ALJDEC decisions subject to certification as final

06F-A0523-ROC · Registrar of Contractors · 2007-06-07

STATE OF ARIZONA IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: March 19, 2007, adjourned and reconvened June 5, 2007 APPEARANCES: Complainants : Musgrove, Drutz & Kack, P.C., Jeffrey R. Adams, Esq. appeared for Ms. King and Messrs. Summer and Scavetti. Respondent : Eaton & O'Leary, PLLC, Wiilliam J. O'Leary, Esq. represented B and M Well Drillers, Inc. ADMINISTRATIVE LAW JUDGE: Gary B. Strickland _____________________________________________________________________

A Hearing[1] was convened to determine whether Respondent B & M Well Drillers, Inc. violated state law as has been alleged by Complainants King, et al. and as cited by the Arizona Registrar of Contractors (hereinafter also, “the ROC”). Evidence and testimony were presented. Respondent B & M Well Drillers, Inc. holds a Class K-53 (Dual Water Well Drilling) license issued by the Registrar of Contractors. Complainants allege that Respondent accepted money from Complainants for the construction and installation of a well and has not corrected its contribution to the failure of the replacement well pump to produce at the level anticipated by Complainants and in accord with industry standards. Based upon an examination of the entire record,[2] the following Findings of Fact are made, Conclusions of Law rendered, and DECISION AND RECOMMENDED ORDER issued: FINDINGS OF FACT Background 1. Respondent’s license (No. 18364) was initially issued on March 20, 2003 with viability through March 31, 2009. The license was in active status at the time that the contract was formed and work performed that led to the present Complaint. 2. Bobby Joe Wallace is the Qualifying Party identified on the B & M Well Drillers, Inc. (hereinafter also, “the Contractor” or “B & M”) license. 3. The project at issue involved construction of a water well and installation of a pump at a site identified as 4208 Heavenly Heights Loop, Prescott, Arizona. The work was performed on Arizona property, the contract under which the construction was performed was executed in Arizona, and the Contractor was licensed by the Registrar of Contractors. As such, the Complaint falls within the requirements of Title 32, Chapter 10, Article 3. 4. On or about November 29, 2003, Complainants engaged B & M to construct the well for an estimated $7,075. price.[3] Complainants paid $3,537.50 down on that date.[4] All amounts owed to Respondent for the well and pump and various components have been paid.[5] 5. After the construction and installation were performed, the pump failed and efforts to extract and replace it failed to the extent that the original pump remains in the well to this day. 6. Having become disconcerted over the quality of B & M’s performance, Complainants filed a Complaint before the Registrar of Contractors on May 2, 2006.[6] 7. An Inspection of the site was conducted and a “Corrective Work Order”[7] was issued on June 7, 2006 by ROC Inspector Daniel E. Lafond. 8. The “Corrective Work Order” directed B & M to “determine the cause of. . . [its] [f]ailure to install the well pump to the appropriate depth.”[8] 9. Inspector Lafond did not testify at the Hearing as he has retired from the ROC and relocated to Colorado. 10. Because Complainants had given notice that B & M had not effected the corrections and repairs delineated within the “Corrective Work Order,” the Registrar of Contractors issued a CITATION AND COMPLAINT against Respondent’s license on September 22, 2006 therein citing B & M Well Drillers, Inc. for violation of A.R.S. § 32-1154(A)(3), (7), and (23). 11. In its A.R.S § 32-1155 ANSWER to the Complaint, B & M defended against the Complaint by asserting that any alleged failure was caused by Complainants’ misuse of the system and that other allegations were groundless.[9] 12. Thereafter, upon request of Complainants because no resolution of the problem was forthcoming, the Registrar issued a NOTICE OF HEARING[10] on or about December 5, 2006 and a Hearing was conducted pursuant thereto. FINDINGS OF FACT 13. Complainants King, Sumner, and Scavetti were each at all times relevant the owners and users of a well that had been drilled by B & M Well Drillers. The well is located on real property owned by Ms. King in Prescott, Arizona. 14. The parties’ November 29, 2003 contract provided for the drilling and casing of a well. No pump work was identified in the initial contract.[11] While the parties had originally agreed that the well would be drilled to a depth of 340 ft., it was ultimately drilled to 500 ft. to provide Complainants a safety margin in the event that the water table should decrease in the future. Complainants were concerned that they be enabled to draw four gallons of water per minute.[12] 15. B & M completed its drilling of the well on June 6, 2004; the well was drilled to a depth pf 500 feet.[13] 16. On or about June 18, 2004, B & M installed a 1 ½ hp Goulds pump into the well. The pump was set at a depth of 460 feet.