ALJDEC decisions subject to certification as final

07F-2695-ROC · Registrar of Contractors · 2008-02-20

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: February 5, 2008 APPEARANCES: Complainant James Maida appeared on his own behalf. Ty Hill appeared on behalf of Respondent Ultimate Vision Contractors, Inc. ADMINISTRATIVE LAW JUDGE: Sondra J. Vanella _____________________________________________________________________ The issue presented by this matter is whether Respondent Ultimate Vision Contractors, Inc. (“Ultimate”) 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. Ultimate is the holder of a Class KB-01 license (No. 175040) issued by the Registrar of Contractors (“ROC”).[1] Tyrone Hill is Ultimate’s corporate officer and qualifying party. Mr. Hill is also the qualifying party and sole member of Desert Hawk Holdings, L.L.C. (“Desert Hawk”), which holds a Class KB-01 license (No. 188811) issued by the ROC. Desert Hawk’s license is current. 2. On or about September 15, 2006, Complainant James Maida contracted with Desert Hawk for Desert Hawk to perform remodeling work at a home Mr. Maida purchased with a business partner as an investment. See Exhibit 25. Mr. Maida and his business partner planned to re-sell the home upon completion of the remodel. The contract price was $523,000.00. Id. 3. Work on the remodel project commenced, however, disagreements arose between the parties. 4. On May 14, 2007, Mr. Maida filed a complaint against Ultimate with the ROC. In his complaint, Mr. Maida alleged the following: In summary, the Major Subcontractor, operating in conjunction with (in essence one in the same as) the General Contractor has contributed to the abandonment of my project, theft of about $280,000 from me and the bank, having fraudulently withdrew money from the construction loan and failed to pay subcontractors, causing other subcontractors/suppliers to place liens on my property, causing code violations, and leaving the property in an unsafe and unlivable condition, resulting in a house that I can not refinance or sell. I need your help to stop this Sub-Contractor from causing me more financial harm. This is an urgent matter that needs your immediate attention. Details of the issues and problems associated with this complaint are as follows:

1. Sub-Contractor and General Contractor are functioning and legally binding each other as though they are one in the same entity on this project. The two entities have signed documents and misrepresented themselves as operating one in the same; 2. Sub-Contractor conspired with General Contractor to “pose” as Contractor on project – potentially trying to skirt/circumvent issue that General Contractor’s license has recently expired; 3. Sub-Contractor conspired with General Contractor to add layers of subcontracts in an effort to pad invoices and misrepresent the work completed to the owners and the bank, thus fraudulently stealing money; 4. Sub-Contractor was paid by the General Contractor for other subcontractor work/material suppliers via draws and they have not been paid; 5. Sub-Contractor has contributed to the violation of building codes; 6. Sub-Contractor has contributed to the departure from plans by the General Contractor without obtaining approvals from city planning, permits and inspections as well as not obtaining home owner approval resulting in design deficiencies and code violations; 7. Sub-Contractor has contributed to the submission of invoices to the bank that are higher and not consistent with subcontractor invoices – thus over-billing owners; 8. Sub-Contractor has falsely signed invoices to/with the bank that all other subcontractors/suppliers were paid from draws and they were not paid; 9. Sub-Contractor has contributed to several other subcontractors to initiate liens against the property for lack of payment; 10. Sub-Contractor has contributed to leaving the project/property in an unsafe/unlivable condition; 11. Sub-Contractor has contributed to the failure to maintain proper dust, dirt and debris control; 12. Sub-Contractor has contributed to the failure to properly secure the construction site; and 13. Sub-Contractor has contributed to the General Contractor’s efforts to cause owners financial and irreparable harm and damages due to work stoppage/abandonment, leaving a house that has been demolished and left in an unsalable and un-financeable condition, as well as risking expiration of the construction loan.

NOTE: Please see and cross reference Arizona Registrar of Contractor’s Complaint against the General Contractor, Desert Hawk Holding, License # ROC-188811.

