land further opined that the terms of A.A.C. R4-9-112 precluded Respondent from entering the two contracts because the company’s bond limits were too low at the time the contracts had been signed. 14. A. Gilberto Mancini (Mancini) testified (through an interpreter) for Respondent to describe the history of Morival Construction as a licensed contractor in Canada, and his role as a principal, with the company specializing in gas station/convenience store construction. He explained that he had been interested in licensing the company to do the same work in Arizona, and to that end described a meeting he and his wife (whose native language was English) had with Alan Felber, the Registrar’s chief of licensing, shortly before he became qualifying party on the Class A engineering license issued in February, 1998. B. Based on his recollection of that meeting, Mancini stated that they discussed what license(s) were necessary in Arizona for Morival Construction to construct gas station/convenience stores. Mancini stated that Felber advised that Class A and a B-02 licenses would be appropriate, so that was what Mancini applied for (with the Class A license issued in February, 1998, and the B-02 license in June, 1998). C. Mancini further stated that he had never knowingly contracted beyond the scope of his Class A and B-02 licenses, and did not consider the labor and materials required for building the convenience store “structure” of either of the two contracts to exceed $250,000.00, but that in any event, as soon as he understood the Registrar's inspectors were recommending that his company obtain a B-01 license, he had applied and it had been issued on May 18, 2001. In retrospect, he believed his company could have readily qualified for the B-01 license in 1998, but for his understanding of the advice he recalled having been given by Mr. Felber. 15. A. Francesco Mancini, Gilberto Mancini’s son, testified to describe his work for Respondent as office manager responsible for preparing pay applications to submit, employee payroll, and accounts payable and receivable. Based on that role (and without significant other experience in the construction trades, he described the work done by Morival Construction on the two contracts, what had been subcontracted, pay applications made to the owner, payment received, and his dealings with Complainant’s consultants Land and Fornatura. B. Francesco Mancini also explained his efforts to find out how to comply with the Corrective Work Order issued by Inspector Lafond since the Granite Reef contract had already been canceled, stating that once Lafond found that out, he had advised Mancini to get the B-01 license. 16. A. Aaron Kizer (Kizer) testified for Respondent to describe his current legal practice, including construction law, and his understanding of the intent and purpose of the Arizona contracting laws, and of Registrar of Contractors policy and rules, based on his prior experience as the Registrar of Contractors from 1979 to 1984 (See Exhibit 33). B. Kizer stated he had reviewed the two contracts for the Buckeye and Granite Reef projects, as well as the more recent retrospective cost breakdowns according to license which had been completed for each contract (Exhibits 38 and 39). C. Kizer disagreed that Respondent had exceeded the scope of his licenses when entering the contracts, for several reasons: 1). First, he opined that since separate Class A and B-02 contractors could have combined as a general contractor and subcontractor to make one bid on each of these projects, the policy articulated by the Registrar’s inspectors and chief of licensing elevated form over substance in stating that one contractor holding both licenses was required to provide separate contracts for each license on commercial projects. He was aware of no such rule or statutory requirement, and thought any such policy requirement, whether written or not, would constitute improper rule-making, and would impose unnecessary burdens on both owners and contractors. 2). Kizer also opined that the policy as stated seemed an obvious misreading of the language of R4-9-101.C, which specifically indicated the $250,000.00 limit for a Class B-02 license was for labor and materials (on a structure, as defined in the scope of a B-02 license), and not the total contract price. 3). Based on his review of Exhibits 38 and 39, the cost breakdowns for each license on each contract, Kizer concluded that the value of the labor and materials on the structure of the gas station/convenience store in each instance was under $250,000.00, and therefore within the scope of the Respondent’s B-02 license. He nevertheless conceded that a B-01 license from the outset would have been the better approach. 4). Kizer also concluded that because Respondent had applied for and been issued the B-01 license within 31 days from the Registrar’s Corrective Work Order, the company was in substantial compliance with the intent of the law, and its arguable technical violation, if at all, of the scope of its B-02 license was without harm to Complainant. D. Kizer also opined that the language of A.A.C. R4-9-112 defining bond limits as based on the ”volume of work contemplated by the licensee … for the ensuing fiscal year” did not cap the value of a present contract an Arizona contractor could enter, based on his present bond, as argued by Complainant, but instead required appropriate future recalculation of the bond, generally at the time of bond renewal. 17. A. Harvey Lawrence (Lawrence) testified for Respondent to describe his experience and qualifications in construction and contracting, and his present capacity as the principal in Harvey J. Lawrence & Associates, Inc., with construction inspectors and consultants in 48 states, with B-01 and B-02 licenses in Arizona. B. Lawrence stated he was retained by Respondent to evaluate the Buckeye and Granite Reef contracts in order to retrospectively allocate costs as appropriate to the scope of Respondent’s Class A and B-02 licenses, noting the $250,000.00 labor and materials limit per project or contract on the B-02 license; he disagreed that the limit would apply instead to the total contract. To that end, he had drafted “cost breakdowns” dated October 2, 2001for the Buckeye project (Exhibit 38) and the Granite Reef project (Exhibit 39). C. Per his calculations, and conceding a degree of subjectivity in allocating and prorating certain of the contract values, Lawrence concluded that Respondent had not exceeded the $250,000.00 limit on labor and materials for structure work done within the scope of the B-02 license on either project. D. Lawrence noted that although subcontractor profit and overhead generally ran about 15 to 20% of subcontracts, he had not subtracted that percentage in his calculations but was still within the $250,000.00 limit, although subcontractor profit and overhead would properly be excluded from the general contractor’s labor and materials. He opined that even if Complainant’s subjective allocations (within Lawrence’s own itemization) were considered, subtraction of the subcontractor’s profit and overhead would still leave the values allocated to the B-02 license well within the limit of $250,000.00 on each project’s structure. E. Without having reviewed Respondent’s bond limits, Lawrence confirmed that a contractor’s bond should generally be commensurate with the amount of its contracts, but stated that industry practice, consistent with the language of R4-9-112, was to address bond increases at the time of renewal. 18. A. Amil Fornatura (Fornatura) testified for Complainant to describe his experience in construction, and his role in providing consulting services through CFC, L.L.C. (in which he was a principal with Jim Land) for Complainant on the Buckeye project, and his more limited role in analyzing cost allocations per license on the Granite Reef project. B. Primarily, Fornatura provided rebuttal testimony to explain why his analysis of Harvey Lawrence’s itemized allocations (Exhibits 38 and 39) resulted in his conclusion that the scope of Respondent’s B-02 work contracted on each project exceeded the $250,000.00 limit, which he opined applied to the total contract, as per the policy stated by the Registrar’s representatives.

