ALJDEC decisions subject to certification as final

07F-1273W-ROC · Registrar of Contractors · 2007-09-10

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: August 20, 2007 APPEARANCES: Paul Steen, Esq. represented Complainant Black Mountain Excavating Corp. Jay Graif, Esq. represented Respondents Westin Homes, L.L.C. and Westin Highlands Contracting, L.L.C. ADMINISTRATIVE LAW JUDGE: Sondra J. Vanella _____________________________________________________________________ The question presented by this matter is whether Respondents Westin Homes, L.L.C. (“Westin Homes”) and/or Westin Highlands Contracting, L.L.C. (“Westin Highlands”) are 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. Westin Homes is the holder of a Class B- license (No. 188518) issued by the Registrar of Contractors (“ROC”). Westin Highlands is the holder of a Class B- license (No. 215300) issued by the ROC. John Grau is Westin Homes’ and Westin Highlands’ qualifying party. 2. In the fall of 2005, Westin Homes and Westin Highlands contracted with Complainant Black Mountain Excavating Corp. (“Black Mountain”) to perform the excavation, grading and site preparation work on five projects located in Payson, Arizona. Westin Homes was the general contractor for two of the five projects, Lots 346 of Chaparral Pines and Lot 6 of Pine Island, and Westin Highlands was the general contractor for three of the five projects, Lots 101, 114, and 89 of Highlands at the Rim. 3. Black Mountain performed the work it was contracted to perform and invoiced Westin (Westin Homes and Westin Highlands will hereinafter be referred to collectively as “Westin”) for such work. Westin did not pay Black Mountain for its work. Consequently, on December 4, 2006, Black Mountain filed a complaint with the ROC against Westin alleging non- payment in the amount of $25,720.00 for work performed at Pine Island and Chaparral Pines, and a complaint alleging non-payment by Westin for work performed on the three projects at Highlands at the Rim, in the amount of $25,720.00. 4. Westin acknowledged at hearing that Black Mountain performed all of the work it was contracted to perform and that such work was of a professional and workmanlike quality. In fact, Westin takes no issue with Black Mountain’s work. Westin asserted at hearing that it has not paid Black Mountain for the work it performed because Westin has not been paid for the projects, and as such, Westin does not yet have a duty to pay Black Mountain. Lot 346 of Chaparral Pines 5. Bob Pearson is the developer of lot 346 of Chaparral Pines. Mr. Pearson acquired the lot in 2001. Mr. Pearson contracted with Westin for Westin to construct a home on the lot. The contract was a cost plus contract with an original estimated cost for completion of $275,680.00. However, that estimate was subsequently increased. 6. Mr. Pearson testified that when Mr. Grau received Westin’s first draw, he advised Mr. Pearson that there was already a $27,000.00 overage. Mr. Pearson testified that Mr. Grau explained the overage by stating that it was difficult to estimate the excavation and foundation charges. Mr. Pearson agreed to pay the overage, but stated that it needed to be broken down and disbursed within other draws. Mr. Pearson testified that he paid Westin the initial deposit and the first two draws, and then an additional $9,103.00 in the third, fourth, and final draws toward the overage. See Exhibit 9. Mr. Pearson credibly testified that the additional monies paid were specifically for the excavation and concrete work. 7. After the payment of the final draw, Mr. Pearson testified that subcontractors were contacting him complaining that Westin was not paying for their work. Mr. Pearson testified that he had a meeting with Mr. Grau, who acknowledged that there was $90,000.00 in overages. However, Mr. Grau could not show Mr. Pearson any documentation establishing the overages. Mr. Pearson testified that he offered to split the cost of the overages with Westin. On or about November 7, 2006, Mr. Pearson gave Westin an additional check for $43,149.06, above the final draw amount, with the stipulation that Westin would utilize the additional funds to pay subcontractors. Mr. Pearson paid Westin a total of $346,139.77 for the construction of the home. Shawnee Grau, Mr. Grau’s then wife, who also appears on Westin’s licenses as a member, promised Mr. Pearson that upon receipt of the check, she would pay the subcontractors their outstanding invoices. Mr. Pearson testified that at that point, Black Mountain was owed approximately $4,000.00 on this project, notwithstanding that according to the construction loan disbursement schedule, excavation was to be paid with funds from the first draw, which was paid on February 15, 2006. See Exhibit 9. Mr. Pearson further testified that Westin would not accept a joint check or monies to be held in escrow. Mr. Pearson testified that Westin did not pay Black Mountain the monies it was owed for this project, notwithstanding the additional monies paid by Mr. Pearson to Westin for this purpose. 