5. Mr. Maida submitted into evidence copies of Affidavits of Contractor that Mr. Hill submitted to Mr. Maida’s lender. See Exhibits 12 and 14. The first Affidavit is dated October 25, 2006, and states that Desert Hawk is due and had paid out $99,000.00 for field supervision, permit fees, project manager fees, materials for rough framing, and overhead. See Exhibit 12. The second Affidavit is dated November 6, 2006, and states that Desert Hawk is due $9,000.00 for project management, $18,675.75 for the concrete subcontractor, and $29,425.00 for rough framing. Id. The third Affidavit dated April 9, 2007, states in pertinent part that Desert Hawk is due $29,425.00 for rough framing. See Exhibit 14. The credible evidence of record established that Mr. Maida’s lender released these funds to Desert Hawk/Ultimate. 6. Fortress, Inc. (“Fortress”) was the framing subcontractor for this project. Marc Skousen is Fortress’ superintendent. Mr. Skousen testified that Fortress was invited by Ultimate through its project manager, John Elgert, to bid the project, and that Ultimate accepted its bid and contracted with Fortress for the framing. The written contract specifies that Ultimate is the contracting entity with Fortress. See Exhibit 33, page 2. The contract price was originally $25,450.00. Id. However, a Change Order was executed in the amount of $6,030.00, bringing the total contract price to $31,480.00. Id. at 3. This Change Order has Ultimate’s name on the heading. Id. According to Mr. Skousen, one of the contract provisions was that Fortress would be paid 90% of the contract price upon being ready for the strap and shear inspection. Mr. Skousen credibly testified that the project went well and that after the City of Scottsdale inspection, Fortress corrected all of the items listed on the City inspection report dated March 21, 2007 (Exhibit 3). On April 10, 2007, Desert Hawk issued a check to Fortress in the amount of $15,100.00. See Exhibit G. Mr. Skousen testified that Ultimate informed Fortress that it would receive the balance of payment in about one week. However, Ultimate stopped payment on the check. Mr. Skousen credibly testified that Mr. Hill gave many excuses as to why Ultimate stopped payment, including financial hardship and an FBI investigation. 7. Mr. Rand Olsen, owner of Fortress, testified consistently with Mr. Skousen’s testimony. Mr. Olsen testified that Fortress would have come back to perform any further repair work, however, Ultimate never requested that it do so. Mr. Olsen further testified that prior to filing its lien, Fortress contacted Ultimate many times in order to obtain payment, to no avail. Mr. Olsen holds a general contractor license. Mr. Maida asked Mr. Olsen for a bid to complete the project. Mr. Olsen testified that at the point that Ultimate ceased working on the project, approximately $150,000.00 worth of work had been performed and $300,000.00 to $400,000.00 worth of work remained. 8. Mr. Hill testified that he stopped payment because Fortress’ work was deficient and did not pass inspection. Mr. Maida submitted into evidence a letter dated June 18, 2007 to Mr. Skousen from Mr. Elgert, that states in pertinent part the following:

Per our telephone discussion concerning the framing work and inspection correction items: as a consultant who was supervising the field work, I recall that after completing the framing, your crew returned and worked on the City inspection items, as I did notice that items were completed. I did not check all the items on the list.

Prior to your crew starting the inspection items, you and I did meet at the job site; our discussion settled that your crew would return again after the (rough-ins) were completed for the plumbing, electric, mechanical and fire sprinklers for any typical repairs caused by their (rough-in work).

. . . .

After confirming the above status of the framing work, I wish to say I have enjoyed working with you, Marc and your staff on the addition/remodel. We communicated well; as I remember several scheduling sessions where you committed your crew to start and you always were on the job as promised. Also, I recall the approximate dozen framing changes which were requested by the Owner during one of his “walk thrus” and you responded quickly completing the changes within a day or so.

