ALJDEC decisions subject to certification as final

07F-G1982-ROC · Registrar of Contractors · 2008-03-26

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: March 17, 2008 APPEARANCES: Complainant Rick Ryan appeared on his own behalf. Joel Sannes, Esq. represented Respondent H B R Contracting, L.L.C. ADMINISTRATIVE LAW JUDGE: Sondra J. Vanella _____________________________________________________________________ The question presented by this matter is whether Respondent H B R Contracting, L.L.C. is subject to discipline for acts or omissions in violation of A.R.S. § 32-1154. Based upon the evidence of record, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law and Recommended Order. FINDINGS OF FACT 1. H B R Contracting, L.L.C. (“HBR”) is the holder of a Class KB-02 license (No. 176938) issued by the Registrar of Contractors (“ROC”). Charles Hutto is a member of HBR, and also its qualifying party. 2. On or about March 22, 2007, Complainant Rick Ryan purchased a piece of property on which was situated the “shell” of a home, an RV barn, and a guest house. Mr. Ryan, a pastor and a landscape contractor, purchased the property and buildings thereon from the LaVoies for $2.1 million. The transaction was financed by the LaVoies. According to Mr. Ryan, the LaVoies gave him $600,000.00; $300,000.00 was to be used to complete the construction project, and the remainder was to be paid to Mr. Ryan for landscaping the property, as well as to pay some of Mr. Ryan’s personal debt. Mr. Ryan intended to resell the property for a price of $3 million upon completion of the construction and landscaping. 3. Mr. Ryan and Mr. Hutto met several years ago through their church. Mr. Ryan moved away and then returned as the pastor of that church to which the Huttos continued to belong. The Ryans and the Huttos were good friends, dining with each other twice weekly, and Mr. Hutto and Mr. Ryan were “golfing buddies”. When Mr. Ryan acquired the property, he informed Mr. Hutto of the acquisition and asked him to come see the property. Thereafter, Mr. Ryan asked Mr. Hutto what needed to be done to complete the construction of the main house, the RV barn, and the guest house. At that point, the framing, rough electrical and rough plumbing had passed inspection. Drywall had been nailed to the interior of the main house, however, it had not been taped or textured, and the corner bead had not been installed. The drywall on the ceiling of the master bedroom and the rotundas had been poorly installed. The drywall on the rotundas was so poor that it needed to be completely removed and replaced. There were no appliances, fixtures, flooring, paint, doors, cabinets, or lighting, and the two two-car garages had not been drywalled nor had the insulation been installed, with the exception of the fire wall. The guest house had a ceiling and roof, and HVAC, and the plumbing was stubbed out; however, the walls had not yet been constructed. The RV barn, a structure that is twenty-five feet wide and seventy-five feet long, with a fourteen foot ceiling, had a roof and stucco installed, however, no drywall had been installed. 4. Mr. Ryan asked Mr. Hutto to go to Starbucks with him to discuss what it would cost to complete the project. Mr. Hutto had not taken any measurements and had only viewed the plans briefly. Mr. Hutto explained to Mr. Ryan that he was not in a position to give a bid and that he would be guessing at the costs, as Mr. Hutto had no experience in high-end residential construction. Mr. Hutto credibly testified that if he were going to bid the project, he would have gone room by room and listed exactly what needed to be done, the materials necessary to complete the work, and would have taken measurements and compared the plans with the measurements, and then he would have written a formal proposal, with allowances for appliances, fixtures, countertops, cabinets, plumbing, lighting, paint, and flooring. 5. According to Mr. Hutto’s credible testimony, during their discussion at Starbucks, Mr. Hutto and Mr. Ryan “grabbed numbers out of the air” and they arrived at a figure of $180,000.00, which they rounded to $200,000.00. Mr. Hutto credibly testified that he did not intend for that figure to be a bid. 6. Mr. Hutto credibly testified that a few weeks later, while playing golf with Mr. Ryan, Mr. Ryan received a phone call. After completing the call, Mr. Ryan stated to Mr. Hutto that he wished he had $5,000.00 to complete the purchase of the property. Mr. Hutto loaned Mr. Ryan $5,000.00 for this purpose, and Mr. Ryan has paid this amount back to Mr. Hutto. 7. Mr. Hutto credibly testified that a few weeks later, Mr. Ryan asked him to be the contractor for the project. Mr. Hutto responded that he would not do so because Mr. Ryan “would be a pain in the butt.” Mr. Ryan assured Mr. Hutto that he would stay out of the way, that he trusted him, and that God was leading Mr. Ryan to Mr. Hutto. Thereafter, Mr. Hutto and Mr. Ryan entered into a verbal cost plus 15% contract with a target budget of $200,000.00. Mr. Hutto credibly testified that the $200,000.00 figure was not mandatory and that Mr. Ryan had no objection to Mr. Hutto completing the project for 15% over cost, however, the parties did not execute a written contract because they were friends and Mr. Ryan was Mr. Hutto’s pastor. 8. On June 20, 2007, Mr. Ryan filed a complaint against HBR with the ROC alleging in pertinent part the following: The contractor is not fulfilling their contract to complete the house and guest house build-out for $200,000.00. They have gone over budget by nearly $150,000.00 (which was never approved by us) and they are refusing to do any more work on the property until all of the balance is paid. We only have a short time left on our building permit, and they have stopped all work on the project. They are blaming us for not providing plans or specifications for the job, but they never asked for that in the beginning. (We had no way of knowing that this was even needed!) We did provide them with all blueprints and plans for the house, and the plot plans. We also hired an interior decorator to work directly with the contractor to design the build-outs. They wrote a contract, bought a lot of material, paid subcontractors, and took over half the payments from us, all without the plans/specifications! Now they are saying they will not finish the project without them. We just want the build-outs to be completed, on time and within the budget!

