ALJDEC

01F-H0252-ROC · Registrar of Contractors · 2001-11-02

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: October 24, 2001. The record closed on November 5, 2001. APPEARANCES: Lawson Development Inc. appeared through Rodney Lawson, its qualifying party. Nelson Construction Inc. appeared through Larry Nelson, its qualifying party. ADMINISTRATIVE LAW JUDGE: Daniel G. Martin _____________________________________________________________________

The question presented by this consolidated matter is whether Lawson Development Inc. and/or Nelson Construction 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 Lawson Development Inc. (“Lawson”) is the holder of a Class KB-02 license (No. 144674) issued by the Registrar of Contractors (“ROC”). Rodney Lawson is Lawson’s qualifying party. Nelson Construction Inc. (“Nelson”) is the holder of a Class C-07 license (No. 125900) issued by the ROC. Larry Nelson is Nelson’s qualifying party. In July 2000, Lawson served as general contractor on the construction of a custom home in Kingman, Arizona for Jim and Paula Acer. On July 12, 2000, Nelson submitted a bid to Lawson for the framing of the Acers’ new home. Nelson’s bid contained two options. Under Option A, Nelson proposed to complete the framing (labor only) for $29,000.00. Under Option B, Nelson proposed to complete the framing (labor only) on a cost plus basis. [See Exhibit 1, at 4] In preparing its bid, Nelson reviewed the plans for the Acers’ home, and calculated that the home contained 8,077 square feet.[1] Nelson multiplied this square footage by its framing rate of $3.50 per square foot to yield a base price of approximately $28,200.00, and then added $800.00 as an additional cost to frame the Acers’ spiral staircase to reach the total bid price of $29,000.00. Lawson verbally advised Nelson that it had accepted Option A of Nelson’s July 12, 2000 bid. However, the parties never reduced that agreement to a written contract. In the months that followed Lawson’s acceptance of Nelson’s bid, the Acers made a number of design changes to their home. Due to the time spent in making these changes (and for other reasons not relevant to the present dispute), construction of the Acers’ new home (beginning with the concrete work) did not commence until January 2001. Nelson began framing the Acers’ home on February 9, 2001. On February 10, 2001, after it had already begun work, Nelson submitted a new framing bid to Lawson. This bid was drawn from Nelson’s calculation, based on the Acers’ final construction drawings, that the total square footage for the Acers’ home was 8,832 square feet (again, Nelson doubled the area underlying the vaulted ceiling ( see footnote 1). This revised calculation, multiplied by Nelson’s $3.50 per square foot rate, yielded a revised cost of $30,912.00. After addition of the $800.00 cost to frame the spiral staircase, the total of Nelson’s revised bid was $31,712.00. Nelson specified in its February 10, 2001 bid that framing draws of $4,000.00 each would be due February 15 and 22, 2001, and March 1, 8, 15, and 29, 2001. According to Larry Nelson, Lawson verbally agreed to pay Nelson the revised bid price. However, as with Nelson’s prior bid, the parties did not reduce their agreement to a written contract. Framing work on the Acers’ home proceeded smoothly for a period of four to five weeks. Lawson timely paid the $4,000.00 draws specified in Nelson’s February 10, 2001 bid. There is no significant dispute between the parties that the Acers’ home was a complex project, and that only a certain number of carpenters in the Kingman area (Nelson included) were capable of performing the framing work. Beginning in approximately the sixth week of framing (on or about March 19, 2001), the pace of Nelson’s work began to slow, as did the size of Nelson’s work crews. Lawson presented credible evidence that in the sixth, seventh and eighth weeks of framing (approximately March 19, 2001 through April 6, 2001), Nelson did very little work at the Acers’ home, notwithstanding the fact that Lawson continued to pay Nelson the weekly $4,000.00 draws. During the course