ALJDEC decisions subject to certification as final

04F-2684-ROC-res · Registrar of Contractors · 2007-02-20

STATE OF ARIZONA IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: Five separate sessions commencing on August 10, 2006 and concluding on February 12, 2007.

APPEARANCES: >The Complainants were represented by their attorney, Ivan Kolesik, Jr., Esq. >The Respondent was represented by its attorney, Cary G. Hipps, 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. Respondent was the holder of a Class B, Residential General Contracting license issued by the Registrar of Contractors. Mr. Herbert Siegfried Wagner (herein called “Wagner”) is listed on said license as a corporate officer and also as its Qualifying Party, defined elsewhere in the statute as a Responsible Managing Employee. That named individual’s wife, Ljubica Wagner, was also listed on the issued license as the corporation’s Secretary.

2. Both Complainants and Wagner, Respondent’s principal operating officer, had previously enjoyed a close personal, social relationship for many years. Wagner had on numerous occasions informed Complainants, and they reasonably believed, that he was not only a capable architect but also was a skilled and reputable general contractor.

3. Complainants were desirous of having a guest house and a four-car garage constructed on their property. They turned to Wagner for the formulation of plans and specifications for the contemplated improvements. Wagner had presented a written agreement for the design and drafting work to be performed and for the production of construction plans to be submitted to the local building authority so that necessary permits could be issued.

4. The testimony revealed that the guest house was being constructed for the intended use and occupancy by the mother of one of the Complainants. The four-car garage was to be a divided or split structure with a two-story portion in between the separate garage sections. Although the parties agreed that the upper floor was to be utilized for storage, the testimony was conflicting as to the communicated intentions for utilizing the lower floor. The more credible version is found to be that of Complainants who maintained that an office area was contemplated, despite Respondent’s assertion and the designation on the plans drafted by Wagner that the space was to be for added storage. In any event, it was clear that the lower floor space was to ultimately have two air conditioning units and would be wired for telephone, television and computer usage.

5. The contractual agreement, dated May 12, 2002, for the above- described design and drafting services was concluded between Complainants and H. S. Wagner Consulting Services, Inc. (herein called “Consulting”), another corporate entity owned and operated by Wagner and his wife. The total of the specified payments set forth in the parties’ contract in the amount of $12,275.00 was shown to have been fully paid by Complainants.

6. Complainants utilized the plans developed by Wagner for obtaining a bid from another general contractor for the proposed construction of the guest house and garage. However, since both Complainants were somewhat familiar with the construction industry by virtue of their holding a contracting license in a specialty field, they initially planned to undertake the project as owner/builders, and the permits that were obtained from the City reflected this originally intended status.

7. Induced by Wagner’s subsequent express assurances that money could be saved by his involvement and that of his company in the building of the additional structures on their property, Complainants entered into two other agreements with Wagner. The first such additional agreement, dated September 6, 2002, was for the obtaining by Wagner of several bids or proposals from various subcontractors that would be needed for the overall project. The stated cost price in the sum of $2,500.00 for Wagner’s contemplated work in obtaining, evaluating and submitting the subcontractor bids was fully paid by Complainants.

8. The agreement to secure various construction bids was shown by credible evidence to have entailed the performance of functions for which a contractor’s license would be needed. However, the written agreement, prepared by Wagner, set forth both the name of his licensed entity, Diamond Builders, and also the name of his other entity, Consulting. It was not disputed that the latter entity did not and does not possess any contracting license. Additionally, when discussing these two company names with Complainants, Wagner gave assurances that this was merely a further example of interchangeable, doing business names (“d.b.a.”) and that such names were referring to the very same corporate entity; namely, Diamond Builders.[1] It is found that both Complainants reasonably relied upon Wagner’s express representations.

Both corporate entities were admittedly owned and controlled and operated by Wagner and his wife, and both utilized the same physical address (Wagner’s home residence) as well as sharing the same FAX and telephone numbers, although Diamond Builders appeared to have its own Post Office Box address. [2]

9. The documentary evidence further indicated that many, if not most, of the subcontractors who were contacted by Wagner and who were requested to prepare and submit bids for the various phases of work in the specialty trades had been transmitted to Diamond Builders, identified as such on the faces of these submitted bids, thereby tending to demonstrate that those subcontractors also believed they were actually dealing with Wagner’s licensed entity, or at the very minimum were understandably confused as to the entity with which they were dealing.

10. Credible testimony revealed that, even prior to their entry into the contractual agreements, Complainants had checked out Respondent’s then- current standing as a licensed general contractor by contacting the Registrar of Contractors and had received a favorable report confirming Respondent’s proper licensure.