[14] 17. B & M issued a five-year pump warranty to Ms. King excluding the warranting of failures of the pump due to “misuse and misapplication.” The written warranty further excluded coverage of labor necessitated by the extraction and reinstallation of the pump due to product defect. The warranty further excluded consequential, incidental, or other damages, including damages for loss of use.[15] 18. On or about November 18, 2004, B & M installed and set a pitless adaptor, constructed a three valve manifold, and connected the three water lines to the manifold. Each water line had its own valve designed to provide water to King, Sumner, and Scavetti.[16] 19. On or about March 15, 2005, the pump failed. 20. On March 17, 2005, Jon Sumner telephoned to B & M advising of the failure. B & M dispatched a pump installer and a pump laborer to the site. B & M employee Bryce Wallace testified that when he arrived at the location he discovered that the well pump was then turned on with the water valves closed.[17] Contrary to the testimony of Bryce Wallace, Complainants, through Mr. Scavetti, who was then using the pump for the first time, denies that he had left the water pump on; he affirmatively asserts that the pump was shut off.[18] 21. The B & M employees’ efforts to extract the pump failed; according to Respondent, the pump likely broke away from melted pvc pipe and became lodged in the well. According to Complainants on the other hand, the Goulds pump was oversized for the well; the size perhaps contributing to the failure.[19] The pump remains embedded in the well to date. 22. The pvc casing and the wire attached to the pvc casing and pump were extracted by the B & M employees without the damaged pump.[20] Then, a new Goulds pump was installed by B & M at a depth of 344 feet. Water flow from the well has not been affected by the depth at which the new well pump has been installed.[21] 23. B. J. Wallace, B & M’s Qualifying Party and Owner, testified as one with 15 years experience in the water well drilling business and 22 years drilling oil. He is a licensed driller in New Mexico and Colorado, as well as in Arizona. In addition to his ROC license, he holds a license from the Arizona Department of Water Resources. He has drilled approximately 2600 wells and has installed around 800 well pumps. He personally drilled the subject well and installed the subject pump. 24. Mr. Wallace testified that further attempts to extract the pump could result in damage to the casing. Due to the potential impact upon well casing that extraction would create, a permit from the Arizona Department of Water Resources under A.R.S. § 45-596[22] would be required prior to further efforts to remove the damaged pump. No further efforts have been made to extract the pump from the well.[23] 25. In Mr. Wallace’s opinion, Complainants’ probably having left the power on to the well pump with the water valves closed caused the pump to fail. Leaving the power on in such a condition caused the pump to overheat and the pvc lines to melt.[24] 26. After the ROC CWO had been issued, B & M offered to remove the stuck well pump, requesting that Complainants sign the application for the appropriate “required” permit. Complainants have not signed the permit application.[25] 27. B & M argues that Complainants’ refusal to sign the permit application has resulted in the pump remaining in the well, unable to be inspected for its cause of failure. Since Complainants cannot prove the cause of the pump’s failure, they cannot prevail in their claim. 28. Complainants could have had the well pump extracted by a third- party Contractor for a $2,000.00 payment; they have opted not to do so. 29. Complainants assert that Respondent has not honored the terms and conditions of the warranty.[26] . . . 30. Complainants further assert that the second pump was not installed at the depth in the well required by the terms and conditions of the parties’ contract. Complainants are concerned that the depth at which the second pump has been placed may inhibit Complainants ability to enjoy the full usage of the well and its capacity.[27] 31. Complainants are concerned that the shallower depth at which the second pump has been placed may inhibit Complainants’ ability to enjoy the full usage of the well. However, the concern is speculatively based. 32. Complainants further assert that Respondent’s throwing away the extracted pvc casing has irreparably jeopardized capability to discover the failure of the original pump.[28] 33. Respondent acknowledges that the failure to extract the damaged pump from the well has created a risk of damage to the well.[29] 34. Because Respondent has not extracted the pump, Respondent has not complied with the “Corrective Work Order’s” directive that B & M “determine the cause of. . . [its] [f]ailure to install the [replacement] well pump to the appropriate depth.” (Emphasis added.)[30] . . . Material Questions Presented (1) Whether Respondent interfered with an opportunity to discover the cause of the pump’s failure by destroying the melted pvc pipe? (2) Whether A.R.S. § 45-596 required Respondent to obtain a permit for the extraction of the well pump? (3) Whether Respondent is excused from its failure to have complied with the “Corrective Work Order?” (4) Whether Respondent has complied with the terms and conditions of its contract? (5) Whether the present condition of the well is substandard?

