ALJDEC decisions subject to certification as final

07F-M2066-ROC · Registrar of Contractors · 2008-04-14

STATE OF ARIZONA IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: March 24, 2008 APPEARANCES: Complainant: Roger and Nancy Hague appeared, pro per. Respondent: Joseph Perry, member and qualifying party, appeared and was represented by counsel, Daniel L. Miranda. ADMINISTRATIVE LAW JUDGE: Brian E. Smith _____________________________________________________________________ Evidence and testimony were presented and, based on the entire record in this matter, the following Findings of Fact, Conclusions of Law and Recommended Order are made:

FINDINGS OF FACT 1. This matter convened for hearing at the date, time and place set forth in this tribunal’s December 27, 2007 Order Granting Continuance. 2. At all times here relevant, Complainants Roger and Nancy Hague (“Complainants”) were the owners of a residence located at 22705 S. 174th Place, Gilbert, Arizona (“premises/project”). 3. Respondent Perrybuilt Construction LLC (“Respondent”) is a limited liability company which holds Arizona Contractor’s License No. 178610, Class B (General Residential) issued by the Registrar of Contractors (“ROC”) on September 23, 2002. Joseph Duncan Perry (“Perry”) is a member and the qualifying party for the license. A review of the licensing database maintained by the ROC indicates that this license was suspended October 3 through November 9, 2004 for lack of bond, October 1, 2004 through March 17, 2005 for nonrenewal and October 6, 2006 through January 17, 2007 for lack of bond. 4. Complainants filed a complaint with the ROC on April 24, 2007 to which they attached several pages of documents specifically referenced in paragraph 5 thereof including, without limitation, two (2) pages of “Itemized Complaints,” a contract and an original cost breakdown. In their Itemized Complaints, Complainants assert, inter alia, that Perry “told us he could build our house for $333,090 in 5 months [and] did neither.” Complainants further contend that Respondent “based our contract on an ‘educated guess’ without our knowledge,” that [Respondent] led them to believe that the costs set forth in the cost breakdown “were numbers based on actual bids and that the cost of constructing [the] house would indeed be his quoted price” and that the construction cost exceeded Respondent’s guess by $38,000.00.” Complainants further assert that, in order to sell the premises, they were required to pay Respondent “the full amount he claimed we owed him…[o]therwise, he refused to remove the lien he had on our house or sign the indemnity form for the title company and our house would have fallen out of escrow.” Complainants believe Respondent owes them “some of the money back.” 5. On August 24, 2007, the Registrar issued a CITATION AND COMPLAINT in Case No. M07-2066 charging Respondent with possible violations of A.R.S. §32-1154A 2, 7 and 9. 6. Respondent filed an answer on September 5, 2007 wherein it asserted general denial of all allegations. 7. At the hearing, Complainants Roger Hague (“R. Hague”) and Nancy Hague (“N. Hague”) testified and submitted Exhibits A and 4 which were marked, admitted and considered. 8. Perry testified on behalf of Respondent and submitted Exhibits 1, 2, 3, 6 -10, 13 and 18-22 which were marked, admitted and considered. Garret Hancock (“Hancock”) also testified on behalf of Respondent. 9. Sometime in early 2005, Complainants were approached by a friend, realtor Larry Phelps (“Phelps”), about building a “spec house” as an investment on land Phelps had located. At that time, Complainants expected to net $30,000.00 to $100,000.00 on this investment based on the then existing real estate market indications. 10. On June 11, 2005, Complainants entered into a Vacant Land/Lot Purchase Agreement (“Land Purchase Agreement”) for the premises. (Exhibit 2) On August 11, 2005, Complainants executed an Addendum 1 to the Land Purchase Agreement which corrected the address of the premises. (Exhibit 3) 11. On July 2, 2005, Complainants entered into a Basic Prime Contract Between Owner and Contractor (“Agreement”) with Respondent to construct the subject project. (Exhibit 4) The Agreement was Respondent’s form. 12. Section 6 of the Agreement is entitled “Payment (Stipulated Sum); Construction Lender Issues; Increases in Material Prices” and provides in pertinent part: “Owner will pay contractor the cost of construction, plus 12% [Twelve percent] for overhead and profit. The estimated sum of $333,090 [Three Hundred + Thirty Three Thousand and Ninety Dollars] in installments to be made at the times and in the manner shown on Exhibit ‘A’ To this Agreement, which, together with authorized Change Orders, additions or deletions, shall be the ‘Contract Price.’” (Emphasis in original) 13. On or about July 13, 2005, Respondent provided to Complainants for their signature an “Original Cost Breakdown” which set forth an itemization of the scope, and constituted part of, the Agreement. (Exhibit 18) 14. On or about August 25, 2005, Complainants executed a Construction Loan Agreement (“Loan Agreement”) whereby they designated the lender, Towne Bank of Arizona (“Lender”), as their attorney-in-fact and authorized the Lender to “directly pay the General Contractor and any subcontractors or other parties the sums due under the Construction Contract.” (Exhibit 8) 15. Construction of the project commenced in March 2006 approximately one week after the building permit was issued and was completed and sold in March 2007. 16. According to R. Hague, Respondent provided Complainants with cost spreadsheets periodically throughout the course of construction which appeared reasonable until the end of the project when Respondent presented a final accounting which reflected a Final Overage Charges to Respondent of $30,105.29. (Exhibit 18) 17. Respondent submitted draw requests throughout the course of the project for itself and on behalf of subcontractors and/or materialmen which were not objected to by the Lender and/or Complainants. R. Hague testified that Complainants did not dispute such requests because they were not aware that they were required to do so. 18. Complainants did not know to which line items Respondent applied the construction loan payments nor whether savings from overestimated costs were applied to underestimated cost items as asserted by Perry. 19. A factual dispute exists between the parties regarding whether any change orders occurred during construction. Complainants contend no changes were made to the plans with the possible exception of the air conditioning unit. Perry testified that several changes including, without limitation, the HVAC unit and/or additions such as utility trenching to connect a sewer line to the premises and a water meter cost were made which resulted in increase costs to the project. Perry further opined that increased costs on the project were the result of material shortages attendant to the adverse market at the time. 20. A dispute exists between the parties regarding the legal nature of the Agreement. Complainants assert that the Agreement is a “fixed price” contract which they contend Respondent based on “firm bids” it received from subcontractors and suppliers as represented by Perry. Complainants further assert that they based their loan amount on this fixed price contract and that Perry never explained the differences between a fixed price and cost plus contract. Conversely, Perry testified that, prior to executing the subject Agreement, he explained the differences between the two contract options to Complainants. Specifically, he noted that a bid contract would take several weeks to comprise due to the need to solicit bids from subcontractors and suppliers whereas a cost plus contract could be provided much sooner as it would be based on square footage and estimates from experience with other projects. Perry further testified that Complainants opted for the cost plus arrangement due to their time constraints and their need to get financing expeditiously. R. Hague acknowledged that Phelps was in a hurry to do the project and get the contract completed. 21. Complainants sold the home in March 2007 for significantly less than the expected $30,000 to $100,000.00 profit and believe Respondent should reimburse them most, if not all, of the $30,105.29 in costs over the Agreement amount. Perry testified that the approximate ten percent (10%) cost overage was reasonable for this type of project especially in then existing real estate market. 22. Respondent also asserts that Complainants waived their right to contest any construction draw payment due to their failure to assert such right within fourteen (14) days pursuant to A.R.S. Sec. 32-112.01(D) of the Prompt Pay Statutes.[1]