of the framing of the Acers’ home, the Acers requested, and Nelson agreed, to make several changes in the home’s design. Additionally, Larry Nelson made suggestions for changes and improvements in the Acers’ home that the Acers accepted and incorporated into their design. Nelson also took it upon itself, from time to time, to make improvements in the Acers’ home that were not specified in the plans and which were not first approved by either Lawson or the Acers. The parties had no formal agreement covering change orders, but Larry Nelson told the Acers that the changes to their home (both those they had requested and those that Nelson had proposed) would cost between $500.00 and $1,000.00, and that they need not worry about the costs because he was not going to “nickel and dime” them. Nelson’s representation to the Acers was consistent with Lawson’s prior experience with Nelson in two other construction projects. In the ninth and tenth weeks of framing (April 9, 2001 through April 20, 2001), Lawson continued to press Nelson to complete the framing of the Acers’ home. However, little work was performed. As of April 6, 2001, Lawson had paid Nelson $30,000.00 for Nelson’s work on the Acers’ home. The framing was, by Larry Nelson’s estimate, between 80% and 90% complete as of this time. On April 25, 2001, Nelson submitted an invoice to Lawson for $3,000.00 (stated to be due the following day). [See Exhibit A] According to Nelson’s invoice, the balance due after payment of the $3,000.00 was $1,249.00. [Id.] Accepting for purposes of this finding of fact that Nelson’s February 10, 2001 bid for $31,712.00 represented the agreed-upon contract price between the parties, Nelson’s April 25, 2001 invoice to Lawson represented an increase of $2,537.00. Nelson attributed this increase to all of the “extras” it had completed at the Acers’ home. On Friday, April 27, 2001, Larry Nelson, Rodney Lawson and Jim Acer met to discuss the status of the project and Nelson’s April 25, 2001 invoice. The following Monday, April 30, 2001, Lawson and Nelson entered into a written agreement by which they established and agreed that Nelson would complete the framing to plan for a total price of $33,500.00. [See Exhibit 1, at 6-7] Lawson agreed to pay Nelson $2,500.00 on May 3, 2001, and the balance of $1,000.00 upon completion of the rough carpentry. The Administrative Law Judge finds that by its terms, this new contract provided for compensation to Nelson for all of the “extras” that Nelson had, to that date, completed at the Acers’ home. Lawson paid Nelson the above-referenced $2,500.00 on May 7, 2001. After receiving the $2,500.00 payment, Nelson performed some further work on the Acers’ home. However, the Administrative Law Judge finds, based on the weight of the evidence presented at hearing, that Nelson did not complete the framing of the Acers’ home. The Administrative Law Judge further finds, as to the work actually performed, that Nelson took an excessive amount of time to complete that work. On May 20, 2001, Rodney Lawson drew up a list of 22 framing items that remained unfinished. Lawson delivered this list to Nelson on May 21, 2001. At hearing, Nelson asserted that it completed the items set forth on Lawson’s list (or at least those items for which Nelson believed it was responsible). The Administrative Law Judge finds, however, on the weight of the credible evidence, that Nelson did not complete the list. Nelson did not present any probative or credible evidence at hearing that would constitute legal excuse for its failure to have completed the framing of the Acers’ home. On June 3, 2001, Lawson filed a complaint against Nelson with the ROC alleging “Larry Nelson Const[ruction] did not finish the framing job, thus I’ve had to work 10 days after work weekends to complete this job.” On June 7, 2001, Nelson filed a complaint against Lawson alleging “none [sic] payment of final balance of contract.” Nelson alleged that in addition to the $1,000.00 that remained unpaid under the April 30, 2001 contract, Lawson owed Nelson an additional $1,875.00 for additional (but unspecified) “extras.”