Analysis 35. Q(1): As to the first question, the responsibility to preserve evidence in contemplation of litigation is well-established.[31] Respondent contends that it had no reason to preserve the melted pvc pipe because Complainants did not complain until one year after the second pump had been installed; Respondent believes that it had no duty to preserve the evidence.[32] On this record, it is not evident that Respondent destroyed the pvc pipe anticipating litigation; there is no basis in fact to assume that Respondent should have looked forward to litigation over the pump at the time that the pvc pipe was destroyed. Neither is there testimony or evidence in the record supporting a reasonable inference that Respondent intentionally destroyed the material in anticipation of a Complaint. In retrospect, at worst the destruction of the material was done negligently vis-à-vis Complainants’ rights to it in the present Complaint. The conclusion is bolstered by the fact that there is no evidence that Complainants at any time requested Respondent to preserve the material. Still further, while Complainants’ ability to present its case was prejudiced by the unavailability of the material, the unavailability has not foreclosed Complainants from presenting a cognizable case under A.R.S. § 32-1154(A). Reasonable inferences can be drawn from the evidence presented, as well as that not presented. Therefore, (a) since the issue whether the pump was left running with the valves shut is contested; (b) since it is Respondent that has raised the assertion as a defense itself based upon inference that requires examination of the destroyed evidence for confirmation; and, (c) since the destruction of the material done innocently or, at worst, negligently was Respondent’s responsibility, the analytical penalty (regardless whether the destruction of the evidence arose to a legally comprehended spoliation) herein imposed for the destruction is not to adopt the inference suggested by Respondent drawn from the missing evidence.[33] Respondent cannot have it both ways – freedom to draw an inference, if adopted dispositive of the claim, based on material itself made unavailable by Respondent. On this basis, it cannot be determined either way whether the pump was turned off with valves closed on March 17, 2005 when the B & M employees arrived to investigate; Respondent’s defense fails. The missing evidence could have resolved the contradictory testimony of Bryce Wallace and Rocco Scavetti. 36. Q(2): On the second issue, it is not reasonable to read A.R.S. § 45-596[34] and the regulatory gloss at A.C. R-12-801(29)[35] as requiring Respondent to obtain a permit before attempting to retrieve the damaged pump. If retrieval of the pump would constitute “repair” of the well or necessitate a change to existing casing, why didn’t Respondent obtain a permit prior to its extraction efforts on March 17, 2005? Further, whether or not permitting is required, analytically, unless Respondent can prove validity of its defense that causation of pump failure is attributable to an act or omission of Complainants, which it cannot, it likewise should not have imposed upon Complainants any cost associated with the permitting. Be that as it may, in the final analysis A.R.S. § 45-596(A), read in conjunction with A.A.C. R12-15-801(29), does not, on plain reading, require permitting to retrieve the damaged pump. 37. Q(3): As a result of the answers to Q’s (1) and (2), Respondent is not excused from his obligation under Title 32 to comply with the Inspector’s June 7, 2006 CWO directive to “determine the cause of. . . [its] [f]ailure to install the [replacement] well pump to the appropriate depth.” (Emphasis added.) 38. Q(4): On this question, it is the warranty provisions that are at issue. The five (5) year warranty was refused by Respondent because the warranty excluded coverage for replacement/repair necessitated by “misuse or misapplication.” The “misuse” assumed by Respondent was premised upon consideration that the pump was turned off with valves closed on March 17, 2005, thereby causing the failure. Since it is not persuasive either way whether the pump was turned off with valves closed on March 17, 2005, misuse was not a proper basis to refuse warranty coverage. Therefore, the warranty should have afforded Complainants their pump replacement coverage to the extent stipulated. 39. Q(5): On the final question, the evidence of substandard water production was speculative and insufficient qualitatively to support a finding of substandard conditions vis-à-vis water production resultant from the pump replacement at its current depth.

