ALJDEC decisions subject to certification as final

07F-2153-ROC · Registrar of Contractors · 2008-05-12

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 28, 2008; the record closed on May 6, 2008 APPEARANCES: David Farren, Esq. represented Complainants Daniel and Karen Harkins. Teresa Foster, Esq. represented Respondent First Choice, Inc. ADMINISTRATIVE LAW JUDGE: Sondra J. Vanella _____________________________________________________________________ The question presented by this matter is whether Respondent First Choice, Inc. (“First Choice”) 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. First Choice is the holder of a Class B- license (No. 055402) issued by the Registrar of Contractors (“ROC”). Steve Moore is First Choice’s qualifying party and corporate officer. Tom Young was First Choice’s qualifying party until his resignation on August 24, 2006. 2. In mid 2004, Complainants Daniel and Karen Harkins contracted with First Choice for First Choice to construct an addition to the Harkins’ home. According to the testimony presented at hearing, there were several drafts of a detailed contract, however, the parties did not formally execute a written contract for the work, but rather proceeded with the work under a verbal contract.[1] The contract was a cost plus contract, the terms of which included a 15% fee for First Choice above the costs of its subcontractors. In the event that the Harkins subcontracted for work directly, that First Choice was to supervise, First Choice was to receive a 7% fee for supervision. There were certain subcontractors that the parties had agreed would be the Harkins’ responsibility to supervise, including European Design Cabinets and Countertops and the HVAC contractor, and as such, First Choice was not entitled to a supervision fee for those subcontractors. 3. On March 21, 2007, the Harkins filed a complaint against First Choice with the ROC alleging in pertinent part the following: 1. The exterior stucco is failing and weep screeds were not installed; 2. Water ponding on patio and pool areas; 3. Failure to construct a proper drain connection on the roof, resulting in water damage to the interior of the residence; 4. The foam roofing material has lost adhesion in numerous areas, creating the potential for future leaks and water damage; 5. Broken window in West wall; 6. Failure to supervise Bobe Steel & Stone (“Bobe”), resulting in numerous deficiencies to the stainless steel railings on the outside upper deck patios, creating a safety hazard; and aiding and abetting an unlicensed contractor; 7. Deficiencies in the stone work, including differences in the color and finish of the grout, missing stones, lack of cap stones; and 8. Water ponding on upper decks.

4. ROC Inspector Warren Duncan investigated the Harkins’ complaint. Inspector Duncan conducted a jobsite inspection on May 10, 2007. 5. On May 23, 2007, following the jobsite inspection, Inspector Duncan issued a Corrective Work Order (“CWO”) under which the ROC gave First Choice 15 days to take corrective action as follows: 1. Numerous stucco deficiencies through-out project. Excessive cracking blistering, peeling of walls and parapets. Contractor to correct by appropriate means. 2. No weep screeds at second floor walls. No screeds shown on plans for second floor walls. No action required by contractor. 3A.Excessive water ponding at swale area at East end of pool deck. Contractor to correct by appropriate means. 3B.Water drains across patio. No violation of Registrar of Contractor Standards. No action required by contractor. 4. Water damage to billiard room walls, ceiling and wood flooring caused by poor connection at two roof deck drains. Inspector did not determine contractor responsibility. No action required by contractor. 5A.Improper water drainage and large bubble in foam of roof over garage.

Contractor to correct by appropriate means. 5B.Two small bubbles in foam of roof over art studio, south of Eastern –most skylight. Contractor to correct by appropriate means. 6. Shattered window glass. Inspector did not determine contractor responsibility. No action required by contractor. 7. Deficient installation of walk deck railings. Poor welds, inconsistent arcs of rail pieces, deformed top rail, baluster pieces not parallel, railing not completed. Contractor to correct by appropriate means. 8. Excessive water ponding at theatre and art studio walk decks. Contractor to correct by appropriate means. 9. Deficiencies with stone work. a. Inconsistent grout/mortar joints. b. Numerous voids in grout/mortar joints. c. Missing stones in walls. d. Missing stones at column at coach light location. e. Cap stones not installed. Stones to be supplied by homeowner. Contractor to correct a-e by appropriate means.

See Exhibit 1.

