ALJDEC decisions subject to certification as final

06F-T0324-ROC · Registrar of Contractors · 2007-01-24

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: September 11th, 12th, and December 5th, 2006. APPEARANCES: Complainant, Deep Freeze Development, LLC, was represented by Mr. Richard M. Rollman, Attorney-at-Law. Respondent, Caliber West, LLC, was represented by Mr. Randall M. Sammons Attorney-at- Law. ADMINISTRATIVE LAW JUDGE: Grant Winston _____________________________________________________________________ The Administrative Hearing of this matter was held in the Office of Administrative Hearings, Tucson. Testimony was heard and other evidence admitted to the record, and, based on the entire record, the following Findings of Fact Conclusions of Law and Recommended Order are made.

FINDINGS OF FACT 1. Respondent herein, Caliber West, LLC, is, and during all time material hereto was, a contractor licensed by and doing business in the State of Arizona, holding Class B License number 098426. 2. Complainant, Deep Freeze Development, LLC, is a development corporation doing business in Tucson, Arizona, and this matter concerns a contract entered into between the two parties whereby Respondent, acting in its capacity of general contractor, was to perform construction work at a premises located in Tucson and owned by Complainant. 3. The premises are known as the Ice House Lofts and, as its name suggests, the construction involved here was to convert the property from its prior usage. The written contract entered into between the parties on October 22nd, 2003, was to further that purpose and result in a 51-unit condominium property. 4. Several serious, extensive, and costly workmanship defects developed as the project was being performed by Respondent which will be detailed infra. Eventually, and not before making earnest and patient efforts to work with Respondent to correct these multiple problems, Complainant filed the instant Complaint with the Registrar of Contractors on October 3rd, 2005. 5. The Complaint alleged several workmanship defects on the part of Respondent, and also alleged that Respondent has subcontracted an unlicensed business known as Alan Kitchen Cabinets and Design, LLC, to perform the cabinetry and countertop phase of the project for a price of several thousand dollars. 6. Registrar of Contractors Inspector James R. Morris was assigned to the Complaint. Inspector Morris conducted two separate job site inspections, and issued two separate, written Corrective Work Orders as a result. This occurred as a result of the Complainant submitting two separate lists of Complaint items; a first on December 30th, 2005, and a second on January 26th, 2006. 7. The first CWO was issued and dated February 2nd, 2006, and the second March 27th, 2006. Inspector Morris gave credible testimony as to his inspections and bases for the items he listed in both CWOs. 8. Each CWO listed findings of workmanship defects at this project, as well as other items about which Complainant was complaining which it had corrected and was seeking restitution from Respondent for the cost of having to do so. The CWOs allowed Respondent 15 calendar days to make the corrections listed by the Inspector, which, in both instances, was a reasonable amount of time for compliance. 9. Respondent failed to make the ordered corrections listed in the CWOs, and Complainant requested an administrative hearing be held. Citation and Complaint issued from the Registrar’s office citing this Respondent with possible violations of A.R.S. 32-1154.A.1, 7, 10, 23, and 3 (namely, A.A.C. R4-9-108, Workmanship Standards). 10. The administrative hearing was held over the course of three days in the Office of Administrative Hearings. The following witnesses testified: Registrar of Contractors Investigator Ms. Tammi Jo Anders; Registrar of Contractors Southern Arizona Regional Manager, Ms. Geri Meade; Registrar of Contractors Inspectors Morris, and Edward P. Monahan, Jr.; Ms. Randi Dorman, Complainant Member; Mr. Rick Hunsaker, a professional roofing consultant and Arizona licensed roofing contractor; Mr. Russ Rekemeyer, Lewis Management Resources, Community Resources Manager; Mr. Warren Michaels, Complainant Member; Mr. Rob Paulus, licensed Arizona and California architect, Complainant Member and architect for this project; Mr. Dave Ollanik, licensed Arizona contractor; Mr. Phil Lipman, Complainant Principal and bookkeeper for this project, and Mr. Richard Hickey, Respondent employee. 11. Complainant’s Exhibits 1( 33 were offered and admitted into the record, and Respondent’s Exhibits A and B were so. 12. Investigator Anders testified that she investigated the allegation that Respondent was contracting Alan Kitchen Cabinets and Design, LLC, and discovered that the Arizona Registrar of Contractors had never issued a license of any classification to that business. 13. Inspector Morris credibly testified that even after those at the Registrar’s office informed Respondent Mr. Hickey that his cabinet and countertop subcontractor was unlicensed Mr. Hickey asked to be permitted to continue using that unlicensed business for this project. 