ALJDEC decisions subject to certification as final

07F-M0184-ROC · Registrar of Contractors · 2007-01-31

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: January 22, 2007 APPEARANCES: Complainants John and Irene Szabo appeared on their own behalf. Derrick Gray and Jaime Wasden appeared on behalf of Respondent Gray’s Air Conditioning, Inc. ADMINISTRATIVE LAW JUDGE: Sondra J. Vanella _____________________________________________________________________ The issue presented by this matter is whether Respondent Gray’s Air Conditioning, Inc. 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 Gray’s Air Conditioning, Inc. (“Gray’s”) is the holder of a Class C- 39R license (No. 199573) issued by the Registrar of Contractors (“ROC”). Derrick Gray is Gray’s qualifying party. On or about July 5, 2006, Gray’s submitted a proposal to Complainants John and Irene Szabo to install a “new 5 ton heat pump package unit on new curb or with elbow (depending upon model selected). Includes new WHIP, disconnect, elbow and stand or roof curb, unit selected, digital thermostat.” See Exhibit 1. The proposal offered the Szabos a choice between five brand name units at varying prices. Id. The Szabos chose an AirEase by Lennox unit at a price of $3,190.00 plus tax. On July 13, 2006, Gray’s installed the new unit at the Szabos’ residence. The Szabos paid Gray’s in full. On that day, it took approximately nine hours to cool the house to 80 degrees. On July 14, 2006, the unit ran continuously for eleven hours with the thermostat set to degrees, and at times, the house did not cool to below 84 degrees. The Szabos contacted Gray’s and Mr. Gray inspected the unit. Mr. Gray informed the Szabos that the unit was not working properly because their ductwork was too small for the unit, and that installing an economizer could solve the problem. Mr. Gray was to return the following day to install an economizer, but failed to do so. The Szabos also discovered that Gray’s utilized the existing bracket and elbow during installation, rather than a new one as specified in the proposal. Because the unit was functioning improperly and because Gray’s had not installed a new elbow and stand, the Szabos stopped payment on their check and advised Mr. Gray that they would pay Gray’s when their unit was working properly. On July 21, 2006, Mr. Gray returned to the Szabos’ residence with a supplier and the Szabos and Mr. Gray agreed that Mr. Gray would return the following week to install more return air ducts at an additional cost of $215.00. The Szabos paid Gray’s $2,200.00 toward the original contract price. See Exhibit 13. On July 24, 2006, Gray’s contacted the Szabos and advised that it would not perform the agreed upon work unless the Szabos paid via cashier’s check the full contract balance and the additional $215.00. The Szabos informed Gray’s that they would pay the contract balance and the additional sum upon the completion of the work. Gray’s refused. On July 26, 2006, the Szabos filed a complaint against Gray’s with the ROC. In their complaint, the Szabos alleged the above delineated findings, as well as the following: i) Gray’s should have inspected the ductwork prior to installing the new unit in order to ensure that it was adequate to support the unit; and ii) Gray’s installed an “Armstrong” unit, not a “Lennox” unit as agreed upon by the parties and specified in the contract. The Szabos did not hear from Gray’s from July 24, 2006 until September 29, 2006, and the Szabos endured the hot summer months without a properly functioning air conditioning unit.[1] On July 28, 2006, the Szabos contacted Wolfgang’s Cooling and Heating Corporation (“Wolfgang’s”) to perform an inspection of the unit. Wolfgang’s found many problems with newly installed unit. Wolfgang’s also repaired a hole in the elbow and re-sealed the insulation in the blower compartment. See Exhibit 5. Wolfgang’s charged the Szabos $124.00 for its inspection and service work. Id. On July 31, 2006, Wolfgang’s sent a letter to the Szabos identifying, in more detail than on the service invoice, specific problems with the installation. See Exhibit 2. The more “obvious” problems were identified as follows: i. Condensate line has no trap; ii. Electrical conduit connections made with tape (potentially hazardous); iii. Duct elbow needs to be re-sealed or replaced; iv. The indoor coil slopes away from drain outlet; and v. Total system static seems too high (.7” WG at return alone). Id. On August 1, 2006, the Szabos’ newly installed air conditioning system failed inspection by the City of Scottsdale. See Exhibit 14. The inspection notice indicated that the “HVAC unit electrical conduit can not be taped together also thermostat wiring needs to be in a waterproof box.” Id. The Szabos submitted into evidence copies of photographs depicting the deficiencies with Gray’s installation. See Exhibits 4, 6, 8 through 11, 15, and 16. In a letter to the Szabos dated August 17, 2006, Wolfgang’s explained that a new stand and elbow would be part of the required corrective measures for the unit, as the existing stand is not properly