ALJDEC decisions subject to certification as final

07F-1214-ROC · Registrar of Contractors · 2007-12-18

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: November 7, 2007; the record closed on December 3, 2007 APPEARANCES: Daryl Wilson, Esq. represented Complainant Side Job Custom Masonry, L.L.C. John Skiba, Esq. represented Respondent T and R Construction, Inc. ADMINISTRATIVE LAW JUDGE: Sondra J. Vanella _____________________________________________________________________ The question presented by this matter is whether Respondent T and R Construction, Inc. (“T and R”) 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. T and R is the holder of a Class KB-01 license (No. 195599) issued by the Registrar of Contractors (“ROC”). Robert Tokoph is T and R’s President and Treasurer. T and R was the general contractor for the construction of a custom home located at 12923 East Cibola Road in Scottsdale, Arizona, owned by Dr. Sadan and Ila Patel. 2. On April 18, 2006, the Patels contracted with T and R for T and R to construct a custom single family residence for a contract price of $1,295,072.00. See Exhibit N. The contract called for substantial completion of the home within fourteen months, with a commencement date within ten days of bank approval. Id. The contract further called for T and R to pay the Patels a 1% bank charge for delayed completion. Id. The contract further specified that the contract amount was “to be paid per [the Patels’ lender’s] draw payment process.” Id. Mr. Tokoph acknowledged that he drafted the contract, however, Mr. Tokoph testified at hearing that the Patels’ lender would not issue a draw for work until that portion of the work was 100% completed, as it would not issue partial draws. Mr. Tokoph acknowledged that he was unaware of the lender’s draw request policy until after he signed the contract with the Patels. 3. On or about August 1, 2006, T and R contracted with Complainant Side Job Custom Masonry, L.L.C. (“Side Job”) for Side Job to perform the masonry work for the Patel residence. See Exhibit 3. The parties’ contract called for Side Job to build the basement walls to 10’ above the flooring. Id. The contract price was $75,748.00. Id. 4. On or about August 3, 2006, Side Job invoiced T and R in the amount of $18,937.00, as a first draw, representing 25% of the contract price. 5. Kevin Hotchkiss, Side Job’s co-member, testified that Side Job had block delivered to the jobsite on August 11, 2006, however, Side Job could not commence its work at that time because the concrete subcontractor had not completed its work. Shortly thereafter, Side Job commenced its work, and proceeded to work on the project, according to Mr. Hotchkiss, until the project was approximately 90% completed pursuant to the terms of the original contract. 6. On September 21, 2006, Side Job invoiced T and R for the “top out of basement wall to 10’” in the amount of $56,811.00. See Exhibit 10. Mr. Hotchkiss testified that by this time, Side Job had completed the work specified in the contract with the exception of the access area that could not be completed until the concrete subcontractor had poured the floor, and some possible punch list items. 7. On or about September 21, 2006, T and R and Side Job executed an addendum to the contract whereby Side Job was to construct the South radius retaining wall, the dimensions of which were 68 linear feet and 4 feet in height. See Exhibit 6. The addendum price was $4,939.00. Id. 8. T and R paid Side Job its first draw request in the amount of $18,937.00 on September 26, 2006. 9. On September 27, 2006, T and R and Side Job executed an addendum to the contract, increasing the height of the basement walls from 10’ to 12’8”. See Exhibit 7. The addendum price was $24,832.00. Id. Side Job attached an explanation to the addendum that stated the following: This proposale (sic) is due to lack of or bad information on the prints. The detail showing the floor slab poured directly on top of footing is not up to building coeds (sic). At this time it is required two (sic) ad (sic) two feet eight inchs (sic) to the origanle (sic) hight (sic) of ten feet above the footing. The above price is consistant (sic) with the origanale (sic) per sq. foot price it does not reflect the two material price increes (sic) since origanale (sic) bid. SJC Masonry requiers (sic) full payment of orig. bid in fourteen days from the bid date above.