14. Mr. Hickey himself testified that he did not learn that Alan Kitchen Cabinets and Design was unlicensed until December, 2004, and then only because Complainant’s partners so informed him. By this time such were the defects in the cabinet and countertops that they should have raised in the mind of any reasonable person the substantial likelihood that one’s chosen cabinet and countertop subcontractor was not the qualified possessor of an Arizona contractor’s license. As a matter of fact, Complainant’s partners were repeatedly calling to Mr. Hickey’s attention defects in the cabinets and countertops. 15. The greater weight of evidence proved that Respondent never exercised any due diligence to ascertain whether its cabinet and countertops subcontractor was or was not properly licensed. 16. The work performed by Alan Kitchen Cabinets and Design was substantially defective, including delaminating areas, uneven surfaces, and the ordering and installation of an incorrect product finish. Respondent never corrected the defective work after having had abundant opportunity to do so, including access to the job site. The defects in this aspect of the project and Respondent’s responsibility to correct them were written into Inspector Morris’s first CWO. Inspectors Morris and Monahan, the latter having conducted a pre-hearing inspection on September 7th, 2006, due to the former’s unavailability on that date, confirmed the existence of delaminated areas in the countertops. Complainant was ultimately constrained to pay another properly licensed contractor to properly correct and complete most of the cabinetry and countertop work in November, 2005, at additional cost to it of $4,165.00. 17. Additionally, some of the butcher block countertops are yet to be installed and others were defectively installed in one unit. These were not installed and corrected by Respondent, and Complainants have not paid others to make the corrections. These defects in the butcher block countertops were observed and confirmed by Ms. Geri Meade and Inspectors Morris and Monahan, all who saw that they did not match surrounding countertops, were unlevel and delaminating. Inspector Morris ordered the countertops corrected in his first CWO. Respondent must be held responsible for these defects. 18. The exterior doors’ thresholds and their weather stripping is another item of the Complaint. There is no substantial design flaw in the specifications for the thresholds and weather stripping, and no substantial evidence of any complaint to that effect having been registered by Respondent. The greater weight of evidence did prove that these were defectively installed by Respondent, and that these defects were called to its attention by Complainant after extensive leaking into the units occurred. After ineffectual efforts were made by Respondent to correct the leaking, none additional were attempted. Complainant again was constrained to correct the problem itself, at an additional cost of $4,089.00. 19. Respondent failed to properly install the HVAC filters, and never made corrections to this defective work. Complainant, after affording Respondent ample opportunity to make the correction, had to pay for the purchase and installation of new HVAC filters at an additional cost to it of $230.00. 20. Another serious and extensive defect in the Respondent’s work is in the priming and painting of the exterior metal, namely sunscreens and balconies. These metal surfaces, according to the project’s plans and specifications and the paint manufacturer’s specifications, were to have been properly cleaned and primed before painting, but the clear weight of evidence proved that they had not been cleaned or primed before painting. Naturally, this defective workmanship caused the metal surfaces to rust through in short order, within the first six months after Respondent had painted them. 21. This defect in the priming and painting of the metal exterior surfaces was ordered to be corrected by Inspector Morris in his first CWO. The defective condition was also observed by Ms. Geri Meade who was at the job site in her official capacity, and Inspector Monahan. Respondent’s expert witness, Mr. Dave Ollanik, also observed the condition of the painted exterior metal, and testified that in his opinion the metal had not been primed before painting. Ms. Dorman was present when the painting was done by Respondent as its effort to correct the defect, and she saw paint cans, but no primer cans, being emptied by the workers. 22. Within two months following this repainting, rust was again observed coming through the paint by Complainant’s partners and a representative of Dunn-Edwards, the paint manufacturer. 23. Respondent never properly corrected this work. Respondent’s position is that the proper priming did occur, and some touch up is all that is necessary. This position is incredible in light of the clear weight of evidence to the contrary. 