ALJDEC decisions subject to certification as final

07F-1023-ROC · Registrar of Contractors · 2007-06-27

STATE OF ARIZONA IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 30, 2007 and June 7, 2007 APPEARANCES: Complainant: Steven Mark O’Clock, qualifying party, appeared at both hearings, pro per. Respondent: James Farrell, corporate officer and qualifying party, appeared at both hearings and was represented by counsel, Joseph M. O’Connor. ADMINISTRATIVE LAW JUDGE: Brian E. Smith _____________________________________________________________________ Evidence and testimony were presented and, based on the entire record in this matter, the following Findings of Fact, Conclusions of Law and Recommended Order are made:

FINDINGS OF FACT 1. These consolidated matters first convened for hearing April 30, 2007 pursuant to this tribunal’s April 9, 2007 Order Denying Motion to Dismiss/Order Granting Motion to Consolidate. The parties did not conclude the presentation of evidence in the allotted time and the matters convened for further hearing on June 7, 2007. 2. Complainant Arizona Commercial Property Services (“Complainant”) is partnership which holds Arizona Contractor’s License No. 215426, Class B- (General Commercial issued by the Registrar of Contractors (“ROC”) on January 7, 2006. Steven Mark O’Clock (“O’Clock”) is a partner and the qualifying party for the license. 3. Respondent Proactive Facility Management Services, Inc. (“Respondent”) is a corporation which holds Arizona Contractor’s License Nos. 137080, Class KB-01 (Dual Building) and 138044, Class K-42 (Dual Roofing) issued by the ROC on July 21, 1998 and August 17, 1998, respectively. James Edward Farrell, Jr. (“Farrell”) is a corporate officer and the qualifying party for both of Respondent’s licenses. 4. Complainant filed a complaint with the ROC on October 31, 2006 (Case No. 07-1023/Docket No. 07F-1023-ROC) against Respondent’s Class KB-01 license No. 137080 wherein it was alleged, inter alia, that Respondent walked off the job, had been “paid in full for materials that needed to be ordered due to lead time,” and “other contractors have & will need to be hired at an additional cost in order to finish the work.” (“complaint 1”) 5. On January 18, 2006, the Registrar issued a CITATION AND COMPLAINT in Case No. 07-1023 charging Respondent with possible violations of A.R.S. §32-1154A 1, 7, 9 and 13 (namely, A.R.S. §32-1124(B)). 6. Respondent filed an Answer to Citation and Complaint and Counterclaim (“answer 1”) on January 30, 2007 wherein was asserted, inter alia, a general denial and specific denials regarding alleged violations of A.R.S. §32-1154A 1, 7 and 9.[1] Respondent further alleged affirmative defenses based on, without limitation, A.R.S. §47-2609 and Complainant’s failure to remit full compensation under the parties’ contract in the amount of $32,407.00 and $14,000.00 for “material and equipment used by [Complainant] and its agents without authorization.” 7. Complainant filed a second complaint with the ROC on October 31, 2006 (Case Nos. G07-0771 and G07-0771W/Docket Nos. 07F-G0771-ROC and 07F- G0771W-ROC) against Respondent’s Class KB-01 license No. 137080 and Class K- 42, No. 138044, respectively. (“complaint 2”) Therein, Complainant also alleged, inter alia, that Respondent walked off the job, had been “paid in full for materials that needed to be ordered due to lead time,” and “other contractors have & will need to be hired at an additional cost in order to finish the work.” 8. On January 30, 2007, the Registrar issued a CITATION AND COMPLAINT in Case Nos. G07-0771 and G07-0771W charging Respondent with possible violations of A.R.S. §32-1154A 1, 7 and 13 (namely, A.R.S. §32- 1124 (B)). 9. Respondent filed an Answer to Citation and Complaint and Counterclaim (“answer 2”) on February 9, 2007 wherein was asserted, inter alia, a general denial and specific denials regarding alleged violations of A.R.S. §32-1154A 1, 7 and 9.[2] Respondent further alleged affirmative defenses based on, without limitation, A.R.S. §47-2609 and Complainant’s failure to remit full compensation under the parties’ contract in the amount of $32,407.00 and $14,000.00 for “material and equipment used by [Complainant] and its agents without authorization.” 10. At the hearing, O’Clock testified and submitted Exhibits A through AA which were marked, admitted and considered. Paul Janucevic (“Janucevic”) and Tim Lyndes (“Lyndes”) also testified on behalf of Complainant. 11. Farrell testified on behalf of Respondent and submitted Exhibits and 3 through 8 which were marked, admitted and considered. Exhibit 2 was admitted over objection. Brad Smith (“Smith”) also testified on behalf of Respondent. 