sized for the new unit, and the existing elbow “had been converted from an “over/under” configuration to a “side by side” configuration to accommodate the new machine.” See Exhibit 3. Gray’s filed a small claims action against the Szabos for non-payment and that matter was dismissed as having been prematurely filed as the work was not yet complete. At hearing, the Szabos expressed concern that Gray’s had filed a lien on their property as they received a Twenty Day Preliminary Notice. See Exhibit 12. Mr. Gray testified that Gray’s did not utilize the stand and elbow it had ordered for the job because the pitch of the Szabos’ roof was different than he had originally thought. As such, Gray’s used the Szabos’ old stand and elbow in order to perform the installation. Mr. Gray had measured the Szabos’ roof pitch prior to ordering the necessary supplies, and as such, Mr. Gray is responsible for the incorrect measurements. Further, the credible evidence presented at hearing established that the Szabos’ existing unit was functioning and that they were not in any rush to have the new unit installed and could have waited for the correctly sized stand and elbow to arrive. Regarding the electrical work, Mr. Gray testified that Gray’s does not perform electrical work when installing HVAC units, it solely performs the disconnect to the unit. The Administrative Law Judge finds based on the credible evidence of record, that Gray’s failed to inform the Szabos at the time that it submitted its proposal, that it would not perform the required electrical work for a proper installation of the unit. The Administrative Law Judge further finds that as a properly licensed HVAC contractor, Gray’s is able to perform the limited scope of electrical work as allowed pursuant to its license classification, and must do so in order to properly install the Szabos’ unit. Should Mr. Gray not feel comfortable in doing so, it is incumbent upon him to hire a properly licensed electrical contractor to perform such work. Regarding the type of unit installed, Mr. Gray testified that his supplier told him that the unit was a “Lennox” unit and that he is unfamiliar with “AirEase” as he does not install many. Mr. Gray testified that Gray’s is willing to change out the elbow and stand, repair the condensate drain, install 20” flex duct and charge the Szabos for materials only. Mr. Gray testified that the electrical code violations were pre-existing, and as such, Gray’s is not responsible for them. The Administrative Law Judge disagrees. Had Gray’s discovered electrical code violations upon its installation, it was incumbent upon Gray’s to bring such violations to the Szabos’ attention, and Gray’s did not do so. Further, the Administrative Law Judge finds that by proceeding to install the new HVAC unit, Gray’s had effectively accepted the surface/condition of the electrical as being adequate to support its work, especially in light of the fact that Gray’s was aware of the existing imperfections in the electrical, as attested to by Mr. Gray. Upon contracting to install a new HVAC unit, and in conjunction therewith guarantee its workmanship, a contractor accepts the surface as being adequate to support its work. Mr. Gray testified that a lien was not placed on the Szabos property and that Gray’s has paid its supplier on the Szabo job and that Gray’s will supply to the Szabos a lien waiver and release form that was executed by Material Supply, Inc., Gray’s supplier. Gray’s acknowledged that the installation is incomplete, but contended that the Szabos have not given Gray’s access to perform the work. The Administrative Law Judge finds this testimony to be less than credible and contrary to the credible evidence of record, as that evidence demonstrates that Gray’s refused to perform the remainder of the necessary work until paid in full (see Exhibit 17, Gray’s phone log) and that Gray’s has filed two separate small claims actions against the Szabos to recover payment despite the fact that the work is not yet complete. Gray’s did not contact the Szabos for two months, and when it finally decided to do so after its first small claims suit had been dismissed, gave the Szabos two weeks to respond. Notwithstanding having been informed by the Szabos that Mr. Szabo had been hospitalized during that two week period, and that the Szabos fully intended to respond, and actually did respond at the end of that two week period, Gray’s filed its second small claims suit against the Szabos. The Administrative Law Judge finds that Gray’s performed substandard and improper work during its installation at the Szabo residence, that Gray’s installed a unit different than that agreed upon by the parties, and that Gray’s has not acted in good faith to resolve its deficiencies. CONCLUSIONS OF LAW In this proceeding, the Szabos bear the burden to prove, by a preponderance of the evidence, that Gray’s is subject to discipline for violations of A.R.S. § 32-1154(A)(1), (A)(2), and/or (A)(7) as charged by the ROC in its September 27, 2006 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 the Szabos met their 