ALJDEC

01F-H0209-ROC-RES · Registrar of Contractors · 2001-11-02

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: October 25, 2001 APPEARANCES: Complainant Richard Davis Plumbing appeared through Richard Davis, its qualifying party. Respondent Elegant Custom Homes Inc. appeared through William Robertson, its qualifying party. ADMINISTRATIVE LAW JUDGE: Daniel G. Martin _____________________________________________________________________

The question presented by this matter is whether Respondent Elegant Custom Homes Inc. is subject to discipline for acts or omissions in violation of A.R.S. § 32-1154. Based on the evidence of record, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law and Recommended Order: FINDINGS OF FACT Complainant Richard Davis Plumbing (“Davis”) is the holder of a Class C-37R license (No. 148401) and a Class L-37 license (No. 148402) issued by the Registrar of Contractors (“ROC”). Richard Davis is Davis’ qualifying party. Respondent Elegant Custom Homes Inc. (“ECH”) is the holder of a Class B- license (No. 096693) issued by the ROC. William “Bill” Robertson is ECH’s qualifying party. Between September 21, 2000 and February 6, 2001, Davis entered into a series of nine written subcontracts with ECH to perform plumbing work at nine homes that ECH was constructing in and around Kingman, Arizona. All of the subcontracts contained the same provisions, and varied only as to the specifics of the scope of work for each project. The nine homes in issue, identified by the names of the streets on which they are located, are as follows: Apache, Calumet, Clark, Club, Dewey, 3290 Jewel (“Jewel 1”), 3304 Jewel (“Jewel 2”), Sioux and Yuma. On April 11, 2001, Davis filed a complaint against ECH with the ROC alleging non-payment for its work on the foregoing homes in the amount of $16,029.55. The Administrative Law Judge finds, from the evidence presented at hearing, that outstanding balances exist for five of the homes in question that are not disputed by the parties, as follows: |Home: |Balance Due: | | | | |Calumet |$1,588.00 | |Clark |$1,191.00 | |Dewey |$2,359.50 | |Jewel 1 |$1,588.00 | |Jewel 2 |$1,588.00 |

