ALJDEC decisions subject to certification as final

07F-M0418-ROC · Registrar of Contractors · 2008-11-03

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: October 15, 2008 APPEARANCES: Complainants Brian and Kari Mills appeared on their own behalf. James Kauffman appeared on behalf of Respondent J K Home Builders, Inc. ADMINISTRATIVE LAW JUDGE: Sondra J. Vanella _____________________________________________________________________ The question presented by this matter is whether J K Home Builders, 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 J K Home Builders, Inc. (“JK”) is the holder of a Class KB-01 license (No. 143663) issued by the Registrar of Contractors (“ROC”).[1] James Kauffman is JK’s qualifying party and corporate officer. In or about February 2006, Complainants Brian and Kari Mills purchased their home from an investor who advised them that the builder of the home was Caliber Holding Company, L.L.C. (“Caliber”). The Mills contacted Caliber numerous times regarding several complaints they had with the home. The Mills were dissatisfied with Caliber’s response to the complaints, and as such, they decided to file a complaint with the ROC. While researching Caliber’s license information in order to file their complaint, the Mills discovered that Caliber was not a licensed contractor, and was utilizing JK’s license. A review of the ROC’s official licensing records revealed that Caliber’s license was issued on August 22, 2005, and that Michael Lichtie is Caliber’s qualifying party and member. The credible evidence of record established that the construction of the Mills’ home was ongoing prior to Caliber obtaining its license. On August 16, 2006, the Mills filed a complaint against JK with the ROC, alleging workmanship deficiencies in the construction of their home, specifically with the HVAC system, including a blocked vent in one of the rooms, lack of a vent in one of the bathrooms, insufficient cooling of the basement, an out of balance upstairs system, and a high pitched noise emanating from one of the outside units. The Mills also complained of a failed sewer ejector pump in the basement, resulting in a flood and corollary damage therefrom, and missing grout on the kitchen counter tops. On October 25, 2006, the Mills filed a second complaint against JK with the ROC, alleging the following: 1. Problems with air conditioning and ventilation systems (reported on original complaint dated 8/10/06) 2. Repairs needed from sump pump failure (reported on original complaint dated 8/10/06) 3. Missing grout on kitchen counter tops (reported on original complaint dated 8/10/06) 4. Basement walls that leaked water during monsoon storms 5. Sloped floor in bedrooms on main level 6. Missing stucco (wire and Styrofoam visible, noted around window pop- outs) 7. Gaps or cracks around windows

ROC Inspector Dennis Cook investigated the Mills’ complaint. On October 26, 2006, Inspector Cook conducted a jobsite inspection. Present for the inspection were Ms. Mills, and Rhonda Woodward, customer service representative for Caliber.[2] On December 8, 2006, following the jobsite inspection, Inspector Cook issued a Corrective Work Order (“CWO”) under which the ROC gave JK 15 days to take corrective action with respect to the complaint items as follows: Contractor to make the following corrections by appropriate means:

1. Correct the nonfunctioning bedroom A/C vent. 2. Re-install baseboards ands (sic) correct flooring in the basement room containing the sewer ejection pump. 3. Correct voids between kitchen countertop and backsplash. 4. Correct all leaks at basement, including window wells ands (sic) plumbing penetrations. 5. Bedroom floors could not be confirmed to be sloped beyond the allowable tolerance and no correction is required. 6. Correct stucco and touch up paint at all locations where wire and Styrofoam are visible.

Other items listed in the complaint could not be confirmed at the jobsite inspection and no correction is required at this time.

