ALJDEC (decisions subject to certification as fin)

02F-M1626-ROC · Registrar of Contractors · 2003-04-22

STATE OF ARIZONA IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: Six separate hearing sessions commencing on January 16, 2003 and concluding on April 3, 2003.

APPEARANCES: >The Complainant was represented by its attorney, Christine A. Bailey, Esq. >The Respondent was represented by its attorney, Craig L. Keller, Esq.

ADMINISTRATIVE LAW JUDGE: Robert I. Worth ________________________________________________________________

Evidence and testimony were presented, and based upon the entire record, the following Findings of Fact, Conclusions of Law and Recommended Order are made.

FINDINGS OF FACT

1. Pursuant to a written contract, dated on October 12, 2001, Complainant agreed to and did perform general contracting services on a tenant improvement project at a newly constructed shopping mall property.

2. Robert H. Nuttall (herein called “Mr. Nuttall”) has been and is serving as President and Qualifying party under the contracting licenses issued to Respondent’s

corporate entity, Precision Developments, Inc. (herein called “Precision”). Such entity holds both Commercial Class B-01 and Residential Class B licenses issued by the Registrar of Contractors.

3. The same individual, Mr. Nuttall, also serves as an owner and operator of New Sun Financial Corp. (herein called “New Sun”), which entity is the sole member of Dolce Salon & Spa, L.L.C. (herein called “Dolce”). Mr. Nuttall and his wife are the major, if not the sole, stockholders of both Precision and New Sun. The actual principal operator of Dolce is Brandi Nuttall, the daughter of Mr. Nuttall, but during the construction phases of the subject tenant improvement project, Mr. Nuttall was acting as Dolce’s representative.

4. From the outset, Complainant’s scope of work was not to have encompassed the entire tenant improvement project. Dolce would be responsible for accomplishing certain designated portions of the overall work through its own suppliers and subcontractors.

5. The evidence adduced at the hearing tended to indicate that Complainant’s President and Qualifying Party, Frank Baron, conducted all aspects of the arrangements for and performance of construction-related activities with Mr. Nuttall, customarily at the latter’s office premises which was shared, at least ostensibly, by all of the above-described related entities. Precision filed a separate Certificate of Liability Insurance with the Landlord, Westcor and/or Propcor II, and many documents that were generated during the course of construction were either directed to or sent by Precision.

6. The documentary evidence revealed that Dolce was the entity named in the written construction agreement with Complainant that had been prepared and presented to Complainant by Mr. Nuttall, who signed such contract on behalf of Dolce as its representative. However, under all the circumstances, it must be found and

determined that Mr. Nuttall did not sufficiently disassociate himself from Precision when serving simultaneously as the tenant’s (Dolce’s) representative or as the owner and operator of New Sun, the entity that was the sole member of Dolce and the source of ongoing loans to Dolce with which the project was financed.

7. The Registrar of Contractors should not and does not condone or give separate recognition to an individual hopping between different licenses, and this reasoning is no less applicable to any person hopping between licensed and non-licensed entities. Consequently, through Mr. Nuttall’s common denominator involvement, Precision is found to share responsibility with Dolce for all aspects of the contractual dealings with Complainant. Subsequent references to Respondent in this decision shall encompass Dolce as well as Precision.

8. The total contractual price, based upon a submitted line-item bid from Complainant, was stated as $287,410.00. Several subsequent adjustments to the original contract price were made, most of which were not disputed. An additional 5-ton air-conditioning unit was to be provided at an increased cost of $2,975.00. Certain items, subsequently deleted from Complainant’s scope of work, consisting of a storefront for $12,499.96 and four feeder panels for $1,500.00, were to generate reductions against or exclusions from the original contract price. The testimonial and documentary evidence tended to indicate that the resulting adjusted contract price became $276,385.04.

9. The above-described contract price was expressly to include the obtaining by Complainant of a required local permit, irrespective of the absence of this element on the line-item bid authored and submitted by Complainant. Despite the fact that Dolce paid $1,192.65 for that permit and also made a direct payment of $2,975.00 to the provider for the added 5- ton air-conditioning unit, these payments did not further alter or

adjust the applicable contract price. However, such payments would and should serve as valid credits against the overall contractual price, in the total combined amount of $4,167.65, as part of any final accounting.