9. The credible evidence of record established that Mr. Ryan entered into a cost plus contract with HBR for the completion of the project. The concept of a cost plus contract is one in which HBR would charge Mr. Ryan the actual cost of the construction plus a 15% fee. The credible evidence of record further established that the target budget for the project, including the 15% fee was $200,000.00. See Exhibit 2, notes from a May 10, 2007 meeting between Mr. Hutto and Mr. Ryan, wherein a $200,000.00 budget including contractor pay is referenced. (Emphasis added.) Notwithstanding Mr. Ryan’s assertion that he believed that HBR was contractually obligated to complete the project for a maximum of $200,000.00, regardless of the finishes chosen, neither party was bound by the budget. The credible evidence of record further established that none of the finish choices had been made at the time the parties entered into the cost plus contract, and that Mr. Ryan had hired an interior designer to obtain a “wow factor” as Mr. Ryan desired to re-sell the house for $3 million.[1] 10. Mr. Ryan has paid HBR approximately $133,000.00, and asserted at hearing that HBR overcharged him $40,000.00. Included in these alleged over-charges were tools purchased by HBR and well as excessive charges for drywall. Mr. Ryan testified that the main house was already drywalled. The credible evidence of record established that substantial drywall work remained to be done in the main house as well as in the RV barn. Mr. Hutto credibly testified that every corner in the main house had to be cut in order to install bull nose corners, as well as all of the door jambs, that several elevations in the rotundas and dining room had to be re-drywalled, both two-car garages had to be drywalled, and that the texturing of the drywall was labor intensive as it was an 80% flat finish. As such, the texturing had to be almost flawless as any imperfections would be visible when painted. Drywall work also had to be performed on the master bedroom ceiling and all of the niches, as well as the ceiling soffit in the kitchen, and two built-in shelving units. 11. Mr. Ryan submitted into evidence a report authored by Philip S. Coppola. See Exhibit 8. Mr. Coppola’s report is based upon an inspection of the property and information and documentation supplied by Mr. Ryan. Mr. Ryan acknowledged at hearing that although he supplied Mr. Coppola with the receipts and invoices he had in his possession at that time, such documentation was incomplete. The Administrative Law Judge finds, based upon the credible evidence of record, that by virtue of Mr. Ryan’s failure to have provided Mr. Coppola with complete information, Mr. Coppola’s report cannot be said to have any probative value. As such, the report was not considered in rendering this Decision. 12. Mr. Ryan testified that Mr. Hutto chose the finishes and had authority to overrule the decisions made by the interior designer. The Administrative Law Judge does not find Mr. Ryan’s testimony credible on this point, as there would have been no reason to hire an interior designer in the first place had Mr. Ryan intended for Mr. Hutto to choose the finishes. Further, Mr. Ryan was aware that Mr. Hutto lacked experience in the construction of high end homes and as such, would not have been adept at making such selections. 13. Mr. Ryan failed to provide any further evidence of the allegations contained in his filed complaint. 14. In its defense, HBR was able to demonstrate through credible testimony, as well as through documentary evidence, that the target budget of $200,000.00 changed after HBR received Mr. Ryan’s finish choices from Mr. Ryan’s interior designer. Mr. Hutto credibly testified that the interior designer chose expensive finishes such as 18” x 18” travertine tile and 6” x 18” TL bark wood look porcelain tile for the flooring. Mr. Hutto credibly testified hat he advised her to greatly reduce the flooring costs and try to find synthetic replacements. The interior designer stated that a “wow factor” was necessary in order to have the house stand apart from others in its price range. As such, she insisted on travertine tile. Mr. Hutto credibly testified that the tile design in the rotundas chosen by the interior designer required intricate tile cutting. Mr. Hutto received a bid from Wave Waterjet, Inc. for the cutting of the tile. See Exhibit M. That estimate was for $39,995.00. Id. Mr. Hutto decided it would be less expensive to purchase the necessary tile cutting equipment and have HBR perform the work rather than hire a subcontractor to perform the work. After discussing the options with Mr. Ryan, the parties decided that HBR should purchase the equipment for the job and could retain the equipment because Mr. Ryan was saving money by HBR performing the work in house. 