6. On December 4, 2007, the Harkins filed a Supplement to Pending Complaint (“Addendum”) alleging “improper, fraudulent and wrongful conduct by Respondent in fraudulently billing for services not performed or otherwise earned.” 7. During the course of the hearing, primarily outside the presence of the Administrative Law Judge, the parties concluded a settlement agreement regarding all but one of the items of complaint and the Addendum. The terms of the settlement agreement were read upon the record and correspond with the items as delineated in the CWO. 8. The terms of the aforementioned settlement agreement are as follows: a. Regarding the stucco issue, the terms of the parties’ agreement are contained within an expert report that has been signed and initialed by the parties, a copy of which is attached hereto as Exhibit A; all of the work pertaining to the stucco issue will be performed within five weeks of the hearing date; b. Items 5a and 5b, regarding the scupper issue, will be corrected by First Choice within five weeks of the hearing date; c. Item 8, regarding water ponding, will be corrected by First Choice within six weeks of the hearing date; d. The Harkins withdraw their complaint without prejudice regarding item number 4 (water damage to billiard room), as they plan to litigate this item in a civil action; e. Item 3a will be repaired by First Choice within six weeks of the hearing date; and f. Regarding item number 9 a through e, First Choice will perform the stone work per the direction of Ted Brown, within five weeks of the hearing date. 9. The Administrative Law Judge finds the terms of the foregoing settlement to be the product of knowing and voluntary action on the part of each party. 10. The two items remaining to be adjudicated on the merits at this administrative proceeding are the steel railings and the alleged improper charges. 11. Inspector Duncan testified regarding the railing, that there are five foot gaps in the railing and some parts of the railing are not parallel, as they are bowed. Inspector Duncan testified that the five foot gaps in the railing pose a safety hazard. See Exhibits 3c and 3d. Inspector Duncan further testified that the first rail does not follow the same curve as the others and is almost straight, and therefore, unacceptable. See Exhibit 3a. Regarding the posts, Inspector Duncan testified that they should be parallel, however, they taper. See Exhibit 3b. Inspector Duncan testified that as of the pre-hearing inspection on April 17, 2008, no corrective work has been performed. 12. Inspector Duncan testified that at the jobsite inspection on May 10, 2007, Mr. Moore stated that he added charges improperly because he was angry that the Harkins were not paying their bills. 13. Mr. Harkins credibly testified that he entered into a cost plus contract with First Choice wherein First Choice was to receive a 15% fee for the subcontractors First Choice brought to the project, and a 7% fee for the supervision of subcontractors that the Harkins brought to the project. Mr. Harkins further credibly testified that there were certain subcontractors that the Harkins hired that required no supervision by First Choice, due to the long standing relationships the Harkins have had with these various subcontractors through the Harkins’ construction of movie theaters. Mr. Harkins credibly testified that he and Mr. Moore had agreed that for these subcontractors, including European Design Cabinets and Countertops, and the HVAC contractor, that First Choice would not receive any fee because Mr. Harkins would personally supervise these contractors. 14. Mr. Harkins credibly testified that Mr. Moore introduced him to Chris Kesler of Bobe, and that First Choice brought Bobe into the project. Mr. Harkins also testified that he paid Bobe directly with approval from Mr. Moore because Bobe had complained that First Choice had not paid Bobe and Mr. Moore indicated that First Choice was short on funds. Mr. Harkins testified that in exchange for the Harkins paying Bobe directly, Mr. Moore agreed to move Bobe from a 15% fee category to a 7% fee category. Mr. Harkins testified that there was never any agreement that First Choice would not supervise Bobe. 15. Mr. Harkins testified that he took meeting notes for the project at every meeting he had, and distributed copies to everyone involved, i.e., Steve Moore, Tom Young, Connie Spain (architect), Karen Harkins, and Tony England, via email, fax, and hand delivery. See Exhibit 4. Mr. Harkins testified that Bobe was not given a copy of the notes, thus there is no question that First Choice, and not the Harkins, was in charge of supervising Bobe. 16. Mr. Harkins referenced notes he had taken from a meeting the week of February 7, 2005, as evidence of First Choice’s responsibility for supervising Bobe. See Exhibit 4. Note number 33 reads in pertinent part as follows: All railings, balustrade, glass/wood is under your total supervision. . . . However the stainless steel standards are still a mystery. Please get a plan and a bid so our worries can go away. Additionally, the design and cost of whatever material will be used for the base around the second floor edge/railing. . . . Confirm Kesler’s proposal for doors and indoor balustrade at $21,000 and all exterior work including catwalk but excluding spiral staircase at $26,000. Id. Note 113d reads “Get a firm schedule from Kesler as to the completion of his entire stainless steel project.” Id. 17. Mr. Harkins testified that First Choice welcomed the opportunity to supervise Bobe because it was getting a fee for such supervision. 