10. It was mutually admitted that the aggregate monetary amount of all contractual payments received by Complainant from Respondent or its related entities was $199,939.09. Nor was it disputed that Complainant was not allowed to and did not fully complete this project, having been terminated by the action of Mr. Nuttall on January 22, 2002.

11. The instant claim by Complainant was for the sum of $70,044.10 (See Complainant’s Exhibit “HH”) representing the allegedly past due, owing and unpaid balance, after all payments had been credited, for the work actually performed on the project by Complainant up to the date of termination. Complainant had calculated the monetary value of such performed jobsite work as $269,893.19, a sum that was $6,401.85 less than the finally adjusted contract price without counting appropriate credits totaling $4,167.65 for the permit cost and the direct payment for the added air conditioning unit. In effect, the claimed total value of Complainant’s work performed prior to its termination would be a figure that was only $2,234.20 less than the final net amount payable under the parties’ contractual arrangements.

12. The express terms of the parties’ contract had provided that the entire project would be completed in approximately nine weeks, or by December 24, 2001. Although Complainant declined to agree to a daily liquidated damage penalty for exceeding the stated deadline date, all parties were clearly shown to have been fully aware of the importance of achieving completion no later than a specified future date, most importantly to enable Dolce to take advantage of receiving a very substantial incentive payment from the Landlord upon opening for business by such fixed date in early February, 2002. Moreover, the prospective salon and spa employees of Dolce,

many of whom had left other gainful employment, had to be compensated while awaiting an opportunity to become financially productive after the commencement of the establishment’s salon and spa operations.

13. Numerous and repeated oral and written notifications transmitted to Complainant from Mr. Nuttall specifically outlined the aspects of the contract work that were incomplete or not even commenced, as well as indicating identified deficiencies in various portions of the overall work that had been performed and the ongoing need for more adequate staffing of the project by Complainant’s selected subcontractors or workers. Most of the notifications also emphasized the upcoming deadline dates for completion.

14. The initially projected and contractually specified date for completion of December 24, 2001 was not met, and other specified completion dates of January 7, 2002 and in mid-January, 2002 that subsequently had been verbally communicated by Complainant, were also not met. Complainant was unable to sufficiently demonstrate that all of the delays affecting its portion of the project were attributable to Dolce or its selected suppliers and subcontractors.

15. Following a heated confrontation on the jobsite between Frank Baron and Robert Nuttall on the evening of January 21, 2002, at which time the project was approaching finalization, Respondent terminated the further services of Complainant on the project the next morning, January 22, 2002. Shortly thereafter, when it became evident that another general contractor could not be induced to quickly step in to achieve full completion, Respondent undertook the performance of all aspects of completion and correction work as a successor general contractor. This substitution was deemed necessary to enable the holding of a planned, but already once- postponed, pre-opening party and also to enable the actual business operation opening before the ultimate fast-approaching deadline date to be met so as not to lose substantial financial incentives made available by the Landlord.

16. The action of Respondent in terminating Complainant’s jobsite services was not shown to have been inappropriate or unwarranted in light of the prolonged duration that the project was allowed by Complainant to remain incomplete, especially since there would be an applicable duty and understandable objective to mitigate damages. Especially in light of the extremely short remaining time duration in which to effectively enable a timely opening for business, any contractual obligation to transmit a notice of termination one week in advance must be held to have been impractical and inapplicable under all the circumstances.

17. After Mr. Nuttall had received periodic draw requests from Complainant for progress payments, he made all arrangements for the transmitting of monies by checks from New Sun on a prompt basis. In point of fact, except for one such payment being a single day late, all payments against four other separate draw requests were remitted earlier than the time period set forth in the parties’ contract. (See Respondent’s Exhibit “33”). The last payment against a draw request that was invoiced by Complainant on January 10, 2002 was paid in substantial part by Respondent on January 16, 2002, and no subsequent payments were made by Respondent to Complainant after the termination date. [1]

18. Two of Complainant’s five submitted draw requests were paid in full, but the other three requests were reduced by Mr. Nuttall who, in his sole and uncontrolled discretion, had determined that some of the invoiced amounts were excessive in relation to the percentage of work deemed to have been actually completed with respect to certain of the identified items. The evidence did not indicate that there was any abuse of discretion on the part of Mr. Nuttall or that the nature and amounts of withholding from the requested draws were otherwise improper.

