ALJDEC

01F-2797-ROC · Registrar of Contractors · 2001-12-07

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: November 28, 2001. APPEARANCES: Patrick Lyons, Lyons’s owner; Bill Bengert, Lyons’s business manager; Stuart McPherson, Brittney’s managing partner; Eric Marble, Brittney’s Director of Operations; Eric LeClair, Brittney’s Superintendent; and April Robson, Brittney’s office manager. ADMINISTRATIVE LAW JUDGE: Dorinda M. Lang. _____________________________________________________________________ Lyons Roofing Corporation filed a complaint against J. Brittney Development, LLC claiming that the final payment for services rendered had not been paid. Although it denied a contractual relationship or responsibility as the general contractor, J. Brittney Development, LLC did contract with Lyons Roofing Corporation, acted as a contractor in supervising it, and held itself out as the prime contractor on the housing development projects involved. On the other hand, Lyons Roofing Corporation was responsible for its supplier filing lien notices against several of the homes in the developments in amounts in excess of the money due on the projects. Therefore, J. Brittney Development did not violate Arizona contracting laws when it failed to make the final payments in this case.

FINDINGS OF FACT 1. In August 1999, Lyons Roofing Corporation (“Lyons”) submitted a proposal to J. Brittney Development, LLC (“Brittney”) to install roofs in the homes in a residential housing development. On August 20, 1999, Brittney sent a letter on its letterhead to Lyons informing Lyons that its proposal was accepted. Another proposal and acceptance transpired between the parties in the same manner for another housing development, though the date of that exchange was not specified at hearing. Lyons was paid as the work proceeded but did not receive final payment on some of the completed homes. 2. On May 22, 2001, Lyons filed a complaint with the Registrar of Contractors alleging that Brittney had failed to pay money due on the completed contracts. At hearing, Brittney claimed that it had no contractual relationship with Lyons but acted only as the construction manager for another company, Jericho Homes of Arizona, Inc. (“Jericho Homes”), which was the general contractor on the project. Jericho Homes is not now, and was not at the time of the project, a licensed contractor in Arizona. Brittney alleged that Lyons must collect its claims from Jericho Homes directly. 3. The testimony at hearing established that Brittney issued work orders directly to Lyons and other subcontractors, accepted the subcontractors’ invoices and sent them to Jericho Homes. Brittney then forwarded payment checks to the subcontractors on behalf of Jericho Homes. No formal contracts were signed by Lyons for the work. Instead, the contracting was done by proposal and acceptance. The parties agreed that the proposals were submitted to Brittney, and Brittney sent notice of acceptance from its office after Jericho Homes decided which ones to accept. The notice of acceptance did not mention Jericho Homes. Lyons was aware that Jericho Homes was involved but argued that Brittney was the licensed contractor doing business in Arizona with the subcontractors and is therefore responsible for payment. Brittney also sent Lyons an Arizona Department of Revenue Transaction Privilege Tax Prime Contractor’s Certificate declaring that Brittney was the prime contractor on the projects. Brittney’s managing partner testified that it sent the Prime Contractor’s Certificate to all the subcontractors but there was no place on the form to state that Brittney was the construction manager rather than the general contractor. 4. It was undisputed at hearing that Brittney never issued payment directly from its own accounts to the subcontractors. Brittney was paid a fee for construction management by Jericho Homes but did not receive payment into its accounts for the projects as a whole. Brittney’s witnesses claimed that Jericho Homes had stopped making payment to Lyons because Lyons’ supplier filed liens on some of the homes for materials supplied to Lyons. Brittney offered copies of Notices and Claims of Mechanic’s and Materialman’s Liens totaling $12,817.90. While Lyons has always remained willing to accept payment jointly to it and its supplier, the liens are in excess of the amounts remaining due on the projects, which is $6,018.60. The liens had not been removed as of the time of hearing. While some of the liens were on homes for which full payment had not been made, others were on paid homes and some unpaid homes did not have liens. 5. According to the records of the Registrar of Contractors, the license in this matter has 1 open and 3 closed complaints in the last two years and has been suspended twice for lack of bond and once following a complaint. 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)(7) and (11). 3. 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”. 4. The Arizona Revised Statutes at § 32-1154(A)(11) provides grounds for suspension or revocation of a contractor’s license for failure to pay money when due for services and materials rendered in connection with a contracting project when the contractor has the capacity to pay or, if he lacks the capacity to pay, when he has received sufficient payment on the project. A violation is not found if the amount due is less than $750. 5. The Registrar of Contractors may consider the prior record of a contractor in any disciplinary proceeding provided the records are introduced into evidence. A.A.C. R4-9-117. On standing motion by the Registrar of Contractors, the computer records of the Registrar of Contractors may properly be considered as evidence in the event the Administrative Law Judge finds a violation of any of the statutory provisions cited in the Citation and Complaint. However, since there was no violation in this case, Brittney’s record should not be considered. 6. In this case, Lyons has established that it rendered services on a project for Brittney. The question before the Registrar is whether Brittney’s failure or refusal to pay the remaining charges for the project constitutes a violation of the above statutes. 7. In its defense, Brittney argues that it had no contract with Lyons. However, an oral or written agreement relating to construction creates a construction contract.[1] Since the agreement in this case was made by direct communication of a proposal to Brittney and direct acceptance of the proposal by Brittney, the Registrar can conclude that Brittney was the actual party to the contract rather than another party that was not involved in the exchange. 8. Brittney claims that it was not the general contractor and that Lyons knew this. However, by official written notice, Brittney informed Lyons that it was the prime contractor in this state for the projects in question. Brittney acted as a contractor by directly supervising others in building activities.[2] There was no other licensed contractor supervising the subcontractors. Clearly, Brittney was the licensed contractor in Arizona responsible for the subcontractors it supervised on the projects. 9. Brittney argued that it was not paid by the general contractor except as a construction manager and received no general funds with which to pay Lyons. However, the applicable statute clearly states that a contractor can be held responsible even when he has not been paid.[3] There is no provision of the law which states that only the general contractor is responsible for payment on a construction project. Brittney is in a much better position to sue for reimbursement from Jericho Homes based on their contract. Further, Brittney chose to contract with an out- of-state contractor. The difficulties of dealing with an out-of-state party were assumed by Brittney. It is more equitable to require Brittney to deal with the party it chose to contract with. 10. Brittney argued that Lyons’ actions have caused materialman’s liens to be filed against its projects. In this defense, Brittney should prevail. Lyons’ actions have caused Brittney to be potentially liable for costs that were Lyons’ responsibility. A contractor must defend actions against a homeowner on liens filed by others against the homeowner.[4] And, an owner against whom a lien has been filed has the right to withhold payment to the contractor in such cases.[5] Therefore, Brittney is in the position of being forced to defend against a claim on the liens and could have payments on the project withheld until they are lifted. 11. A contractor who is obligated by statute to defend a claim of lien, and who undertakes such activity, inherits the rights of the homeowner in that activity.[6] Therefore, it appears that Brittney has inherited the right to withhold payment in the amount of the liens against the homeowners. Until the liens are lifted and Brittney has a completed project with no encumbrances by Lyons or caused by Lyons, Brittney should not be obligated to make final payment.[7] Since Brittney is entitled to withhold payment, the debt cannot be considered due under A.R.S. § 32- 1154(A)(11), and no violation of that statute has occurred. Likewise, since Brittney is legally entitled to take such action, it has not done a wrongful or fraudulent act and is not in violation of A.R.S. § 32- 1154(A)(7). Therefore , it is recommended that the Registrar of Contractors find no violation against Brittney in this matter and dismiss it in its entirety.