Inspector Cook testified that the ROC has received many complaints from homeowners in the Mills’ subdivision, as well as other subdivisions that have ties to both Caliber and JK. Inspector Cook testified that Rhonda Woodward, an employee of Caliber attended the jobsite inspection, notwithstanding the fact that all correspondence from the ROC was sent to JK. Inspector Cook further testified that upon researching the builder of the Mills’ home, he discovered that JK is the contractor of record on the building permit. Inspector Cook testified that at the jobsite inspection, he could not confirm that the floor was out of level on the main level of the home, however, at the pre-hearing inspection conducted on October 7, 2008, at which only Ms. Mills was present, the carpet was pulled up in one area allowing him access to inspect the subfloor. Based upon this inspection, it is now his opinion that the floors are out of level and are beyond the allowable standards. Inspector Cook also testified that the flooring in the basement mechanical room has not been corrected, that there is minor moisture staining around the window wells in the basement, and that the carpet and padding had been pulled back from the subfloor, and that the OSB deck had obviously been wet as the joints were peaked and swollen. Inspector Cook opined that the OSB decking had gotten wet during construction and was used despite the water damage to it. Inspector Cook testified that the Mills had the air conditioning issues corrected on their own, and that they have had gutters installed at their own expense to help channel water away from the house, however, no work has been performed by JK to alleviate the water infiltration into the basement. Inspector Cook explained that the window wells in the basement are deep and that if not properly installed, will cause leaking to occur. Inspector Cook testified that this has been a common problem in the Mills’ subdivision. Ms. Mills testified that the outstanding issues are: i) the water intrusion into the basement; ii) the out of level floors; and iii) the failure to replace the flooring in the mechanical room. Ms. Mills submitted into evidence copies of photographs depicting the out of level floor (Exhibit 2), the water intrusion into the basement (Exhibit 6), and the condition of the mechanical room floor (Exhibit 4). Ms. Mills also submitted into evidence a copy of the contract with SunValley Guttering, in the amount of $2,262.98, which the Mills paid to have gutters installed in an effort to alleviate some of the potential for flooding. See Exhibit 8. Ms. Mills further submitted into evidence copies of screen prints from the City of Mesa website that indicate that JK is the contractor of record for her home. See Exhibit 5. Ms. Mills testified that JK did not allege that it did not construct her home until August 29, 2008, over two years after she filed the ROC complaint. Mr. Kauffman testified that he is a retired contractor, however, “his finance man” knew Mr. Lichtie of Caliber, and told him that Caliber was in need of a contractor in order to be able to construct homes until Caliber’s license was issued by the ROC. On April 26, 2005, JK entered into an agreement with Caliber as follows: This agreement is between Deseret Sky Development LLC, Caliber Holdings, and J-K Home Builders Inc. J-K Builders has agreed to construct the homes in Salerno Ranch (Mesa) and Roman Estates (Queen Creek) and be the contractor of record for permit purpose. This agreement is for 90 days unless otherwise agreed to by both parties. This agreement is for the purpose of allowing Deseret Sky Development, LLC to obtain its license and become the builder. A fee of $5,000.00 will be paid immediately and an additional $500.00 will be paid for management of each permit obtained for the project referenced above.

See Exhibit A.

