ALJDEC decisions subject to certification as final

05F-A0121-ROC · Registrar of Contractors · 2007-08-24

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

On 27 April 2007, Respondent filed a MOTION FOR DISMISSAL of the above captioned case, which Complainant opposed in its response received 15 May 2007. Oral argument on the motion was heard from both parties, with both parties’ counsel present, at a video teleconference held 21 May 2007. Accordingly, upon review and consideration of the arguments and information contained in the submissions of the parties and the Registrar of Contractors, as well as the entire record in this matter, the following Order is issued:

FACTUAL AND PROCEDURAL BACKGROUND Zeke’s Eating Place (“Complainant “) contracted with Kenson Construction Company, Inc. (“Kenson”) of Prescott, Arizona for the construction of a commercial restaurant building in Prescott Valley, Arizona. Kenson subcontracted with Respondent Grady’s Quality excavating, Inc. for asphalt paving of the restaurant parking lot. Work by Respondent on the paving project was complete on 1 October 2002, and Complainant began using the parking lot the next day. A certificate of occupancy for Complainant’s commercial restaurant building was issued 27 November 2002. Complainant filed a complaint with the Registrar of Contactors (“ROC”) regarding Respondent and the paving project on 8 October 2004. A Corrective Work Order was issued to Respondent on 22 November 2004, requiring Respondent to repair certain cracks in the asphalt. On 14 January 2005, an ROC Inspector Dan Lafond examined

the asphalt repair work, and by letter dated 18 January 2005, notified Complainant of the ROC’s intention to close Complainant’s complaint, unless a request for hearing was received within 10 working days [1 February 2005]. No response was received from Complainant within the stated 10-day deadline and the Complainant’s complaint was closed by the ROC on 22 February 2005. Complainant requested the complaint be re-opened by its letter of 16 March 2005. Kenson’s attorney protested the action in its letter of 21 March 2005, stating that the complaint had been closed, that there was no basis for re-opening the complaint, and that the two-year statute of limitations regarding the construction [A.R.S § 32-1155(A)] had expired. The ROC informed Respondent that the complaint had been reopened in its letter of 25 March 2005. The ROC issued Respondent a Citation and Complaint on 6 May 2005, requiring a written answer from Respondent by 21 May 2005. Respondent did not answer by 25 May 2005, and based on Respondent’s default the ROC issued its 8 July 2005 Decision and Order suspending Respondent’s KA-Class contractor’s license. Respondent appealed the ROC action to Yavapai County Superior Court. The Yavapai Superior Court, in its Order of 25 January 2007, vacated the ROC’s 8 July 2005 Decision and Order, and ordered the ROC to hold an administrative hearing regarding the suspension. The ROC issued a Notice of Hearing on 2 March 2007 ordering an administrative law hearing be held before the undersigned.

CONCLUSIONS OF LAW There are two factual circumstances upon which this case should be dismissed, both based upon the expiration of the statute of limitations relevant in this case. First, the commission of the act complained of occurred more than two years before the original complaint was filed in this case. Second, even assuming the original complaint was filed timely, the complaint was closed by the ROC and the “reopening” of the complaint constituted a new complaint filing that fell outside the two-year statute of limitations. The statute of limitations central to this case is A.R.S. § 32- 1155(A). Its provisions state, in pertinent part, as follows:

A. Upon the filing of a written complaint with the registrar charging a licensee with the commission, within two years prior to the date of filing the complaint, of an act that is cause for suspension or revocation of a license, the registrar after investigation may issue a citation or upon written request of the complainant may issue a citation directing the licensee, within ten days after service of the citation upon the licensee, to appear by filing with the registrar the licensee's written answer to the citation and complaint showing cause, if any, why the licensee's license should not be suspended or revoked…. [emphasis added]