8. Mr. Pearson testified that on March 14, 2007, he paid Black Mountain $1,901.50, representing 50% of what Westin continued to owe Black Mountain for its work on this lot. 9. Mr. Grau testified that Mr. Pearson continues to owe Westin $43,000.00 for work performed on Lot 346, that Mr. Pearson has given him no explanation as to why he has not paid those funds, that there are no funds left for completion, and that he is contemplating filing for bankruptcy. Lot 6 of Pine Island 10. Black Mountain submitted into evidence with regard to Lot 6 of Pine Island, an Unconditional Waiver and Release on Progress Payment dated June 19, 2006, which indicates that on June 19, 2006, Westin was paid $80,680.00 toward this project. See Exhibit 10, page 1. Black Mountain also submitted into evidence with regard to Lot 6 of Pine Island, an Unconditional Waiver and Release on Progress Payment dated September 25, 2006, which indicates that on September 25, 2006, Westin was paid $121,021.20 toward this project. See Exhibit 10, page 3. Attached to the Unconditional Waivers and Releases on Progress Payment forms, is a Construction Draw Breakdown (“Breakdown”) that Mr. Grau testified does not appear to be prepared by Westin. However, the first two draws in the Breakdown, specifically, Draw #1, in the amount of $80,680.00, and Draw #2, in the amount of $121,021.20, correspond to the two amounts referenced in the Unconditional Waivers and Releases on Progress Payment forms. See Exhibit 10, page 2. The Breakdown contains a line item for Excavation in the amount of $17,000.00. Id. The Breakdown further reflects that this amount was paid within the first draw payment. Id. Black Mountain invoiced Westin on June 25, 2006 in the amount of $17,420.00 for work performed on Lot 6 from June 2, 2006 through June 13, 2006. See Exhibit 2, page 2.[1] Lots 101, 114, and 89 11. Lots 101, 114, and 89 were initially owned by Highlands at the Rim, L.L.C. (“Highlands”). The developers and members of Highlands were Jerry Palmer, Bill Erwin, and Ken Christopher. 12. Mr. Palmer, an architect and general contractor, testified at hearing that he was initially the general contractor on the project, however, Mr. Grau, through Westin, gave a more competitive bid and Mr. Erwin and Mr. Christopher decided to utilize Westin for the project. As such, Mr. Palmer was not active in the development process initially as he was chagrined at his partners’ decision to exclude him as contractor for the projects. 13. Mr. Palmer testified that Westin abandoned the projects and that he had to pick up where Westin left off. Mr. Palmer credibly testified that the lots sat without any construction-related activity for approximately four to five months, and that in order to keep the projects going, he had to pay Black Mountain and other subcontractors what Westin had not paid. Mr. Palmer testified that he paid Black Mountain $22,577.00 for its services rendered on lots 89, 101 and 114. On June 4, 2007, Black Mountain and Westin entered into a Stipulation to Dismiss With Prejudice, a lawsuit that Black Mountain had filed in Maricopa County Superior Court. See Exhibit B. On June 8, 2007, an Order to Dismiss With Prejudice was entered by Judge Edward Burke. See Exhibit C. 14. Mr. Palmer testified that he has paid between $80,000.00 and $100,000.00 to subcontractors that had performed work on the projects. 15. Westin made a Motion to Dismiss Black Mountain’s complaint against Westin based upon Mr. Palmer’s payment to Black Mountain and the fact that the Superior Court case has been dismissed. Black Mountain argued that because Westin did not make the payment to Black Mountain and because Westin was not subject to any disciplinary action against its contracting license, that the matter in Superior Court does not bar this administrative process and Black Mountain’s right to seek disciplinary action against Westin’s contracting licenses. The Administrative Law Judge denied the Motion to Dismiss, ruling that the matter should proceed to a full evidentiary hearing on the merits for a determination. 