24. The most egregious of the several significant defects in the Respondent’s workmanship is to do with the roof of the building known as Building A. 25. Among Respondent’s contractual obligations was the construction of the roofs on the several buildings in the project. The roof constructed by Respondent on Building A was defectively constructed from the first; it was sagging, which resulted in the ponding of rainwater. There is no substantial evidence that the sagging and ponding resulted from design flaw. Inspector Morris included this defect in his first CWO as one of the items he ordered to be corrected by appropriate means. Had Respondent only obeyed the CWO, a catastrophe that occurred on June 6th, 2006, would have been prevented. 26. However, Respondent was dilatory in responding to the Complainant’s demands to correct the sagging roof atop Building A, as well as the CWO, and when Respondent finally did respond to remediate the problem, it did so by constructing in the roof a contraption reminiscent of a Rube Goldberg contraption, and which resulted in a near disaster. 27. Respondent constructed what was purported by Respondent to be a roof drainage system, but describing it as such is to use language very loosely. Respondent cut holes in the roof and roof joists and installed an interior shower stall drain on the roof connected to plastic piping, all of which Respondent apparently expected would safely and efficiently drain water from the roof. 28. This so-called roof drainage system was not approved by Complainant, including project architect Mr. Paulus, and indeed none among the Complainant’s partners were consulted about what Respondent intended to and did in fact install in the roof of Building A. The contraption was not permitted by the local building authorities, and was not in accordance with any applicable codes or industry standards. 29. Complainant’s expert witness, Mr. Rick Hunsaker, a properly licensed Arizona roofing contractor with more than three decades of experience in roofing, testified that the application to the roof by Respondent was defective in design and installation, and had no business being there. Mr. Hunsaker found it objectionable that the Respondent would actually cut into the roof and roof joists for this installation without even consulting the project architect. He found the entire system below industry and workmanship standards. 30. Mr. Paulus credibly testified about the system. He was not consulted about it, and it was not up to the applicable building and plumbing codes. It was not, and could not have been, permitted by the local building authorities. Nothing in the system was conforming to the Uniform Plumbing Code. The plans drawn up by Mr. Paulus provided for an adequate drainage, and had Respondent properly followed those plans and properly constructed the drainage according to them in the first instance, there would have been no problem. After Mr. Paulus discovered what had been done to the roof, he contacted Respondent by e-mail to inform him that this was unacceptable as a remedy. 31. Following the installation of this fatally flawed system without prior consultation or approval of the Complainant, without prior permitting, without proper plans, it began to leak almost immediately. What is worse, the failure of the system was so utter that after a significant rain, rather than divert water, it collected so much of it that the weight of the water collapsed the system and the ceiling in Building A. Fortunately no one was injured when the ceiling collapsed, but the collapse did result in significant property damage to five units in the building. The homeowners in those units had to move out of their homes because of this defective workmanship by Respondent. 32. At that point in time Complainant’s partners were understandably, justifiably and adamantly opposed to allowing Respondent another chance to mutilate the roof, so they hired another appropriately licensed contractor to correct the roof, at an additional cost to it of $15,375.50. 33. Another defect in the Respondent’s construction of this project was in the concrete slabs for some of the units. Specifically, there were extensive pop-outs in the concrete floors in three units. Inspector Morris observed them in two of those units and the other evidence provided credible evidence of their existence in a third. Inspector Morris ordered them to be corrected by appropriate means in his first CWO. 34. Pop-outs are topical areas on the surface of the concrete which “pop out” from the slab. This resulted in this case from alkali silica reaction, which, in turn, results from moisture trapped in the concrete. These conditions were brought to the attention of the Respondent by Complainant and later by the Inspector in his CWO. Respondent failed to properly correct them. 35. Licensed Arizona Class B and B1 contractor Mr. Dave Ollanik testified for the Complainant that he saw these extensive pop-out areas in three units, and his opinion they are beyond acceptable industry and workmanship standards. In his opinion these slabs afflicted with the pop-outs should be removed and re-poured. Even Respondent’s Mr. Hickey conceded on cross-examination that the accepted remedy for problems of high moisture content in concrete within the industry is to remove and replace the slabs. 36. Mr. Hickey testified that his original remedial effort did not correct the problem, and other pop-outs continue to subsequently appear. Remedial action less than a complete removal and re-pour might correct this problem, but Respondent is responsible for these serious defects in the concrete. 