APPLICABLE LAW The CITATION AND COMPLAINT issued by the Registrar of Contractors charged Respondent with possible violations of A.R.S. § 32-1154(A)(3) (and A.A.C. R4-9-108, the “workmanship rule”), (2), (7), and (23). Those statutory sections require that a holder of a license or a person listed on a license not commit the following:

2. Departure from or disregard of plans or specifications or any building codes of the state or any political subdivision of the state in any material respect which is prejudicial to another without consent of the owner or the owner's duly authorized representative and without the consent of the person entitled to have the particular construction project or operation completed in accordance with such plans and specifications and code.

3. Violation of any rule adopted by the Registrar.

. . .

7. The doing of a wrongful or fraudulent act by the licensee as a contractor resulting in another person being substantially injured.

. . .

23. Failure to take appropriate corrective action to comply with this chapter or with rules adopted pursuant to this chapter without valid justification within a reasonable period of time after receiving a written directive from the registrar. The written directive shall set forth the time within which the contractor is to complete the remedial action. The time permitted for compliance shall not be less than fifteen days from the date of issuance of the directive. A license shall not be revoked or suspended nor shall any other penalty be imposed for a violation of this paragraph until after a hearing has been held. . . .

A.A.C. R4-9-108 is the rule violation charged under A.R.S. § 32- 1154(A)(3). The rule requires that all construction work be done in a professional and workmanlike manner and in accordance with applicable building codes and professional industry standards. CONCLUSIONS OF LAW 1. The Registrar of Contractors has jurisdiction over Complaint No. A06-0523 under the authority of A.R.S. § 32-1101, et seq., a section that enables the Registrar to impose disciplinary sanctions against licensees for the violations noted at A.R.S. § 32-1154. B & M Well Drillers, Inc. is a licensee. 2. The burden of persuasion generally at an administrative hearing falls to the party asserting a claim, right or entitlement, or an Agency seeking to impose a penalty.[36] Further, the standard of proof is that of the “preponderance of the evidence.”[37] Proof by a preponderance means that the evidence is sufficient to persuade the finder of fact that the proposition is “. . . more likely true than not.”[38] The evidence taken as a whole must convince the decision maker that the party who bears the overall burden of persuasion, in this case Complainants, is more probably correct on the issue(s) in dispute. 3. Observing these standards, Complainants have persuaded, by a preponderance of the evidence, that Respondent B & M has violated the cited statutory and regulatory provisions by failing to make corrections as directed in the “Corrective Work Order.” Complainants have persuaded that B & M has committed a wrongful act substantially[39] injurious to them. Further, Complainants have persuaded that B & M’s refusal to follow the directive without conditions was and is not justified. 4. By a preponderance of all of the evidence, Complainants have persuaded that, in the pump replacement efforts made by B & M, B & M has violated A.R.S. § 32-1154(A)(3), (7), and (23) as charged in the CITATION AND COMPLAINT. However, insufficient evidence has been produced persuasive of a violation of A.R.S. § 32-1154(A)(2). 5. An examination of B & M Well Drillers, Inc.’ license record[40] reveals that one (-1-) other Complaint has been filed against the license.”[41] The Complaint is identified “Resolved/Settled/Withdrawn.” Therefore, license history does not reveal a basis for an assessment clothed in aggravation.

