ALJDEC decisions subject to certification as final

06F-2424-ROC · Registrar of Contractors · 2006-12-20

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: December 12, 2006 APPEARANCES: Complainants Larry and Carol Balboni appeared on their own behalf. Nick Patel, Esq. represented Respondent Morning Star Construction, L.L.C. ADMINISTRATIVE LAW JUDGE: Sondra J. Vanella _____________________________________________________________________ The question presented by this matter is whether Respondent Morning Star Construction, L.L.C. (“Morning Star”) is subject to discipline for acts or omissions in violation of A.R.S. § 32-1154(A). 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. Morning Star is the holder of a Class KB-01 license (No. 149227) issued by the Registrar of Contractors (“ROC”). Tony Ventura is Morning Star’s qualifying party. 2. On or about March 6, 2006, Complainants Larry and Carol Balboni entered into a contract with Morning Star for Morning Star to construct a Pergola and Ramada at the Balbonis' residence located at 11285 East Paradise Lane in Scottsdale Arizona. See Exhibit 1B1. The contract price was $46,733.00. Id. On March 6, 2006, the Balbonis paid Morning Star a deposit in the amount of $10,000.00 pursuant to the payment terms of the contract. Those payment terms are in pertinent part as follows: An initial payment of $10,000.00 is required upon signing of this contract. Based upon Applications for payment submitted to the Owner, the Owner shall make progress payments on account on the Contract Sum to the Contractor as provided below and elsewhere in the Contract Documents. The maximum period covered by each Application for payment shall be one calendar month ending on the last day of the month. Other progress payment[s] can be processed on an as needed basis. Id. 3. In March 2006, Morning Star began its work at the Balboni residence, performing the back fill and compaction. Work stopped progressing and the Balbonis expressed their concerns to Morning Star. 4. At a site meeting in April 2006, Morning Star advised the Balbonis that work would continue once the pool shell was completed. The pool shell was completed on April 28, 2006. 5. On or about May 1, 2006, another meeting took place on site to discuss scheduling. The rough electric was completed during the first week of May 2006. 6. On or about May 12, 2006, the Balbonis contacted Morning Star to inquire as to when it was going to proceed with its work. 7. On or about May 16, 2006, Morning Star requested an additional $15,000.00 progress payment from the Balbonis before it was willing to perform additional work. The Balbonis were concerned that Morning Star was requesting additional funds, as they felt that little progress had been made on the project. As such, they offered Morning Star a $7,500.00 progress payment to be made upon the initiation of the next phase of work and a $7,500.00 progress payment upon the completion of the next phase of work. Morning Star refused to proceed without payment of the entire $15,000.00 requested progress payment, which would have accounted for approximately one half of the contract amount. Morning Star advised the Balbonis that this was non-negotiable, as Morning Star lacked confidence that the Balbonis would pay Morning Star for its work. The Administrative Law Judge finds based upon the credible evidence presented at hearing, that this was an unfounded concern. 8. On May 26, 2006, the Balbonis filed a complaint against Morning Star with the ROC alleging the following: On 3/6/06 we signed a contract with Morning Star Construction LLC to build a Ramada and a Pergola in our rear yard. All plans, permits, and engineering drawings were provided by our project Management Company, JSL Design. The Morning Star contract required $10,000.00 in advance of work commencement. The contract did not expressly indicate any additional prepayments. Several weeks later back fill and compaction was done at a cost of $2,400, and on May 11-12 rough electric work was performed at a cost of $1,347.50. NO OTHER WORK HAS BEEN PERFORMED. On May 18, Morning Star demanded an additional $15,000 before proceeding any further. We spoke to them regarding a compromise, but they refused, and subsequently THEY cancelled (sic) the contract. The verbal agreement we had during our last phone conversation was that they would provide us with the invoices for the work completed to date, and reimburse us for the balance of the $10,000 deposit that we paid to them in March. Our payment agreement included a 30% mark up for Morning Star. When the invoice was sent on May 19, 2006, it included all of these items PLUS a fee for “pre-construction fees” and “field visits” brining (sic) the total owed to $10,005.77. This is a blatant attempt by Morning Star to keep our good faith deposit in spite of the fact that they did not perform the work. Morning Star has seriously harmed us by not living up to their commitment, causing a significant delay in our total project. Our request is that Morning Star send us a check for $5,128.25, representing the unused portion of our original deposit.