18. Mr. Harkins testified that at the jobsite inspection on May 10, 2007, Mr. Moore stated that he was angry with him and added additional charges to the last invoice because he was angry. 19. Mr. Harkins testified regarding correspondence he sent directly to Bobe on which he did not copy First Choice. Mr. Harkins testified that it was a mistake not to copy First Choice, however, Mr. Moore was in the hospital recovering from a double brain aneurism. Mr. Harkins testified that he hand delivered copies of the correspondence to Tom Young, who was handling First Choice’s matters during Mr. Moore’s recuperation period. 20. On October 31, 2005, Mr. Kesler sent Mr. Harkins an email indicating in pertinent part, “I will not meet with First Choice on any of these matters nor do I want them to contact me for anything, my contract is not with them and their incompetence and ability to do nothing correct has just led to frustration and backtracking.” See Exhibit A. Mr. Harkins credibly testified that Mr. Kesler sent this email because he was angry that Bobe was not getting paid by First Choice, and because First Choice’s mismanagement of the installation of the stainless steel posts required additional work by Bobe and a back charge of $6,200.00 (paid by First Choice). 21. Mr. Harkins testified that he has paid First Choice close to $1 million and has withheld less than 8%. Mr. Harkins further testified that First Choice’s final invoice lists Bobe as a subcontractor that First Choice was to supervise and be paid a 7% fee. See Exhibit C. 22. Richard Lustiger, general counsel for Harkins Theaters, testified at hearing that he became involved in this project in late 2004 or early 2005. Mr. Lustiger testified that he attended meetings where both Mr. Moore and Mr. Kesler of Bobe were present, and that it appeared to him that Bobe was taking direction from First Choice and that Mr. Moore appeared to be supervising Bobe. 23. Mr. Lustiger testified, regarding the drafts of the contract, that none of the drafts have been signed. Mr. Lustiger testified that there is a 7% category for subcontractors brought in by the Harkins but supervised by First Choice. However, Mr. Lustiger also testified that it was plain to him that there were contractors on the project that were there contemporaneous with First Choice, that had nothing to do with First Choice and were outside of First Choice’s supervision, so the 7% fee category did not pertain to all subcontractors brought in by the Harkins. Other than the invoice contained in Exhibit C, Mr. Lustiger testified that he has not seen any other documents referencing which subcontractors fell into the two fee categories. Mr. Lustiger testified that he was aware that Mr. Harkins was supervising the HVAC subcontractor, as well as European Cabinets and Countertops, and the subcontractor for the kitchen fan hood. 24. Ted Brown, a friend of Mr. Harkins, testified at hearing that he has been a realtor for twenty-five years, and is experienced with inspections and contractors. Mr. Brown also owns rental properties on which he has performed extensive remodeling, as well as to his own home. Mr. Brown testified that he has inspected Bobe’s work, and obtained four estimates for the completion and repair of Bobe’s work, ranging from $27,500.00 to $60,700.00. See Exhibits 11 through 14. Mr. Brown testified that he feels that $32,000.00 is the appropriate estimate for the work to be completed and repaired properly. This estimate includes both decks over the art room and the theater. 25. Mr. Moore testified that at the time First Choice contracted with the Harkins, Tom Young was the owner of First Choice, and he was to be the supervisor for the project. Mr. Moore testified that Mr. Harkins asked First Choice to begin its work without a signed contract due to the time it was taking to get the written contract finalized because of the voluminous revisions. Mr. Moore testified that the original scope of work was to expand the kitchen and family room, but that the scope of work increased to adding a three thousand to thirty five hundred square foot addition to the home, adding an art studio and game room, as well. 26. Mr. Moore testified that the parties’ contract was cost plus, the terms of which called for First Choice to receive a 15% fee for subcontractors it brought to the project, and a 7% fee for subcontractors that the Harkins brought in. Mr. Moore acknowledged that one of the terms of his agreement with Mr. Harkins was that First Choice would not receive a fee on work performed by European Design Cabinets and Countertops. Notwithstanding such agreement, First Choice charged the Harkins