ALJDEC decisions subject to certification as final

06F-1244-ROC · Registrar of Contractors · 2006-12-19

STATE OF ARIZONA IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: December 14, 2006.

APPEARANCES: >D M Western Sun Building Industries, LLC was represented by its attorney, Corey B. Larson, Esq. >Lowe Plumbing, LLC was represented by its attorney, Ivan Kolesik, Jr., 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. The above-captioned matters were consolidated for the purposes of hearing since they appeared to involve primarily the same underlying issues of fact and of law and entailed the use of the same witnesses and documentary evidence.

2. Lowe Plumbing, LLC (herein called “Lowe”) was the selected specialty contractor for the performance under a written subcontract agreement of all plumbing work on a residential remodeling project on which D M Western Sun Building Industries, LLC ((herein called “Western Sun”) was serving as the project’s general contractor. The property owners were Phillip and Annette Gordon (herein called “the Gordons” or “the owners”).

3. The initial bid price set forth in the parties’ subcontract was $4,400.00 and subsequent mutually agreed change orders for additional work or materials resulted in a total adjusted subcontract cost price of somewhat over $12,000.00. It was not disputed that Western Sun has paid or tendered to Lowe various progress payments aggregating the sum of approximately $8,000.00, leaving an unpaid balance of about $4,100.00 or $4,200.00. In that portion of the instant consolidated administrative hearing relating to the complaint filed by Lowe against Western Sun, Lowe is seeking to recover a total of $5,144.59, which total also reflects a purportedly agreed amount of interest or late fees of 10% computed to the date of filing its formal complaint.

4. It was similarly uncontroverted that Western Sun has refused to pay the above-described subcontract balances claimed by Lowe to be due and owing, despite numerous and repeated requests and demands. Western Sun maintained and still maintains its position that certain expenses subsequently incurred for the completion and correction of Lowe’s plumbing work constituted legitimate back-charges that could be validly deducted from monetary balances otherwise payable. Even if recoveries of

interest or late charge fees are otherwise appropriate subjects for inclusion in an administrative complaint based upon an alleged non-payment violation, to the extent that such claims for back-charge allowances are legitimate so as to equal or exceed the subcontractual amount claimed due, no basis would exist for the imposition of any additional 10% charge for interest or late fees.

5. The testimony was somewhat conflicting with respect to the responsibility for delays of the project’s progress with little or no valid basis found to exist for the disbelief of either party’s version. There did appear to be some degree of shared fault as to the responsibility for causing delays. It was sufficiently demonstrated, however, that Lowe was generally not promptly responsive to requests or demands by Western Sun to be on the jobsite for various phases of the contemplated plumbing work. In any event, the owners had become very unhappy with both the general contractor and the specialty plumbing subcontractor. Such unhappiness resulted in the filing by the homeowners of a complaint with the Registrar against Western Sun based in part upon asserted deficiencies in the work by Lowe.

6. The separate complaint filed by the Gordons, as homeowners, was fully resolved by the commendable and prudent actions of Western Sun. Notwithstanding the subsequent filing of the instant complaint against Lowe, Western Sun undertook and completed remedial measures through others even before the Registrar’s respectively assigned Inspectors on each of the complaints made their initial visits to the premises. Some elements or items of those corrective work efforts generated costs that formed the basis of the overall back-charge amounts utilized as claimed deductions against the otherwise payable subcontractual balance.

7. With the concurrence and perhaps with the insistence of the owners, Lowe was expressly terminated from the project by Western Sun. Under all the circumstances, it cannot be held that such termination action was wholly unjustified or unwarranted.

8. Construction is not a perfect science, and it is not unusual for items to require attention by way of correction, replacement or adjustment – often even more than once. No finding of a contracting law violation is generally supportable unless and until, after notice and a reasonable opportunity is given, a licensed contractor fails to rectify construction deficiencies. The fact that Lowe had been deprived of a reasonable opportunity to undertake and complete corrective work must be held, under all the facts and circumstances of this case, to negate any finding of any failure to rectify workmanship deficiencies or code violations.