37. The last major defect in the Respondent’s work is to do with the installation of motorized parking lot entry gates. The project called for such gates to restrict entry by the public at-large, suitable for the 51-unit condominium project, but did not include detailed specifications for the gates. The contract between the parties, at General Conditions section 3.2.6 mandates that where a contract call for an item is not specific, it becomes the duty of the contractor (Respondent) to make inquiry and consult with the project’s architect (Mr. Paulus) as to “what is best-suited.” Never did Respondent raise a question or concern with Complainant over these gates, or request additional information or explanation, or consult with Mr. Paulus about the gates he chose to acquire and install. 38. Mr. Ollanik testified that as a responsible licensed contractor in the circumstances he would have prepared a package proposal for the gates he had in mind and submitted same to the owner for the owner to review and approve before installing any gate system. Indeed, the contract would seem to call for nothing less. 39. The entry gates selected and installed by Respondent failed chronically over an extended period of time. In fact, the gates were failing on a weekly frequency. After the gates failed it became known that Respondent had failed also to obtain a manufacturer’s warranty for the gates. Complainant has had to incur needless additional expense for the constant repair of, and replacement parts for, the defective gates in the amount of $9,501.00. 40. Mr. Russ Rekemeyer, an experienced Community Resources Manager currently employed in such a capacity by Lewis Management Resources, testified. He has extensive experience in motorized parking lot gates for gated communities in his profession, and was managing the operation of the gates at this project. He testified that the frequency of this gates’ failure far exceeded any other in his experience, and failed so often that he would have to operate the gates manually to permit vehicular ingress and egress. More serious than that, Mr. Rekemeyer received a citation from the Tucson Fire Department for the gates’ non-compliance with that city’s fire code. Specifically, the code calls for an automatic, battery-operated back-up system for the Department to open the gates in case of an emergency involving its public functions when a gate’s ordinary power source fails. Two of the gates selected and installed by Respondent had no battery back-up system, and one’s system was non-compliant with the fire code. 41. Mr. Rekemeyer tried to obtain a service agreement with four different gate servicing companies in Tucson, but none were interested in servicing these gates in their present condition, but insisted on cost-prohibitive upgrades before they would agree to a service contract. 42. Mr. Warren Michaels credibly testified for Complainant that the Respondent never obtained the manufacturer’s warranty for the gates and doing so now is too late as the gates were defectively installed, lacked the required safety warnings, and rollers and safety attachments. 43. Complainant has had to incur needless additional expense for constant repair and replacement in the amount of $9,501.00. 44. Two comparatively small contract items were defective. These are Respondent’s failure to install a phone line and an electrical outlet. Complainant’s partners took these tasks upon themselves and completed them for a total cost of $80.00. 45. Complainant seeks revocation of the Respondent’s license, restitution in the total sum of $34,440.50, as well as an order directing Respondent to return and correct the concrete defects and the countertop defects and installation. 46. No one other than Mr. Hickey testified for Respondent. He, for the most part denied any wrongdoing. He testified that after the disaster within the roof collapse, he was not allowed to return and try to correct the situation. No additional facts need be found as to this meritless defense. He claims, incredibly, that he saw to the proper priming and painting of all exterior metal surfaces. He claims he did not know his cabinet and countertop subcontractor was unlicensed, but considering with what ease a person may discover the license status of any business this is at best willful ignorance. Mr. Hickey did confess that he would owe approximately $5,000 to Complainant for its correction of the doors and weather stripping. However, he continues, this could be only an offset against the contract amount he claims he is still owed by Complainant on this project. 47. The parties are currently litigating Complainant’s Complaint in Superior Court for damages alleged to have arisen out of these same facts. 48. Notice is taken of Respondent’s prior license record with the Arizona Registrar of Contractors. That notice reveals five open Complaints and four previous Complainants listed as Closed/Settled/Withdrawn. The Qualifying Party on this Class B License No. 098426 is Ms. Charla Rae Hickey, and she is also a Principle on Class B-01 License number 189245.