a 7% fee for work performed by European Design Cabinets and Countertops (7% of $144,624.00). See Exhibit C, under the category, Supervised by First Choice - Paid by Harkins. Mr. Moore testified that he charged the Harkins this 7% fee because First Choice was heavily involved with this work. Mr. Moore testified that he charged the Harkins a 7% fee for the HVAC contractor’s work because he met with that subcontractor often (7% of $35,000.00). Mr. Moore testified that he charged a 7% fee (of $20,000.00) for the movie screen because First Choice moved the exterior wall twice to accommodate the screen. Mr. Moore testified that he charged a 7% fee (of $6,900.00) for the Untouchables because First Choice prepared for the glass installation. Mr. Moore further testified that he had to coordinate the schedules of these subcontractors. Mr. Moore testified that he felt the 7% fee was not just for supervision, but for coordination efforts. 27. Mr. Moore acknowledged that First Choice contacted Bobe to perform the steel work for the project, as Bobe was performing work for First Choice on another project. Mr. Moore testified that the five foot openings in the railing were there because Bobe was supposed to construct a bridge between the two decks, however, that work was not performed. 28. Mr. Moore acknowledged receiving copies of Mr. Harkins’ meetings notes on a constant basis, some of which pertained to First Choice, and some of which did not. Mr. Moore testified that he was not involved in the project for approximately one year because he was hospitalized from August 6, 2005 through early September 2005, and then took a year off from work to recuperate. Mr. Moore testified that he did not even have contact with Mr. Young during this time frame. 29. Mr. Moore acknowledged stating at the May 10, 2007 jobsite inspection that he added additional charges because he was not getting paid by the Harkins. Mr. Moore further acknowledged that he never denied that Bobe was under First Choice’s supervision. 30. The Administrative Law Judge finds, based on the credible evidence of record, that First Choice bore the responsibility for supervising Bobe. The Administrative Law Judge makes such determination based upon the following: a. First Choice billed the Harkins a 7% fee for the supervision of Bobe on the September 5, 2006 Statement under the category ** Supervised by First Choice – Paid by Harkins. See Exhibit C. b. Bobe first sought payment from First Choice and when First Choice failed to pay, sought payment from the Harkins directly. See Exhibit 9, Bobe’s September 27, 2005 invoice, wherein Bobe states, “this invoice is being sent to Dan Harkins on 10/18/2005 because First Choice has decided not to pay . . .” On October 18, 2005, Mr. Kesler sent Mr. Harkins a memo stating in pertinent part, “attached are the invoices and letters that I gave to First Choice. No payments have been made or contact from them. I am sending you this letter and invoice only because you personally guaranteed that payment would be made by you if First Choice would not pay. . .” Id. c. Mr. Harkins’ August 22, 2005 memo to Mr. Young, Mr. Moore, and Tim Fentem, states in pertinent part in paragraph 4, “as discussed over and over again with Steve Moore and Chris Kesler, the General Contractor mismanaged the timing of the installation of the stainless steel posts . . .” See Exhibit 8. d. First Choice paid a $6,200.00 back charge to Bobe for the above- mentioned mistake. See Exhibit 9. 31. The Administrative Law Judge finds, based on the credible evidence of record, that First Choice improperly charged a supervision fee for all of the subcontractors listed in this category, with the exception of Bobe. The Administrative Law Judge makes such determination based upon the following evidence: a. Mr. Moore acknowledged that he added these charges to the bill because he was angry at the Harkins for not paying; b. Mr. Moore further acknowledged that he and Mr. Harkins had specifically agreed that First Choice was not to receive compensation for European Design Cabinets and Countertops; c. Mr. Moore’s reasoning for adding these contractors (efforts at coordination of schedules) was not what the parties had agreed upon – First Choice was to be compensated for supervision of subcontractors, not coordination of schedules. First Choice in asserting its defense, bore the burden of proving that it in fact supervised these contractors. First Choice failed to provide any probative or substantial evidence establishing such. Mr. Harkins’ testimony regarding his existing business relationships and reasons why First Choice’s supervision of these subcontractors was not necessary, was more credible in this regard. CONCLUSIONS OF LAW 1. In this proceeding, the Harkins bear the burden to prove, by a preponderance of the evidence, that First Choice is subject to discipline for violations of A.R.S. § 32-1154(A)(1), (A)(3), (A)(7), (A)(13), and/or (A)(23) as charged by the ROC in its October 17, 2007 Citation and Complaint. See Arizona Administrative Code (“A.A.C.”) 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 the Harkins have met their burden of proof as to all of the ROC’s charges. 