ALJDEC decisions subject to certification as final

08F-F0027-ROC · Registrar of Contractors · 2008-09-25

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: September 8, 2008. APPEARANCES: Total Building System, Inc. was represented by its attorney, Scott Miskiel, Esq. Morris Group Contracting, LLC was represented by its attorney, Joey Hamby ADMINISTRATIVE LAW JUDGE: Brian Brendan Tully _____________________________________________________________________ Based upon the evidence of record, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law and Recommended Order:

FINDINGS OF FACT 1. On or about December 12, 2006, Andrew Hamby, as the named contractor, entered into a written agreement with Michael Kern, on behalf of Bella Donna Foods, Inc., for a commercial construction project (“Bella Donna Project”) located in Flagstaff, Arizona. The contract did not list a contracting license number for Mr. Hamby. 2. On or about January 15, 2007, Morris Group Contracting, LLC (“Respondent”) and Total Building Systems, Inc. (“Complainant”) entered into a written Subcontract for work to be performed by Complainant on the Bella Donna Project. 3. The parties’ Subcontract listed Complainant’s License No. ROC146485, a Class KB-01 contracting license, and Respondent’s License No. ROC200583, which is a Class B-02 contracting license. Those licenses were issued by the Registrar of Contractors (“Registrar”). 4. Mr. Hamby executed the Subcontract on behalf of Respondent. 5. Complainant’s scope of work included drywall, steel stud framing and acoustical construction. 6. Complainant was to be paid a total contract price of $38,360.00. 7. On or about January 26, 2007, Complainant filed an Arizona Preliminary Twenty Day Lien Notice on the subject property. 8. By letter dated April 20, 2007, Mr. Hamby, on behalf of Respondent, informed Mr. Kern that Bella Donna Foods, Inc. was in breach of contract for non-payment in excess of 30 days. Mr. Hamby stated that neither Respondent nor its subcontractors would perform any additional work until it received that outstanding balance. 9. Pursuant to Respondent’s direction, Complainant ceased performing its scope of work. 10. Complainant is owed the sum of $8,060.00 for the scope of work it performed on the Bella Donna Project. 11. Respondent contends that the Subcontract contains a “pay when paid” clause. Since it has not been paid in full by Mr. Kern or Bella Donna Foods, Inc., Respondent’s position is that it does not owe Complainant the $8,060.00 until it receives those funds. 12. The “pay when pay” clause in the Subcontract reads as follows:

Contractor agrees to pay Subcontractor in amounts invoiced by Subcontractor for labor and materials which have been placed in position and for which payment has been made by Owner to Contractor.

13. The above-provided payment clause is found not to have created a condition precedent for Complainant receiving payment from Respondent. 14. Respondent initiated an Arbitration action against Bella Donna Foods, Inc. seeking payment of four outstanding invoices for the Bella Donna Project. 15. On or about July 3, 2007, Complainant belatedly sent Respondent an invoice in the amount of $8,060.00 for the work it had completed on the Bella Donna Project. After receiving Complainant’s invoice, Respondent added the invoice amount to the claim it was seeking from Bella Donna Foods, Inc. 16. On or about August 1, 2007, Complainant filed a written Complaint with the Registrar concerning Respondent’s failure to pay the outstanding balance owed to Complainant. 17. On or about June 23, 2008, Arbitrator Jay M. Mann, Esq. issued an Award of Arbitrator, which awarded Respondent the sum of $46.819.22, plus prejudgment interest of $5,092.39, post judgment interest and costs from Bella Donna Foods, Inc. 18. On or about July 25, 2008, Respondent filed an Application to Confirm Arbitration Award with the Superior Court of Coconino County, Arizona in Cause No. CV2008-0559. 19. There is credible evidence that Respondent did not have any profits or taxable income in 2007. However, there is also credible evidence that Respondent paid Mr. Hamby the sum of $2,000.00 last month and it has had the financial capacity to have paid attorney fees of approximately $15,000.00 for litigation. Therefore, it is determined that Respondent has had the capacity to pay the outstanding debt owed to Complainant. 20. Respondent’s failure to pay Complainant the sum of $8,060.00 is a wrongful, but not fraudulent act that has substantially injured Complainant. 21. A review of the Registrar’s official records reveals that Respondent’s License No. 2000583 has one disciplined complaint in addition to the present Complaint.

CONCLUSIONS OF LAW 1. The Registrar has jurisdiction over Respondent and the subject matter in this case. 2. Pursuant to A.A.C. R2-19-119(B), Complainant has the burden of proof in this matter. The standard of proof is preponderance of the evidence. A.A.C. R2-19-119(A). 3. The parties’ “pay when paid” language in their Subcontract is not a condition precedent to Complainant receiving payment for its work on the Bella Dona Project. That provision does not contain plain and unambiguous language necessary to construe it as requiring payment from the owner to Respondent as a condition precedent to Respondent paying Complainant. “Pay when paid” clauses are viewed as a disfavored defense by courts. 4. Respondent violated the provisions of A.R.S. § 32-1154(A) (11), as cited in the Citation and Complaint issued by the Registrar. Complainant has established an entitlement to payment in the amount of $8,060.00 from Respondent for the work it performed on the Bella Donna Project. 5. Respondent violated the provisions of A.R.S. § 32-1154(A) (7), as cited in the Citation and Complaint issued by the Registrar. The factual basis for this Conclusion is Respondent’s wrongful, but not fraudulent, act of not paying Complainant the outstanding balance owed to it, which has resulted in Complainant being substantially injured by Respondent’s wrongful act.

RECOMMENDED ORDER Respondent’s License No. 200538 shall be suspended on the effective date of the Order entered in Case No. F08-0027 until the Registrar receives written proof, and accepts such proof, that Respondent has paid the sum of $8,060.00 to Complainant. If the Registrar receives written proof that Respondent has paid Complainant the sum of $8,060.00 on or before the effective date of the Order entered in Case No. F08-0027, and the Registrar accepts such proof, then the above license suspension shall not take place and the Citation and Complaint in Case No. F08-0027 shall be closed. 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 45 days from the date of that certification.

Done this day, September 25, 2008

______________________________________ Brian Brendan Tully Administrative Law Judge

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

Armando Contreras, Acting Director Registrar of Contractors 3838 N. Central Ave. Phoenix, AZ 85012

By ___________________________

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