ALJDEC

01F-G1208-ROC · Registrar of Contractors · 2001-11-27

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: November 20, 2001 APPEARANCES: Greg Jones, Esq. on behalf of Graef Mark Wenker, Esq. on behalf of Jacholte ADMINISTRATIVE LAW JUDGE: Allen Reed _____________________________________________________________________ The parties to these consolidated cases filed separate complaints against each other. Graef Construction, Inc. (Graef) is the Complainant in Docket No. 01F-G1053-ROC, but is the Respondent in Docket No. 01F-G1208-ROC which is the counterclaim filed by Jacholte Contracting LLC (Jacholte), as the Complainant. Jacholte is the Respondent in 01F-G1503-ROC. The cases have been consolidated for this hearing and in the interest of consistency and clarity, the parties will be referred to by their proper names (Graef and Jacholte), and not as the Complainant (Counter Respondent) or Respondent (Counter Complainant). Findings of Fact 1. The facts of this case are relatively straightforward. Graef was working on a project at Arrowhead Business Center at 69th Avenue and Bell Road in Glendale, Arizona. Graef was working under a contract with Layton Southwest Construction (Layton). 2. Layton requested Graef to do some additional work which consisted of connecting a water line to a water main on the other side of Bell Road. Graef did not have the time to do the work itself but its Field Operations Manager suggested that Jacholte might be able to do the work. Graef usually does its own work but in this case it contacted Jacholte about the job. 3. Jacholte contacted the City of Glendale engineering department and was informed of the specific requirements of the job. In general terms, the work consisted of trenching/excavating across Bell Road, laying a connecting water line and tapping into the main water line, filling the trench with slurry, and re-paving or patching the road with asphalt. The work included placement of steel plates across the trench so traffic could travel on Bell Road during the day, and the placement of barricades to direct traffic. The work could only be done at night and the City of Glendale would have an inspector on the site whenever work was being done. The inspector was on overtime which was billed at $90.00 an hour by Glendale. 4. Personnel from Jacholte and Jay Graef met at the job site. In the course of the discussions, Graef was told that some of the water line connecting work would be done by another company, B & F Contracting, Inc. (B&F). Graef believed the direct connection (hot tap) of the waterline to the main line was the only work which B&F would be doing. There is conflicting evidence of whether Graef was given a business card by Jacholte which would have shown the license it held was a Class K-2. In any case the question is not the amount of work Graef believed would be done by B&F, but rather the nature of the work and whether it was within the scope of Jacholte’s license. 5. On November 20, 2000, Jacholte sent a proposal to Graef which consisted of the work described in paragraph three above. Jay Graef testified he did not consider whether Jacholte was properly licensed to do all the work in the contract. Jacholte specifically excluded the costs for a number of items (hard dig, permit etc.) but did not make any mention of excluding the cost of the city inspector which ultimately came to $2523.64. The total cost of the proposal was $17,800.00. This cost included the cutting, laying and connecting of the pipe by B&F for $5,965.00. 6. On or about November 28, 2000, work began on the project. There were a number of problems during the project. The barricades did not arrive timely so the saw cutting could not begin. Even after the trench was dug, the surface of the road had not been properly “milled” so that the steel plates would be flush with the road surface over the excavated trench. Graef spent $507.50 to have the surface properly milled. The “tap saddle” into the main line was the wrong size. A water valve had to be raised. Towards the end of the project, traffic gridlock developed while asphalt was put down. The asphalt needed at least an hour to cure but the some of the barricades were removed and traffic began to cross some of the newly surfaced area and the asphalt developed dips. 7. The City of Glendale contacted Graef because of the problems with the asphalt. 8. In mid December, 2000, Graef was checking on Jacholte’s license to determine if it could properly do the work which was done. Jay Graef acknowledged part of his motivation was to get some leverage on Jacholte.