12. From the evidence elicited at the hearing, the following salient facts were established and are important to note: a. On or about April 24, 2006, Respondent submitted to Complainant an initial bid “for work on the designated façade and canopy renovations at the Park Northern Plaza, located at 35th Ave. and W. Northern Ave., Phoenix, Arizona” (“project”) for a total of $216,360.00. (Exhibit A) The scope of such bid included items (1) demolition, (2) rough carpentry and decking, (3) framing and sheathing of columns and new tower sections, (4) roofing and waterproofing – “Bituminous Waterproofing,” and (5) roofing and waterproofing – “Architectual Standing Seam Metal.” b. On May 8, 2006, Farrell emailed O’Clock and to Janucevic a revised bid which, inter alia, increased the quoted price of items (1) through (5) above to $225,014.00. (Exhibit C) The revised bid further provided “our normal TERMS include progress payments based on materials on site and/or work in place; NET due TEN (10) days form invoice date. Adjusted TERMS for this specific project will be: progress payments based on materials on site and/or work in place NET amount due in 45 days from the invoice date, finance charge at 1.5% per month on any balance over 60 days from invoice date.” [Emphasis in original.] c. The parties’ contract provided no specific or estimated completion date. d. On or about May 24, 2006, the parties executed Change Order #1 to the parties’ contract pursuant to which Respondent was to “supply and install Base Sheet to cover exposed roof decking and provide additional protection for drywall soffitt during re-construction” for a sum of $3,883.00. This brought the Respondent’s total contract bid to $228,897.00. (Exhibit E) e. On or about July 12, 2006, Complainant, pursuant to a 48-Hour Notice to Commence Performance, began expressing its concerns to Respondent about the latter’s performance on the project and what Complainant perceived to be a shortage of framers necessary to attend to the work required by the parties’ contract. (Exhibit I) f. The 48-Hour Notice to Commence Performance was subsequently rescinded by Complainant, by and through Janucevic, on July 12, 2006. (Exhibit I) g. On or about July 17, 2006, the parties executed Change Order #2 to the parties’ contract pursuant to which Respondent was to “supply and install metal framing and architectural metal canopies and eyebrows, per plan” for a sum of $16,310.00. This brought the Respondent’s total contract bid to $245,207.00. (Exhibits J and 3) h. Respondent submitted progress invoice 6240601 to Complainant on June 24, 2006 requesting payment of $95,064.00. (Exhibit T) Complainant approved payment thereof, less 10% retainage, of $85,557.60 on or about August 11, 2006, or forty-eight days after Respondent’s submission of its invoice. i. Subsequently, on or about August 14, 2006, Complainant approved full payment of Respondent’s June 24, 2006 invoice 6240601 in the amount of $95,064.00 due to there being no provision in the parties’ contract for retainage. Complainant issued its check no. 1845 in said amount that day, or 51 days after Respondent’s invoice. (Exhibit T) j. On or about July 24, 2006, Respondent submitted to Complainant its progress invoice 7240601 in the amount of $82,722.00. Respondent approved such payment and issued its check no. 2008 on or about September 20, 2006, or fifty-nine (59) days after Respondent’s invoice. (Exhibit U) k. On or about August 24, 2006, Respondent submitted to Complainant its progress invoice 8240601 in the amount of $35,014.00. Respondent approved such payment and issued its check no. 2164 on or about October 13, 2006, or fifty-one (51) days after Respondent’s invoice. (Exhibit V) l. As of October 13, 2006, Complainant had paid Respondent $212,800.00 of the $245,207.00 contract price. m. A factual dispute exists between the parties regarding the timing of payments made by Complainant to Respondent. O’Clock testified that Complainant paid Respondent for any invoice submitted upon its receipt of payment from the project owner and that Respondent was aware of and agreed to such arrangement. Farrell testified that payment to Respondent was due within forty-five (45) days of the date of Respondent’s invoices per the parties’ contract. Farrell further stated that the contract did not contain a pay when paid clause, each progress payment made by Complainant was received beyond the stated 45 day deadline and Respondent never agreed to extend the payment timeframe. n. A factual