CONCLUSIONS OF LAW 1. This administrative hearing was held under authority of and pursuant to A.R.S. 32-1156, and A.R.S. 41-1092. 2. Respondent is charged in the instant Citation and Complaint with possible violations of A.R.S. 32-1154.A.1, 7, 10, 23, and 3 (namely A.AC. R4-9-108, Workmanship Standards). 3. Respondent did not abandon the project in violation of A.R.S. 32- 1154.A.1. 4. Respondent did violate A.R.S. 32-1154.A.10 by aiding and abetting an unlicensed person to evade the provisions of A.R.S. Title 32, Chapter 10. This conclusion is based in the evidence relative to the cabinet and countertop subcontractor hired by Respondent. 5. Respondent did violate A.R.S 32-1154.A.23 by failing to comply with the written directives of the Registrar of Contractors, i.e. the CWOs, within a reasonable amount of time without valid justification. 6. Respondent did repeatedly and seriously violate A.R.S. 32-1154.A.3 by violating the workmanship standards at A.A.C. R4-9-108. These workmanship deficiencies were extensive and included safety hazards. 7. Respondent was not cited with any possible violations of A.R.S. 32- 1154.A.2, departure from plans or specifications or violating applicable codes, so no conclusion can be reached that Respondent violated that section in this case. 8. There is insufficient evidence that Respondent violated A.R.S. 32- 1154.A.7, wrongful or fraudulent conduct, independent of the violations already concluded to have occurred. 9. Complainant in this case seeks several thousands of dollars in restitution, and in proper circumstances restitution is allowed under A.R.S. 32-1156.01. However, restitution under that statute is not a substitute for an award of damages. The Registrar can order restitution as a condition of continued licensure, but cannot award money damages, because it would be unenforceable by the Registrar if the ordered party simply chose to lose or not seek reinstatement of his or her license. See: Bentivegna v. Powers Steel & Wire Products, Inc., 206 Ariz. 581, 81 P.3d 1040 (Ariz.App. Div. 1, 2003). 10. A Complainant such as this one is not prevented from seeking an appropriate judgment in civil court for an award of monetary damages. Bentivegna, Id. at 81 P.3d at1044. Indeed, at the time of the administrative hearing this Complainant had sued this Respondent on the same contract seeking appropriate damages. Deep Freeze Development, LLC, v Caliber West, LLC, C200664487, Superior Court of the State of Arizona in and for the County of Pima. 11. Thus the most the Registrar could order in this case by way of A.R.S. 32-1156.01 would be the continued licensure of this Respondent contingent on its paying restitution in the amount of $34,440.50 to the Complainant and making certain above-described corrections to the workmanship. 12. In considering whether to do this, what the Registrar must weigh on one side of the balance is the justness of restitution for the Complainant and on the other side its statutory duty to protect the public from unscrupulous, dishonest, and incompetent contractors. In cases where the contractor’s violations are less numerous and less egregious and the evidence does not prove such manifest incompetence and danger from continued licensure as in the facts of this case, continued licensure based on the payment of restitution can be a useful incentive to a contractor to repair the damage he or she has done to a consumer, and then return to and maintain a responsible and efficient construction business. 13. However, grave concern should arise at the thought of giving this Respondent an “out” by which it could continue to hold an Arizona contractor’s license. Assuming that the Registrar orders the sought restitution as a condition of Respondent’s continued licensure in this case, and assuming further that Respondent pays that amount to Complainant, then the Complainant would have its restitution, but the Respondent would retain a license and be in a position to further victimize the very public at-large whose protection is, more than restitution to any individual Complainant, the Registrar’s primary statutory duty. See: Arnold Const. Co., Inc. v. Arizona Bd. of Regents, 109 Ariz. 495, 512 P.2d 1229 (1973). Conversely, if the Registrar flatly revokes the subject license in this case, which is the condign punishment when viewed under the light of these facts, the public would be protected, and Complainant yet would have its existing forum in Superior Court to pursue monetary damages.

RECOMMENDED ORDER In view of the foregoing Findings of Fact and Conclusions of Law it is hereby recommended that Respondent’s Class B License number 098426 be revoked on the effective date of this Order (40 days after the date of service appearing on the Registrar’s certification on the Order). In the event of certification of the Administrative Law Judge’s Decision and Order by the Director of the Office of Administrative Hearings, then the effective date of the Order shall be 40 days after the date of that certification. Done this day, January 23rd, 2007.

______________________________________ Grant Winston Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 2007, to:

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

By ___________________________

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Office of Administrative Hearings 100 N. Stone Ave., Suite 704 Tucson, Arizona 85701 (520) 628-5488