16. Mr. Erwin and Mr. Christopher settled their dispute with Westin, however, Mr. Palmer did not participate in those discussions. Mr. Palmer testified that it is his belief that Mr. Erwin and Mr. Christopher were aware of Mr. Palmer’s payment to Black Mountain when they settled with Westin. 17. Emil Alberti is the owner of Lot 101. Mr. Alberti testified that the house was sold to him by the developer, Highlands, and that the general contractor was Westin. Mr. Alberti testified that he entered into a construction contract with Westin for the construction of the home in the amount of $456,000.00. Mr. Alberti testified that the contract price has increased due to upgrades that he had added. Mr. Alberti testified that construction commenced approximately a year and nine months ago. Mr. Alberti testified that prior to his retirement, he was a construction manager for several large construction projects, including Epcot Center in Walt Disney World, and the Renaissance Center in Detroit, Michigan. Mr. Alberti testified that he was construction manager for the Renaissance Center for seven and a half years. As such, the Administrative Law Judge finds that Mr. Alberti has significant experience in the construction industry. Mr. Alberti testified that construction on his home ceased for a period of over five months and that he was informed by Westin that construction could not continue because Westin had run out of funds. At this point the foundation and slab had been laid. Mr. Alberti testified that Mr. Palmer, through his construction company, Palmer Hart Construction, picked up where Westin had left the project and brought it to completion. 18. Mr. Alberti testified that his construction loan was through M & I Bank. On or about August 29, 2006, Westin executed an Affidavit of Contractor regarding the construction of Mr. Alberti’s home. See Exhibit 7, page 5. The affidavit states that Black Mountain is due and owing $19,839.00 for work performed on this project. Id. On September 12, 2006, a Draw Consent Form was executed authorizing M & I Bank to release $14,300.00 to Westin. See Exhibit 7, page 6. According to Mr. Alberti’s construction loan history, M & I Bank released to Westin, $45,323.55 on September 12, 2006, and $12,800.00 on September 20, 2006. See Exhibit 7, pages 8, 9 and 10. Mr. Alberti credibly testified that he authorized the release of the above-described amounts because upon personal inspection of the property, he observed the work that had been performed. Mr. Alberti testified that he personally observed that the excavation and site work had been performed. Mr. Alberti further testified that he approved the draw request that delineated that Black Mountain was to be paid, as well as Foxworth Galbraith, and Updyke Custom Builders. 19. Mr. Grau testified that he does not perform the accounting for Westin. Mr. Grau testified that he assumes that both entities continue to owe monies to Black Mountain, however, Mr. Grau contended that Westin has not been paid for the work performed by Black Mountain. Mr. Grau further testified that approximately a year and a half ago, both entities ceased performing work on the projects as they encountered financial difficulties. Mr. Grau testified that he is contemplating filing for bankruptcy for both Westin entities. 20. The Administrative Law Judge finds based upon the credible evidence of record as follows: a. At a minimum, Westin was paid by Mr. Pearson for work Black Mountain performed on Lot 346. Mr. Pearson paid Westin a total of $346,139.77. The first draw, which was disbursed on February 15, 2006, in the amount of $68,920.00 included funds earmarked for excavation. Further, Mr. Pearson paid Westin an additional $43,000.00 to pay unpaid subcontractors, including Black Mountain. Notwithstanding receiving these monies, Westin failed to pay Black Mountain for the work it performed on this lot. b. Westin was paid $201,701.20 toward work performed on Lot 6, in two draws. Excavation was to be paid out of the first draw amount that was paid to Westin. Notwithstanding receiving said payments, Westin failed to pay Black Mountain. c. Regarding Lots 101, 114, and 89, Black Mountain received payment from Mr. Palmer in or about June 2007, for its work on these lots. However, the evidence established that Westin received payment for Black Mountain’s work on Lot 101 from Mr. Alberti in September 2006, and yet failed to pay Black Mountain. d. Black Mountain performed its work on the projects in a timely, professional, and workmanlike manner, and timely billed Westin for such work; and e. Westin has not paid Black Mountain for the services performed by Black Mountain. 