dispute also exists regarding Respondent’s complying with project schedules and providing adequate manpower to the project. O’Clock testified that copies of project phasing and schedules were posted at the site and provided to each subcontractor including Respondent. (Exhibits D, F, G and K) O’Clock further testified that beginning in July 2006 and continuing through October 2006 Respondent repeatedly was undermanned and, as a result, unable to properly and timely perform its contractual obligations on the project. Farrell testified that Respondent’s inability to competently manage and schedule project work caused the project delays. Farrell further testified that periodically Respondent had a reduced framing crew present due to Complainant’s frequent rescheduling of work from place to place on the project, often without notice, which prevented Respondent from properly scheduling workers and maximizing manpower efficiency as well as Respondent’s profit. Farrell also stated he never received any of the referenced schedules, that such schedules were not posted on site and he never saw one until the first day of hearing. o. A factual dispute also exists regarding abandonment of the contract and project by Respondent. Complainant asserts that Respondent abandoned the project when it refused to adhere to a 24-Hour Notice to Commence Performance issued by Complainant on October 5, 2006 (Exhibit M) and a 24-Hour Notice to Commence Performance dated October 20, 2006 (Exhibit P). O’Clock testified that due to Respondent’s refusal to comply with such notices, Complainant was required to secure the services of other subcontractors to complete the project in the amount of $121,767.56. (Exhibit Z) Respondent contends that it learned from the a representative of the project owner’s construction manager, Kraus Anderson, that a Notice of Termination had been issued to Complainant whereby Complainant was going to be removed as the general contractor on the project. As a result, Farrell testified that, given such Notice of Termination and Complainant’s late payments on Respondent’s three invoices, Respondent requested assurances from Complainant that it (Complainant) was going to continue as general contractor on the project and that Respondent had permission to remain on the job and would be paid the remainder of the contract amount. Farrell further testified that he advised Complainant that, upon receipt of such assurances and satisfactory payment arrangements, Respondent was ready, willing and able to return and complete its contractual obligations. Farrell stated that Respondent never walked off the job or ever told Complainant that it would not finish its work. Respondent relied upon certain emails from Stan Hedeen of Kraus Anderson to evidence the referenced Notice of Termination. (Exhibits 2 and Y) O’Clock testified that Complainant never received a Notice of Termination from the project’s owner, PDG America, and, despite numerous requests therefore, was never provided of copy of such notice by Respondent. (Exhibit X) p. A factual dispute also exists regarding the amount Complainant paid Respondent under the contract. Complainant asserts that it paid Respondent in full for all work performed thereby on the project and, in fact, overpaid Respondent due to its above-referenced abandonment of the project and failure to complete its contractual obligations. Complainant contends that Respondent’s actions and/or inaction have caused it to incur $121,767.56 in damages related to the retention of other subcontractors to complete the project and payment to Respondent for materials never delivered thereby. (Exhibit Z) Conversely, Respondent asserts that Complainant owes it the $32,407.00 remaining balance due under the parties’ contract as well as $14,000.00 for materials and equipment belonging to Respondent that were seized by Complainant from the site. (Exhibit AA) Respondent also contends that it ordered $33,512.00 worth of metal roof panels to be used on the project which were not. (Exhibit 8) q. In addition, a further factual dispute exists between the parties regarding the contract and work to be performed by Respondent on phase 3 of the project involving Pure Fitness. (Exhibits N and O) O’Clock testified that all other subcontractors on the project agreed to reduce the amount owed them on the project due to PDG America re-bidding and awarding the Pure Fitness portion of the contract to another general contractor. (Exhibit N) Farrell testified that Respondent bid on the entire project as requested by Complainant and never agreed to reduce the contract amount.

