ALJDEC decisions subject to certification as final

05F-1916-ROC · Registrar of Contractors · 2005-08-08

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: July 18, 2005 APPEARANCES: Bill Richardson, Esq. appeared on behalf of Complainant; Bianca Lederer, Esq. appeared on behalf of Respondent ADMINISTRATIVE LAW JUDGE: Wendy S. Morton _____________________________________________________________________ The issue presented by this matter is whether Respondent Rushton 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 1. Respondent Rushton Construction, Inc. is the holder of a Class B- license (No. 192556) issued by the Registrar of Contractors (“ROC”). Chris Vance is Respondent’s president and qualifying party. 2. Complainant A 1 Restaurant Cleaning and Services (“Complainant”) is located at 1095 W. Magnolia, Phoenix, Arizona. Michael Jenkins is Complainant’s president. Clarence Martin is Complainant’s controller. 3. In July 2004, Complainant contracted with Respondent to build a 2,400 square foot office building and a 3,600 square foot maintenance building on Complainant’s property. Complainant paid Respondent $40,430.00 to act as the general contractor on the project in the initial phase of the project. Respondent was to secure the permits and the financing for the project and to work with the architect and engineers to design the project. 4. At the time Respondent contracted to perform the project, Respondent was capitalized from Chris Vance’s personal funds. Respondent rented all of its equipment and had two employees. 5. Respondent poured concrete at the project. Complainant paid for the concrete work. Respondent failed to perform any other work on the jobsite. 6. Respondent paid $870.00 to the City of Phoenix for the permit. It paid the project’s architect, Mawan Mujahed, $4,600.00.[1] Respondent cannot account for any other funds that it spent on the project. 7. Unbeknownst to Complainant, Respondent began to use Complainant’s money to fund two other, unrelated projects. As of November, 2004, Respondent had spent all of the $40,430.00 that Complainant had paid to Respondent. Respondent had no line of credit and no other funds for the project. Respondent failed to disclose to Complainant that the project was out of funds. 8. On March 5, 2005, Complainant and Respondent met with Mr. Mujahed and David Fabiano, the civil engineer on the project to discuss concerns about the project. At the time of the meeting, there had been no progress on the project for several months. Mr. Jenkins believed that the project was delayed pending the resolution of a technical appeal with the City of Phoenix; however, the foregoing issue was resolved in December, 2004. Mr. Vance led Mr. Jenkins to believe that the delay was “normal”; however, he did not advise Mr. Jenkins of the financial status of the project. 9. During the meeting, Mr. Mujahed advised the parties that he had not been paid by Respondent. Aside from its initial payment of $4,600.00, Respondent had failed to make any additional payments to Mr. Mujahed.[2] 10. On March 11, 2005, Terrill Clouse, Complainant’s business consultant, wrote a letter to Mr. Vance requesting a financial accounting for the project. Respondent did not provide an accounting in response to this letter. 11. On March 22, 2005, Mr. Vance finally admitted to Mr. Jenkins that the project was insolvent and Respondent had spent all of Complainant’s funds on other projects. Mr. Vance promised to repay Complainant. 12. On March 23, 2005, Complainant filed the instant Complaint against Respondent with the ROC. 13. On April 10, 2005, Complainant requested the instant administrative hearing. 14. On April 27, 2005, the ROC issued Citation and Complaint No. 05- 1916 against Respondent alleging that Respondent committed violations of A.R.S. § 32-1154(A)(1), (A)(7), and/or (A)(9). 15. On May 10, 2005, Respondent filed an answer to the Citation and Complaint. 16. On June 2, 2005, the ROC issued a Notice of Hearing (“NOH”) advising the parties that the hearing was scheduled for July 18, 2005 at 1:30 p.m. The NOH was sent to Respondent’s attorney, Guy Bluff. 17. On July 12, 2005, less than one week prior to hearing, Respondent’s counsel filed a motion to continue the hearing for the reason that Mr. Bluff was scheduled to attend “CLE by the Sea” in San Diego from July 13-July 16, 2005. Mr. Bluff indicated that when he scheduled the out of town trip, he had expected to have another attorney to cover the instant matter; however, the attorney who was expected to cover the hearing had left Mr. Bluff’s employ and was no longer available. Mr. Bluff did not indicate when the attorney became unavailable, nor did he provide any other reason to justify the untimeliness of the motion. Although Complainant did not object to the motion, the motion was denied as untimely. Ms. Lederer, another attorney in Mr. Bluff’s office, appeared on the day of hearing and indicated that she was prepared to proceed. 