See Exhibit 33, page 1. 9. On May 18, 2007, Fortress filed a lien against the property. See Exhibit 7. Mr. Skousen credibly testified that Ultimate has not paid Fortress for any of its work. 10. The Administrative Law Judge finds, based upon the credible evidence of record, including Mr. Maida’s, Mr. Skousen’s, and Mr. Olsen’s testimony, as well as the June 18, 2007 letter from Mr. Elgert, that Fortress timely performed its work on the project in a professional and workmanlike manner, and that Ultimate has unjustifiably failed to pay Fortress for its work. 11. Mr. Maida submitted into evidence copies of four Arizona Preliminary Day Lien Notices, filed by various subcontractors hired by Ultimate, all of which list Ultimate as the general contractor for the project. See Exhibits 6, 9, 10, and 11. 12. Mr. Maida testified that Ultimate violated this State’s contracting laws when it failed to install a security fence around the construction site and when it littered the site with debris rather than placing the debris in a dumpster. As evidence of such assertions, Mr. Maida submitted into evidence a Compliance Notice dated May 8, 2007, issued by the City of Scottsdale. See Exhibit 4. The Compliance Notice charges in pertinent part that dust, dirt, and debris control has not been maintained. Id. Mr. Maida also submitted into evidence a Notice of Violation dated August 9, 2007, issued by the City of Scottsdale. See Exhibit 4. The Notice of Violation states in pertinent part the following: Construction debris has been dumped in front driveway from a commercial dumpster that was emptied and removed from the property. Immediately remove all construction debris from front of property and re-secure the temporary fence that was partially dissembled (sic) to facilitate removal of the dumpster. Id. 13. Mr. Maida testified that in April 2007, he received notice from his realtor that there was a potential buyer for the property with an offer of $2.2 million. However, the potential buyer wanted to take over the construction in order to make their own revisions to the remodel. Mr. Maida requested that Ultimate temporarily cease construction and asked Mr. Hill to put together a presentation for the potential buyer regarding the remaining construction costs with the potential buyer’s changes taken into account. The undisputed evidence established that Mr. Hill met with the potential buyer prior to Mr. Maida’s scheduled meeting, and dissuaded the potential buyer from purchasing the property, advising that the property was not worth more than $1.7 million. Mr. Hill acknowledged having such meeting and conversation. Mr. Hill explained at hearing that his wife is a realtor and that she provided the comparables for him, and that if he oversold the property it would reflect poorly on his wife.[2] 14. Mr. Maida testified that when the offer fell through, he instructed Ultimate to resume construction, however, Ultimate failed to do so, leaving the property in a demolished, unlivable, unsafe condition. 15. According to Mr. Maida, Mr. Hill wanted to become an investor in the project and contributed approximately $70,000.00 of his personal funds into the project, expecting to make a substantial profit. Mr. Hill claims that these funds were a “loan” to Mr. Maida and as such, decided to call his loan. Mr. Maida has not returned the money as Mr. Maida’s position is that the money was not a loan, but an investment, and as such, Mr. Hill stood to gain or lose on such investment, and because he stood to lose, as the house is scheduled to be foreclosed upon on February 13, 2008, he is now conveniently calling the transaction a loan. The parties disagree as to whether information regarding this transaction is part of the parties’ contract, as each party possesses a different version of the contract. See Exhibits 25 and B. Mr. Hill’s copy of the contract contains a type written provision that states that Desert Hawk is a full partner in the project “and all monies loaned for and to this project will be paid back in its entirety at the sell of this project at 5% interest.” The provision further states that Desert Hawk “is also to be paid equally 1/3 of the profits as well. Desert Hawk Holdings, LLC may call this loan at anytime, at which time it will be paid back in it’s entirety within 3 days . . .” See Exhibit B, page 22, Section 13.9. Mr. Maida’s copy of the contract does not contain this provision. See Exhibit 25. Mr. Hill’s version of the contract does not contain Mr. Maida’s and his business partner’s initials at the bottom of each page, as does Mr. Maida’s copy. See Exhibits 25 and B. Mr. Maida credibly testified that the first time he had seen this contract provision was at the time of hearing, notwithstanding numerous requests to Mr. Hill to provide Mr. Maida with a copy of the contract containing Mr. Hill’s signature. See Exhibits 26, 31, and 32. Mr. Maida credibly testified that this provision was not present in the contract when he signed it. Mr. Maida contended that the provision was inserted at a later time. Mr. Maida credibly testified that all changes were confirmed via email and initialed on the contract. Exhibit 26 is an email dated September 27, 2006, the subject of which is Contractor Agreement Review, in which Mr. Maida questions eighteen various sections of the contract, however, the section at issue was not mentioned, lending credence to the fact that this provision was absent from the contract that Mr. Maida reviewed. 16. On April 23, 2007, Mr. Maida sent an email to Mr. Hill that projected different profit and loss scenarios for the project based upon potential sales prices for the project. See Exhibit E. Based upon various potential sales scenarios, the projections indicated that all three investors stood to lose between $5,820.00 and $36,820.00. Id. 17. On or about May 1, 2007, Mr. Hill sent Mr. Maida a letter on Desert Hawk’s letterhead stating the following: I am writing this letter from home at 2 AM in the morning, I can not sleep. This is an official call on the loan I will need you to adhere to Section 13.9 of the contract. The reason being that you are going to sell the project for 1.5 million or less; after talking to you, you don’t seem to care that you have an obligation to pay me back. You are going to try and back out on the $76,072 lent to you and pass me a $36,820 loss. There’s no talking to you. I’m not having it.

