ALJDEC (decisions subject to certification as fin)

03F-0230-ROC · Registrar of Contractors · 2003-03-26

STATE OF ARIZONA IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: Four separate hearing sessions commencing on January 22, 2003 and concluding on March 13, 2003.

APPEARANCES: >The Complainants were represented by their attorney, John G. Ryan, Esq. >The Respondent was represented by its attorney, Doug Tobler, 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 proposal from Respondent that was ultimately accepted by Complainant on May 25, 2001, thereby ripening into a contract, Respondent agreed to and did undertake to perform certain cabinetry work, consisting of fabricating and installing selected materials, for a new residence being constructed by Complainants.

2. The agreed contractual price for the contemplated work was to be $39,350.50, payable in fixed progress installments. Subsequently executed written change orders in the combined amount of $1,480.00 effectively increased the total contract price to $40,830.50. It is noted that a final revised change order reflected an additional credit to Complainants for $100.00 following the elimination of one of several integrated panels, but when formulating further payment amounts, such credit was apparently overlooked or deferred by the parties until the final scheduled payment that would be due upon completion.

3. Complainants were shown to have made the initial advance down payment of $12,500.00, followed shortly thereafter by a further advance payment of $7,100.00, in the total aggregate sum of $19,600.00. Complainants subsequently remitted additional payments of $3,000.00 plus $7,615.00, in the combined amount of $10,615.00, for a total of all payments to Respondent of $30,215.00. Although the terms of the parties’ contract did not specify a time for completion of the agreed work, applicable legal principles would necessarily imply that such work must be completed within a reasonable time.

4. At the time that Respondent bid and contracted for the cabinet work, the uncontroverted evidence revealed that it held no contracting license. Consequently, Respondent’s construction-related activity, which fell within the statutory definition of “contracting,” was impermissible since it required a specialty license. Moreover, the written proposal and agreement, prepared and submitted by Respondent failed to meet the minimum statutory requirements for construction contracts since it not only failed to set forth the contractor’s license classification and number but also lacked a specified completion date.

5. It further appeared that no actual fabrication or installation work was performed or even commenced by Respondent prior to the date on which the

Registrar of Contractors issued Respondent’s C-30 license on August 16, 2001. Nevertheless, the subsequent discovery by the Registrar of Contractors that Respondent had engaged in premature contracting activity does provide a basis for imposing discipline against the presently held license, and additionally such unlicensed status may adversely impact upon Respondent’s ability to use the courts of this State or its lien laws for any collection and possibly also for any counterclaim or set-off remedies. (See A.R.S. §32-1153). . 6. The nature of the project for Complainants involved the making of customized cabinetry as opposed to otherwise available production-type cabinets available from many retail sources. As such, it is or reasonably should be anticipated that a customer for the more costly custom cabinetry will be able to express personal tastes and desires after viewing and evaluating the many alternative choices that are presented either by way of diagrams, drawings, photographs or actual samples. Moreover, subsequent changes in originally communicated selections are often the rule rather than the exception. In point of fact, the use by a licensee of representative samples and/or detailed drawings would normally serve as a benefit to both contracting parties in that the risks of avoidable misunderstandings and disappointed expectations may be sharply reduced.

7. Respondent, perhaps exercising questionable wisdom, declined to formulate and provide detailed drawings (other than rough generalized sketches) to Complainants, despite ongoing requests and demands. Moreover, on numerous occasions, samples of the finished final product to be furnished were promised but not timely delivered by Respondent. Especially in cases where no detailed drawings are prepared and furnished, the importance of delivering samples becomes more significant.

8. Only a few change orders were finalized, some of which effectively increased the overall cost price while others served to reduce such price. It was not disputed that

Complainants did not transmit the final payment that would have become due upon completion of the project by Respondent in the stated amount of $10,615.00, a sum that included several change order items in the combined sum of $1,380.00, as revised. Another change order amount, to be treated as a credit for $1,600.00, was apparently to be subtracted from the final contract payment. [1]

9. The target date for the installation of the cabinets by Respondent was originally planned for the month of October, 2001. Although the house was not substantially completed at that time, it was nevertheless shown to have been possible for the base boxes for the cabinetry to have been installed. Respondent did not elect to go forward with the box installations until all jobsite painting was completed. The boxes were not installed until February 2, 2002.

10. Almost from the outset, a recurring theme for Respondent’s failure to more timely accomplish the cabinet production and installation work for Complainants was the asserted scheduling of and commitments to other time-sensitive projects that Respondent was performing for other customers. Credible testimony tended to indicate that Respondent’s principal owner and qualifying party had repeatedly informed Complainants that the instant project would be halted and not move forward due to the pressures of other work that had been undertaken. The evidence was inconclusive as to whether any of these other projects had also been prematurely bid by Respondent before its licensure.

