ALJDEC decisions subject to certification as final

07F-G1423-ROC · Registrar of Contractors · 2008-03-17

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: March 17, 2007 at 9:00 a.m. APPEARANCES: Complainant Gopalan Nair appeared on his own behalf; Respondent A A C Gardner Inc. dba Yes Air Conditioning appeared through William R. Brown, Esq. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure 1. On July 1, 1977, the Registrar of Contractors issued License No. ROC045860, Class C-39 for air conditioning and refrigeration, including solar, to Respondent, whose name appears on the Registrar’s records as A A C Gardner, Inc. dba Yes Air Conditioning. 2. On March 7, 2007, the Registrar’s Glendale Office received a complaint against Respondent’s license from Complainant Gopalan Nair, to the effect that Respondent had contracted to install a condenser and start up the HVAC system for a total contract price of $5,020.00 and that, after Respondent had installed the condenser and attempted to start up the HVAC system, a leak was discovered in the indoor air handler. According to the complaint, Respondent’s salesperson agreed to replace the air handler at a total additional cost of $420.00. However, Respondent refused to honor that price or to respond to Complainant’s telephone calls, written correspondence, and e-mails. As a result, Complainant was forced to engage another contractor to remove the condenser and install a new condenser and air handler. 3. The Registrar referred the complaint to Respondent for its immediate attention. 4. On March 21, 2007, the Registrar received Respondent’s initial response to the complaint, which denied that it had ever contracted to install the indoor air handler for $420.00 but that it had instead offered to replace the air handler for a total additional cost of $1,200.00, which represented a substantial discount. 5. On April 26, 2007, Complainant requested an administrative hearing on his complaint. 6. On August 31, 2007, the Registrar issued a Citation and Complaint against Respondent’s license, charging violations of A.R.S. § 32-1154(A)(1), (7), (9), and (13) (namely A.R.S. § 32-1124(B)). 7. On September 12, 2007, the Registrar received Respondent’s written answer to the Citation and Complaint, which disputed Complainant’s version of events and denied any statutory violations. Respondent’s letterhead did not show its license number preceded by the acronym “ROC.” 8. The Registrar referred the matter to the Office of Administrative Hearings and issued a Notice of Hearing in due course. After one continuance, a hearing was held on March 17, 2007. Complainant testified on his own behalf and had admitted into evidence three exhibits. Respondent presented the testimony of John Zolty, its HVAC manager for Arizona. Hearing Evidence The Contract and the Complaint 9. According to the complaint, Complainant first “[o]bserved the failure of one of the HVAC units (not sufficient heat) at our home on 2/26/07.” 10. Complainant contacted Chas. Roberts Air Conditioning, which sent a technician to Complainant’s home. The Chas. Roberts Air Conditioning technician informed Complainant that he would need a new condenser/compressor. 11. Complainant consulted the web referral service at QualitySmith.com, which referred him to Respondent. 12. QualitySmith.com provides referrals for installations of new complete HVAC systems, not repairs of existing systems. After QualitySmith.com referred Complainant to Respondent, on March 1, 2007, a Thursday, it sent salesperson Jeff Blanchard to Complainant’s house. 13. On March 1, 2007, Mr. Blanchard prepared Proposal No. 6708 for Complainant to remove and replace the condenser at Complainant’s home with a 13-seer, 5-ton unit and to “[c]omplete the system start-up.” The proposal provided the price of a Trane condenser was $6,020.00 and the cost of an Amana condenser was $5,080.00. 14. The proposal form showed Respondent’s license number, but the license number was not preceded by the acronym “ROC.” 15. On March 1, 2007, Mr. Blanchard sent an e-mail to Complainant, “Per our conversation, here is a copy of the guaranties that your system will include.” Included among the guarantees is that, “[i]f for any reason your comfort systems fails to heat or cool your home and we do not get it operating properly within 24 hours we will . . . [f]ix it for free [and g]ive you a check for $555.00.” The list of guarantees that was admitted into evidence was unsigned. 16. On March 2, 2007, Complainant signed the proposal, choosing the Amana condenser and added the notation “for installation today.” 17. Complainant testified that he understood Respondent’s Proposal No. 6708 to be for a functioning HVAC system because it included a “complete system startup.” 18. On March 2, 2007, Respondent’s installer Tim Chambers removed Complainant’s old condenser and replaced it with a new Amana condenser. When he attempted to start-up the system, he discovered a leak in the air exchanger evaporator coil, which prevented the system from operating. He therefore could not install the new “energy saving setback thermostat” required by the contract. 19. Mr. Blanchard was across town when Mr. Chambers determined that the leak in the air handler would prevent the system from operating and Complainant wanted to talk to Mr. Blanchard. Mr. Blanchard met with Complainant at his house on March 3, 2007, a Saturday. 20. On March 3, 2007, on Complainant’s instructions, Mr. Blanchard prepared Proposal No. 6701, which does not contain any narrative description of the work to be performed but which both parties agreed was to replace the air handler. The total installed price was $420.00. Complainant signed the proposal and added the notation that, “[i]f this is not approved by [Respondent] earlier contract is canceled.” Proposal No. 6701 is not signed by anyone on behalf of Respondent. 21. Complainant testified that he understood from Proposal No. 6708 that the cost of the complete system would be $5,500.00. He therefore felt that the cost of the air handler on Proposal No. 6701 should be $420.00, the difference between the $5,080.00 price of the Amana condenser and $5,500.00. 22. Proposal No. 6708 does not show the amount $5,500.00 anywhere. 23. Mr. Zolty testified that Respondent prefers to sell and install complete HVAC systems. Usually after 10 or 12 years, the components of an HVAC system become unreliable. Complete replacement offers more profit for Respondent and a better value for customers. If Respondent does not replace the entire system, Respondent does not guarantee the system’s performance. 24. Mr. Zolty testified that Complainant’s HVAC system was 10 or years old. Based on the advice of the Chas. Roberts Air Conditioning’s technician, Complainant chose only to replace the condenser. 