15. Kathy Hutto, Mr. Hutto’s wife, is a member of HBR and its bookkeeper. Mrs. Hutto holds an accounting degree and is also an independent bookkeeper with seven additional clients. Mrs. Hutto corroborated Mr. Hutto’s testimony, in that she confirmed that in a conversation at Denny’s with her family and the Ryan family, prior to entering into the contract, she and her husband advised the Ryans that HBR did not have any experience with luxury homes and because of that HBR would not sign a contract for $200,000.00. Mrs. Hutto testified that she informed the Ryans that depending on their choices, the finish items alone could cost over $100,000.00. Mrs. Hutto further testified that Mr. Ryan requested receipts for the project on June 11, 2007. (Such request is not consistent with a fixed price contract, further corroborating the fact that the parties’ contract was cost plus.) Mrs. Hutto testified that she would often copy a receipt and attach it more than once to the invoices, depending upon where materials were allocated for the project. Mrs. Hutto would distinguish between the main house and the RV barn with different codes, i.e., the main house had the code of 1176 and the RV barn had the code 1177. See Exhibits G through L, invoices containing receipts that delineate the part of the project to which the costs are attributable. HBR also submitted into evidence copies of pay stubs and time cards for its employees. See Exhibit U. 16. Mrs. Hutto credibly testified that an additional $30,000.00 worth of materials, including the appliances, vanities, and plumbing fixtures, were delivered to the project and paid for by HBR after Mr. Coppola issued his report. As such, those materials could not have been taken into account by Mr. Coppola. This is yet another reason why the Administrative Law Judge gives no evidentiary weight to Mr. Coppola’s report. Mrs. Hutto credibly testified that as of June 18, 2007, Mr. Ryan owes HBR $32,720.09 plus tax and the 15% fee. 17. The Administrative Law Judge finds, based upon the credible evidence of record, that Mr. Ryan and HBR entered into a cost plus contract with a target budget of $200,000.00. The Administrative Law Judge further finds that HBR was not bound by the target budget and that the exceeding of the budget was solely attributable to Mr. Ryan’s finish choices via his interior designer. The Administrative Law Judge further finds that Mr. Ryan’s testimony regarding his expectations that HBR not exceed the $200,000.00 target budget to be unreasonable, not credible, and totally unsupported by the evidence presented at hearing. CONCLUSIONS OF LAW In this proceeding, Mr. Ryan bears the burden to prove, by a preponderance of the evidence, that HBR is subject to discipline for violations of A.R.S. § 32-1154(A)(1), (A)(7), (A)(9), and/or (A)(13) as charged by the ROC in its October 22, 2007 Citation and Complaint. See Arizona Administrative Code 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. Ryan has failed to meet his burden of proof as to all of the ROC’s 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 weight of the credible evidence of record failed to establish that HBR abandoned the contract or refused to continue to perform without legal excuse. Therefore, the Administrative Law Judge concludes that HBR did not violate A.R.S. § 32-1154(A)(1). 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 Administrative Law Judge concludes, based upon the credible, probative, and substantial evidence of record, that Mr. Ryan failed to establish that HBR failed to complete the project for an agreed upon contract price, as the parties’ contract was cost plus with a target budget of $200,000.00. The Administrative Law Judge concludes, based upon the credible evidence of record, that any increases in price were due to Mr. Ryan’s failure to stay within the allotted budget and his and the interior designer’s desire for items with a “wow factor”. Therefore, the Administrative Law Judge concludes that HBR did not violate A.R.S. § 32- 1154(A)(9). Under A.R.S. § 32-1154(A)(13), specifically, A.R.S. § 32-1124(B), contractors are 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. Mr. Ryan did not address this alleged violation. However, copies of HBR’s invoices were submitted into evidence by HBR (Exhibits G through J and L). Those documents do contain the letters “ROC” preceding HBR’s license number. In view of the foregoing, the Administrative Law Judge concludes that HBR is not in violation of A.R.S. § 32-1154(A)(13). 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 Mr. Ryan failed to establish that HBR committed a wrongful or fraudulent act resulting in substantial injury. Therefore, the Administrative Law Judge concludes that HBR did not violate A.R.S. § 32-1154(A)(7). The Administrative Law Judge concludes, based upon the weight of the credible evidence of record, that no grounds exist to impose discipline against HBR’s license. The ROC’s Citation in Case Number G07-1982, and the Complaint upon which it is based, should be dismissed. RECOMMENDED ORDER Based on the foregoing, the Administrative Law Judge makes the following Recommended Order: It is recommended that no discipline be imposed against HBR’s license, and that the Citation issued in Case Number G07-1982, together with the Complaint upon which it is based, be dismissed. 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, March 26, 2008.

______________________________________ Sondra J. Vanella Administrative Law Judge

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

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

By ___________________________

----------------------- [1] Mr. Ryan no longer owns the home as he sold it back to the LaVoies in a settlement.

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