11. The parties’ experienced growing difficulties in communicating with each other, prompting Complainants’ to designate an intermediary in an attempt to generate

the more expeditious completion of the cabinet installation and also to achieve the degree of completion progress that was necessary to pacify the lending institution that had granted a construction loan. Complainants had exhibited a somewhat understandable reluctance to transmit the balance of a progress draw that would have been payable upon installation of the cabinet boxes. Such box-installation draw was to have been in the amount of $10,615.00, of which $3,000.00 had already been advanced by Complainants a few months earlier following an express request from Respondent.

12. With the help of the designated intermediary, a written agreement was prepared and executed by both parties on March 18, 2002. The main ingredients of such agreement are determined from the evidentiary presentations to have been the Respondent’s prompt production and delivery of certain described samples for approval as well as its (Respondent’s) more definite commitment to an approximate final date for completion of all contracted work and the immediate payment by Complainants of the remaining portion of the box-installation draw of $7,615.00. [2]

13. The promised samples were not delivered promptly by Respondent, although when they were ultimately presented, approval was given several days later by Complainants. Nevertheless, little if any realistic progress was made by Respondent before or even after the given deadline date of July 31, 2002. The complaint by Complainants in this administrative action was filed with the Registrar of Contractors on August 5, 2002. ….. ….. …..

14. Following a jobsite visit on August 27, 2002, the Registrar’s assigned Inspector issued a written directive to Respondent on September 13, 2002. Most importantly, such directive sought to prompt Respondent to “complete” the project, and the inspector also advised Respondent of the need to accomplish certain corrections of the partially installed cabinetry. Little or no merit is found to Respondent’s position that it had to await receipt of the written results of one or more jobsite inspections prior to demonstrating any realistic progress with respect to installation completion efforts, especially as to those aspects that were not the subjects of specific complaints. The evidence adduced at the hearing, considered in its entirety, supports a finding that, with respect to the element of completion, Respondent did not substantially comply with the most significant term of the Inspector’s directive.

15. Complainants filed a further addendum to their complaint listing additional items to be incorporated into the pending complaint. After another jobsite inspection, but even before the Inspector had issued his supplemental directive as to the added items of complaint, Complainants informed Respondent on October 6, 2002 that it was being terminated from the project. At the time of termination, a total of over 16 months had elapsed since the execution of the contract against which approximately 75% of the stated monetary consideration had been paid to Respondent by Complainants. This termination date was over two months past the deadline date of July 31, 2002 that had been given as an express inducement for the March agreement that had resulted in the release of further monies to Respondent seven month earlier.

16. Under all the circumstances, it is found and determined by the Administrative Law Judge that Respondent had failed to complete this project within a reasonable time period. Moreover, the overall course of conduct by or attributable to Respondent in this case, considered together with the unduly prolonged time duration, is further found to effectively constitute an abandonment or, at least, a constructive

abandonment by Respondent of its applicable contractual obligations after having received approximately 75% of the agreed monetary consideration seven months prior to the termination date.

17. Complainants were shown to have obtained several bids from competitor specialty contractors even prior to the termination of Respondent from the project. Credible testimony tended to indicate that it was still hoped by Complainants, as expressly communicated to the successful bidder, that Respondent would be motivated to very promptly accomplish completion of all jobsite work without having to resort to the services of any successor contractor. When no significant progress was evident, Complainants did discharge Respondent.

18. A licensed contractor in this State is not entitled to an endless series of opportunities to rectify construction errors or to complete contractual obligations. At some point in time, any consumer is fully justified in resorting to other means and/or to other contractors to effectuate either correction or completion work. In point of fact, there may often be an applicable duty to mitigate ones damages by taking action rather than awaiting the results of prolonged administrative or judicial proceedings.

19. Costs were incurred by Complainants after selecting the lowest of several bidders to complete the job in accordance with their contract with Respondent that were not shown to have been unreasonable. On the contrary, the few elements of the fabrication and installation work by the successor contractor that may potentially be viewed as upgrades were either not charged for in the contractual arrangements or were more than offset by substitutions of downgraded selections by Complainants.

20. It was credibly demonstrated that over $30,000 (actually approximately $32,000.00) was or will be expended or committed by Complainants to achieve a final acceptable fabrication and installation of all household cabinetry. At the present time,

with only a few very minor exceptions, the cabinet installation was shown to have been completed by a successor specialty contractor. The maximum outstanding balance from Complainant under the contract with Respondent, if anything at all is due and owing because of its unlicensed status at the time of contract with Complainants, is found under the credible evidence to have been $8,875.00. This approximate balance is derived from the final progress payment of $10,615.00, less an aggregate combined sum of $1,940.00, consisting of (a) an agreed change order credit for $1,600.00, by way of a specific release for Respondent as to work to be undertaken by another individual, (b) a previously overlooked or deferred credit of $100.00, for a deleted integrated panel, and also (c) credits for omitted items that had been included but never furnished as part of prior change order items for a toe kick and a warming drawer [3] in the respective amounts of $90.00 and $150.00.