11. Subsequent to the parties’ above-described second contract agreement for the bid-obtaining services, a third written agreement, also prepared by Wagner, providing for certain activities involved with the actual ultimate construction of the guest house and garage structures was concluded on or about February 5, 2003 between Complainants and ostensibly with Wagner’s unlicensed entity. The specified monetary consideration payable by Complainants for the functions or services described in said agreement was in the amount of $30,900.00, all of which was fully paid by Complainants. 12. The last progress payment under the third construction management agreement was tendered somewhat reluctantly by Complainants in early August, 2003 because of their perhaps understandable concerns, at that time, with respect to numerous items of claimed deficiency existing in the work purportedly supervised by Respondent that had not been rectified on the jobsite. In accordance with Wagner’s express instructions to Complainants, all checks under the third, as well as under the second, contractual agreement had been made payable to H. S. Wagner, individually, and not to either of the named corporate entities.

13. Although the language of the parties’ third contract agreement appeared to describe and to label the proposed arrangements between the property owners and Wagner, encompassing numerous described performances to be rendered by Wagner, as consulting services, the great weight of the credible evidence adduced at the hearing tended to establish that the described duties in the parties’ third agreement, as well as the on-site functions contemplated and actually being performed, were indistinguishable from those customarily performed by a general contractor. Most significantly, Complainants were to receive field supervision by Wagner, on behalf of his corporate entity, of the ongoing construction activities by the selected specialty subcontractors performing the jobsite work, including the scheduling and coordination of such work.

14. Claims by any licensee that it was not acting under its license must always be closely and strictly scrutinized. Under the demonstrated facts of the instant case, no merit is found to exist to Respondent’s contention that it was not serving as the project’s general contractor. Complainants were, at all times, under a reasonable belief that the licensed entity was undertaking to serve as their general contractor. The absence of any appropriate license by the entity named in the agreement, generating an inability for such entity to lawfully undertake and perform contracting activities, effectively fortifies such reasonable belief on the part of Complainants. Moreover, the agreed fees charged under the second and third contractual agreements were shown to have been fully consistent with the amounts customarily charged by general contractors.

15. An examination of applicable statutory provisions defining a “contractor” confirms that a license is required for individuals or entities that are “consultants representing themselves as having the ability to supervise or manage a construction project for the benefit of the property owner, including the hiring and firing of specialty contractors, the scheduling of work on the project and the selection and purchasing of construction material.”[3] The scope and range of jobsite duties and involvement of Wagner that were contemplated and performed on the project for Complainants are determined to have been encompassed within the aforesaid statutory definition of a “contractor.” This Finding of Fact also constitutes a Conclusion of Law.

16. It must be additionally noted that even if Wagner had not given Complainants express assurances that the differently named entity of H. S Wagner Consulting Services was merely the use of a different or “d.b.a.” name for the same company, the results would remain unchanged. If Complainants had been induced by Wagner to utilize any separate unlicensed person as their general contractor, whether or not owned by Wagner, Respondent would remain liable for all improper acts or omissions of the referred entity whose impermissible contracting activities had been effectively aided and abetted by or on behalf of Respondent. Stated alternatively, Respondent would have set a force in motion that ultimately could and did lead to damage to Complainants. In this case, not only would it be impermissible for Wagner’s unlicensed entity to have bid or performed the second and third contracts but also Respondent, through the actions of its qualifying party, Wagner, would be deemed to have aided and abetted the activities of an unlicensed person.

17. It is found and determined that Respondent, through its qualifying party, Wagner, improperly used a name in its contracting activities that was not on its license and bond in violation of one of the charged sections of the State’s contracting laws. It is

further found that, notwithstanding the ineffective attempts to shift responsibilities to another unlicensed entity, Respondent served in the capacity of a general contractor for this project on Complainants’ property. Any previously existing intention on the part of Complainants to act as owner/builders was effectively terminated and replaced by the subsequent arrangements through Wagner to allow his licensed entity assume all jobsite duties and responsibilities applicable to general contractors.

18. The evidence revealed that several items of complaint remained uncorrected or improperly corrected for far more than a reasonable time period after notice to Respondent. In point of fact, several of the identified items of deficiency still remain in need of appropriate and effective remedial measures.

19. Credible evidence and testimony established that several walls in the guest house and in the garage were and still are excessively bowed and out of plumb. Notice of this unacceptable condition had been communicated by Complainants to Wagner during the framing stage, prior to the application of drywall and insulation materials, when proper remedial measures would have been easier and far less costly. The bowed condition was further shown to have generated an adverse impact on two separate pocket doors leading from the two garage sections into the office or storage area.

20. Subsequent attempts primarily at the baseboard level by Respondent, through the selected subcontractors, were shown to have been ineffective, and the excessively bowed wall conditions continue to exist.