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 Administrative Law Judge concludes, based on the weight of the credible evidence of record, that Gray’s has failed to complete the project that it contracted to perform without legal excuse for such failure. Therefore, the Administrative Law Judge concludes that Gray’s 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 or any building codes . . . in any material respect which is prejudicial to another without consent of the owner . . .” The credible evidence of record established that Gray’s departed from plans and specifications and codes by failing to properly install a Lennox AirEase unit as specified by the parties’ contract, and by further failing the City of Scottsdale inspection for electrical code violations as they pertain to the installation of the HVAC unit. Therefore, the Administrative Law Judge concludes that Gray’s violated A.R.S. § 32-1154(A)(2). 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 Gray’s committed wrongful acts that substantially injured the Szabos by failing to complete the project, by failing to properly install a Lennox AirEase air conditioning unit, and by failing to perform its work in a professional and workmanlike manner, resulting in code violations. Therefore, the Administrative Law Judge concludes that Gray’s violated A.R.S. § 32-1154(A)(7). Based on the foregoing, it is appropriate for the ROC to impose discipline against Gray’s Class C-39R license. The ROC’s September 27, 2006 Citation and Complaint advised Gray’s that in the event of a finding of a violation against it, Gray’s prior disciplinary record of final ROC orders could be considered in mitigation or aggravation. Accordingly, subsequent to the conclusion of the instant hearing, the Administrative Law Judge took notice of prior final disciplinary orders against Gray’s in the ROC’s official records. Those records revealed that Gray’s has not been the subject of any prior disciplinary orders in the past two years. The Administrative Law Judge considered this record in connection with determining the disciplinary penalties to be imposed against Gray’s as a result of this case. Upon consideration of all of the facts and circumstances presented by this case, the Administrative Law Judge concludes that the ROC should revoke Gray’s Class C-39R license. 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 Gray’s license without providing a condition to reduce or eliminate same. Upon consideration of all of the facts and circumstances presented by this case, the Administrative Law Judge concludes that the ROC should revoke Gray’s Class C-39R license subject to the condition that Gray’s can avoid such revocation by hiring at Gray’s sole expense, a properly licensed contractor to properly and completely install a Lennox AirEase HVAC unit resulting in the proper functioning of the unit, and by paying to the Szabos the sum of $124.00, representing the amount the Szabos paid to Wolfgang’s for its inspection and service of the unit. RECOMMENDED ORDER In view of the foregoing, it is recommended that Gray’s Class C-39R license shall be revoked on the effective date of the Order entered in this matter. It is further recommended that if Gray’s hires at its sole expense, a properly licensed contractor to properly and completely install a Lennox AirEase HVAC unit at the Szabos’ residence resulting in the proper functioning of the unit, and pays to the Szabos the sum of $124.00, on or before the effective date of the Order entered in this matter, then the above-provided license revocation shall not take place but instead Gray’s Class C-39R license shall be placed on active suspension for a period of fourteen (14) days followed immediately by a period of disciplinary probation for one year. This alternative penalty shall commence, if at all, on the effective date of the Order entered in this matter. It is further recommended, if the alternative penalty is applicable and in addition to the above-provided alternative disciplinary penalties, that any restoration of Gray’s contracting rights, whether or not probationary, shall be subject to a condition that Gray’s first post an additional surety bond, cash deposit or alternative deposit for a period of twenty-four (24) months, including future renewal periods, in the amount of $1,500.00, such bond or deposit to be in addition to the required surety bond or cash deposit set forth in A.R.S. § 32-1152(D). Cash or alternative additional deposits, if utilized, shall be returned only after the expiration of an additional two year period following the above-provided twenty-four (24) month period and only if no claims are then pending. 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, January 31, 2007.

______________________________________ Sondra J. Vanella Administrative Law Judge

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

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

By ___________________________

----------------------- [1] Mr. Szabo is 80 years old and Mrs. Szabo is 70 years old.

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