APPLICABLE LAW and REGULATION The CITATION AND COMPLAINT(s) issued by the Registrar of Contractors charged Respondent with possible violations of A.R.S. § 32-1154.A.1, A.2, A.7, A.17 and A.23. Those statutory sections require that a holder of a license or a person listed on a license shall not commit the following:

1. Abandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.

2. Departure from or disregard of plans or specifications or any building codes of the state or any political subdivision of the state in any material respect which is prejudicial to another without consent of the owner or the owner’s duly authorized representative and without the consent of the person entitled to have the particular construction project or operation completed in accordance with such plans and specifications and code. … 7. The doing of a wrongful or fraudulent act by the licensee as a contractor resulting in another person being substantially injured. … 17. Knowingly contracting beyond the scope of the license or licenses of the licensee. … 23. Failure to take corrective action to comply with this chapter or with rules adopted pursuant to this chapter without valid justification within a reasonable period of time after receiving written directive from the Registrar.

The Registrar of Contractors has classified and defined (at A.A.C. R4- 9-101 and R4-9-102.A) the scope of the commercial licenses issued under its statutory authority. Of interest herein are the following three contracting classifications:

A- GENERAL ENGINEERING Construction in connection with fixed works, including streets, roads, power and utilities plants, dams, hydroelectric plants, sewage and waste disposal plants, bridges, tunnels, and overpasses. Also included are the scopes f work allowed by all of the other engineering classifications, A-3 through A-21. . . .

B-1 GENERAL COMMERCIAL CONTRACTOR Construction, alteration, and repair in connection with any structure built, being built, or to be built for the support, shelter, and enclosure of persons, animals, chattels, or movable property of any kind. This scope includes the supervision of all or any part of the above and includes the management, or direct or indirect supervision of any work performed. This scope includes most of the L scopes except as they relate to electrical. Plumbing, air conditioning systems, boilers, swimming pools, spas, and roofing (except shingles and shakes) which must be subcontracted to an appropriately licensed contractor.

B-2 GENERAL SMALL COMMERCIAL CONTRACTOR Small commercial construction in connection with any new structure or addition built, being built, or to be built for the support, shelter and enclosure of persons, animals, chattels or movable property of any kind. This scope includes the supervision of all or any part of the above and includes the management or direct or indirect supervision of any work performed. This scope includes most of the L scopes except as they relate to electrical, plumbing, air conditioning systems, boilers, swimming pools, spas, and roofing (except shingles and shakes) which must be subcontracted to an appropriately licensed contractor. (Note: Refer to R4-9-101 Definitions for additional restrictions regarding this classification.)