4. Under A.R.S. § 32-1154(A)(1), a contractor is subject to discipline for “abandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.” The Administrative Law Judge concludes, based on the weight of the credible evidence of record, that First Choice has failed to complete the project which it contracted to perform without legal excuse for such failure in regard to the steel railings. Therefore, the Administrative Law Judge concludes that First Choice violated A.R.S. § 32-1154(A)(1). 5. Under A.R.S. § 32-1154(A)(3), a contractor is subject to discipline for “violation of any rule adopted by the registrar.” In this case, the ROC charged First Choice with a violation of A.A.C. R4- 9-108, which, among other things, requires contractors to perform work in a professional and workmanlike manner and in accordance with any applicable building codes and professional industry standards. The Administrative Law Judge concludes, based upon the credible evidence of record, that First Choice failed to properly supervise Bobe, resulting in defective workmanship and an unsafe condition of the steel railings. Therefore, the Administrative Law Judge concludes that First Choice violated A.R.S. § 32-1154(A)(3). 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. The Harkins did not address this alleged violation. However, a copy of First Choice’s statements were submitted into evidence (Exhibits B and C). Those documents do not contain the letters “ROC” preceding First Choice’s license number. In view of the foregoing, the Administrative Law Judge concludes that First Choice violated A.R.S. § 32- 1154(A)(13). 7. Under A.R.S. § 32-1154(A)(23), a contractor is subject to discipline for “failure to take appropriate corrective action . . . without valid justification within a reasonable period of time after receiving a written directive from the registrar.” The evidence demonstrated that a jobsite inspection by the appointed inspector for the ROC was held, pursuant to which the ROC issued First Choice a CWO directing it to accomplish specified remedial work within a stated period of time. The credible evidence of record established that First Choice failed to perform the required corrective work with regard to the steel railings without valid justification. Therefore, the Administrative Law Judge concludes that First Choice violated A.R.S. § 32-1154(A)(23). 8. 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, based on the weight of the credible evidence presented at hearing, that First Choice committed wrongful acts that substantially injured the Harkins by failing to properly supervise Bobe resulting in incomplete and defective steel railings, and by improperly charging the Harkins a 7% fee for contractors First Choice did not supervise. Therefore, the Administrative Law Judge concludes that the Harkins established that First Choice violated A.R.S. § 32-1154(A)(7). 9. Based on the foregoing, it is appropriate for the ROC to impose discipline against First Choice’s Class B- license. 10. Upon consideration of all of the facts and circumstances presented by this case, the Administrative Law Judge concludes that the ROC should suspend First Choice’s Class B- license. 11. 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 First Choice’s license without providing a condition to reduce or eliminate same. 12. Upon consideration of all of the facts and circumstances presented by this case, the Administrative Law Judge concludes that the ROC should suspend First Choice’s Class B- license subject to the condition that First Choice can avoid such suspension by correcting in an appropriate, effective, and workmanlike manner the steel railings at the Harkins’ home, and by issuing an accurate billing statement to the Harkins, within forty-five days of the effective date of the Order entered in this matter. RECOMMENDED ORDER Based on the foregoing, the Administrative Law Judge makes the following Recommended Order: Within forty-five days of the effective date of the Order entered in this matter, First Choice’s Class B- license (No. 055402) shall be suspended until the ROC receives written proof that First Choice has corrected in an appropriate, effective, and workmanlike manner the steel railings at the Harkins’ home, and issued an accurate billing statement to the Harkins. If the ROC receives written proof that First Choice has complied with the foregoing conditions on or before the date specified above, then the above provided license suspension shall not take place and the Citation and Complaint in Case No. 07-2153 shall be closed. 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, May 12, 2008.

______________________________________ Sondra J. Vanella Administrative Law Judge

Original transmitted by mail this ____ day of May, 2008, to:

Fidelis V. Garcia, Director Registrar of Contractors 3838 North Central Avenue Phoenix, AZ 85012

By ___________________________

----------------------- [1] Neither party offered into evidence copies of any of the contract drafts.

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