19. Respondent was successful in causing the completion of the project in time to enable the above-described planned, but postponed, opening party, and also to open for business before the passage of the early February deadline date that was applicable for eligibility to receive the Landlord’s monetary incentives.

20. Following the date of termination of Complainant from the project, repeated contacts were initiated by Complainant’s owner, Frank Baron, both by telephone and by letter, seeking to obtain payment of a significant monetary balance claimed due and owing for work performed on the project prior to termination. Mr. Nuttall’s responses were to the effect that any final accounting must await the assembly and evaluation of all expenses incurred after termination in the event that the costs of completion were greater or less than the then-remaining contractual balance, as adjusted.

21. When deciding to implement the termination action, Mr. Nuttall admittedly recognized that the completion costs to be incurred would likely be greater than if Complainant were allowed to finish its scope of work. However, the failure by Complainant to achieve two or three promised completion dates before a rapidly approaching deadline date, as well as the observed under-staffing on the jobsite that appeared to continue, served to prompt a determination by Mr. Nuttall that the advisability of a termination action prior to completion outweighed the risks or the probability of incurring higher expenditures.

22. It must be remembered that Complainant would have remained obligated to fully complete all contemplated work for the bid price that had ripened into a contract, irrespective of whether or not the actual costs of finishing or correcting everything in its scope of work might have exceeded the contractual balance remaining unpaid or even if the full contract consideration had already been paid at that time. Stated alternatively, even if the value of the work performed by Complainant prior to termination had a realistic value of $269,983.19, as calculated by Complainant, any entitlement to the

difference between such purported value and the amount actually received to that point in time would necessitate a showing that the reasonably anticipated costs for all remaining work within Complainant’s scope would not have exceeded the sum of approximately $6,500.00, which represented the balance of the adjusted contract price, lowered further by the combined credit amounts of $4,167.65 shown to be due from Complainant.

23. No sufficient showing was made by Complainant that the completion of its scope of work could have been achieved for costs no greater than $2,234.20, which was the net amount remaining unpaid under the parameters of the accepted bid price, as subsequently adjusted, and after application of appropriate credits. To the contrary, the evidence tended to indicate that the minimum completion and correction costs would be and were, in fact, significantly greater.

24. Respondent contends that the costs ultimately incurred for completing Complainant’s scope of work on this project after having terminated Complainant were somewhat greater than $130,000.00, a figure that far exceeds any contractual balances that were not paid, thereby also tending to potentially create an affirmative entitlement to recovery from Complainant by either Dolce or Respondent for any excess expenditures.

25. It appeared that Respondent, after taking over as a successor general contractor for the completion or correction work, had utilized the services of at least two independent specialty subcontractors who were not licensed. Irrespective of whether or not Respondent lacked actual knowledge of such unlicensed status, no reasonable or prudent inquiries were made by or on behalf of Respondent to ascertain the licensed status of the selected individuals or entities performing construction work. Although not charged separately as a violation, this effective aiding and abetting of unlicensed activity may be considered as a circumstance in aggravation hereunder. Moreover, by

attempting to include payments made to those unlicensed persons in the claimed $130,000.00-plus completion and/or correction costs, Respondent has wrongfully attempted to set off monetary amounts paid to such persons against balances, if any, owing to Complainant. Since there is no duty under the applicable State’s licensing laws to compensate an unlicensed contractor, [2] all such sums that were paid by or on behalf of Respondent should not be recognized as legitimate offsets or back-charges but instead must be excluded from the asserted total completion costs incurred, especially when presented as part of any ultimate evaluation and approval by the very State agency charged with enforcement of the applicable licensing laws.

26. Additionally, Respondent sought to set off supervision fees calculated at 20% of all completion and/or correction costs incurred for its general contracting role in fully and correctly completing the project. It appeared that Mr. Nuttall’s actual overall functioning and involvement was little different from what had previously been in effect by or on behalf of Respondent at no cost. Moreover, no arms length dealing was sufficiently demonstrated with respect to the agreement with and payment from the tenant entity (Dolce), controlled by another entity (New Sun) that not only was operated by Respondent’s qualifying party but also had loaned most all needed funds to the tenant so as to enable a much-belated payment to the licensed Respondent. The propriety of including the above-described monetary sum, calculated by Respondent to be in the sum of $20,803.00, representing approximately 20% of the value of all completion work as well as all corrective work, must remain highly questionable.