Id. at page 2. 10. Mr. Hotchkiss testified that if the walls had remained at a height of 10’, the basement ceiling would have been at a height of 6’. 11. Side Job continued to perform its work pursuant to the terms of the September 27, 2006 addendum. Mr. Hotchkiss testified that the materials for the total project cost $55,000.00. 12. Side Job eventually suspended performance because T and R had failed to pay for the work performed by Side Job. However, Side Job advised T and R that it would complete the job upon payment by T and R. 13. By letter dated October 23, 2006, T and R terminated its contract with Side Job and removed Side Job from the project, advising that T and R was going to hire another masonry subcontractor to complete the work, that T and R would back charge Side Job for this work, and that Side Job was forbidden from entering the jobsite. See Exhibit 23. 14. On November 6, 2006 Side Job issued an invoice to T and R for all work completed, in the amount of $89,087.00. See Exhibit 18. 15. On November 28, 2006, Side Job filed a complaint against T and R with the ROC alleging non-payment by T and R in the amount of $81,643.00. 16. At hearing, T and R essentially urged two reasons why it has not paid Side Job any additional monies. The first reason was because T and R has not received monies from the Patels or their lender for Side Job’s work, and that it was not required to pay Side Job until the receipt of such funds. The second reason is due to faulty workmanship and delays caused by Side Job that exceed any amounts allegedly owed to Side Job. 17. Mr. Hotchkiss testified that the plans for the Patel home did not specify the basement wall heights. Mr. Hotchkiss further testified that T and R experienced a two month delay in construction because they encountered a hard dig, and Side Job could not commence its work until the excavation and foundation were complete. Mr. Hotchkiss testified that Side Job worked on the project from approximately mid-August 2006 through September 26, 2006 despite not having received any payment from T and R. At the time T and R paid Side Job its first draw, the entire project was close to the originally specified height of 10’. 18. Mr. Hotchkiss credibly testified that he expressed his concerns daily regarding the wall height to T and R’s superintendent on the job, Bob Harms, and that he believed that the addendum to the contract (Exhibit 7) resolved the issue regarding the wall height. 19. Mr. Hotchkiss testified that Side Job had to pay its workers for the work performed on the job, as well as for the materials needed, notwithstanding not having been paid by T and R. Mr. Hotchkiss testified that he attended a meeting with Mr. Tokoph on August 1, 2006, where Mr. Tokoph agreed to split the charge for rental equipment that was necessary for Side Job to utilize in order to access the area in which it was to perform its work. The invoice amount for this machinery was $2,086.00. See Exhibit 19. 20. Mr. Hotchkiss credibly testified that all materials necessary to complete the project were present on the jobsite, that T and R had never provided a construction schedule to Side Job, and that T and R never brought any issues regarding the time Side Job had spent on the job or workmanship deficiencies to Side Job’s attention, nor had T and R requested that Side Job perform any corrective work. 21. Mr. Hotchkiss further testified that upon T and R’s termination of Side Job, Side Job was not allowed to re-renter the jobsite, however, Side Job had left scaffolding, tools, and various equipment at the site that Mr. Hotchkiss estimated to be worth $5,000.00. Mr. Hotchkiss testified that he attempted to pick up this equipment on November 6, 2006, but was threatened by T and R, and that T and R called the sheriff’s office, an officer was dispatched and advised Mr. Hotchkiss that he could not access the site and should retain the services of an attorney. 22. Mr. Hotchkiss testified that T and R owes Side Job the total amount of $80,228.17, calculated as follows: $75,748.00 original contract price + $24,832.00 addendum price for wall height increase = $100,580.00

@ 90% completion = $90,522.00 + $2,600.00 for materials for retaining wall addendum + $1,043.17 for ½ of equipment rental + $5,000.00 for equipment left at jobsite _________ = $99,165.17 - $18,937.00 paid = _________ $80,228.17