9. Notwithstanding the foregoing, although the termination action effectively deprived Lowe of an opportunity to address and to remedy any reported problems with its prior work, it does not necessarily follow that Lowe obtains any immunity against claims based upon its potential or actual financial responsibility for the cost of corrections achieved by the general contractor through other sources. Since the termination had effectively resulted in labor time and materials savings to the terminated contractor by not enabling the undertaking and completion of otherwise required corrective work measures, the expenses incurred by the other contracting party may appropriately be utilized as a monetary set-off or back-charge against sums otherwise due and payable to the terminated contractor. Stated alternatively, Lowe’s termination by Western Sun did not serve to make Lowe an unintended beneficiary of the subsequent corrective actions performed by others to remedy work deficiencies for which Lowe remained responsible, nor may such termination action be treated as tantamount to a waiver of entitlement for Western Sun to seek either reimbursement for incurred expenses or to utilize the amounts expended representing the costs of ultimately accomplished corrective work by way of set-offs or counterclaims.

10. It is noted, however, that one demand and opportunity for remedial action did not result in corrective action from Lowe even prior to the date of termination. This item of complaint related to the demonstrated showing that connections to the ends of

gas pipe installations to each of two fireplaces had utilized flexible rather than rigid piping materials that were mandated by local building code provisions. Lowe’s position that the individual local Inspector had verbally approved the code deviation, unsupported by any written confirmation other than a passing of a non-final inspection, would not relieve Lowe of the duty to subsequently accomplish corrections if the municipality subsequently altered its prior position. The costs of rectifying the fireplace gas piping to conform to Code appear to be appropriate for back-charge amounts.

11. Credible evidence tended to indicate that Lowe had installed a soft water loop for future use by the owners. However, subsequent flooding that resulted in significant drywall damage was experienced from behind a wall in the laundry room, a location where Lowe had placed a flush or brine line. Lowe is found to be responsible for the completion or repair of the flush or brine line, as well as for the repair and refinishing of the drywall damaged areas. Lowe is also determined to have been responsible for the repair and refinishing of ceiling drywall in the lower bathroom that sustained damage as a result of a leaking condition traceable to Lowe’s installation of the upstairs shower drain. Additionally, the correction of a subsequently discovered crossing of the hot and cold water lines remained as a responsibility of Lowe. The termination action by Western Sun prevented Lowe from rectifying the aforesaid deficiencies, but the costs incurred by Western Sun for remedial work by other contractors appeared to be appropriate subjects for back-charge amounts.

12. Although the combined amounts of the separate paid invoices to other licensed entities ostensibly for the correction of the work by Lowe were shown to be substantially in excess of the admittedly due balance, with or without the added interest or late charges, several such invoices or portions thereof appeared to be for the correction of work by others and not by Lowe. Moreover, the evidence was unclear as to whether the expenses attributable to jobsite drywall and painting work, unspecified as to locations, were solely attributable to areas necessarily disturbed during the attempts to rectify deficiencies in Lowe’s work.

13. An unusually high portion of the overall back-charges that had been asserted as valid deductions from otherwise proper subcontract invoices consisted of sums attributable to the hourly earnings of Western Sun’s superintendent or project manager, purportedly to compensate for the extra time spent coordinating and monitoring the progress of corrective measures for Lowe’s prior substandard or incomplete work. In point of fact, such supervisory cost portion was shown to constitute over 40% of the total amount sought to be utilized as back-charges for accomplishing remedial measures. However, most if not all of such additional supervisory work was or reasonably should have been encompassed within the anticipated ongoing responsibilities of any general contractor for which compensation was payable under the applicable prime contractual arrangements with the property owners. To attempt to hold Lowe responsible for these claimed extra hours that regularly must be devoted to most all construction progress would appear to be highly questionable, potentially resulting in a form of double payment, except perhaps for some relatively minor portions not to exceed the percentages of overhead and profit customarily charged throughout the industry.

14. It is found and determined that, even after the elimination of many of the monetary sums contained in the various invoices, or portions thereof, and after a substantial downward adjustment of the amounts representing extra work by a supervisory employee, the combined total of the remaining incurred costs claimed as back-charges appeared to closely approximate the $4,200.00 maximum unpaid balance claimed due by Lowe.

15. There was little doubt that the respective positions of the parties, as presented at the scheduled hearing, confirm that the monetary amount claimed by Lowe to be past due and owing is subject to a dispute that existed and still exists between the parties. Nor can it be reasonably be inferred that the grounds for Western

Sun’s position in disputing its liability for tendering any portion of the claimed unpaid balance was arbitrary, unreasonable or asserted other than in good faith on the part of Western Sun.