21. Several paint failures have been experienced after repeated efforts to rectify a reported and observed bubbling problem. These re- occurring problems are found to have been traceable to the entry of water from a portion of the roof, specifically from a patio overhang outside of an exterior door from the office or storage area between the

garage sections. Respondent was shown to have been unwilling or unable to properly address and correct the ongoing water entry condition. Moreover, deficiencies existing at other roof areas were shown to be likely sources that permit water entry into at least one other interior portion of the structure, especially over the kitchen area in the guest house structure where a defective scupper contained a hole, leading to water penetrations and subsequent damage to the interior drywall materials.

22. An exterior gate on one side was shown to have not been securely attached and such gate feature has continued to become loose over time, despite some subsequent efforts on the part of Respondent to rectify this problem. At the present time, the gate assembly was shown to have become wholly inoperable, requiring appropriate removal and replacement.

23. The sump pump pit installation was shown to have utilized an inappropriate material for retaining purposes, creating a likelihood of failing local inspections. Complainants ultimately caused corrective action on their own and at their expense after Respondent declined to remedy the problem. Similarly, Respondent’s inaction prompted Complainants to install closet rods themselves following their unsuccessful attempts to cause Respondent to accomplish or to cause the accomplishment of proper completion action.

24. The above-described deficiencies are found to have been attributable to a lack of proper jobsite supervision and follow-through on the part of Respondent, thereby not only reflecting adversely upon its workmanship but also breaching its contractual responsibilities to Complainants. Additionally, Wagner’s failure or refusal to rectify or cause the correction of reported problems within a reasonable time after notice is further found to have constituted a wrongful (but not fraudulent) act attributable to Respondent resulting in detriment to Complainants within the meaning of another contracting law provision charged herein as having been violated by Respondent.

25. Following a jobsite visit and meeting, the Registrar’s assigned Inspector determined that Wagner’s licensed entity was acting as the project’s general contractor and issued a written Corrective Work Order to Respondent enumerating various items that were to be corrected by Respondent by appropriate means. The issued directive confirmed the need to undertake and complete proper remedial work on most all of the above- described items of deficient construction. Although the sole item not confirmed by the Inspector to warrant corrective action related to the alleged impropriety of the sump pump pit installation, the credible evidence at the hearing is found to support a finding that inappropriate materials were utilized and that Respondent was responsible for the remedial work or for the costs thereof.

26. Although attempting to accomplish corrective work addressing many of the listed items in the directive, most of the identified items or areas of complaint remain uncorrected or improperly corrected. As confirmed by a successor Inspector, as well as by expert testimony adduced at the hearing, Respondent has not substantially complied with the terms of the issued Corrective Work Order.

27. While a licensed contractor is generally left free to determine the manner in which remedial work will be performed, if any such contractor elects to perform less expensive or less extensive measures, it remains at its peril to achieve effective and acceptable results as tested by prevailing industry standards and tolerances.

28. A general contractor does not appropriately discharge its applicable responsibilities and duties by merely making demands or requests of the performing subcontractors to undertake and complete needed corrective action, or even by making formal complaints or commencing lawsuits against such subcontractors. Nor is any contractor given an endless series of opportunities to accomplish required remedial work. At some point in time, any contractor must seek to rectify construction errors through other sources, or alternatively, a property owner may resort to other means and

other contractors for corrective actions in order to regain their use and enjoyment of their property without losing any available rights or remedies, either administratively or judicially.

29. The ongoing course of conduct on the part of Respondent tended to demonstrate a substantial disregard of the entitlements and comforts of the property owners as well as of its applicable duties as a licensed contractor in this State. By way of an added aggravating circumstance, the acts and omissions attributable to Respondent were shown to have generated a significantly disruptive ongoing impact upon Complainants’ household members, including an elderly parent for whose benefit the guest house addition portion of the overall project had been motivated and formulated.

30. Credible documentary and testimonial evidence tended to indicate that the combined aggregate monetary costs at the present time to appropriately correct and re-finish the bowing garage and guest house walls and the damaged pocket doors, to rectify and re-finish the areas where roof leaks caused paint blistering or other interior drywall damage, and to make the exterior gate operable would exceed the sum of $70,000.00. This anticipated cost amount does not include the expenditures by Complainants to rectify the sump pump pit retention problems that tended to generate a realistic probability of failing local inspections.

31. With respect to the third construction management agreement, it must be held that Complainants have not received the benefits of their contractual bargain with Respondent. On the contrary, credible evidence demonstrated that the probable costs to rectify the remaining workmanship problems relating to the bowing walls, the water-damaged paint areas and the exterior gate, all resulting from the inadequate or ineffective discharge of the jobsite supervisory duties for which Respondent was responsible, will substantially exceed the total amounts paid to Respondent by Complainants under the management agreement

32. 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.