A straight-forward analysis of this statute, as applied to the facts of the instant case, finds that the last “act” complained of (i.e. faulty workmanship regarding the paving project) “committed” by Respondent was 1 October 2002, the completion date of the paving project. The filing date of the initial complaint was 8 October 2004, which is not within two years of the “act”. Therefore, the case should be dismissed on the basis that the compliant was untimely filed. Counsel for the Complainant cites the case of Lyon v. Great American Insurance Company, 4 Ariz. App. 596, 422 P.2d 724 (1967) for the proposition that the date of occupancy of the restaurant building should be the date the statute should begin to run, and proffers the date of the certificate of occupancy of the restaurant building (27 November 2002) as that date. In addition, counsel for the Complainant cited Arizona Attorney General Opinion I79-119 (25 April 1979) as further support. However, nowhere in any of these two cited authorities is the concept that the date of the certificate of occupancy touted as the point upon which the statute begins to run. The Lyon case involved a suit by Russell and Rosalyn Lyon against their home construction contractor and the contractor’s surety, Great American Insurance Company. The Lyons took possession and occupied their new home before it was completed (i.e. before any close of escrow was complete, or any certificate of occupancy issued) and soon discovered the roof leaked. The Lyon court ultimately held against the Lyons on the basis that the case had not been filed within the applicable one year statute of limitations and stated:

We hold that the one year statute of limitations began to run in favor of the surety and against the building contractee [Lyons] upon the contractee’s occupancy of the structure or upon the contractee’s discovery of the breach of the contact, whichever event shall first occur.

Lyon at 599. The court also went to great pains to limit the holding of this case to the specific fact situation presented in the case, by stating,

We expressly limit this decision to the relatively simple fact situation which is before us.

Lyon at 598. The instant case involves a commercial building and its owner, not a private residence and its owner. It involves no surety, nor even a “structure” in the traditional sense of the term, and certainly not a statute of limitations regarding claims on a surety bond. Thus, by the court’s own prohibition, Lyon should not be used to interpret A.R.S. § 32- 1155(A). Nonetheless, despite the court’s admonition, the Attorney General and Complainant’s counsel would have us extend the Lyon case to the instant case’s statute of limitation. However, even if an analysis of this case using the Lyon and Arizona Attorney General Opinion rationale is undertaken, the instant case still fails due to the complaint being filed untimely. The Lyon case continually speaks in terms of “occupancy of the structure”, Lyon at 599, and the Lyons’ assuming “possession and occupancy of the premises”, Lyon at 597. Nowhere is there a mention of a certificate of occupancy issued by a governmental entity being the critical point upon which the statute should begin to run. Although Attorney General Opinion 179-119 makes reference to the Lyon court implying that the “critical point occurs when the structure is tendered for occupancy” (which implies an event like an escrow closing or the issuance of a certificate of occupancy), a careful reading of Lyon reveals no such implication, and the Opinion ultimately limits its earlier expansive language when, referring to A.R.S. 32-1155(A), it states:

Therefore, a homeowner’s complaint is timely if filed within two years of occupancy or discovery of the defect, whichever event first occurred.

Again, both Lyon and the Attorney General Opinion speak of actual occupancy; not close of escrow, not the date of a certificate of occupancy, but actual occupancy. In fact, the Lyon case involved a fact situation where the structure owner occupied the structure before it was completed, thus indicating that occupancy can occur before construction project completion, escrow closings, or certificate of occupancy issuances, and is not necessarily dependent upon the occurrence of any of them. This raises the ultimate question of “when was the parking lot occupied by Complainant”. Complainant contends that the paving project was part and parcel of the entire restaurant construction project; therefore the date of the certificate of occupancy of the restaurant building answers the question. But as the analysis of both A.R.S. § 32-1155(A), the Lyon case and the Attorney General Opinion above reveal, the date of the certificate is not conclusive. Occupancy can occur prior to such an event. Evidence adduced at hearing indicated that as soon as the next day after the completion of the paving, Complainant began to use the parking lot by parking his vehicle on it while conducting various activities within the as- yet-uncompleted restaurant building in preparation of the restaurant opening. Others began using it also: subcontractors, inspectors, etc. Admittedly, the parking lot was not being used by restaurant patrons, as the restaurant was not yet open, but the parking lot was being used on the day after completion, by Complainant and others, for the use for which it was intended: Parking cars. Although Complainant denied any such use of the parking lot, such assertions strain the credulity of this tribunal, as it is incredible that Complainant and others did not begin using the parking lot immediately after its completion while completing their own work and preparations within the uncompleted restaurant building. In addition, the parking lot was open, notorious and available for inspection by any party, including the Complainant. Accordingly, this tribunal finds that Complainant had the opportunity to inspect and discover any defects in the paving job the day it was complete (1 October 2002), and that he occupied and began using it the next day (2 October 2002). Complainant also points to an addition to A.R.S. § 32-1155(A) made by the Arizona Legislature on 23 May 2007. It states:

The two year period prescribed by this subsection shall commence on the earlier of the close of escrow or actual occupancy for new home or other new building construction and otherwise shall commence on completion of the specific project

This amendment does not become effective until 19 September 2007, and can be disregarded on that basis alone. However, even if utilized as some sort of indication of legislative intent as to what the original statute meant, Complainant’s arguments still fail for the same reasons set forth in the Lyon analysis above. The amendment speaks of three points in time: close of escrow (not applicable in this case), actual occupancy (2 October 2002; see the discussion of Lyon above), and completion of the specific project (1 October 2002). Each of the critical points in time referred to in the amendment fall outside the two year limitation as applied to this case. Nonetheless, even assuming that Complainant’s argument regarding the certificate of occupancy is correct, and that its date should be the point at which the statute of limitation should begin to run, this case still fails to fall within the limitation. On 18 January 2005, the ROC informed Complainant that his complaint was to be closed, and that if he disagreed, a request for hearing had to be filed within 10 working days. No such request was received, and the case was closed on 22 February 2005. Although the ROC “reopened” the case upon Complainant’s request in March 2005, such reopening constituted a refiling of the complaint, and such refiling was beyond the two year limitation (regardless of whether one uses the 2 October 2002 actual occupancy date, or the 27 November 2002 certificate of occupancy date) for filing such complaints. The filing of an ROC complaint triggers certain legal rights and protections. One of them is the two year limitation of A.R.S. 32-1155(A). The filing tolls the running of the limitation. The closing of the complaint should accordingly have the opposite effect; it should cease the tolling of the statute. The situation is similar to that which occurs in Superior Court when a case is dismissed, for whatever reason. Once a Superior Court case is concluded, closed, dismissed, withdrawn, or settled, the statute of limitations for that factual set of circumstances is no longer tolled, and if anyone wishes to reinstitute the case later, they may only do so if the limitation has not expired. The tolling of the statute accomplished by the original filing of the complaint does not affect the tolling of the statute with regard to the re-instituted case, even if the case is about the same set of factual circumstances. The same should hold true of ROC cases. The closing of a case by an agent of the ROC either means something or it does not. If it means nothing, it should not even be done. However, it is patently apparent that it does mean something: The closing of a case by an agent of the ROC is an act of finality that has consequences, one of which is a lifting of the tolling of the statute of limitation. Complainant was duly informed of the closing and his right to appeal the closing, which he did not do in a timely manner. Complainant’s counsel related that the ROC has an internal policy of allowing “reopenings” of filed complaints within one year of the date that they are “closed”. There is no statutory or regulatory authority for such a policy that has such a profound effect upon the legal rights of those who rely upon a consistent and equitable application of the limitation contained in A.R.S. 32-1155(A). No language in Title 32 of the Arizona Revised Statutes or Title 4, Chapter 9 of the Arizona Administrative Code gives the ROC the authority to unilaterally “reopen” a complaint within one year after it has declared the complaint “closed”. This “policy” is internal to the ROC, unpublished and not available to the licensed contractors the ROC regulates. They have no notice of this policy, yet it directly affects whether or not an action can be instituted that affects their licensure. In addition, such a policy is contrary to public policy and the efficient, consistent, and knowing administration of justice. How is an ROC licensee to know when the statute has run? An ROC compliant may be “closed” and all parties informed of that fact, and the limitation subsequently expire…. yet has it? How long does the licensee have to wait? The complaint is closed, the limitation has since run, yet the licensee cannot determine, by reading either statue or rule, whether the case is really over, due to an unpublished and unnoticed internal ROC policy regarding the possibility of “reopening” the complaint at some arbitrary later date. This policy injects uncertainty into the regulatory structure of the ROC. One of the reasons for having statutes of limitation, both criminal and civil, is so people can know when, with certainty, they will no longer be liable or subject to disciplinary or criminal action. Not all complaints terminate in a Decision and Order issued by the ROC, with no final administrative decision, as is often the case in many administrative agencies. For instance, a complaint is filed, the licensee undertakes appropriate remedial work, and the case is “closed”. However, in such a case, how can the licensee, in the face of an unpublished internal ROC policy regarding the reopening of complaints, ever know when he will no longer be subject to disciplinary measures as a result of his original work? Answer: If the closing of a complaint means nothing, and a final administrative Decision and Order are not issued, he can’t. Given the current ROC methodology regarding the closing and “reopening” of complaints, the only way a licensee can be assured that a compliant is ever permanently closed is to take every complaint to hearing and obtain a final administrative Decision and Order. Such a situation does not promote judicial or regulatory efficiency. Finally, the ROC policy of “reopening” a complaint after it has been closed by the ROC is ultra vires the authority granted to the ROC by the legislature. It is well established that an agency’s administrative powers are limited to those granted to it by statute, and that it may not give itself powers not expressly granted by the legislature. Corella v. Superior Court in and for Pima County, 144 Ariz. 418, 698 P.2d 213 (Ariz. App. 1985). In addition, an agency’s regulations must be consistent with the overall intent behind the statute. Community Hospital of Chandler, Inc. v. Sullivan, 963 F.2d 1206 (9th Cir, 1992). In this case, the policy regarding reopening of complaints isn’t even a published internal policy available to the licensees the ROC regulates, let alone a properly promulgated Arizona Administrative Code rule. Yet it seeks to undermine the very heart of A.R.S. 32-1155(A) by impermissibly extending the limitation imposed by that statute to an arbitrary and illegal extent that is unknown and unnoticed to the very licensees the statute affects in a direct and substantial way.