21. The Administrative Law Judge finds, based on the weight of the credible evidence of record, that the sum of $23,818.50 ($25,720.00 minus $1,901.05 paid by Mr. Pearson) is the proper balance due and owing from Westin to Black Mountain for the work Black Mountain performed on the projects. Notwithstanding repeated attempts and billings over a prolonged period of time, said balance remains unpaid. CONCLUSIONS OF LAW 1. In this proceeding, Black Mountain bears the burden to prove, by a preponderance of the evidence, that Westin is subject to discipline for violations of A.R.S. § 32-1154(A)(7), (A)(11), and/or (A)(13) as charged by the ROC in its April 16, 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 Black Mountain met its burden of proof as to two of the three ROC 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 Westin failed to pay the sum of $25,720.00 to Black Mountain, notwithstanding the fact that Westin had received sufficient monies to do so. Accordingly, under all of the facts and circumstances presented herein, Westin’s conduct is found to constitute a violation of A.R.S. § 32-1154(A)(11). Regarding Lots 101, 114, and 89, the monies due and owing to Black Mountain were paid by Mr. Palmer. However, Westin failed to timely pay Black Mountain the monies owing when Westin received sufficient monies as payment for these particular construction projects for which the services were rendered, at least in regard to Mr. Alberti’s lot. As such, Westin’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 Westin committed wrongful acts that substantially injured Black Mountain by failing to pay for the work performed by Black Mountain on Lots 6 and 346, and for failing to timely pay Black Mountain on at least lot 101. Therefore, Westin violated A.R.S. § 32-1154(A)(7). 6. Under A.R.S. § 32-1154(A)(13), specifically, A.R.S. § 32- 1124(B), a contractor is required to include their contracting license numbers, preceded by the letters “ROC,” on all documents utilized while engaged in construction-related activities. This requirement would be applicable to business cards, sales literature, contract documents, invoices, and other forms utilized by a contractor. Black Mountain did not address this alleged violation. As such, the record does not support a conclusion that Westin violated A.R.S. § 32- 1154(A)(13). 7. Based upon the above violations of the provisions of A.R.S. § 32- 1154(A), grounds exist to impose discipline against Westin’s licenses. 8. Upon consideration of all of the facts and circumstances presented by this case, the Administrative Law Judge concludes that Westin’s Class B- licenses should be revoked. 9. The ROC’s authority in disciplinary matters such as the one presented herein includes the ability to impose reasonable conditions that allow the disciplined contractor to reduce the scope of the disciplinary action taken against it. The Administrative Law Judge deems the exercise of such authority to be appropriate in the instant case, and preferable to imposing discipline against Westin’s licenses without providing a condition to reduce or eliminate same. 10. Upon consideration of all the evidence, the Administrative Law Judge concludes that it is reasonable to condition Westin’s license revocations upon payment in the amount of $23,818.50 to Black Mountain. RECOMMENDED ORDER In view of the foregoing, the undersigned Administrative Law Judge recommends that commencing on the effective date of the Order entered in this matter, Westin’s Class B- licenses (Nos. 188518 and 215300) shall be revoked until the ROC receives proof that Westin has paid the sum of $23,818.50 to Black Mountain. It is further recommended that if Westin pays the aforesaid sum on or before the Order’s effective date, then no license revocation shall be imposed. 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, September 10, 2007.

______________________________________ Sondra J. Vanella Administrative Law Judge

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

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

By ___________________________

----------------------- [1] Black Mountain submitted a second invoice to Westin, dated September 18, 2006, for work performed on Lot 6, in the amount of $4,497.00. See Exhibit 2, page 5.

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