See Exhibit D. 18. On May 1, 2007, Mr. Hill sent Mr. Maida a letter on Ultimate’s letterhead setting forth two scenarios from which Mr. Maida could choose. See Exhibit 18. The first scenario is as follows: * You sign the affidavit that you have received the money wired to you as a loan [for the project] and you intend to pay all of it all back at the sale of the [project] per our initial agreement. * I start the project back up and (sic) 4 days and continue to loan you the money for the mortgage payments. * I pay the sub contractors after release of my funds on or about May 30th, 2007. * I finish the work to completion.

The second scenario is as follows:

* You don’t sign the affidavit that you have received the money wired to you as a loan. * I put all the monies that I presently have for the subcontractors into escrow until I can validate all our money transactions with you and the subs. * I stop the project due to the fact that I can not continue to pay the mortgage payments and not know that you are going to pay this company completely back for the money loaned.

The letter further states in pertinent part the following:

I am not trying to take anything from you or black mail at all. This is the situation in a nutshell.; I have loaned you nearly $70,000. I presently can validate this with paper work. But I can not validate “why”; I need to do this ASAP. These pass (sic) three weeks has (sic) shown me that there’s nothing that can not be solved with straight up in your face hard work. I have put myself and this company in a position that has cost me a lot [of] stress, money and credibility by trusting people. I don’t have that luxury anymore James. James, it’s obvious what I want to do and I have shown you this by investing my money. I will handle all the subs, preliminary liens and start the project back up and continue to pay the mortgage payments, but I have to know that you will pay me back the money that I loan you at the close of sell (sic) of the property.