21. Based upon the computations set forth in the preceding Finding of Fact, it is found and determined that the extent of resulting monetary damage to Complainants appeared to be in a total amount that was not less than $20,000.00, and potentially somewhat higher.

22. In this administrative disciplinary action, it is determined that the Registrar of Contractors is not the proper forum in which to finally and accurately attempt to liquidate the quantum of monetary damages sustained by Complainants as a result of the proven violations by Respondent of the State’s contracting laws. However, it also appears fully appropriate that the Registrar’s Order in this administrative action should include a condition in the nature of “partial” restitution. Based upon all the evidence and testimony, it is further determined that the extent of any such partial restitution for a

portion of the probable overall amount of monetary damages to Complainants caused by Respondent’s overall course of conduct hereunder should be not less than $15,000.00, and that such sum should be included as part of the Registrar’s Order to be entered in this matter. In formulating the foregoing monetary amount for a payment condition in these administrative proceedings, it is deemed fitting that approximately 75% of the probable extent of pecuniary damage be utilized, generally coinciding with the percentage of total contractual consideration previously paid to and held by Respondent. The parties are left free to seek an upward or downward adjustment of such amount by resorting to available remedies before a civil court of competent jurisdiction.

CONCLUSIONS OF LAW

1. The totality of the evidence of record adequately established that Respondent has violated the provisions of A.R.S. §32-1154(A)(1), (2), (7), (20), (23) and (13); namely A.R.S. §32-1123 and A.R.S. §32-1158. However no additional violations by Respondent of the charged workmanship violations of A.R.S. §32-1154(A)(3); namely, Rule R4-9-108, A.A.C., were sufficiently proven hereunder.

2. Although it is not a proper function of either the Office of Administrative Hearings or the Registrar of Contractors to adjudicate and award money damages which must be recovered, if at all, through pursuit of a civil court action, the Registrar is empowered by statute to impose reasonable conditions which may serve to reduce or eliminate any otherwise appropriate disciplinary penalties for proven violations of the State’s contracting laws. Whenever the performance of corrective or remedial measures on a jobsite is no longer warranted or possible, the inclusion of a condition in the nature of restitution, total or partial, is fully appropriate and equitably justified. Such authorization to provide for restitution from a contractor to a prevailing party in an administrative action has been legally upheld in Sunpower of Arizona v. Arizona State

Registrar of Contractors, 166 Ariz. 437, 803 P.2d 430 (1990), and subsequently was expressly confirmed by the statutory enactment of A.R.S. §32-1156.01. In this way, a Complainant in an administrative action who has sustained the burden of proving contracting law violations does not have to await the outcome of protracted civil litigation in order to recover at least a portion of a demonstrated loss and, of equal or perhaps greater significance, a licensed Contractor/Respondent is given the means to control, to some extent, the severity of any disciplinary penalty. Moreover, any amounts paid in satisfaction of a condition affecting licensure may properly be evaluated, credited or applied against any civil judgment ultimately obtained in favor of either party.

3. The testimonial and documentary evidence adduced at the administrative hearing of this matter fully supports and warrants the inclusion in the Registrar’s Order of a condition consisting of partial restitution payable by Respondent to Complainants in the total monetary sum of $15,000.00.

RECOMMENDED ORDER

In view of the foregoing, it is recommended commencing on the effective date of the Registrar’s Order that Respondent’s Class C-30 license be suspended until the Registrar receives proof that Respondent has paid or tendered to Complainant the sum of $15,000.00.

It is further recommended that if Respondent pays or tenders the aforesaid monetary amount to Complainant on or before this Order’s effective date, then no active license suspension shall be imposed.

It is further recommended, in addition to the above-provided provisional license suspension, if any, that Respondent’s Class C-30 license be placed on disciplinary

probation for a period of 45 days, commencing on the effective date of the Registrar’s Order or the date on which notice of Respondent’s compliance with the payment terms of this Order is filed with the Registrar, whichever is later.

It is further recommended, in addition to the above provided penalties, 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 for a period of 24 months, including future renewal periods, in the amount of $3,000.00, such bond or deposit to be in addition to the required surety bond, cash deposit or recovery fund participation 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 24-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 2, 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] For the purposes of this administrative disciplinary proceeding, it is not necessary to consider the impact of Respondent’s unlicensed status at the time of the parties’ contract as potentially constituting a bar to any lien or lawsuit against Complainants for unpaid contractual balances, if any, claimed to remain due and owing.

[2] As set forth in a prior Finding of Fact, a revision to certain change order items reflected the reduction of $100.00 for integrated panels, thereby ostensibly reducing the amount due to $7,515.00. However, the parties’ subsequently concluded agreement and the actual payment from Complainants to Respondent remained at the higher sum, apparently disregarding the reduction from the revised change order. [3] Although at least one or perhaps both of these omitted items were admittedly furnished by the successor contractor, it did not appear that the proposal and contract applicable to such successor contractor had included separate charges for either item, and therefore credits under the contract with Respondent would be appropriate so as to reduce the remaining contract balance, if any, due to Respondent.

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