23. Regarding T and R’s claim that Side Job would be paid when T and R was paid by the Patels, Mr. Hotchkiss testified that he had not been informed of this prior to signing the contract with T and R, and that T and R first informed him of such at the time the first invoice was issued. Mr. Hotchkiss raised his objections to T and R at that time, as Side Job’s contract with T and R did not contain a “pay when paid” clause. In fact, Side Job’s contract with T and R specifies in pertinent part that “all labor and material that has been placed in position by said Sub-contractor, shall be billed by the 25th of the month to be paid on or about the 20th of the following month.” See Exhibit 3, page 3. 24. Heath Tupper, owner of Heath Tupper Development Group, an architectural design and real estate development group, reviewed the plans for the Patel home at the request of Side Job to determine whether Side Job overlooked any information contained on the plans regarding the wall height. Mr. Tupper testified that the standard means of defining such information, i.e., the top of the wall height, was not contained on the drawings. Mr. Tupper testified that this information is important because if the wall height is too low, the basement could potentially be unusable. When asked directly whether the plans provide sufficient information for the proper construction of the masonry walls, Mr. Tupper testified that a possible wall height could be determined, but “nothing definitive” and there was no way to “come up with a true wall height, just a guess” because the plans are “too vague”. 25. Danny Chaudoin, co-member of Side Job, testified that he continually brought the wall height issue to Mr. Harms’ attention, and was told that Mr. Harms would ascertain the appropriate information. Mr. Chaudoin further testified that Side Job could not possibly have had any additional workers on site as there was insufficient space in which additional workers could work due to the layout of the job. Mr. Chaudoin testified that Side Job had five to six men on the job 99% of the time and that it would not have been productive to have more men on site. 26. Mr. Harms testified that as the superintendent, he was present on the jobsite every day. Mr. Harms testified that Side Job had problems manning the job and that the lack of manpower caused delays. Mr. Harms testified that Side Job asked for wall heights “from time to time”. Mr. Harms testified that he responded by advising Side Job to reference the plans. Mr. Harms testified that the wall height is contained on the plans. 27. Mr. Tokoph testified that Mr. Harms had told him that Side Job “had issues with the plans” and that the walls “needed another couple of feet”. Mr. Tokoph further testified that Mr. Harms told him “it’s there on the plans, so don’t worry.” Mr. Tokoph acknowledged that Mr. Hotchkiss called him at least five times to request a meeting, however, Mr. Tokoph would not speak directly with T and R’s subcontractors. Mr. Tokoph further acknowledged that he told Side Job that it would not be paid until its work was 100% complete and that this information was not given to Side Job until after Side Job requested to be paid. Mr. Tokoph acknowledged that he was unaware of the Patels’ lender’s payment policy at the time he entered into the contract with Side Job. Mr. Tokoph testified that Side Job’s work was “shoddy” and “a joke”, however, he acknowledged that he never informed Side Job of such concerns. 28. Mr. Tokoph testified that T and R does not owe ”one nickel” to Side Job because T and R could not obtain another masonry subcontractor to complete another mason’s work, and T and R expended additional monies to have the masonry work completed. Mr. Tokoph testified that T and R has not received funds from the lender for the masonry work. Mr. Tokoph acknowledged that T and R “had money from other jobs, but it gets dangerous robbing Peter to pay Paul.” Mr. Tokoph acknowledged that T and R had the financial ability to pay other subcontractors. 29. Mr. Tokoph testified that T and R drafted the subcontract with Side Job, and that when he entered into the contract he “assumed” that when T and R put in a draw request that it would be paid by the lender. Mr. Tokoph testified that he was not aware of the lender’s payment policy until the lender refused to pay. Mr. Tokoph testified that he has been at odds with the lender because it is unreasonable to believe that an 11,000 square foot house could be built without paying subcontractors. 30. Mr. Tokoph acknowledged that T and R had never made a claim in writing to Side Job of poor work or deficiencies in the work performed, or a lack of man power. 31. The Administrative Law Judge finds, based on the weight of the credible evidence of record, that T and R assumed the risk of not being paid when it failed to verify the lender’s payment policies prior to entering into its contract with the Patels, and then Side Job. The Administrative Law Judge further finds based upon the credible evidence of record that Side Job timely and diligently performed its work. CONCLUSIONS OF LAW 1. In this proceeding, Side Job bears the burden to prove, by a preponderance of the evidence, that T and R is subject to discipline for violations of A.R.S. § 32-1154 (A)(7) and/or (A)(11) as charged by the ROC in its April 20, 2007 Citation and Complaint. See Arizona Administrative Code 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 Side Job met its burden of proof as to both of the ROC's charges. 4. Under A.R.S. § 32-1154(A)(11), a contractor is subject to discipline for the “failure . . . to pay monies in excess of seven hundred fifty dollars when due for materials or services rendered in connection with the licensee’s operations as a contractor when the licensee has the capacity to pay or, if the licensee lacks the capacity to pay, when the licensee has received sufficient monies as payment for the particular construction work project or operation for which the services or materials were rendered or purchased.” The instant record demonstrates that T and R failed to pay a substantial sum of money to Side Job, far in excess of the statutory threshold of $750.00, notwithstanding the fact that T and R acknowledged that it had the financial wherewithal to pay other subcontractors. Further, T and R assumed the risk of not being paid when it failed to verify the lender’s payment policies prior to entering into its contract with the Patels, a risk that should not inure to Side Job, as Side Job entered into its contract in good faith and expected to be paid according to its contract provisions. Accordingly, under all of the facts and circumstances presented herein, T and R’s conduct is found to constitute a violation of A.R.S. § 32-1154(A)(11). 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 T and R committed a wrongful act that substantially injured Side Job by failing to pay for the work performed by Side Job. Therefore, T and R violated A.R.S. § 32-1154(A)(7). 6. Based upon the above violations of the provisions of A.R.S. § 32- 1154(A), grounds exist to impose discipline against T and R’s license. 7. Upon consideration of all of the facts and circumstances presented by this case, the Administrative Law Judge concludes that T and R’s Class KB-01 license should be suspended. Under other circumstances, the Administrative Law Judge would have considered the imposition of discipline conditional upon T and R’s payment to Side Job of the balance due for the work performed. However, the record in the instant case is insufficient to determine that amount with sufficient certainty to allow for such a conditional order. Thus, the Administrative Law Judge concludes that a suspension for a set term is the most appropriate form of discipline, and given the egregious nature of T and R’s conduct, that a ten day period is the proper measure for such suspension. Nothing herein should be construed as precluding Side Job from seeking additional remedies in an alternative forum. RECOMMENDED ORDER The Administrative Law Judge makes the following Recommended Order: T and R’s Class KB-01 license (No. 195599) shall be suspended on the effective date of the Order entered in this matter for a period of ten (10) days. 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 18, 2007.

______________________________________ Sondra J. Vanella Administrative Law Judge

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

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

By ___________________________

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