On May 2, 2005, JK and Caliber/Deseret executed a contract that specifies in pertinent part, that Caliber owns the property on which the Mills’ house, as well as the others in that subdivision, as well as another subdivision, was constructed and that JK is the contractor for all such construction. See Exhibit A. Mr. Kauffman acknowledged entering into the above-described contract with Caliber, however, testified that after the expiration of the 90 day period, he could not contact Mr. Lichtie of Caliber, and that he was unable through the City of Mesa, to remove JK’s name from the permits, and that he could not afford to retain an attorney to aid in such process. Mr. Kauffman blamed the ROC for not putting a stop to Mr. Lichtie’s actions, and testified that he “got caught in a trap” and that he was “just trying to be a nice guy for 90 days”. Because the issue of whether JK is responsible for the construction of the Mills’ home is a threshold issue in this case, the Administrative Law Judge addresses that issue first. At hearing, Mr. Kauffman argued that JK was not responsible for the performance of any corrective work because it is not responsible for the construction of the Mills’ home. In contrast to the foregoing, the building permit lists JK as the contractor or record, and Mr. Kauffman acknowledges that he entered into a contract with Caliber allowing Caliber to utilize his contracting license. Therefore, the credible evidence of record established that Caliber was authorized to work under JK’s contracting license. The credible evidence of record further established that Mr. Kauffman knew or reasonably should have known of Caliber’s business dealings and contracting activities given the contract he executed with Caliber. Mr. Kauffman’s claimed ignorance of Caliber’s activities due to a lack of communication between him and Mr. Lichtie does not relieve JK of the responsibility for the construction activities taking place under JK’s license. Therefore, the Administrative Law Judge finds that the Mills properly filed their complaint against JK, the licensed entity responsible for the construction of their home. Having found that JK is responsible for the construction of the Mills’ home, the Administrative Law Judge addresses the merits of the Mills’ complaint. At the time of hearing, Mr. Kauffman did not dispute any of the deficiencies ordered to be repaired pursuant to the CWO or Inspector Cook’s opinion at hearing based upon his pre-hearing inspection, that the floors are out of level, and are in need of corrective work, however, Mr. Kauffman contended that JK is not responsible for such work because JK did not actually construct the home. The Administrative Law Judge finds that the home was constructed with the knowledge and permission of JK, and that as the contractor of record, JK is responsible for the construction of the home, as well as any resulting deficiencies in that construction. The Administrative Law Judge finds, based on the weight of the credible evidence presented at hearing, that in addition to the items delineated in the CWO, JK is responsible for the out of level floors. CONCLUSIONS OF LAW 1. In this proceeding, the Mills bear the burden to prove, by a preponderance of the evidence, that JK is subject to discipline for violations of A.R.S. § 32-1154(A)(3), (A)(7), and/or (A)(23), as charged by the ROC in its August 7, 2008 Citation and Complaint. See Arizona Administrative Code (“A.A.C.”) Rule 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). 2. The Administrative Law Judge concludes that the Mills met their burden of proof as to all three of the ROC’s charges. 3. 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 JK 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 that the Mills demonstrated that portions of the work performed at their home were not performed in a professional and workmanlike manner, as evidenced by the out of level flooring, the water intrusion into the basement caused by the leaking window wells, and the damaged flooring in the mechanical room. Therefore, the Administrative Law Judge concludes that JK violated A.R.S. § 32-1154(A)(3). 4. 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.” Based upon the credible evidence of record, the Administrative Law Judge concludes that no valid justification existed for JK’s non-compliance with the CWO that was issued by the ROC. Therefore, the Administrative Law Judge concludes that JK is in violation of A.R.S. § 32-1154(A)(23). 5. 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 that JK committed wrongful acts that substantially injured the Mills by allowing its license to be utilized by an unlicensed individual/entity for the construction of their home, by its failure to perform the work at the home in a professional and workmanlike manner, and by its failure to comply with the CWO. Therefore, the Administrative Law Judge concludes that the Mills established that JK violated A.R.S. § 32-1154(A)(7). 6. Based on the foregoing, it is appropriate for the ROC to impose discipline against JK’s license. 7. Upon consideration of all of the facts and circumstances presented by this case, including JK’s revoked license status, the Administrative Law Judge concludes that the ROC should revoke JK’s Class KB-01 license. RECOMMENDED ORDER In view of the foregoing, it is recommended that JK’s Class KB-01 license (no. 143663) shall be revoked on the effective date of the Order entered in this matter. 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 forty (40) days from the date of that certification.

Done this day, November 3, 2008

______________________________________ Sondra J. Vanella Administrative Law Judge

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

Armando Contreras, Director Registrar of Contractors 3838 North Central Avenue Phoenix, AZ 85012

By ___________________________

----------------------- [1] A review of the ROC’s official records revealed that JK’s contracting license was suspended on March 7, 2008 in Case Number M07-0682, and revoked on April 11, 2008 in Case Number M06-1953. Such suspended and revoked license status does not preclude this tribunal from conducting these administrative proceedings. A.R.S. § 32-1154(C).

[2] The ROC issued the notice of jobsite inspection to JK, not Caliber.

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