18. At hearing, the parties stipulated that Respondent owed Complainant $40,430.00. When asked what he did with Complainant’s funds, Mr. Vance stated he had “no idea.”[3] Mr. Vance also admitted that he “juggled” Complainant’s funds. Mr. Vance admitted that Complainant “funded” two of Respondent’s other construction projects without Complainant’s knowledge or authorization. Mr. Vance promised that he would make every effort to repay Complainant, including selling his home. 19. Complainant presented evidence that Mr. Vance sold his home on or about May 11, 2003 and netted $48,000.00 from the sale. Mr. Vance admitted that, despite promising Complainant that he would sell his home to satisfy his debt, he used the proceeds from the home to pay other creditors. Mr. Vance stated that funds from other property would be used to pay Complainant; however, he did not identify what other properties would be sold, when they would be sold or if any monies would be available to pay Complainant. Mr. Vance’s promises to repay Complainant appeared to be disingenuous. 20. On February 23, 2005, Mr. Vance had filed a petition for personal bankruptcy protection in U.S. Bankruptcy Court. The Bankruptcy petition was dismissed on May 9, 2005. 21. The evidence established that Mr. Vance had a contractor’s license in Utah, which is now canceled. In 2002, Mr. Vance admitted that he contracted with a home owner in Utah to install granite countertops. Mr. Vance accepted payment for the countertops, but never installed them. Mr. Vance owed the home owner $5,600.00. The foregoing resulted in a criminal restitution order and a warrant for Mr. Vance’s arrest.[4] Mr. Vance was arrested on the warrant a few days prior to the beginning of his contract with Complainant. Mr. Vance maintained that Mr. Jenkins was aware of his detention but “didn’t know what extent [Mr. Jenkins] knew about the case.” Mr. Jenkins testified that Mr. Vance represented the criminal situation like it was a “misunderstanding”. Mr. Jenkins maintained that it “would have sent up a red flag” if he had known about the nature of the case in Utah. CONCLUSIONS OF LAW 1. In this administrative proceeding Complainant bears the burden to prove, by a preponderance of the evidence, that Respondent violated A.R.S. § 32-1154(A)(1), (A)(7) and/or (A)(9) as charged by the ROC in its April 27, 2005 Citation and Complaint. See A.A.C. R2-19-119. 2. 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). 3. Under A.R.S. §32-1154(A)(7), a contractor is subject to discipline for “the doing of a wrongful or fraudulent act…resulting in another person being substantially injured.” The Administrative Law Judge concludes that Respondent violated A.R.S. § 32-1154(A)(7) in several respects. First, Respondent committed a fraudulent act by misappriopriating Complainant’s funds. Complainant paid Respondent $40,430.00. Of that amount, Respondent spent only $5,470.00 on the project, leaving $34,960.00 unaccounted for. 4. Second, Respondent used Complainant’s money for two other unidentified projects. Complainant has no way of determining how, or where, its funds were distributed or any way of recovering same. Respondent grossly breached its fiduciary responsibility, not only to Complainant, but to the other unidentified project owners. The foregoing is a gross deviation of the behavior expected of a licensed contractor. 5. Finally, Respondent deliberately mislead and failed to advise Complainant about the perilous financial situation it caused. For four months, the project was insolvent, yet, as of the March 5, 2005 meeting, Respondent continued to insist that the lack of progress on the project was due to a “normal” delay. Respondent failed to advise Complainant that it had not made any to progress payments to Mr. Mujahed. On March 5 and again on March 11, 2005, Complainant requested an accounting for the project. Mr. Vance was fully aware of the situation at the time of both requests; however, he did not advise Mr. Jenkins of the true financial status until March 22, 2005. 6. Under A.R.S. §32-1154(1), a contractor is subject to discipline for abandoning a contract without legal excuse. The evidence established that Respondent stopped performing on the project without legal cause to do so. Respondent argued that it was unable to continue to perform on the contract due to “circumstances beyond its control.” Respondent argued that the delay due to the site plan technical appeal contributed to its inability to perform pursuant to the contract. However, Respondent failed to establish what, if any, affect the delay had on Respondent’s performance. 7. The evidence established that the site plan issue was resolved by December, 2004. By then, Respondent had already misappropriated all of Complainant’s funds. As a result of Respondent’s abandonment, Complainant had to pay Mr. Mujahed $9,200.00 to complete the project. Based upon the weight of the evidence, the Administrative Law Judge concludes that Respondent abandoned the project and violated A.R.S. §32-1154(1). 