ROC Inspector William “Bill” Redman investigated the Lawson and Nelson complaints. On June 12, 2001, Inspector Redman conducted a jobsite inspection at the Acers’ home. On June 18, 2001, Inspector Redman issued a Corrective Work Order (“CWO”) under which the ROC gave Nelson 15 days to complete the following work:

1. Set vega pole in kitchen if same is on plans. 2. Adjust all exterior doors to close/open properly. 3. Vega pole behind bar must fit tighter to glu[e] lam. 4. Cut off 5” x-ray 9” glue laminated beam protruding into entry. 5. Install required blocking around stairway to meet code. 6. Re-do top of stairway railing in a workmanlike manner. 7. Niches in dining room to be built like other niches in house. 8. Properly cut plywood bottom plate under stairway. 9. Install proper framing under stairway for drywall.

On June 29, 2001 ( within the 15 day period established by the CWO ( Nelson arrived at the jobsite to perform the required corrective work. However, prior to this time, Lawson had already made many of the required corrections. Further, as of June 25, 2001, the Acers had written to Inspector Redman and requested that the list of 9 items set forth in the CWO be expanded to 63 items, a number of which had been called to their attention by the City of Kingman Building Department during a June 22, 2001 inspection. [See Exhibit 1, at 19 & 20-22] The Administrative Law Judge finds that the items identified by the City of Kingman Building Department as requiring correction, as well as other items identified by the Acers in their June 25, 2001 letter but not set forth in the CWO, fall outside the scope of the CWO. However, the Administrative Law Judge has considered these items insofar as they apply to the issue of Nelson’s workmanship. Regarding the CWO, the Administrative Law Judge finds that Nelson completed the stairway railing (item no. 6) and adjusted some, but not all, of the exterior doors (item no. 2). The kitchen vega pole (item no. 1) does not appear on the plans, and therefore, under the terms of the CWO, Nelson was not required to set this pole. As to CWO item no. 3 (vega pole behind bar must fit tighter to glue lam), the Administrative Law Judge finds that Nelson failed to correct this deficiency with the result that Lawson was required to apply a double layer of sheet rock to this area of the ceiling. As to the remaining CWO items (nos. 4, 5, 7, 8 and 9), the Administrative Law Judge finds that Lawson deprived Nelson of the opportunity to complete this work by completing it itself, on its own initiative, prior to the expiration of the 15 day period set forth in the CWO. As to CWO items nos. 2 and 3, the Administrative Law Judge finds that Nelson failed to comply with the CWO, and that no valid justification exists for that failure. At hearing, Lawson requested reimbursement (approximately $5,000) for the time it spent performing work for which it believed Nelson was responsible. Based on all of the evidence presented, the Administrative Law Judge concurs with Lawson’s position that some reimbursement would be appropriate. However, Lawson failed to present any probative evidence upon which the Administrative Law Judge could formulate a rationally-based award of restitution. Therefore, the Administrative Law Judge declines to make a recommendation of restitution in this matter. Nelson requested that it be awarded the $1,000.00 that remained unpaid under the April 30, 2001 contract, and an additional $1,875.00 (as alleged in its complaint) for “extras.” The terms of the April 30, 2001 contract between the parties made the final payment of $1,000.00 contingent on completion of the framing. Nelson failed to complete the framing. Therefore, Nelson is not entitled to receive this payment. The terms of the April 30, 2001 contract between the parties provided for compensation to Nelson for all of the “extras” that Nelson had, to that date, completed at the Acers’ home. Nelson failed to present any probative evidence as to the completion of any “extras” after that date for which it would be entitled to receive additional compensation (and in fact argued adamantly at hearing that after April 30, 2001, it performed work only to plan). Therefore, Nelson is not entitled to receive any of its claim for $1,875.00 in additional compensation. On August 8, 2001, the ROC issued a Citation and Complaint charging Lawson with violations of A.R.S. § 32-1154(A)(7) (wrongful or fraudulent act resulting in substantial injury) and (A)(11) (failure to pay monies in excess of seven hundred fifty dollars when due). Also on August 8, 2001, the ROC issued a Citation and Complaint charging Nelson with violations of A.R.S. § 32-1154(A)(1) (abandonment of a contract or refusal to perform), (A)(2) (departure from or disregard of plans and specifications), (A)(7) (wrongful or fraudulent act resulting in substantial injury), (A)(23) (failure to take appropriate corrective action in response to a written directive from the ROC) and (A)(3) (violation of any rule adopted by the ROC, in this case, Arizona Administrative Code (“A.A.C.”) Rule R4-9-108 covering workmanship standards). CONCLUSIONS OF LAW In this proceeding, Nelson bears the burden to prove, by a preponderance of the evidence, that Lawson is subject to discipline for violations of A.R.S. § 32-1154(A)(7) and/or (11) as charged by the ROC in its August 8, 2001 Citation and Complaint. Lawson, on the other hand, bears the burden to prove, by a preponderance of the evidence, that Nelson is subject to discipline for violations of A.R.S. § 32-1154(A)(1), (A)(2), (A)(3), (A)(7) and/or (A)(23) as charged by the ROC in its August 8, 2001 Citation and Complaint. See 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). Nelson’s Complaint Against Lawson 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 in connection with the licensee’s operations as a contractor when the licensee has the capacity to pay . . . .” Based on the evidence presented, the Administrative Law Judge concludes that Nelson failed to establish that it was entitled to receive any further payment from Lawson following Lawson’s May 7, 2001 payment to Nelson of the $2,500.00 called for by the April 30, 2001 agreement. Therefore, Nelson failed to establish that Lawson violated 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 Administrative Law Judge concludes that Nelson failed to establish that Lawson violated A.R.S. § 32-1154(A)(7). There is no credible evidence of record that Lawson committed any wrongful or fraudulent acts that substantially injured Nelson. Because Nelson failed to prove that Lawson violated the provisions of A.R.S. § 32-1154(A), no grounds exist to impose discipline against Lawson’s license. The ROC’s Citation in Case Number H01-0252, and the Complaint upon which it is based, should be dismissed. Lawson’s Complaint Against Nelson Under A.R.S. § 32-1154(A)(1), a contractor is subject to discipline for “abandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.” The Administrative Law Judge concludes that Nelson violated A.R.S. § 32-1154(A)(1) because Nelson failed to complete the framing of the Acers’ home, and failed to present any probative or credible evidence that it was legally excused from completing that work. Under A.R.S. § 32-1154(A)(2), a contractor is subject to discipline for “departure from or disregard of plans and specifications . . . in any material respect which is prejudicial to another. . . .” The evidence of record demonstrated that during the framing process, changes were made to the design of the Acers’ home. However, as of April 30, 2001, the parties had ratified those changes, and had agreed on the compensation that Nelson would receive for its work on those items. There is no evidence in the record that Nelson departed from or disregarded the plans and specifications after April 30, 2001, and therefore Lawson failed to establish that Nelson violated A.R.S. § 32-1154(A)(2). Under A.R.S. § 32-1154(A)(3), a contractor is subject to discipline for “violation of any rule adopted by the registrar.” In this case, the ROC charged Nelson with a violation of A.A.C. R4-9-108, which, among other things, requires contractors to perform work in a professional and workmanlike manner and in accordance with any applicable building codes and professional industry standards. The Administrative Law Judge concludes, from the evidence presented, that Nelson failed to perform some portions of its work in a professional and workmanlike manner as evidenced by the items set forth in the CWO and further by the violations cited by the City of Kingman Building Department during its June 22, 2001 inspection. Therefore, Nelson violated A.A.C. R4- 9-108, and in turn violated A.R.S. § 32-1154(A)(3). Under A.R.S. § 32-1154(A)(23), a contractor is subject to discipline for “failure to take appropriate corrective action . . . without valid justification within a reasonable period of time after receiving written directive from the registrar.” The Administrative Law Judge concludes, from the evidence presented, that Nelson failed to comply with the ROC’s June 18, 2001 CWO, and that no valid justification exists for that failure. [See Finding of Fact No. 36] Therefore, Nelson violated A.R.S. § 32-1154(A)(23). 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 Administrative Law Judge concludes, from the evidence presented, that Nelson committed several wrongful acts that substantially injured Lawson, including (1) failing to complete the framing of the Acers’ home, (2) failing to complete its work in a timely and workmanlike manner, and (3) failing to comply with the CWO. Therefore, Nelson violated A.R.S. § 32- 1154(A)(7). Based on the foregoing, it is appropriate for the ROC to impose discipline against Nelson’s license. The ROC’s August 8, 2001 Citation and Complaint advised Nelson that in the event of a finding of a violation against it, Nelson’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 Nelson in the ROC’s official records. Those records revealed that Nelson has not been the subject of any ROC disciplinary orders within the past two years. The Administrative Law Judge considered this disciplinary record as a mitigating 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 the ROC should suspend Nelson’s Class C-07 license for a period of three (3) days and place Nelson’s Class C-07 license on disciplinary probation for a period of one hundred and eighty (180) days. There is insufficient evidence to support Lawson’s claim for restitution (see Finding of Fact No. 37), and therefore no such award should be made. RECOMMENDED ORDERS Based on the foregoing, the Administrative Law Judge makes the following Recommended Orders: With regard to Docket Number No. 01F-H0252-ROC, it is recommended that no discipline be imposed against Lawson’s license, and that the Citation issued in Case Number H01-0252, together with the Complaint on which it is based, be dismissed. With regard to Docket Number 01F-H0250-ROC, it is recommended, commencing on the effective date of the Order entered in this matter, that Nelson’s Class C-07 license be suspended for a period of three (3) days. With regard to Docket Number 01F-H0250-ROC, it is further recommended, commencing on the effective date of the Order entered in this matter, that Nelson’s Class C-07 license be placed on disciplinary probation for a period of one hundred and eighty (180) days.

Done this day, November 27, 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 Acers’ home was not in fact this large. However, because the Acers’ plans called for a 20 foot high vaulted ceiling over an area of 1,560 square feet, Nelson doubled this square footage in drawing up its bid to reflect the level of difficulty/risk in the framing of this section of the home.

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