ALJDEC decisions subject to certification as final

07F-S0252-ROC · Registrar of Contractors · 2008-05-05

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 24th, 2008; 9:00 a.m. APPEARANCES: Complainant, Mr. Arthur J. Schroeder, represented himself. Respondent, Sherman Brothers Construction, LLC, was represented by Mr. Garrett Sherman, Member. ADMINISTRATIVE LAW JUDGE: Grant Winston _____________________________________________________________________ The administrative hearing of this matter was held in the Office of Administrative Hearings, Tucson. Testimony was heard and other evidence admitted to the record, and, based on the entire record, the following Findings of Fact, Conclusions of Law and Recommended Order are made. FINDINGS OF FACT 1. Respondent, Sherman Brothers Construction, LLC, is, and during all time material hereto was, a contractor licensed by and doing business in the State of Arizona, holding Class KB-02 License number 229297. 2. This a residential matter concerning the Complaint filed in the Arizona Registrar of Contractors office by the Complainant, Mr. Arthur J. Schroeder, on or about June 13th, 2008. The gravaman of the Complaint is that Respondent abandoned the parties’ construction contract or refused to perform the agreed construction after having submitted a bid on the work, to Complainant’s great financial detriment. 3. Complainant and his wife were planning to purchase land in Cochise County, Arizona, and thereon build their retirement home. 4. Complainant entered into a purchase contract for the land in March of 2007, and put up earnest money of $5,000.00 toward the land purchase amount of $115,500.00. The land purchase contract had a hard closing date of June 15th, 2007. 5. Complainant sent out written request for bids on the home construction on April 10th, 2007. In the request for bids, Complainant asked the contractors to build using the floor plan provided, and stipulated that all bids must be on a strict cost per square foot basis, with a start and end date. The bid went on to advise potential bidders not to bid if they needed detailed design plans. 6. Respondent had no problem with the request for bid as it was, and on April 24th, 2007, submitted its bid to Complainant at the price of $105.00 per square foot for 2,158 square feet, a total amount of $226,590.00. 7. On April 27th, 2007, Complainant notified Respondent in writing that Complainant accepted Respondent’s bid as submitted. The acceptance noted the Respondent’s bid’s start date for construction of June 15th, 2007, and end date for construction of October 15th, 2007. Complainant requested a written contract at that time. 8. Problems began on May 1st, 2007, when Respondent sent a fax to Complainant noting that when bidding on the project, Respondent had missed some numbers, and there are too many variables to deal with, not having the more detailed set of plans. Therefore, according to Respondent as stated in the same fax, Respondent was not going to be able to build Complainant’s new home according the bid that had been submitted by Respondent and accepted by Complainant. Respondent did offer to build the home on a cost- plus-15% basis, an arrangement unacceptable to Complainant. 9. Respondent reneging on its bid put Complainant in a difficult bind. He was facing a hard closing date on the land purchase of June 15th, or forfeiture of his $5,000.00 earnest money. Since he was not interested in a cost(plus-15% contract with Respondent, he was facing the prospect of finding another contractor. 10. Complainant first tried to adjust to the predicament by obtaining financing for the land only, but was told by his lending institution that it does not make land only loans. Complainant then was forced to purchase the land only by means of a line of credit at a substantially higher interest rate in order to meet the closing date, and then seek other contractors to build the home. 11. Complainant eventually contracted with another licensed contractor to build the home, at a higher price than the Respondent’s bid by $66,942.00, and at financing at a considerably higher interest rate, 6.25% per annum versus 7.125% per annum. 12. Complainant argues that all told, including the higher construction amount, and higher interest rates on the loans for the land and construction, he will have to pay an additional sum for the land and home of $134,408.74. However, a great deal of this difference, sought by Complainant as restitution, is based on the life of the loans and interest paid throughout their lives. They are a 30-year mortgage on the home and a 20-year land loan. One can only speculate how much of that interest will actually be paid, depending on how long Complainant keeps the house and lot, or how soon he might sell, or other eventualities. These amounts enter into the realm of damages which should be more properly resolved in a civil court of competent jurisdiction. 13. Nevertheless, the hard cost Complainant is being forced to absorb includes the $66,942.00 difference in the construction amount of the second contractor’s bid as opposed to the bid of this Respondent. 14. Respondent’s position has been that since there was no written contract ever signed after the bid and acceptance of the bid, it is not liable for any restitution to Complainant. 15. Considering the fact that this Respondent is a newly licensed contacting concern, and this contract was its first, there is a low likelihood that Respondent can pay any substantial sum to Complainant as restitution. However, as a condition of its continued licensure, it should be ordered to pay Complainant the $66,942.00. 16. Notice is taken of Respondent’s prior license record, with the Arizona Registrar of Contractors. CONCLUSIONS OF LAW 1. This administrative hearing was held under authority of and pursuant to A.R.S. 32-1156, and A.R.S. 41-1092. 2. Respondent is charged in the instant Citation and Complaint with possible violations of A.R.S. 32-1154.A.1, and 7. 3. The evidence is clear that Respondent did refuse to perform after submitting a bid without legal excuse in violation of A.R.S. 32- 1154.A.1. 4. There is no evidence of any violation of A.R.S. 32-1154.A.7 independent of the violation of A.R.S 32-1154.A.1. There is no evidence that Respondent was trying to defraud Complainant, but made a serious mistake based in lack of experience. 5. A.R.S. 32-1156.01 allows for an Administrative Law Judge to order restitution as a condition of continued licensure. In this case it appears that restitution of $66,942.00 is warranted. Additional sums for damages must be sought in a civil court of competent jurisdiction. RECOMMENDED ORDER In view of the foregoing Findings of Fact and Conclusions of Law it is hereby recommended that Respondent’s Class KB-02 License number 229297 be revoked on the effective date of this Order. It is further recommended that in the event the Registrar of Contractors receives written proof that Respondent has made restitution to Complainant in the amount of $66,942.00, on or before the effective date of this Order (40 days after the date of service appearing on the Registrar’s certification on the Order), then the above-provided license revocation shall not occur, and Citation and Complaint No. S07-0252 shall be closed. In the event of certification of the Administrative Law Judge’s Decision and Order by the Director of the Office of Administrative Hearings, then the effective date of the Order shall be 40 days after the date of that certification. Done this day, May 5th, 2008.

______________________________________ Grant Winston 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 ___________________________

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