Id. (Emphasis in original). 19. This was the main point of contention at hearing. Mr. Hill contradicts himself in his own letter calling the transaction both a loan and an investment. Mr. Hill testified that he “feels that investing is the same as lending.” Also of note is the fact that after Mr. Hill’s meeting with the potential buyer, wherein he dissuaded the individual from purchasing the property, advising that it was only worth $1.7 million versus the $2.2 million offered, the subsequent offers were much less, resulting in a financial loss to the parties. It was not until Mr. Hill saw in writing the potential for loss, that he requested the return of his money. The Administrative Law Judge finds that a determination of whether Mr. Hill made an unwise investment or whether he made a loan to Mr. Maida does not have a direct bearing on the outcome of this case. 20. Mr. Hill testified that he did not abandon the project because he was asked to cease construction. The Administrative Law Judge finds that while this may have initially been true, the credible evidence of record establishes that Mr. Maida also requested that Ultimate resume construction approximately four weeks later after the potential purchase transaction did not occur. 21. Mr. Hill contended that Mr. Maida’s contract was not with Ultimate, but rather with Desert Hawk. The Administrative Law Judge finds that both entities are really one in the same as the evidence demonstrated that they are interchangeable, and further, that notwithstanding the fact that the written contract is with Desert Hawk, Ultimate took responsibility for the project by contracting with the various subcontractors. CONCLUSIONS OF LAW In this proceeding, Mr. Maida bears the burden to prove, by a preponderance of the evidence, that Ultimate is subject to discipline for violations of A.R.S. § 32-1154(A)(1), (A)(2), (A)(3), (A)(7), (A)(9), (A)(11), and/or (A)(18) as charged by the ROC in its September 20, 2007 Citation and Complaint. See Arizona Administrative Code (“A.A.C.”) R2-19- 119. 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). The Administrative Law Judge concludes that Mr. Maida met his burden of proof as to five of the ROC’s seven charges. 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 Ultimate has refused to complete the project without legal excuse for such refusal, as there was no evidence to establish that Ultimate would not be paid for the construction work. Therefore, the Administrative Law Judge concludes that Ultimate violated A.R.S. § 32-1154(A)(1). Under A.R.S. § 32-1154(A)(2), a contractor is subject to discipline for “departure from or disregard of plans or specifications . . . in any material respect which is prejudicial to another without consent of the owner . . .” The evidence of record was insufficient to establish that Ultimate departed from plans and specifications. Therefore, the Administrative Law Judge does not conclude that Ultimate violated A.R.S. § 32-1154(A)(2). 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 Ultimate 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 Ultimate failed to perform some of its work on the project in a professional and workmanlike manner as evidenced by the two notices issued by the City of Scottsdale. Therefore, the Administrative Law Judge concludes that Ultimate violated A.R.S. § 32- 1154(A)(3). Under A.R.S. § 32-1154(A)(9), a contractor is subject to discipline for “failure in a material respect . . . to complete a construction project or operation for the price stated in the contract, or in any modification of the contract.” The evidence of record failed to establish that Ultimate could not complete the project for the price stated in the contract, or in any modification of the contract. Therefore, the Administrative Law Judge concludes that Ultimate did not violate A.R.S. § 32-1154(A)(9). Under A.R.S. § 32-1154(A)(11), a contractor is subject to discipline for “failure by a licensee . . . to pay monies in excess of seven hundred fifty dollars when due for materials or services rendered in connection with his operations as a contractor when he has the capacity to pay or, if he lacks the capacity to pay, when he has received sufficient monies as payment for the particular construction work project . . .” The credible evidence of record established that Ultimate received monies from Mr. Maida’s lender to pay the framing subcontractor. Notwithstanding having received said funds, Ultimate failed to pay the framing subcontractor the amounts due and owing and such amounts far exceed the statutory threshold of $750.00. Therefore, the Administrative Law Judge concludes that Ultimate violated A.R.S. § 32-1154(A)(11). Under A.R.S. § 32-1154(A)(18), a contractor is subject to discipline for “contracting or offering to contract or submitting a bid while the license is under suspension or while the license is on inactive status.” The ROC’s licensing information revealed that Ultimate’s license was suspended from June 1, 2006 through October 6, 2006 for nonrenewal, and the contract was executed in September 2006. The fact that the written contract specified Desert Hawk as the contracting entity does not relieve Ultimate of responsibility for any wrongdoing as the credible evidence of record demonstrated that Ultimate and Desert Hawk are interchangeable entities, and that Ultimate was the contracting entity with the subcontractors for the project. 10. 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 Ultimate committed wrongful acts that substantially injured Mr. Maida by failing to perform some of its work on the project in a professional and workmanlike manner, by refusing to complete the project, by interfering with the potential sale of the house, and by failing to pay the framing subcontractor. Therefore, the Administrative Law Judge concludes that Mr. Maida established that Ultimate violated A.R.S. § 32-1154(A)(7). 11. Based on the foregoing, it is appropriate for the ROC to impose discipline against Ultimate’s license. 12. Upon consideration of all of the facts and circumstances presented by this case, including Ultimate’s suspended license status, the Administrative Law Judge concludes that the ROC should revoke Ultimate’s Class KB-01 license. RECOMMENDED ORDER Based on the foregoing, the Administrative Law Judge makes the following Recommended Order: On the effective date of the Order entered in this matter, Ultimate’s Class KB-01 license (No. 175040) shall be revoked. 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, February 20, 2008.

______________________________________ Sondra J. Vanella Administrative Law Judge

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

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

By ___________________________

----------------------- [1] A review of the ROC’s official records revealed that Ultimate’s contracting license was suspended from June 1, 2006 through October 6, 2006 for nonrenewal, and suspended on September 28, 2007 for lack of bond. [2] Mr. Hill was also unhappy with the fact that Mr. Maida had originally made a verbal commitment to him that Mr. Hill’s wife would be the realtor for the sale of the house. Ultimately, Mr. Maida contracted with a different realtor.

-----------------------

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