Pursuant to R4-9-101.C, the relevant “additional restrictions” for the B-2 General Small Commercial Contractor license classification are that: . . . C. Small commercial construction means construction, remodeling, or repair of commercial projects for which the price of materials and labor does not exceed $250,000.00 in any contract or project. Provided, however, that any new structures or additions to existing structures are less than 3 stories. Nonstructural remodeling and repairs of existing commercial buildings exceeding this height limitation are small commercial construction if the overall cost of the contract or project does not exceed $250,000.00. (Emphasis added).

CONCLUSIONS OF LAW 1. The Registrar of Contractors has jurisdiction over these consolidated matters, pursuant to A.R.S. § 32-1101, et. seq., which authorizes the Registrar to impose disciplinary sanctions against licenses for violations of A.R.S. § 32-1154. 2. To warrant such sanctions by the Registrar, Complainant must demonstrate by a preponderance of the evidence that Respondent violated any one or more of the statutory sections cited in either or both cases. Culpepper v. State of Arizona, 187 Ariz. 431, 930 P.2d 508 (App. 1996). 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.” In re: Arnold and Baker Farms, 177 B.R. 648 (9th Cir. BAP (Ariz.) 1994). It is “evidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not.” Black’s Law Dictionary 1182 (Rev. 6th ed. 1990). 3. The Registrar’s CITATION AND COMPLAINT in Case No. 01-2286 (the Buckeye project) alleges violations of A.R.S. § 32-1154.A.7 and A.17. The CITATION AND COMPLAINT in Case No. 01-2288 (the Granite Reef project) alleges violations of A.R.S. § 32-1154.A.1, A.2, A.7, A.17, and A.23. 4. The undersigned finds and concludes that in Case No. 01-2288 there is insufficient evidence to sustain Complainant’s burden of demonstrating any violation of A.R.S. § 32-1154.A.1 (abandonment of contract) or A.2 (departure from plans or specifications). 5. A. The essential question, then, in both cases, is whether Respondent Morival Construction, through its principal Gilberto Mancini, violated A.R.S. § 32-1154. A.17 by knowingly contracting beyond the scope of Respondent’s Class A and B-02 licenses on either or both of the contracts the company entered into with Complainant’s two business entities. B. Contingent on the sufficiency of the evidence to demonstrate that Respondent exceeded the scope of its licenses in each case is the question whether such alleged violation also constituted a wrongful or fraudulent act resulting in substantial injury to Complainant, in violation of A.R.S. § 32-1154.A.7. C. Additionally, there is the question in Case No. 01-2288 whether Respondent failed to take corrective action without valid justification within a reasonable time after receiving the Registrar’s Corrective Work Order, in violation of A.R.S. § 32-1154.A.23. 6. In this context, “knowingly” is defined by statute to mean that the term “…imports only a knowledge that the facts exist which bring the act or omission within the provisions of the statute using such word. It does not require any knowledge of the unlawfulness of the act or omission.”[4] 7. An additional statutory definition of the term is that “…with respect to conduct or circumstance described by a statute defining an offense, that a person is aware or believes that his or her conduct is of that nature or that the circumstance exists. It does not require any knowledge of the unlawfulness of the act or omission.”[5] To that end, long-standing case law in Arizona holds that “[n]otice of facts and circumstances which would put a man of ordinary prudence and intelligence on inquiry is . . . equivalent to knowledge of all the facts a reasonably diligent inquiry would disclose.’”[6] 8. Respondent’s essential defense to the charge is that its principal and qualifying party Gilberto Mancini, did not knowingly exceed the scope of the licenses for two reasons, expressed somewhat in the alternative: First, because he reasonably relied on the 1998 (informal and unwritten) advice of the Registrar’s chief of licensing in obtaining those licenses the Registrar deemed necessary for the company to do the same work in Arizona it had many years experience doing as a licensed contractor in Canada; Second, and in any event, because his actions did not violate the properly-promulgated rule provided at R4-9-101.C limiting the Class B-02 license to “…commercial projects for which the price of materials and labor does not exceed $250,000.00 in any contract or project”, notwithstanding the Registrar’s unwritten policy that the $250,000.00 limit applied to the total contract instead. 9. Respondent’s first contention is found to be of limited reliability and unpersuasive, for the reasons that the conversation Mancini had with Chief of Licensing Felber was informal, undocumented, and over three years ago; Mancini’s recollection is premised on his understanding of the conversation which was conducted in English, a language in which Mancini is admittedly not fluent and for which he required an interpreter to testify at this hearing; and his recollection of the most material aspect of the conversation is in significant contrast to the recollection of Felber. 10. However, the undersigned concludes that Respondent’s second contention is persuasive, in that the two contracts executed by Complainant’s business entities and Respondent both are deemed to comport with the clear language of A.A.C. R4-9-101.C., and Respondent’s actions, through Mancini, therefore could and did not knowingly exceed the scope of the company’s licenses. A. First, to the extent that the language of A.A.C. R4-9- 101.C, the result of the mandated rule-making process, conflicts with the unwritten policy articulated by the Registrar’s representatives (that the $250,000.00 limit goes to the total contract rather than labor and materials within the scope of the B-02 license), there is no doubt the rule must take precedence. In Anderson v. State, 135 Ariz. 578, at 586, note 2 (App.1982), the court held that:

The principle favoring the promulgation of rules and regulations of general applicability rather than the generation of policy in a piecemeal fashion through ad hoc administrative determinations and adjudications is well established and has received repeated judicial endorsement.