8. Under A.R.S. §32-1154(9), a contractor is subject to discipline for “failure in a material respect by the licensee to complete a construction project or operation for the price stated in the contract, or in any modification of the contract.” The contract specifically earmarked certain amounts for certain items, including, but not limited to, Mr. Mujahed’s fee of $23,000.00. The evidence established that Respondent failed to complete the construction project for the contract price. Respondent was unable to meet its obligations under the contract (including, but not limited to making progress payments to Mr. Mujahed) because it misappropriated the project’s funds. By its own wrongful act, Respondent rendered itself incapable of completing the project for the contract price. Based upon the weight of the evidence, the Administrative Law Judge concludes that Respondent violated A.R.S. §32-1154(9). 9. Based upon the foregoing, the Administrative Law Judge concludes that it is appropriate for the ROC to impose discipline against Respondent’s license. In determining the appropriate recommended discipline, the Administrative Law Judge considered the following aggravating factors: a. The evidence demonstrated that Respondent has engaged in unscrupulous and dishonest behavior, including, but not limited to misappropriating over $40,000.00 of Complainant’s funds for unauthorized use and “juggling” funds on other projects. b. Respondent failed to disclose the financial status of the project. It did not disclose same until four months after Respondent caused the project to become insolvent. Mr. Vance grossly violated his fiduciary responsibility to Complainant. c. Even after admitting wrongdoing with respect to misappropriating Complainants’ funds, Respondent has failed to refund Complainants’ money. Mr. Vance promised that he would repay Complainant after he sold his home; however, Mr. Vance’s financial situation was so dire that other creditors were paid before Complainant. Mr. Vance’s intent to pay Complainant appears disingenuous and the likelihood of repayment improbable. d. Complainant has established and Mr. Vance acknowledged that in 2002, Mr. Vance accepted $5,600.00 from a home owner in Utah to install granite counter tops. Mr. Vance failed to install same and failed to refund the home owner’s money. The foregoing resulted in a criminal restitution order, which has since been resolved. Mr. Vance had to borrow funds to resolve the Utah matter. Despite being arrested and jailed on the warrant in the Utah matter just prior to entering into the contract with Complainant, Mr. Vance was undeterred from further misconduct; he misappropriated Complainant’s funds just four months later. f. Mr. Vance has demonstrated extreme incompetence in his financial dealings. By his own admission, he has had to “juggle” funds to satisfy what appears to be a spiral of debt. Licensed contractors are routinely required to manage multiple projects simultaneously. They hold a fiduciary responsibility to their clients and are required to provide accurate accountings to all clients. Mr. Vance’s behavior grossly deviated from the professionalism expected of a licensed contactor. 8. The aforementioned aggravating factors demonstrate that Respondent is an unscrupulous and dishonest contractor from which the public needs to be protected. The Administrative Law Judge concludes that Respondent should never again be in the position where it can take advantage of its clients in the manner demonstrated herein. Therefore, the ROC should revoke Respondent’s license. Based upon the egregious conduct demonstrated in this case, the Administrative Law Judge encourages the ROC to initiate an investigation into any other licenses Respondent and/or Mr. Vance may hold. RECOMMENDED ORDER Based on the foregoing, the Administrative Law Judge makes the following Recommended Order: On the effective date of the ROC’s order, Respondent’s Class B-02 License (No. 192556) will be revoked. In the event of certification of this Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the order will be 40 days from the date of that certification.

Done this day, August 8, 2005.

______________________________________ Wendy S. Morton Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 2005, to:

Registrar of Contractors Israel G. Torres ATTN: Alicia Guerra 800 West Washington, 6th Floor Phoenix, AZ 85007

By ___________________________

----------------------- [1] Mr. Mujahed was to be paid a total of $23,000.00 in progress payments of 20% (upon contract signing); 40% (upon site plan approval); 30% (upon completion of drawings and city submittal); and 10% (on city approval and permitting). [2] Complainant ultimately had to pay Mr. Mujahed $9,200.00 in order to move forward on the project. [3] Mr. Vance is unable to account for at least $20,000.00 of Complainant’s money. [4] Mr. Vance resolved the Utah matter by borrowing money from his brother- in-law to pay the restitution.

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