27. Nothing in the case record serves to dispel the fact that a monetary dispute had existed and still exists between the parties, nor can it be reasonably held or inferred that the grounds for Respondent’s position in disputing its obligations for tendering any

presently claimed unpaid balances were arbitrary, unreasonable or asserted other than in good faith on the part of Respondent.

28. The Registrar of Contractors is not statutorily empowered to adjudicate and award money damages for contractual breaches which must more appropriately be recovered, if at all, by initiating and pursuing available remedies before a civil court of competent jurisdiction. Based upon the demonstrated bona fide dispute as to the monetary amount claimed past due and owing to Complainant by Respondent, the instant claim filed with the Registrar must be held not to constitute a liquidated sum which is an essential element for any finding that Respondent failed to pay monies when due within the purview of the State’s contracting laws. In light of the availability of a far more appropriate civil forum for determining the respective claims and counterclaims between these parties, this administrative tribunal must decline to attempt to liquidate, with any degree of accuracy, the proper monetary amount, if any at all, remaining past due and owing.

29. Apart from the entry of findings with respect to some of those aspects or component elements of the parties’ dispute that were effectively litigated at and during the administrative hearing, and as to which it is felt that the parties are entitled to receive such findings, it is the express intent of this tribunal not to render any purportedly binding decision on any sum certain or on the overall merits of the respective claims, offsets or counterclaims. In the event that the basis of Respondent's dispute is ultimately determined to be without merit and a final judgment in favor of Complainant for all or part of the $70,000.00- plus amount claimed hereunder is obtained and is not timely satisfied by Respondent, another separate disciplinary complaint may properly be filed with the Registrar of Contractors.

30. The necessary paperwork for perfecting a claim for financial incentives from the Landlord had entailed the gathering and submission by Respondent of final lien

releases and waivers from all contractors and suppliers on the project. In early March, 2002, Respondent was shown to have included and transmitted a completed form of an unconditional waiver and release, purportedly received by facsimile transmission (“FAX”) from Complainant, confirming that the admittedly received total monies received ($199,939.09) constituted payment in full. This waiver and release was on a form furnished by Dolce.

31. Credible evidence tended to establish that the signature of Frank Baron on the above-described form was not genuine and that Complainant did not and still does not agree that full payment has been made. In point of fact, in addition to the within administrative complaint with the Registrar, a civil action to foreclose a lien and asserting other causes of action for damages has been filed by Complainant against Respondent and other parties, which action is still pending. Also still pending is another separately filed action by Dolce against Complainant and its individual owners seeking damages for allegedly breaching the construction contract.

32. Even as tested by a perhaps lesser burden of proof applicable in these administrative proceedings as compared to establishing criminal forgery allegations, and although some degree of suspicion must necessarily linger, Complainant was unable to sustain its burden of proving by a preponderance of the evidence that the purported final and unconditional waiver and lien release ostensibly sent by Complainant and forwarded to the Landlord was authored and signed by or at the direction of Respondent or of any of its principals. However, the admitted receipt of such a document under all the circumstances, given the events leading to and following termination of Complainant’s jobsite involvement, especially the prior ongoing communicating of repeated requests and demands by Complainant for a claimed balance owing under the parties’ agreement, at the very minimum, should have reasonably prompted further inquiry and verification attempts before submitting same to the Landlord as part of an effort to demonstrate entitlement to substantial monetary benefits.

33. The forwarding by Respondent to the Landlord of what should necessarily and reasonably have been viewed and treated as a patently questionable final, unconditional waiver and release is found and determined to have been wholly inappropriate and unwarranted, and is further found to constitute a wrongful act to the detriment of Complainant within the meaning and intent of one of the charged contracting law violations in this case.

34. Notice is taken of the Registrar’s license records which reveal that Respondent has been posting bonds for each of its licenses in the minimum statutory amounts required for respective annual volumes not to exceed $150,000.00. Even the completion of this single commercial project resulted in costs that were almost equal to the volume applicable to such minimum bond amount. [3]

CONCLUSIONS OF LAW

1. In these administrative disciplinary proceedings, the complaining party has the burden of proof, and the standard of proof on all issues at the hearing is by a preponderance of the evidence. Culpepper v. State, 187 Ariz. 431, 930 P.2d 508 (1996); Smith v. Arizona Department of Transportation, 146 Ariz. 430, 706 P.2d 756 (1985); Utah Construction Company v. Berg, 68 Ariz. 285, 205 P. 2d 367, (1949); See also Rule R2-19- 119, A.A.C. 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). 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 (6th ed. 1990).

