ALJDEC decisions subject to certification as final

08F-3521-ROC · Registrar of Contractors · 2009-03-25

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: March 17, 2009 APPEARANCES: Benito Gurule, Owner of BGP Painting appeared in his own behalf. Lou Marson, Managing Member, appeared for the Respondent. ADMINISTRATIVE LAW JUDGE: Allen Reed _____________________________________________________________________ Findings of Fact 1. The essential facts of the case are not in dispute. 2. In July 2007, the parties entered a contract whereby the Complainant, a painting subcontractor, was to paint 41 homes being constructed by the Respondent general contractor in the South Mountain region of Phoenix, Arizona. The total contract amount was $200,128.00. 3. Paragraph 8(c) of the contract provides that “Upon receipt of payment from the owner, the Contractor shall schedule release of funds.” 4. The Complainant began performance pursuant to the contract. During the course of working on the project, the Respondent began making only partial payments for work performed by the Complainant who worked until the end of December 2007, at which time the Complainant received his last payment from the Respondent. The Complainant had completed 14 of the 41 homes but stopped working because of the Respondent’s failure to pay for completed work. The Respondent had paid the Complainant approximately $35,000.00 to this point.[1] 5. The Complainant testified he is owed an additional $34,130.75. The Respondent did not dispute the amount or legitimacy of the Complainant’s claim. 6. The Respondent’s Qualifying Party and Owner, Louis Marson (Marson), was also a Managing Member of Dobbins Central LLC (Dobbins LLC) which was the developer of the South Mountain project. 7. Dobbins LLC failed to satisfactorily service its loan from National Bank of Arizona, the lender on the project, and the bank foreclosed on the property in the latter part of 2008. It is uncertain if portions or all of the property has been sold at a foreclosure sale. 8. Marson testified that Dobbins LLC is in the process of dissolving and that it has no assets. Marson further testified that the Respondent has receivables in the amount two million dollars, but those amounts are owed by Dobbins and a second limited liability company, River Elks LLC, which is also insolvent. According to Marson, the Respondent corporation has no financial, realty, equipment, or any other form of assets or resources with which to pay the Complainant.[2] 9. Based on the evidence, the Respondent has not received payment for the work performed by the Complainant, nor is there evidence that the Respondent has the ability to pay the Complainant.[3] Conclusions of Law The Citation and Complaint alleges violations of A.R.S. §32- 1154(A)(7), a wrongful act with substantial injury, and (11), failure to pay for material or services related to contracting in excess of $750.00. 1. The Complainant has the burden of proof, and the standard of proof on all issues is by a preponderance of the evidence. Vazzano v. Superior Court, 74 Ariz. 369, 249 P.2d 837 (Ariz. 1952); Culpepper v. State, 187 Ariz. 431, 930 P.2d 508 (App. 1996). 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). 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 (6th ed. 1990). 2. The evidence in an administrative hearing must be “substantial, reliable and probative” (A.R.S. §41-1092.07(F)(1)). This means the Complainant has the affirmative responsibility to present sufficient competent evidence to meet the preponderance standard. 3. “Substantial evidence is evidence possessing something of substance and relevant consequence and which furnishes substantial basis of fact from which issues tendered can be reasonably resolved.” Black’s Law Dictionary, Special Deluxe Fifth Edition, (St. Paul Minn.: West Publishing Co., 1979) p. 1281, citing State v. Green, 218 Kan. 438, 544 P. 2d 356, 362. 4. The Respondent argued that the contract between the parties contains a “pay when paid” clause and since the Respondent has not been fully paid on the project it relieves the Respondent of the obligation to pay the Complainant until such time as the Respondent is paid. 5. In L. Harvey Concrete v. Agro Construction and Supply Company, 189 Ariz. 178 (App. 1997), the Arizona Court of Appeals addressed the contractual pay when paid issue and whether payment by the entity for whom the work is performed is a condition precedent to payment to the subcontractor for the work performed. That case involved an owner (the State), a contractor, and a subcontractor. The subcontract contained a pay when paid clause similar to the clause cited in the General Conditions. The Court acknowledged that: “…conditions precedent are not favored in the law and that courts are not inclined to construe a contract provision as a condition precedent unless such construction is plainly and unambiguously required by the language of the contract.”

6. In the Harvey Concrete v Agro case, the Court noted that in order to transfer the normal credit risk incurred by the general contractor, the contract between the general contractor and the subcontractor “…should contain an express condition clearly showing that to be the intention of the parties.” The court goes so far as to state that the contract language must demonstrate the “unequivocal intent” of the parties that payment is to be made from a specific fund. 7. In this case, the Complainant testified he was unaware of the pay when paid provision. Although a party to a contract is generally charged with the knowledge of the terms contained therein, the Court in Harvey Concrete v Agro stated that such a provision is not favored unless, “… such construction is plainly and unambiguously required by the language of the contract.” In the instant case it is apparent the Complainant did not express an “unequivocal intent” to be bound by a “pay when paid provision.” 8. However, based on the facts as set forth above, the Respondent has not been paid [4] for the all of the work performed by the Complainant, nor is the Respondent capable of making payment to the Complainant. Although the statutory limitations of ARS §32-1154(A)(11) would not apply in a civil proceeding, these statutory limitations apply in the instant administrative case[5]. 9. The evidence does not allow for a violation of ARS §32-1154 (A)(11). Nor does the evidence show an independent wrongful act. The substantial injury in this case is the financial injury to the Complainant. However, if under ARS §32-1154 (A)(11), the Respondent may present the defense of non payment or inability to pay, reason and logic require that the same defense applies to the alleged violation of ARS §32-1154 (A)(7) absent independent facts which would constitute the wrongful act.[6] 10. Although the conclusions in this case result in no violation being found under the cited ROC statutes, the conclusions do not relieve the Respondent of the legal obligation to pay the Complainant the amounts owed, nor does it relieve the Respondent of the continuing requirement to pay the Complainant to the extent that the Respondent may in the future receive funds or otherwise have a capacity to pay the Complainant any portion of the amounts owed. Recommended Order It is recommended that the Citation and Complaint upon which it is based be dismissed.[7] Done this day, April 1, 2009

______________________________________ Allen Reed Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 2009, to:

William A. Mundell, Director Registrar of Contractors c/o Legal Department 3838 N. Central Ave. Phoenix, AZ 85012

By ___________________________

----------------------- [1] The Complainant received an additional $1,000.00 from a Mark Richman in February 2008. Richman was a Co-Managing Member with the Respondent’s Owner, Louis Marson, in Dobbins Central LLC which was the developer of the project. [2] A detailed description of the economic downturn, most noticeable in real estate, construction, and financing, is unnecessary for the instant decision. [3] The Administrative Law Judge (ALJ) made limited inquiry of the Respondent’s financial status. Based on the answers, it was concluded that the Respondent did not have the financial capacity to pay the Complainant. That evidence was not rebutted or otherwise controverted. It is not for the ALJ to take on an adversarial role and the inquiry was made as a follow up to determine whether the offered defense had a basis in fact. [4] The fact that the same person exercised control over the Respondent, as well as the developer which owed funds to the Respondent, could create questions regarding liability in the instant case. However, the developer (Dobbins LLC) is out of business and without funds with which to pay the Respondent. The issue is therefore moot. [5] The distinction is between the legal obligations under contract law and the obligations under the ROC statutes relating to state regulation of contracting. [6] It would make no sense to allow a defense under (A)(11) only to find a violation under (A)(7) for the same set of facts. [7] The Order is effective forty (40) days from the date of the Order or from the date of certification, if certified by the Director of the Office of Administrative Hearings.

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