25. Mr. Zolty testified that Respondent set forth its guidelines in a price book, which salespersons like Mr. Blanchard are authorized to accept on behalf of Respondent. The price book contains the $5,080.00 price for the Amana condenser. The price book sets the price of a complete system is approximately $8,000.00 and an air handler, if installed separately from the condenser, at $3,600.00 to $4,200.00. Mr. Blanchard was not authorized to accept the $420.00 price of the air handler on Proposal No. 6701, which was far less than the authorized price. 26. Mr. Zolty was the only one authorized to accept on Respondent’s behalf prices not included in the price book. On the morning of Monday, March 5, 2007, several hours before Complainant thought Respondent would install the air handler, Mr. Zolty called Complainant and informed him that Respondent would not accept the $420.00 price that Complainant had set. Mr. Zolty offered Complainant a 20% discount on the whole system, for a total price of $6,280.00. 27. Complainant told Mr. Zolty that he would find someone else to install the air handler. 28. Mr. Zolty testified that he thought Respondent was done with the job, except for getting payment for the work already performed. Complainant told him that he was “not interested” in paying Respondent. 29. On March 7, 2007, Respondent sent Complainant a 20-day lien notice. The notice stated that “THIS IS NOT A LIEN.” 30. Complainant felt that Respondent used the 20-day lien notice to intimidate him. 31. On March 8, 2007, Complainant entered into a contract with Sears for the purchase and installation of a 5-ton Kenmore HVAC system, including a condenser and air handler, for a total contract price of $6,195.00. Sears’ installer removed the Amana condenser that Respondent had installed and replaced it with a Kenmore condenser. 32. Complainant testified that he was told that condensers and air handlers should be manufactured by the same company. He had admitted into evidence an e-mail from Kristen Gray at Goodman Manufacturing that stated that the manufacturer did not recommend using its products with another manufacturer’s products because it did not test such configurations. Ms. Gray added, however, that “[t]he warranty on your new Amana condenser will not be voided, as long as it was installed by a licensed HVAC contractor.” 33. Mr. Zolty testified at the hearing that, in his years of experience in the HVAC industry, he has never seen a manufacturer refuse to honor a warranty because its equipment was installed with another manufacturer’s equipment. 34. On May 4, 2007, Respondent filed a complaint in Dreamy Draw Justice Court Case No. CC2007085456RC for $5,080.00, plus interest and attorney’s fees for breach of the parties’ contract on Proposal No. 6708. 35. The parties agreed to dismiss Dreamy Draw Justice Court Case No. CC2007085456RC with prejudice after Complainant paid an undisclosed amount to Respondent. Complainant admitted at the hearing that he raised as defenses in that action all of the complaints that he was making to the Registrar in this matter. CONCLUSIONS OF LAW Complainant bears the burden of proof and must establish Respondent’s contracting law violations by a preponderance of the evidence.[1] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[2] A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”[3] The only proposal that was accepted by both parties was Proposal No. 6708;[4] therefore, this is the only contract between them. Respondent fully performed the work set forth in Proposal No. 6708, except for installation of the thermostat, which could not be completed due to the leak in the air handler. Proposal No. 6708 refers only to replacement of Complainant’s condenser, rather than his HVAC system, which would include both the condenser and the air handler. Because the terms of the contract are “plain and unambiguous,”[5] Complainant has not established that Respondent ever agreed to install an air handler for a nominal additional amount. Complainant has not established that Respondent ever guaranteed that the condenser it installed would work, even if the old air handler leaked and prevented the system from operating. Complainant admitted that he raised the same contract defenses in the justice court action that he asserts as statutory violations in this matter. “‘Under the doctrine of res judicata, a judgment on the merits in a prior suit involving the same parties or their privies bars a second suit based on the same cause of action.’”[6] Respondent sued Complainant for payment due for the work described in Proposal No. 6708. Here, Complainant seeks that penalties be assessed against Respondent’s license for alleged violations of Arizona’s contracting laws. Only the Registrar may penalize a contractor’s license, however, and “[t]he mere commission of a prohibited act is insufficient in and of itself to invalidate [a] license.”[7] Since the justice court did not and could not determine whether adverse action should be taken against Respondent’s license, the principle of res judicata does not bar this administrative complaint. Complainant admits that his preliminary defenses to the justice court complaint were the same as his complaint to the Registrar, namely, whether Respondent failed to complete a construction project for the price stated in the contract or abandoned the contract.[8] However, because no judgment was entered and because the parties did not offer into evidence any settlement, the Administrative Law Judge will not infer from Complainant’s choice to have the merits of his complaint determined by the Registrar that he waived or relinquished his claim by agreeing to settle Respondent’s justice court claim. Nonetheless, because the parties’ contract only obligated Respondent to replace Complainant’s condenser for a total contract price of $5,080.00, which it did, Complainant has not borne his burden to establish that Respondent violated A.R.S. § 32-1154(A)(1),[9] (7),[10] or (9).[11] With respect to the charged violation of A.R.S. § 32-1154(A)(13),[12] Respondent’s letterhead did not include its license number. Its proposal included the license number, but the number was not preceded by the acronym “ROC.” These violations are technical and do not support a substantial penalty, especially since the Registrar’s current record shows no other violations having been ever before found against Respondent. In this action, the Registrar simply should call the requirements of A.R.S. § 32- 1124(B) to Respondent’s attention and admonish it in the future to comply with these requirements. RECOMMENDED ORDER Based on the foregoing, it is recommended that the Registrar dismiss Case No. G07-11423 against Respondent’s A A C Gardner Inc. dba Yes Air Conditioning’s License No. 045860, Class C-39. If the Director of the Office of Administrative Hearings certifies this Administrative Law Judge Decision, the effective date of the order will be forty days from the date of certification. Done this day, March 17, 2008.