Similarly, in Cochise County v. Arizona Health Care, 170 Ariz. 443, at 445 (App. 1991) the Court concluded that::

The scope of an agency’s power is measured by statute and may not be expanded by agency fiat. … In order for a rule to be effective it must be enacted in accordance with the provisions of the A.P.A. …An administrative agency must follow the rule it promulgates.

B. Then, to the extent that the parties have presented conflicting expert testimony and conclusions relative to the allocation of the price values of the two contracts vis-a-vis the scope of the licenses, such conflict is resolved, on the weight and probative value of the evidence, in favor of Respondent, for the determination that the price of labor and materials allocated to the B-02 license on each contract did not exceed $250,000.00. C. Finally, the undersigned determines that the bond limits maintained by Respondent for each license at the time the two contracts were executed, and thereafter, sufficiently complied with the requirements of A.A.C. R4-9-112, and the evidence relative to Respondent’s bond limits does not support any inference that Respondent exceeded the scope of those licenses. 11. On the basis of the foregoing, the undersigned therefore concludes that Complainant has failed to sustain his burden, by a preponderance of the evidence, that Respondent knowingly exceeded the scope of its licenses, so no violation of A.R.S. § 32-154.A.17 has been proven in either Case No. 01-2286 or Case No. 01-2288. 12. Because the Registrar’s Corrective Work Order directive was premised on Respondent’s perceived violation of policy relative to scope of license, and said violation of policy is determined herein not to have been proven in light of the controlling rule, the undersigned further concludes that no violation of A.R.S. § 32-1154.A.23 has been proven in Case No. 01- 2288. 13. However, and in the alternative, it is also concluded that Respondent’s actions in obtaining a B-01 license in just over 30 days from the Registrar’s directive constituted appropriate corrective action in substantial compliance with the directive, particularly given that the contract Respondent was directed to modify had already been canceled by Complainant, and therefore was not reasonably subject to modification by Respondent. 14. Based on the above, it is further concluded by the undersigned that a preponderance of the evidence does not demonstrate that Respondent committed any wrongful or fraudulent act, or that any act by Respondent demonstrated and relevant herein resulted in substantial injury to Complainant. Therefore, no violation of A.R.S. § 32-1154.A.7 has been proven in either Case No. 01-2286 or Case No. 01-2288.

RECOMMENDED DECISION On the basis of the foregoing, IT IS RECOMMENDED that the Citations in Case Nos. 01-2286 and 01-2288, and the Complaints upon which they are based, be dismissed. Done this day, November 2, 2001.

______________________________________ Anthony Halas 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 ___________________________ ----------------------- [1] In both cases, Respondent’s answer to the CITATION AND COMPLAINT included a motion to dismiss. The motions to dismiss were denied by the undersigned on the record when hearing was convened, for the reason, among others, that questions of fact remained to be heard. [2] Administrative notice of the licensing database maintained by the Registrar of Contractors confirms that License No. 155963, Class B, has been suspended since March 25, 2001, for lack of bond. On the record made herein, it cannot be determined whether the suspension occurred before or after Complainant’s company hired II K S to complete the Buckeye project. [3] Mr. Land confirmed that CFC, L.L.C. was not licensed by the Registrar of Contractors, as it was Land’s opinion that no license was required for the consulting work done by that company. Based on his description of the specific work done by himself and Fornatura as CFC, L.L.C. consultants for Complainant on the Buckeye project, his opinion would appear to be contrary to the definition of “contractor” in A.R.S. § 32-1101.B. It does not appear that Land or Fornatura took any active role in consulting or managing the Granite Reef project (since it had been canceled prior to Complainant’s retention of CFC, L.L.C.), other than to analyze the scope of the work Respondent had contracted to perform. Land also confirmed his association with Conspect Consulting, which did hold a KB-01 contracting license. [4] A.R.S. § 1-215.

[5] A.R.S. § 13-105(6)(b).

[6] Maricopa Utilities Co. v. Cline, 60 Ariz. 209, 214, 134 P.2d 156 (1943) (quoting Schneider v. Henley, 61 Cal. App. 758, 215 P. 1036, 1038).

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

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