APPLICABLE LAW The CITATION AND COMPLAINT issued by the Registrar of Contractors in Case No. M07-2066 charged Respondent with possible violations of A.R.S. §32- 1154A 2, 7 and 9. Those statutory sections require that the holder of a license or person listed on the license shall not commit the following:

2. Departure from or disregard of plans or specifications or any building codes of the state or any political subdivision of the state in any material respect which is prejudicial to another without consent of the owner or his duly authorized representative and without the consent of the person entitled to have the particular construction project or operation completed in accordance with such plans and specifications and code. …

7. The doing of a wrongful or fraudulent act by the licensee as a contractor resulting in another person being substantially injured.

…

9. Failure 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.

CONCLUSIONS OF LAW 1. The Registrar of Contractors has jurisdiction over this matter pursuant to A.R.S. § 32-1101, et. seq., which authorizes the Registrar to impose disciplinary sanctions against licenses for violations of A.R.S. § 32-1154. 2. To warrant such sanctions by the Registrar, Complainant must demonstrate by a preponderance of the evidence that Respondent violated any one, or more, of the statutory sections cited. Proof by a “preponderance” means that “the evidence is sufficient to persuade the finder of fact that the proposition is more likely true than not.” In re Arnold and Baker Farms, 177 B.R. 648 (9th Cir. BAP (Ariz.) 1994). See also, Culpepper v. State of Arizona, 187 Ariz. 43, 930 P.2d 508 (App. 1996). It is “evidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not.” Black’s Law Dictionary 1182 (Rev. 6th ed. 1990). 3. The purpose of licensing Arizona contractors is to regulate the conduct of contracting and protect the public from unscrupulous acts. Beazer Homes Ariz., Inc. v. Goldwater, 196 Ariz. 98, 101, 993 P.2d 1062, 1065 (App. 1999); Better Homes Constr. v. Goldwater, 203 Ariz. 295, 300, 53 P.3d 1139 (App. 2002). The statutory purpose is to prevent unscrupulous or financially irresponsible contractors from deceiving and taking advantage of those who engage them to build. Sobel v. Jones, 96 Ariz. 297, 394 P.2d 415 (1964). 4. This tribunal determines and concludes that Complainants failed to establish by a preponderance of credible, probative and relevant evidence that Respondent violated A.R.S. §32-1154A (2). 5. It is also determined and concluded that Complainants failed to establish by a preponderance of credible, probative and relevant evidence that Respondent violated A.R.S. §32-1154A (9). It is well settled in Arizona that ambiguous contracts should be interpreted in favor of the non- drafting party (here, Complainants). In this instance, the Construction Agreement is, by its express terms, a “cost plus 12%” contract. Thus, notwithstanding their assertions to the contrary, Complainants failed to establish by the requisite weight of contrary evidence that the subject contract was a fixed price agreement. 6. This tribunal further determines and concludes that Complainants failed to establish by a preponderance of credible, probative and relevant evidence that Respondent violated A.R.S. §32-1154A (7).

RECOMMENDED ORDER On the basis of the foregoing, IT IS RECOMMENDED that the entire Citation and Complaint in Case No. M07-2066 be dismissed.[2] Done this day, April 14, 2008.

______________________ Brian E. Smith Administrative Law Judge

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

Registrar of Contractors Fidelis V. Garcia 3838 N. Central Ave., Ste. 400 Phoenix, AZ 85012-1906

By __________________________ ----------------------- [1] Respondent, by and through counsel, moved for summary disposition of this matter under the Prompt Pay Statutes, the “cost plus” contract and lack of evidence to support Complainants’ claims. Such motion were duly noted and denied. [2] 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 in this matter will be forty (40) days from the date of that certification.

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