______________________________________ Diane Mihalsky Administrative Law Judge Original transmitted by mail this ____ day of March, 2008, to: Registrar of Contractors Fidelis V. Garcia, Director 3838 N. Central Ave., Ste. 400 Phoenix, AZ 85012-1906

By ___________________________ ----------------------- [1] See A.R.S. § 41-1092.07(G)(2); A.A.C. R2-19-119; see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [2] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [3] Black’s Law Dictionary at page 1220 (8th ed. 1999). [4] See, e.g., Shattuck v. Precision-Toyota, Inc., 115 Ariz. 586, 588, 566 P.2d 1332, 1334 (1977). [5] See, e.g., Smith v. Melson, Inc., 135 Ariz. 119, 121, 659 P.2d 1264, 1266 (1983). [6] Hawkins v. State of Arizona, Department of Economic Security, 183 Ariz. 100, 103, 900 P.2d 1236, 1239 (App. 1995) (quoting Gilbert v. Board of Medical Examiners, 155 Ariz. 169, 174, 745 P.2d 617, 622 (App. 1987); emphasis added). [7] Hunter Contracting Co. v. Sanner Contracting Co., 16 Ariz. App. 239, 243, 492 P.2d 735 (1972). [8] The Arizona Court of Appeals has held:

The doctrine of “collateral estoppel” is a doctrine of issue preclusion. It bars a party from relitigating an issue identical to one he has previously litigated to a determination on the merits in another action. The elements necessary to invoke collateral estoppel are: the issue is actually litigated in the previous proceeding, there is a full and fair opportunity to litigate the issue, resolution of such issue is essential to the decision, there is a valid and final decision on the merits, and there is a common identity of the parties.

Gilbert, 155 Ariz. at 169, 745 P.2d at 622 (quoted in Hawkins, 183 Ariz. at 103, 900 P.2d at 1239). [9] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license “[a]bandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.” [10] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license “[t]he doing of a wrongful or fraudulent act by the licensee as a contractor resulting in another person being substantially injured.” [11] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license “[f]ailure in a material respect by the licensee to complete a construction project or operation for the price stated in the contract, or in any modification of the contract.” [12] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license “[f]ailure in any material respect to comply with this chapter.” The specific statute violated is A.R.S. § 32-1124(B), which requires that licensed contractors to include their license number, which “shall be preceded by the acronym ‘ROC,’“on “all written bids submitted by the license and . . . on all advertising, loan forms, lending institution forms, letterheads and other documents used by the licensee in the conduct of business regulated by this chapter.”

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