33. Under the facts and circumstances of this case, it is determined that a reasonable condition to be included in the Registrar’s disciplinary Order to be entered should consist of partial restitution equal to a monetary amount that consists of no less than the return of all monetary consideration previously paid by Complainant to Respondent under the construction management contract, in an aggregate sum totaling $30,900.00. Any entitlement to receive or to pay out a different amount, whether lesser or greater, may be sought as part of the pending civil litigation between the parties.

34. Notice is taken of the Registrar’s license files which reveal that Respondent’s Class B license, held by a corporate entity, was suspended by operation of law since February 3, 2005 for lack of a proper bond and also since January 31,

2006 for non-renewal. Respondent’s failure to have renewed such license within twelve months after the start of the non-renewal suspension, together with the payment of an applicable late fee, has resulted in the expiration of Respondent’s license. The date of such expiration was February 1, 2007, less than two weeks prior to the date of the final hearing session in this matter.

35. Neither the suspensions by operation of law nor the ultimate expiration of the Respondent’s license prevents the Registrar from conducting these administrative disciplinary proceedings which are expressly authorized by statute.[4] Correspondingly, neither the aforementioned license suspensions or expiration nor the fact that a civil lawsuit is presently pending between the same parties precludes the Complainants from pursuing available administrative remedies before this tribunal. Moreover, since little or no motivation would exist for any person or entity to undertake and accomplish remedial actions, whether of a construction or restitutionary nature, to avoid the imposition of a suspension of an already-suspended or an already-expired license, whenever contracting law violations by a Respondent/Contractor are sufficiently proven, the Registrar must properly and necessarily consider the imposition of a provisional license revocation when formulating reasonable conditions for possible inclusion in the Order to be entered in this case.

CONCLUSIONS OF LAW

1. Respondent, through its principal operating officer and qualifying party, agreed to and did engage in general contracting activities on Complainant’s property. The duties and responsibilities of Respondent are not lessened or rendered

inapplicable because Respondent’s principal officer and qualifying party, or a corporate entity owned and controlled by him, had been designated as a consultant in one of the contract agreements between the parties.

2. Licenses issued by the Registrar are not transferable, as expressly set forth under the provisions of A.R.S. §32-1124(B). At best, Respondent had attempted to conduct its contracting activities in a name not appearing on its license and bond, and at worst had effectively aided and abetted the impermissible contracting activities of Consultant, an unlicensed entity, which would have been violative of the State’s applicable licensing requirements.

3. Respondent has breached its agreement with Complainant in numerous, significant respects causing monetary damages to Complainants. Additionally, Respondent failed to properly comply with the terms of the written directive issued by the assigned Inspector by not timely and effectively causing the correction of several proven workmanship deficiencies.

4. The evidence of record adequately established that Respondent has violated the wrongful act (but not fraudulent act) provisions of A.R.S. §32- 1154(A)(7); the use of an improper business name provisions of A.R.S. §32- 1154(A)(15); the non-compliance with written agency directives provisions of A.R.S. §32-1154(A)(23); and the workmanship provisions of A.R.S. §32- 1154(A)(3); namely, Rule R4-9-108, A.A.C., all as charged in the issued Citation. However, no violations by Respondent of the provisions of A.R.S. §32-1154(A)(2) relating to alleged deviations or departures from plans, specifications or local codes, were sufficiently proven hereunder.

RECOMMENDED ORDER

In view of the foregoing, it is recommended that Respondent’s Class B license shall be revoked on the effective date of the Order entered in this matter.

It is further recommended that if, as set forth in Finding of Fact Number 33, Respondent pays or tenders the monetary sum of $30,900.00 to Complainants on or before this Order’s effective date, then the above- provided license revocation shall not be imposed, but instead that Respondent’s Class B license shall be deemed to have terminated in good standing.

In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order will be forty (40) days from the date of that certification.

Dated: February 21, 2007. OFFICE OF ADMINISTRATIVE HEARINGS

_________________________________ Robert I. Worth Administrative Law Judge

Original transmitted on _____________________

by: _____________________________ , to:

Fidelis V. Garcia, Acting Director Registrar of Contractors Legal Department 800 West Washington Street (6th Floor) Phoenix, AZ 85007 ----------------------- [1] In point of fact, Respondent’s name is itself a “dba.” The full and correct name of the Respondent/Licensee, as appearing on the contracting license and in the caption of this case, is “H S W Diamond Builders, Inc. dba Diamond Builders.”

[2] It appeared to be uncontroverted that the initials of “H.S.W.” or “H.S.” in the respective incorporated names of both entities were derived from the full legal name and initials of Mr. Herbert Siegfried Wagner. [3] See A.R.S.§32-1101(B) [4] See A.R.S.§32-1154(C). This statutory authority enables the Registrar to continue to exercise authority over the license holder even after the license has expired which did, in fact, occur prior to the conclusion of the administrative hearing sessions and prior to the submission of any decision to the Registrar.

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