9. Graef did corrective work on a water valve box and had the asphalt repaired for $1,600.00, without notifying Jacholte. Graef also paid $918.46 for slurry and $337.98 asphalt which had been used by Jacholte and another $163.65 for asphalt on the repair. Graef had to accept a $6,000.00 reduction from Layton who had paid B&F for the work done for Jacholte, as well as pay the $2,523.64 for the city inspector. Claims for $6,500.00 in attorney fees to remove the preliminary lien and to obtain payment from Layton are not given significant weight. The amount does not appear reasonably related for what was sought or accomplished. During the instant hearing, Jacholte accepted the obligation to pay the city inspector. 10. On or about January 22, 2001, Jacholte sent Layton a preliminary 20 day lien notice in the amount of $18,400.00. According to Jacholte this was done at the suggestion of Layton when Jacholte complained that it had not been paid by Graef. The applicable statute, A.R.S. §33-992.01(C) provides that the preliminary notice shall be given no later than 20 days after the materials or services are provided. Jacholte had last worked on the project in early December 2001. 11. Layton did not pay Graef until the lien issue was resolved. Payment to Graef was finally made in October, 2001. 12. To date Graef has paid nothing to Jacholte because Jacholte was not properly licensed to do all the work it contracted for, has no warranty liability on the work it was not licensed to perform, and because of the payments made by Graef on behalf of Jacholte. Conclusions of Law 01F-G1053-ROC The allegations in docket no. 01F-G1053-ROC, Graef v. Jacholte, concern A.R.S.§32-1154(A)(1), abandonment or failure to perform without justification, (7), a wrongful or fraudulent act with substantial injury, (14), knowingly entering a contract with a contractor to perform work for which a license is required with the person not licensed in the required classification, (17), knowingly contracting beyond the scope of the license. 1. The evidence does not sustain a violation of (A)(1), because after Jacholte completed the project, it was not informed that any work had to be redone. 2. The violation of (A)(14) is not proven. The language of the statute is such that Jacholte as a contractor would knowingly have had to enter a contract with someone not licensed in the required classification. The facts do not establish this to be the case. 3. Jacholte was not properly licensed to do all the work for which it contracted, some of the work was not satisfactorily done, the preliminary lien was improperly submitted to Layton, and Jacholte did not pay for certain materials and services for which Graef had to pay. These constitute a wrongful act within the meaning of the statute. 4. The violation of (A)(17) is also proven. No particular standard was established for what constitutes paving as opposed to patching. Jacholte’s license allows commercial and residential excavating, grading and oil surfacing. Nothing in the rule, A.A.C. R4-9-102 allows a K-02 license to do asphalt paving which requires a Class A-14 license. Any basis for making a distinction between asphalt patching and paving was not shown to apply to this case. Jacholte cannot subcontract the pipe work which was done by B&F and requires an A-16 waterworks license.

Conclusions of Law 01F-G1208-ROC The allegations in docket no. 01F-G1208-ROC, Jacholte v. Graef, concern A.R.S. §32-1154(A)(7), a wrongful or fraudulent act with substantial injury, (11), failure to pay for materials or services. Jacholte moved to add a count under A.R.S. §32-1154(A)(14), entering a contract with someone not licensed in the required classification. The motion was denied as untimely. However the facts regarding that issue can be considered in the context of the parties claims and counterclaims and any relief, remedy or sanction which may be recommended. 5. The evidence establishes that Graef withheld payment from Jacholte. The question is whether this was justified. If all amounts listed in this recommended decision which are claimed as set off by Graef (except attorney fees), are accepted, (approximately $12,050.00), the amount would still leave $5,750.00 owing under the original contract. If the preliminary lien amount of $18,400.00 is considered credible, the amount is approximately $6,350.00. In either case the amount exceeds the $750.00 set forth in the statute. As already mentioned the attorney fees were not supported by reliable evidence and are not considered a justifiable set off. 6. Graef’s counsel argued that Jacholte was not entitled to proceed with a claim for payment because A.R.S.§32-1153 requires a contractor to show they were properly licensed to perform the work, in order to commence an action for compensation. Jacholte could not properly do asphalt work and could not properly subcontract pipe work to B&F. It is an interesting argument in the sense that Graef initiated the contact with Jacholte, entered the contract and received some benefit from work which Jacholte could properly perform under the license, but yet Graef holds up the statute as a bar to any payment to which Jacholte may be entitled for work it properly performed. The evidence was that B&F was properly licensed to perform its work. The issue raised by Graef is not without precedent. The Arizona Court of Appeals stated in Herman Chanen Const. Co. v. Northwest Tile and T. Co., 6 Ariz. App. 490 (1967), that a party could be estopped from raising the statute as a defense. The circumstances of that case are sufficiently similar to the instant case. The only difference being that in the instant case Graef knew that some of the work was being subcontracted to B&F and in the Chanen case, the court stated that the party raising the defense had insisted the work be subcontracted to the properly licensed contractor. 7. Under the facts of the case and considering Graef’s knowledge and share of responsibility for using Jacholte for work beyond the scope of its license, it is concluded that Graef has violated A.R.S. §32-1154(A)(7), a wrongful act. The exact extent of the injury is not determined but it is considered substantial in light of the failure to pay Jacholte anything on the contract. No evidence was presented which would show the exact cost of the work which was properly done (excavation) under Jacholte’s license, but the cost, whether in time and material or dollars is not insignificant. In light of the more general wrongful act violation, no specific violation of A.R.S.§32-1154(A)(11), is found. 8. Based on the evidence, both parties have sustained violations as set forth above. Recommended Order 01F-G1053-ROC In view of the foregoing it is recommended commencing the effective date of the Order entered in this matter that the Class K-02 license of Jacholte Contracting LLC be placed on probation for a period of sixty (60) days. Recommended Order 01F-G1208-ROC In view of the foregoing it is recommended commencing the effective date of the Order entered in this matter that the Class A license of Graef Construction Inc. be placed on probation for a period of sixty (60) days.

Done this day, November 27, 2001

______________________________________ Allen Reed 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