16. The Registrar of Contractors is not statutorily empowered to adjudicate and award money damages for contractual breaches which must be more appropriately recovered, if at all, by initiating and pursuing available remedies before a civil court of competent jurisdiction. In point of fact, and mindful of the perhaps questionable propriety of the amounts and nature of several expense items utilized by Western Sun as offsets or back-charges, the totality of the evidence tended to indicate that the costs incurred by Western Sun to complete the plumbing portion of the project and to rectify problems that were subsequently experienced in the previously performed work may well have been nearly equal to or even perhaps slightly in excess of the total amount of the admittedly unpaid invoices from Lowe. To the extent that amounts properly past due and payable were eliminated by many or most of the set-offs asserted, no interest or late charge penalties would be applicable, even if otherwise appropriate to include as part of an alleged non-payment violation in these administrative proceedings.

17. Based upon the demonstrated bona fide dispute as to the monetary amount claimed unpaid, past due and owing to Lowe by Western Sun, the instant claim filed with the Registrar must be viewed as not constituting a liquidated sum which would be an essential element to be proven by Lowe in order to support any finding that Western Sun has failed to pay monies when due or has committed an otherwise wrongful act within the purview of the State’s contracting laws. In the event that the basis for Western Sun’s dispute is ultimately determined to be without merit and a final judgment for all or even part of the $4,200.00 claimed hereunder is obtained in favor of Lowe and is not promptly satisfied by Western Sun, another separate disciplinary complaint may properly be filed with the Registrar of Contractors.

18. Under all the circumstances, it is determined that the Registrar of Contractors is not the proper forum in which to litigate the propriety of Lowe’s claim or Western Sun’s defenses and counterclaims. The same is true for the obtaining by Western Sun of a determination in the nature of a Declaratory Judgment that it does not presently owe any contract balances to Lowe arising from the prior dealings between the parties. Moreover, the civil forum is fully empowered and capable to determine collateral issues affecting the quantum of any and all provable damages by resorting to a joint, shared or comparative fault analysis when assessing the extent, if any, of entitlements and/or offsets as between the respective parties.

19. The above Findings of Fact, which may also be properly treated as constituting Conclusions of Law, are not intended to and do not constitute a determination as to the validity or the amount of Lowe’s claim under the subcontractual arrangements nor as to possibly legitimate defenses, set-off amounts or counterclaims assertable by Western Sun. These determinations must be made by the civil tribunal as part of an appropriate civil action commenced and pursued by either party. Stated alternatively, nothing in decision intended to preclude Lowe from fully pursuing its claim in a civil forum or from using its underlying claim by way of a defense to any interposed counterclaim or set-off. On the contrary, the termination of this portion of the administrative proceeding shall be expressly without prejudice to the rights of the respective parties to assert and pursue available civil remedies based upon potential or actual rights to recover monies claimed payable or to utilize legitimate credits due for contract breaches, unpaid contract balances, legitimate set- offs, justifiable back-charges or potential counterclaims. These determinations must properly be made by a civil court, which tribunal would be the more appropriate forum for the resolution of this monetary dispute.

CONCLUSIONS OF LAW

1. The evidence of record failed to adequately establish that Lowe has violated any of the provisions of A.R.S. §32-1154(A), as charged in the issued Citation.

2. The evidence of record failed to adequately establish that Western Sun has violated any of the provisions of A.R.S. §32-1154(A), as charged in the issued Citation.

RECOMMENDED ORDER

In view of the foregoing, it is recommended with respect to the entire Citation and Complaint in Case Number 06-1244 based upon the allegations by Western Sun of uncorrected or uncompleted plumbing work on the jobsite project by Lowe be dismissed without prejudice to the rights of Western Sun to assert and to utilize the costs for correction through others of all or part of any alleged and proven wrongdoing or responsibility on the part of Lowe as legitimate set-offs or counterclaims as part of a proceeding in another, more appropriate forum.

It is further recommended that the entire Citation and Complaint in Case Number 06-2490, based upon the non-payment claim of Lowe against Western Sun, be dismissed, also without prejudice to the rights of the named parties to continue to assert and to pursue their respective claims, counterclaims, defenses or set-offs in another, more appropriate forum.

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: December 20, 2006. 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

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