RECOMMENDED ORDER In view of the foregoing, IT IS RECOMMENDED that the Registrar of Contractors enter an Order suspending Lic. No. 18364 until Respondent B & M Well Drillers, Inc. provides written proof that (1) it has extracted, or hired a properly-licensed third-party Contractor to extract, the subject damaged pump from the well, and (2) has refunded to Complainants any costs associated with the replacement pump (including the costs related to safety devices added thereto). Should written proof of extraction and payment be provided to the ROC prior to the effective date of the Registrar’s Order in the matter, Complaint No. A06-0523 should be closed. Further, in the event of the certification of this Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order shall fall forty days from the date of that certification. Done this 20th day of July 2007.

_____________________________________ Gary B. Strickland Administrative Law Judge

Original transmitted by mail this 30th day of July 2007 to:

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

By ___________________________

----------------------- [1] The Hearing was conducted via videoconferencing technology with the Administrative Law Judge situated at the Office of Administrative Hearings in Phoenix and the Complainants and Inspector located at the offices of the Registrar of Contractors in Prescott.

[2] The record consists of those documents found within the Agency’s case file, the contents of which the Administrative Law Judge has accorded Administrative notice, the exhibits offered by the parties, respectively, and the digital record of the proceedings under A.A.C. R2-19-121. Complainants offered four (4) exhibits, marked numerically, C-1, etc.; Respondent offered twenty-seven (27) exhibits, marked numerically, R-1, etc. Each of the exhibits offered was received. In addition, each party filed PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW.

[3] See Exhibit R-3.

[4] See Exhibit R-4.

[5] See 6/5/07 Hearing Record (hereinafter, “HR”) at 0:8:00 – 0:8:48.

[6] See Exhibit R-21.

[7] See Exhibit R-25.

[8] See “Corrective Work Order” within the Agency Hearing file.

[9] See Exhibit R-34.

[10] Within the Agency Hearing file.

[11] See Exhibit R-3.

[12] See Exhibit R-2; R-7; see also 3/19/07 H.R. at 0:20:11 – 0:20:24.

[13] See Exhibit R-8.

[14] See Exhibits R-11 and R-13.

[15] See Exhibit R-10.

[16] See Exhibit R-14.

[17] 6/5/07 HR at 1:39:30 – 1:39:50.

[18] 6/5/07 HR at 0:10:59 – 0:11:26; 3/5/07 H.R. at 1:14:35 – 1:14:40.

[19] 3/19/07 H.R. at 0:31:56 – 0:36:52; 0:52:45 – 0:54:02.

[20] 6/5/07 HR at 0:10:59 – 0:13 and 1:15:30 – 1:51:43.

[21] See Exhibits R-15 and R-17.

[22] 6/5/07 HR at 2:47:45 – 2:48:40.

[23] 6/5/07 HR at 0:13:00 – 0:13:32 and 0:14:34 – 0:16:32; Exhibit R-18.

[24] 6/5/07 HR at 2:47:13 – 2:47:30.

[25] 6/5/07 HR at 2:47:45 – 2:48:40.

[26] See Complainants’ PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW at p. 5, lns 21ff.

[27] 6/5/07 HR at 0:20:00 – 0:20:32; 3/18/07 H.R. at 0:41:55 – 0:42:35 and 0:52:45 – 0:55:33; Complainants’ PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW at p. 6, lns 1-5.

[28] 6/5/07 HR at 2::00:00 – 2:00:45 and 3::12:33 – 3:13:18; Complainants’ PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW at p. 6, lns 12-15.

[29] 6/5/07 HR at 3:23::34 – 3:23:54.

[30] 6/5/07 HR at 3:15:07 – 3:16:04; Exhibit R-30.