Accordingly, upon review and consideration, with good cause appearing, IT IS ORDERED that Respondent’s MOTION FOR DISMISSAL be hereby GRANTED, and that this case be vacated from the calendar of the Office of Administrative Hearings, and IT IS FURTHER ORDERED that this matter be remanded to the Registrar of Contractors with the recommendation that the Registrar issue an ORDER DISMISSING THE CITATION AND COMPLAINT issued to Respondent in this case.

Done this day: August 24, 2007.

_________________________________ Maurice McWhirter Administrative Law Judge

Copy mailed this ____ day of ____________, 2007 to:

Fidelis V. Garcia, Director Registrar of Contractors Legal Department 800 West Washington, 6th Floor Phoenix, AZ 85007

Cheryl Hopson Grady's Quality Excavating, Inc. 14785 E. White Drive Dewey, AZ 86327

Guy W. Bluff, Esq. Bluff & Associates, PC 844 N. 4th Ave. Phoenix, AZ. 85003-1314

Paul L. Roberts, Esq. Law Offices of Roberts & Carver PLLC 239 South Cortez Street Prescott, AZ 86303

Zeke's Eating Place 1731 S. Hwy 69, Ste 35 Prescott, AZ 86301

Scott A. Miskiel, Esq. P.O. Box 3222 Cottonwood, Arizona 86326

By ___________________________

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