9. At hearing, Morning Star made a motion to dismiss, asserting that the Balbonis’ complaint arises from a contract dispute, and as such, this tribunal does not have jurisdiction over the matter. The Administrative Law Judge denied Morning Star’s motion as Morning Star has been charged with violations of this State’s contracting laws, and this tribunal is vested with jurisdiction over the matter, and ruled that the hearing should proceed on its merits. 10. Mr. and Mrs. Balboni testified regarding the above-delineated Findings of Fact. Mr. Balboni testified that he and his wife were not comfortable paying $15,000.00 when requested by Morning Star due to the delay in progress. Mr. Balboni credibly testified that Morning Star’s manager/bookkeeper, David Tracy, advised him that Morning Star would cancel the contract if it did not receive the full $15,000.00 progress payment. Mr. Balboni further credibly testified that he had come to a verbal agreement with Mr. Tracy that the Balbonis would pay for the work that had been performed (back fill, compaction, and rough electric) plus a 30% mark up, and that Morning Star would refund to the Balbonis any unused funds from the deposit. Instead, Morning Star invoiced the Balbonis for $10,005.77, including pre-construction costs (subcontractor bid review and consultation, coordination of subs, contractor warranty, general liability and office administration) in the total amount of $4,016.89, and field visits in the amount of $600.00. See Exhibit 1D. None of these “soft costs” were itemized, nor was there any supporting documentation given to the Balbonis (or presented at hearing) to corroborate Morning Star’s position. 11. The Balbonis asserted that they were not unwilling to pay the full $15,000.00, they just wanted to make that payment in two installments. The Balbonis requested a refund of the unused portion of their deposit. 12. Mr. Ventura testified at hearing that the back fill, compaction, rough electric and underground trenching had been performed by Morning Star. Mr. Ventura further testified that the delays were caused by other subcontractors hired by the Balbonis, specifically the pool contractor, as Morning Star could not proceed prior to the completion of the pool shell. Mr. Ventura further testified that Morning Star needed the full $15,000.00 from the Balbonis because it had to pay its concrete and framing subcontractors in order to schedule them for work because the subcontractors needed to purchase materials for the project. Mr. Ventura also testified that Morning Star needed the funds to pay insurance and taxes toward the project. Mr. Ventura explained that Morning Star’s 30% mark up was solely profit and not utilized for overhead expenses. 13. Mr. Tracy testified at hearing that he did not tell the Balbonis that Morning Star was “canceling the contract”, however, Mr. Tracy acknowledged that he told the Balbonis that Morning Star would not move forward with the project unless it received the full $15,000.00 payment. Mr. Tracy testified that he explained to the Balbonis the costs associated with scheduling the subcontractors. 14. Morning Star asserted that the Balbonis breached the contract, because pursuant to the terms of the contract, progress payments could be requested on an as needed basis, and that there is no provision for negotiation of progress payments. 15. The Administrative Law Judge finds, based on the weight of the credible evidence of record, that the Balbonis were justified in their hesitation to pay over 50% of the contract price at the point in time that Morning Star requested the $15,000.00 progress payment. The Administrative Law Judge further finds that Morning Star acted unreasonably when it refused to negotiate the amount of the requested progress payment, as the Balbonis were not unwilling to pay, they simply wanted a good faith showing from Morning Star that the subcontractors were going to perform as scheduled. The Administrative Law Judge further finds Morning Star’s Invoice Detail (Exhibit 1D) less than credible and self-serving. 16. The Administrative Law Judge finds, based on the weight of the credible evidence presented at hearing, that the Balbonis are entitled to restitution from Morning Star in the amount of $5,128.25, which represents the difference between the $10,000.00 deposit that the Balbonis paid to Morning Star and the costs incurred by Morning Star for the backfill and compaction, the rough electric, and a 30% mark up.[1] CONCLUSIONS OF LAW 1. In this proceeding, the Balbonis bear the burden to prove, by a preponderance of the evidence, that Morning Star is subject to discipline for violations of A.R.S. § 32-1154(A)(1) and/or (A)(7) as charged by the ROC in its August 24, 2006 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. The Administrative Law Judge concludes that the Balbonis met their burden of proof as to both of the ROC’s charges. 4. Under A.R.S. § 32-1154(A)(1), a contractor is subject to discipline for “abandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.” The Administrative Law Judge concludes, based on the weight of the credible evidence of record, that Morning Star refused to perform without legal excuse for the refusal, as the Balbonis were not unwilling to pay the requested $15,000.00, they simply wanted to pay in two installments of $7,500.00, the first of which when a subcontractor commenced its work, and the second, when the subcontractor completed that phase of work. Therefore, the Administrative Law Judge concludes that Morning Star violated A.R.S. § 32-1154(A)(1). 5. Under A.R.S. § 32-1154(A)(7), a contractor is subject to discipline for “the doing of a wrongful or fraudulent act . . . as a contractor resulting in another person being substantially injured.” The Administrative Law Judge concludes, from the evidence presented, that Morning Star committed a wrongful act that substantially injured the Balbonis by refusing to perform without legal excuse. The Administrative Law Judge further concludes that Morning Star’s attempt to retain the full $10,000.00 deposit under the premise of charging for pre-construction costs that are not itemized or documented demonstrates dishonesty. Therefore, the Administrative Law Judge concludes that Morning Star violated A.R.S. § 32-1154(A)(7). 6. Based on the foregoing, it is appropriate for the ROC to impose discipline against Morning Star’s Class KB-01 license. 7. Upon consideration of all of the facts and circumstances presented by this case, the Administrative Law Judge concludes that the ROC should suspend Morning Star’s Class KB-01 license. 8. The ROC’s authority in disciplinary matters such as the one presented herein includes the ability to impose reasonable conditions that allow the disciplined contractor to reduce the scope of the disciplinary action taken against it. The Administrative Law Judge deems the exercise of such authority to be appropriate in the instant case, and preferable to imposing discipline against Morning Star’s license without providing a condition to reduce or eliminate same. 9. Upon consideration of all of the facts and circumstances presented by this case, the Administrative Law Judge concludes that the ROC should suspend Morning Star’s Class KB-01 license subject to the condition that Morning Star can avoid such suspension by paying restitution to the Balbonis in the amount of $5,128.25. RECOMMENDED ORDER Based on the foregoing, the Administrative Law Judge makes the following Recommended Order: On the effective date of the Order entered in this matter, Morning Star’s Class KB-01 license (No. 149227) shall be suspended until the ROC receives written proof that Morning Star has paid restitution to the Balbonis in the amount of $5,128.25. If the ROC receives written proof that Morning Star has complied with the foregoing condition on or before the date specified above, then the above provided license suspension shall not take place and the Citation and Complaint in Case No. 06-2424 shall be closed. 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 40 days from the date of that certification. Done this day, December 20, 2006.

______________________________________ Sondra J. Vanella Administrative Law Judge

Original transmitted by mail this ____ day of December, 2006, to:

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

By ___________________________

----------------------- [1] An Administrative Law Judge may recommend that a licensee provide restitution to any person who is injured or whose property is damaged by an action of the licensee. A.R.S. § 32-1156.01.

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