[31] See Tobel v. Traveler’s Insurance, 195 Ariz. 363; 988 P.2d 148; (1999 Ariz. App.). See also Souza v. Fred Carries Contracts, Inc., 191 Ariz. 247, 249, 955 P.2d 3, 5 (App. 1997). ( “Preliminarily, we note that litigants have a duty to preserve evidence which they know, or reasonably should know, ‘is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request.' Turner v. Hudson Transit Lines, Inc., 142 F.R.D. 68, 72 (S.D.N.Y. 1991), quoting Wm. T. Thompson Co. v. General Nutrition Corp., 593 F. Supp. 1443, 1455 (C.D. Cal. 1984). See also Unigard Security Ins. Co. v. Lakewood Eng'g & Mfg. Co., 982 F.2d 363 (9th Cir. 1992); Baliotis v. McNeil, 870 F. Supp. 1285 (M.D. Pa. 1994). . . .[However], [a]dopting inflexible, "bright line" rules in this area, in our view, would be ill-advised. Rather, issues concerning destruction of evidence [spoliation] and appropriate sanctions therefor should be decided on a case-by-case basis, considering all relevant factors. See Stubli v. Big D International Trucks, Inc., 107 Nev. 309, 810 P.2d 785 (1991) (setting forth nonexhaustive list of factors relevant to deciding whether dismissal is appropriate sanction). As the Sixth Circuit has noted: ‘Destruction of potentially relevant evidence obviously occurs along a continuum of fault--ranging from innocence through the degrees of negligence to intentionality. The resulting penalties vary correspondingly.’ Welsh v. United States, 844 F.2d 1239, 1246 (6th Cir. 1988).

[32] See Respondent’s PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW at p. 7, lns 16ff. [33] See Dietz v. Waller, 141 Ariz. 107, 110-11, 685 P.2d 744, 747-48 (1984) ("No specific defect need be shown if the evidence, direct or circumstantial, permits the inference that the accident was caused by a defect."), cited by Souza at 191 Ariz. 254; 955 P.2d 10.

[34] The relevant section of A.R.S. § 45-596 provides:

A. In an area not subject to active management, a person may not drill or cause to be drilled any well or deepen an existing well without first filing notice of intention to drill pursuant to subsection C of this section or obtaining a permit pursuant to section 45-834.01. Only one notice of intention to drill is required for all wells that are drilled by or for the same person to obtain geophysical, mineralogical or geotechnical data within a single section of land.

[35] A.A.C. R12-15-801(29) provides:

29. "Well drilling" means the construction or repair of a well, or the modification, except for abandonment, of a well, regardless of whether compensation is involved, including any deepening or additional perforating, any addition of casing or change to existing casing construction, and any other change in well construction not normally associated with well maintenance, pump replacement, or pump repair.

A.A.C. R12-15-801(7) provides:

7. "Casing" means the tubing or pipe installed in the borehole during or after drilling to support the sides of the well and prevent caving. [36] See Ariz. Admin. Code R2-19-119 (B).

[37] Culpepper v. Arizona Board of Nursing, 187 Ariz. 431, 930 P.2d 508 (App. 1997); See also Ariz. Admin. Code R2-19-119 (A).

[38] In re Arnold and Baker Farms, 177 B.R. 648, 654 (9th Cir. BAP (Ariz.) 1994). See also J. LIVERMORE, R. BARTELS, & A. HAMEROFF, LAW OF EVIDENCE ( 301.1(4th ed. 2000) (One party bears the overall burden of persuasion on each fact material to the party’s claims and defenses. Further, the party with the burden of persuasion on a particular fact is required to satisfy the burden of production of enough qualitative evidence sufficient to support a finding of the existence of the fact, following a reasonable person standard.)

[39] Meaning, a material injury, one that is not illusory. See ”substantial”: WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 2280 (2002).

[40] See A.A.C. R4-9-117. Prior Record

In any disciplinary proceeding conducted by the Registrar, the licensee's entire license file including the record of prior citations and decisions may be considered by the Registrar in making a decision and order in the case.

[41] See http://www.azroc.gov/clsc/AZROCLicenseQuery

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