2. The showing that a good faith monetary dispute exists as to the indebtedness, if any, of Respondent to Complainant under the parties’ contractual agreement, precludes the making of any supportable finding that a liquidated sum is past due and owing by Respondent to Complainant. Consequently, the demonstrated existence of such money dispute in this case results in an inability for Complainant to establish an essential element of the charged contracting law offense of a failure to pay monies when due. Unless or until the claimed obligation is reduced to judgment by a civil court of competent jurisdiction, no violations by Respondent of any of the charged non-payment provisions of A.R.S. §32-1154(A)(11) can be adequately established.

3. A dismissal of the charged non-payment violations asserted herein is fully warranted at this time. However, any dismissal of the failure-to- pay portion of the instant administrative proceeding must be and is expressly without prejudice to Complainant’s potential rights to pursue available civil remedies for the collection of provable damages for any breach of contract that may be sufficiently established. Any future failure by Respondent to promptly satisfy a court judgment in favor of Complainant for a sum certain, if obtained, would provide a valid basis for a new, separate disciplinary action leading to the potential imposition of penalties against Respondent’s license.

4. Stated alternatively, this portion of the decision or ruling is not intended to constitute a determination as to the validity of the Complainant’s claim under the alleged contract arrangements nor as to the possibly legitimate defenses, offsets or counterclaims that may be asserted and proven by Respondent, by the tenant or by the

Landlord. These determinations, including the reducing of the respective monetary amounts to sums certain, must be formulated and finalized by the civil tribunal as part of the separately pending civil actions between the various named parties.

5. The totality of the evidence of record with respect to the presentation of a document containing information that was known or reasonable should have been known by Respondent to be false and inaccurate sufficiently established that Respondent has committed a wrongful (but not fraudulent) act in violation of the charged provisions of A.R.S. §32- 1154(A)(7). However, the demonstrated existence of a bona fide monetary dispute effectively prevents any valid finding of a liquidated amount past due and owing, which is an essential element of the non-pay violation of A.R.S. §32-1154(A)(11), as additionally charged in the within Citation.

RECOMMENDED ORDER

In view of the foregoing, it is recommended, commencing on the effective date of the Registrar’s Order, that the Class B-01 license of Respondent, Precision Developments, Inc., be placed on probation for a period of sixty (60) days.

It is further recommended, in addition to the above provided penalty, that any continuation or restoration of Respondent’s contracting rights, whether or not probationary, shall be subject to a condition that Respondent first post an additional surety bond, cash deposit or alternative deposit, applicable to its Class B-01 license, for a period of months, including future renewal periods, in the amount of $5,000.00, such bond or deposit to be in addition to the required surety bond or cash deposit set forth in A.R.S. §32-1152. Cash or alternative additional deposits, if utilized, shall be returned only after the expiration of an additional two-year period following the above-provided 36-month period and only if no claims are then pending. Such bond shall be

posted on or before the effective date of this Order or prior to the last day of any applicable active license suspension, whichever is later. Failure to timely post such bond shall result in the immediate or continued suspension of Respondent’s license.

Dated: April 23, 2003. OFFICE OF ADMINISTRATIVE HEARINGS

______________________________________ Robert I. Worth Administrative Law Judge

Original transmitted on _____________________

by: _____________________________ , to:

Israel G. Torres, Director Registrar of Contractors 800 West Washington Street (6th Floor) Phoenix, AZ 85007

ATTN: Jennifer Brown ----------------------- [1] Although the contractual due date for the last payment would have been January 25, 2002, such payment was transmitted nine days early and was before the intervening termination action.

[2] Collection remedies for unlicensed contractors are statutorily denied under the provisions of A.R.S. §32-1153.

[3] Although this case did not involve the residential license held by this same Respondent, the testimony at the hearing in support of a professed desire on the part of Respondent to initially not become involved in the commercial salon and spa project tended to indicate an ongoing involvement in one or more sizable residential projects. If such reasoning is factual, it is likely that the projected volume under the residential license may also have been grossly understated for purposes of posting a license bond in the proper amount.

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