RECOMMENDED DECISION Based upon the foregoing considerations, the undersigned Administrative Law Judge hereby recommends to the Registrar of Contractors that this complaint be dismissed and that the Registrar decline to impose any disciplinary action against Brittney. Done this day, December 7, 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 ___________________________

----------------------- [1] A.R.S. § 32-1129(1). [2] A.R.S. § 32-1101(A)(3) (“contractor” defined). [3] A.R.S. § 32-1154(A)(11) (“when he has the capacity to pay or, if he lacks the capacity to pay, when he has received sufficient monies as payment for the particular…project”). [4] A.R.S. § 33-995(A). [5] A.R.S. §§ 33-994 and 33-995(B). [6] A.R.S. § 33-995(D). [7] The fact that liens exist against some homes that have unpaid balances and against some homes that do not is irrelevant. Since various courts have held that a contractor (or subcontractor) may apply money received to any project it desires unless he is aware that the funds came from a particular homeowner (e.g. Stolaroff v. Bassett Lumber Co., 21 Ariz. 490, 190 P. 981 (1920)and Intermountain Bldg. & Loan Ass’n v. Allison Steel Mfg. Co., 42 Ariz. 51, 22 P.2d 413(1933)), Lyons has the option of manipulating the assignation of payments it receives so as to rob Brittney of its right to withhold payment until the liens are paid. The projects in this case were bid for en masse and should be viewed as a whole for the purpose of giving full force and effect to the applicable laws.

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