Regarding the Club home, the parties do not dispute that an outstanding balance exists in the amount of $1,290.00. However, there remains in dispute a claim by Davis for an additional $80.00 for a sink upgrade. The subcontract between the parties for the Club home provides that “[a]ny change in the work or deviation from drawings or specifications made without [ECH’s] written approval shall be at [Davis’] risk and expense. [See Exhibit J, at 3, Article 15(D)] Davis did not present any evidence that it obtained written approval from ECH for the sink upgrade for which it claimed the additional $80.00. Therefore, the Administrative Law Judge finds that Davis did not establish any basis to support its claimed entitlement to receive this payment. Based on the foregoing, the Administrative Law Judge finds that the outstanding balance for the Club home is $1,290.00. Regarding the Sioux home, the parties do not dispute that an outstanding balance exists in the amount of $1,948.00. However, there remains in dispute a claim by Davis for an additional $125.00 for corrective work performed by Davis after ECH’s concrete crew punctured several copper lines. At hearing, ECH asserted that under Article 15(D) of the subcontract for the Sioux home, Davis was not entitled to payment for its corrective work because it did not obtain a written change order from ECH. The Administrative Law Judge disagrees. The type of corrective work that Davis performed on the punctured copper lines does not qualify as a “change in the work or deviation from drawings or specifications” as required for a change order under Article 15(D). Instead, this work was reasonable and necessary corrective action necessitated by the act or omission of another contractor for which Davis was not responsible. In the absence of any evidence that Davis’ charge for this work was unreasonable ( and there is no such evidence in the record ( the Administrative Law Judge finds that Davis is entitled to compensation for this work in the amount of $125.00. Based on the foregoing, the Administrative Law Judge finds that the outstanding balance for the Sioux home is $2,073.00. Regarding the Yuma home, the parties do not dispute that an outstanding balance exists in the amount of $1,588.00. However, there remains in dispute a claim by Davis for $479.00 representing the balance due on the underground phase of the work at this home. The Administrative Law Judge finds that Davis established, by credible evidence, an additional balance due for the Yuma home in the amount of $479.00 for unpaid work on the underground phase. Based on the foregoing, the Administrative Law Judge finds that the outstanding balance for the Yuma home is $2,067.00. Regarding the Apache home, Davis claims that it is owed $700.00 for the installation of a soft water loop, $623.05 for four Delta brass shower valves, and $250.00 for corrective work performed by Davis to repair damage caused by ECH’s concrete crew. ECH disputes the entirety of this claim. There is no specification for a soft water loop in the subcontract for the Apache home, and Davis did not present any evidence that it obtained written approval from ECH to install a soft water loop in the Apache home. Therefore, the Administrative Law Judge finds that Davis did not establish any basis to support its claimed entitlement to receive payment for this work.[1] The subcontract for the Apache home specifies Moen polished brass shower valves. [See Exhibit Q, at 5] Davis asserts a $623.05 charge for Delta shower valves, but did not present any evidence that it obtained written approval from ECH to install these shower valves in lieu of the Moen valves, as required under Article 15(D). Therefore, the Administrative Law Judge finds that Davis did not establish any basis to support its claimed entitlement to receive payment for these materials. In contrast to the foregoing, and similar to the situation with the Sioux home, the Administrative Law Judge finds that Davis is entitled to reasonable compensation for the corrective work that it performed to repair damage