APPLICABLE LAW The CITATION AND COMPLAINT issued by the Registrar of Contractors in Case No. 07-1023 charged Respondent with possible violations of A.R.S. §32- 1154A 1, 7, 9 and 13 (specifically A.R.S. §32-1124(B)). The CITATION AND COMPLAINT issued by the Registrar of Contractors in Case Nos. G07-0771 and G07-0771W charged Respondent with possible violations of A.R.S. §32-1154A 1, 7 and 13 (specifically A.R.S. §32-1124(B)). Those statutory sections require that the holder of a license or person listed on the license shall not commit the following:

1. Abandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.

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

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9. Failure in a material respect by the licensee to complete a construction project or operation for the price stated in the contract or any modification of the contract.

… 13. Failure in any material respect to comply with the provisions of this chapter.

A.R.S. §32-1124(B) is named as the statute violation charged pursuant to A.R.S. §32-1154A (13). That statute provides that every license and/or renewal must be signed by the Registrar or the Registrar’s designated representative and the licensee. It further provides that every license number must be preceded by the acronym “ROC” and be posted in a conspicuous place on premises where any work is being performed, on all written bids submitted by the licensee and on all advertising, letterheads and other documents used by the licensee in the conduct of business.

CONCLUSIONS OF LAW 1. The Registrar of Contractors has jurisdiction over this matter pursuant to A.R.S. § 32-1101, et. seq., which authorizes the Registrar to impose disciplinary sanctions against licenses for violations of A.R.S. § 32-1154. 2. To warrant such sanctions by the Registrar, Complainants must demonstrate by a preponderance of the evidence that Respondent violated any one, or more, of the statutory sections cited. 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.” In re Arnold and Baker Farms, 177 B.R. 648 (9th Cir. BAP (Ariz.) 1994). See also, Culpepper v. State of Arizona, 187 Ariz. 43, 930 P.2d 508 (App. 1996). It is “evidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not.” Black’s Law Dictionary 1182 (Rev. 6th ed. 1990). 3. The purpose of licensing Arizona contractors is to regulate the conduct of contracting and protect the public from unscrupulous acts. Beazer Homes Ariz., Inc. v. Goldwater, 196 Ariz. 98, 101, 993 P.2d 1062, 1065 (App. 1999); Better Homes Constr. v. Goldwater, 203 Ariz. 295, 300, 53 P.3d 1139 (App. 2002). The statutory purpose is to prevent unscrupulous or financially irresponsible contractors from deceiving and taking advantage of those who engage them to build. Sobel v. Jones, 96 Ariz. 297, 394 P.2d 415 (1964). 4. This tribunal determines and concludes that Complainant failed to establish by a preponderance of credible, probative and relevant evidence that Respondent abandoned the project and thereby violated A.R.S. §32-1154A (1) as charged in Case Nos. 07-1023, G07-0771 and G07-0771W. In support of its reliance on Complainant’s failure to provide reasonable assurances for its performance of the contract, Respondent cites A.R.S. §47-2609 which deals with the sale of goods. As a result, such authority has no application to Registrar of Contractors matters and is without legal merit in this case. Notwithstanding this fact, A.R.S. §32-1154A provides that a contractor may not abandon a contract or refuse to perform after submitting a bid on work without legal excuse for such abandonment or refusal. In this matter, Respondent learned from a reliable source that Complainant had been given a notice of termination by the project’s owner. This, compounded by Complainant’s repeated late payments, provided Respondent with a reasonable legal excuse to cease further work until Complainant provided evidence of its ability to proceed with the project and ensure payment. 5. This tribunal further determines and concludes that Complainant failed to establish by a preponderance of credible, probative and relevant evidence that Respondent violated A.R.S. §32-1154A (9) given the factual dispute between the parties as to whether there was to be a reduction in the contract price for work to be done on the Pure Fitness scope of the project. 6. It is further determined and concluded that Complainant failed to establish by a preponderance of credible, probative and relevant evidence that Respondent violated A.R.S. §32-1154A (13) (namely, A.R.S. §32-1124(B)) as charged in case nos. 07-1023, G07-0771 and G07-0771W. No evidence was produced by Complainant on this issue at the hearing. 7. This tribunal further determines and concludes that Respondent did not commit any wrongful or fraudulent act which resulted in the substantial injury to Complainant. Therefore, violations of A.R.S. §32- 1154A (7) have not been proven as cited in case nos. 07-1023, G07-0771 and G07-0771W. 8. It is further determined and concluded that, based upon the demonstrated bona fide dispute as to the monetary amount, if any, properly owning one party to the other, and, given the fact that no citation and complaint has been issued against Complainant based on Respondent’s “counterclaims,” this tribunal is without authority to entertain and rule upon Respondent’s counterclaims and is not the appropriate forum for such allegations. 9. Nothing in this decision is intended to constitute a determination as to the validity of claims for unpaid contract balances, legitimate set-offs, justifiable back-charges or potential counterclaims. These determinations must properly be made by a civil tribunal since such court is the more appropriate forum for the resolution of these monetary disputes. Stated alternatively, the termination of the instant administrative proceeding shall be expressly without prejudice to a civil pursuit by the respective parties of their rights, defenses, set-offs or counterclaims, with the exception of one of the charged contracting law violations.

RECOMMENDED ORDER On the basis of the foregoing, IT IS RECOMMENDED that the entire citations in Case Nos. 07-1023, G07-0771 and G067-0771W be dismissed.[3] Done this day, June 27, 2007.

________________________ Brian E. Smith 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 _____________________ ----------------------- [1] In its answer 1, Respondent asserted a specific denial to an alleged violation of A.R.S. §32-1154A (9). However, subsection (9) is misquoted and the language of subsection (11) of A.R.S. §32-1154A is cited. [2] In its answer 2, Respondent also asserted a specific denial to an alleged violation of A.R.S. §32-1154A (9). However, subsection (9) is misquoted and the language of subsection (11) of A.R.S. §32-1154A is cited. Moreover, a violation of subsection (9) is not alleged in the second Citation and Complaint. [3] 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 in this matter will be forty (40) days from the date of that certification.

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