caused by ECH’s concrete crew. There is no evidence in the record that the $250.00 charge is unreasonable for the work performed. Therefore, the Administrative Law Judge finds that Davis is entitled to compensation for its corrective work in the amount of $250.00. Based on the foregoing, the Administrative Law Judge finds that the outstanding balance for the Apache home is $250.00. Compiling all of the foregoing sums, the Administrative Law Judge finds the outstanding balances for all of the homes in question to be as follows: |Home: |Balance Due: | | | | |Apache |$ 250.00 | |Calumet |$ 1,588.00 | |Clark |$ 1,191.00 | |Club |$ 1,290.00 | |Dewey |$ 2,359.50 | |Jewel 1 |$ 1,588.00 | |Jewel 2 |$ 1,588.00 | |Sioux |$ 2,073.00 | |Yuma |$ 2,067.00 | | | | |TOTAL: |$13,994.50 |

As indicated in the above findings of fact, ECH did not dispute a number of the balances claimed due by Davis. Instead, ECH argued that these balances are subject to offset for amounts paid by ECH to complete Davis’ work or to resolve material liens. ECH further argued that it was within its contractual rights to withhold payments from Davis. In support of its first argument, ECH offered credible evidence that as to Calumet, Dewey and Sioux, ECH paid material liens attributable to Davis for these homes in the amounts of $838.63, $768.92 and $1,647.62, respectively. ECH offered further credible evidence that as to Apache and Calumet, ECH paid $1,840.00 and $59.00, respectively, to complete Davis’ work at these homes. At the Sioux home, ECH incurred a $320.00 charge to run a gas service line after Davis plumbed the initial service line on the wrong side of the house. At hearing, Mr. Davis testified that he ran the Sioux home’s gas line where he had been instructed to by James Robertson, one of ECH’s officers. Mr. Davis argued, based on this evidence, that he was not liable for the charge incurred by ECH to run a second line. The Administrative Law Judge disagrees. As the plumbing subcontractor, Mr. Davis was the person in the best position to assess the proper location for the gas service line, and therefore cannot be said to have reasonably relied on the instruction he received from James Robertson. Regarding the Clark, Jewel 1 and Yuma homes, ECH offered credible evidence that Davis’ material supplier, Hughes Supply, Inc. (“Hughes”), has filed liens in the amounts of $1,550.30, $1,902.92 and $979.60, respectively, on each of these homes. ECH asserted its intention to satisfy these liens, and thereby its entitlement to an offset of these amounts against the balances claimed due by Davis. The Administrative Law Judge finds that because ECH has not yet satisfied the foregoing liens, it is not entitled to a direct offset. However, as further explained in Conclusion of Law No. 8, the amount of these liens will be deducted from the balance due from ECH to Davis upon the condition that ECH pays the amounts due directly to Hughes. In addition to its claims for offset for liens paid and work performed, ECH seeks a 15% “handling charge” for the Apache, Calumet, Jewel 1, Jewel 2, Sioux and Yuma homes under Article 13(B) of its subcontract with Davis. This section provides that if Davis “fails or neglects to prosecute the work or any portion thereof properly . . ., [ECH], after three (3) days written notice to [Davis], . . . may complete all or any part of the work. In such an event, the Subcontract price shall be reduced in the following manner: 1. If [ECH] does all or any part of such work through others, the Subcontract price shall be reduced by an amount equal to the cost to [ECH] of doing such work plus a fifteen percent (15%) handling charge”. There is no credible evidence in the record that ECH provided Davis the three days written notice that is a contractual condition precedent to the imposition of the 15% handling charge. Therefore, ECH is not entitled to an offset for any such charges. Compiling all of the charges for which ECH is entitled to claim an offset, the Administrative Law Judge finds the total offsets for all of the homes in question to be as follows:

|Home: |Offset: | | | | |Apache |$1,840.00 | |Calumet |$ 897.63 | |Clark |$ 0.00 | |Club |$ 0.00 | |Dewey |$ 768.92 | |Jewel 1 |$ 0.00 | |Jewel 2 |$ 0.00 | |Sioux |$1,967.62 | |Yuma |$ 0.00 | | | | |TOTAL: |$5,474.17 |

By subtracting the total offsets ($5,474.17) from the total of the outstanding balances due from ECH to Davis ($13,994.50), the Administrative Law Judge finds that ECH owes Davis $8,520.33. At hearing, ECH urged that under Article 5(E)(1) of its subcontracts with Davis (see, e.g., Exhibit A, at 2), ECH could withhold payments from Davis if it held a reasonable doubt that Davis was unable to complete its work for the balance then unpaid. In support of this argument, ECH offered credible evidence that on the Clark and Jewel 1 jobs, the amount that Davis owed Hughes for fixtures to complete its work was greater than the amount of the final draws due from ECH to Davis. ECH further offered credible evidence that as of April 25, 2001, Davis’ accounts with Hughes had been closed for non-payment. In contrast to ECH’s position, Davis asserted that subcontractors occasionally take losses on contracts, and that the existence of such situations does not entitle a general contractor to withhold payment and exacerbate an already difficult financial situation. Davis urged that if he had been paid, he would in turn have paid Hughes, and that much of the current dispute could have been avoided. The Administrative Law Judge finds, on the facts of this case, that the terms of the subcontract support ECH’s position. The evidence demonstrated that during the time in issue, Davis was having financial difficulty, and that ECH had confirmed Davis’ inability, on two pending projects, to purchase the fixtures necessary to complete its work. The Administrative Law Judge finds such circumstances to constitute “reasonable doubt” sufficient for ECH to have elected to withhold payment from Davis sufficient to protect ECH’s interests. ECH’s decision to withhold all payment from Davis, however, is not supported by the evidence. As ECH admitted at hearing (and as demonstrated in Exhibit C, prepared by ECH), even accounting for all of the offsets that ECH sought to impose against Davis, there still remained a balance in the amount of $1,483.01 that ECH should have paid to Davis. CONCLUSIONS OF LAW In this proceeding, Davis bears the burden to prove, by a preponderance of the evidence, that ECH is subject to discipline for violations of A.R.S. § 32-1154(A)(7) and/or (A)(11) as charged by the ROC in its May 17, 2001 Citation and Complaint. See Arizona Administrative Code (“A.A.C.”) R2-19-119. A preponderance of the evidence is “such proof as convinces the trier of fact that the contention is more probably true than not.” Morris K. Udall, Arizona Law of Evidence § 5 (1960). Under A.R.S. § 32-1154(A)(11), a contractor is subject to discipline for “failure . . . to pay monies in excess of seven hundred fifty dollars when due for materials or services rendered . . . .” The evidence demonstrated that ECH properly relied on the terms of the subcontract to withhold payments from Davis to the extent such withholding was necessary to protect ECH’s interests. The evidence also demonstrated, however, that a balance of $8,520.33 is due from ECH to Davis (subject to satisfaction of the outstanding liens), and of this amount, ECH should have paid to Davis at least $1,483.01. There was no evidence presented that ECH lacked capacity to pay this amount. Therefore, the Administrative Law Judge concludes that ECH stands in violation A.R.S. § 32- 1154(A)(11). Under A.R.S. § 32-1154(A)(7), a contractor is subject to discipline for “the doing of a wrongful or fraudulent act . . . as a contractor resulting in another person being substantially injured.” The evidence established that ECH committed a wrongful act when it failed to pay Davis the $1,483.01 that ECH knew to be due and owing, and that such wrongful act substantially injured Davis by depriving Davis of a significant amount of money to which Davis was lawfully entitled. Based on the foregoing violations, it is appropriate to impose discipline against ECH’s Class B- license. The ROC’s May 17, 2001 Citation and Complaint advised ECH that in the event of a finding of a violation against it, ECH’s prior disciplinary record of final ROC orders could be considered in mitigation or aggravation. Accordingly, subsequent to the conclusion of the instant hearing, the Administrative Law Judge took notice of prior final disciplinary orders against ECH in the ROC’s official records. Those records revealed that ECH has been the subject of one final ROC disciplinary order within the past two years. The Administrative Law Judge considered this factor when determining appropriate recommended discipline for this matter. Upon consideration of all of the facts and circumstances presented by this case, the Administrative Law Judge concludes that ECH’s Class B- license should be suspended. The Administrative Law Judge further concludes, however, that such suspension should be conditional and that ECH should be given the opportunity to avoid suspension by making payment to Davis of the outstanding balance due. As stated above, the total balance due from ECH to Davis is $8,520.33. However, this amount should be reduced by the outstanding Hughes liens ($4,432.82) (see Finding of Fact No. 26), which amount should be paid directly from ECH to Hughes. Therefore, ECH can avoid suspension by making payment to Hughes in the amount of $4,432.82, and paying the remaining balance of $4,087.51 to Davis.

RECOMMENDED ORDER Based on the foregoing, the Administrative Law Judge makes the following Recommended Order: Commencing on the effective date of the Order entered in this matter, ECH’s Class B- license shall be suspended until the ROC receives credible written proof that ECH has paid or tendered to Hughes the sum of $4,432.82 AND has paid or tendered to Davis the sum of $4,087.51. If ECH pays or tenders to Hughes the sum of $4,432.82 AND pays or tenders to Davis the sum of $4,087.51 on or before the effective date of the Order entered in this matter, and provides credible written proof to the ROC of such payments, then the above provided suspension shall not take place and this matter shall be closed.

Done this day, November 14, 2001.

______________________________________ Daniel G. Martin Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 2001, to:

Michael P. Goldwater, Director Registrar of Contractors ATTN: Joyce Armijo 800 West Washington, 6th Floor Phoenix, AZ 85007

By ___________________________ ----------------------- [1] The Administrative Law Judge acknowledges that Davis’ proposal to ECH for the Apache home references the installation of a soft water loop. [See Exhibit 2, proposal for Jerry and Rosalba Homer] However, the soft water loop was not made a part of the subcontract for the Apache home, and that subcontract, by its terms, represents the entire agreement between the parties. [See Exhibit Q, at 5, Article 31]

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