ALJDEC decisions subject to certification as final

08F-M0243-ROC · Registrar of Contractors · 2008-04-23

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 23, 2008 APPEARANCES: The Complainant represented herself. Robert Day, President represented the corporate Respondent. ADMINISTRATIVE LAW JUDGE: Allen Reed _____________________________________________________________________ Findings of Fact 1. On March 23, 2007[1], the parties entered a contract whereby the Respondent would perform a portion of the construction for a 728 square foot addition to the Complainants’ home in Mesa, Arizona. The Complainants were to perform other portions of the construction of the addition. 2. The addition would consist of a living room, bathroom, bedroom, kitchen, with an Arizona room above the addition. 3. The contract cost of the construction to be done by the Respondent was $65,187.01. The cost of the Complainant’s portion of the construction work was over $30,000.00.[2] 4. The Complainants paid the Respondent $29,334.16 as a deposit and to commence the project. Under the contract, the project was to begin March 26, 2007 and be completed in approximately two months (end of May). 5. Prior to executing the contract, the Complainants had begun the demolition of a part of a previous addition which had been constructed without a permit. The Complainants required but did not obtain a demolition permit. 6. In early April, 2007, the Respondent began trenching in order to connect a new sewer line. The Respondent had not obtained a building permit. A number of exploratory trenches were dug because the Respondent had difficulty following the existing sewer line. 7. On April 21, 2007, the plumber working for the Respondent performed some unspecified work but did not connect the new sewer line. 8. On May 4, 2007, the sewer was connected[3] and the exploratory trenches were filled in on May 7 and 8, 2007. 9. The Respondent submitted the plans[4] for the addition to the City of Mesa on May 4th. According to the Respondent, the delay in the permitting process was caused by the need to have the plans which had been revised prior to the contract, reviewed by someone on behalf of the Respondent, before the submission to the city[5]. At this time, the Complainants were voicing their concern to the Respondent about the delay in submitting the plans and moving the project forward[6]. 10. Mesa issued the building permit on June 14, 2007. Along with the permit, Mesa assessed a penalty of $150.00 for the Complainants demolition work without a permit and $1,064.00 for trenching without a permit. 11. On June 20, 2007 the Respondent poured the cement for the addition but performed no further work. The Complainants asked the Respondent to perform the framing work which they had initially agreed to do. 12. On July 11, 2007, the Respondent submitted a change order (C.O.) which included $1,214.00 for the permit violation, $385.00 for additional excavation, $1,175.99 for additional concrete, and $5,399.00 for the framing and materials which was now to be done by the Respondent. Additional charges for insurance, overhead, profit and taxes brought the C.O. to $10,094.11. At this point the Complainants had the Respondent stop work and requested invoices for costs of the project to that time. 13. The Respondent provided documentation for the cost of cement and the cement pumper (approximately $3,602.00), plus permit and permit violation costs. Other costs (concrete forms, rebar, footings, trenching, etc.), were apparently not specifically itemized. 14. According to the Respondent, his costs to date on the project were $18,564.00. This includes $1,200.00 for the cost of the Respondent’s tools kept by the Complainants when the Respondent was terminated. Even if the cited amount is accepted (complete verification was not provided), this would still mean the Complainants who initially paid $29,334.16, are owed nearly $11,000.00[7]. 15. On July 25, 2007, the Complainants removed the Respondent from the building permit. By letter and email dated August 6, 2007, the Complainants terminated the contract with the Respondent. In general terms the reasons cited for termination are the Respondent’s failure to timely substantially complete the project, past failures to perform promised work, failure to deliver lumber as promised, the change order of July 11, 2007, and the fine of $1,214.00 for not having a demolition/building permit. The letter acknowledges the failure to give 14 days to cure a material breach but asserts that notice of prior defaults did not result with the cure of the defaults. 16. The contract between the parties provides in paragraph H, that each party is to give the other party written notice of a material breach and 14 days to cure the material breach. 17. The Complainants had the project completed by (an)other contractor(s)[8].They testified the extra cost exceeded the cost of the original contract with the Respondent. No documentary or other reliably precise evidence was presented to establish the amount of additional cost to the Complainants after the termination of the contract. 18. The Complainants obtained an injunction against the Respondent because they did not want the Respondent coming to the home and possibly (without intending to) distressing Mrs. Holt’s father who is ill[9]. 19. The addition passed final inspection in March, 2008. Conclusions of Law The Citation and Complaint alleges violation of A.R.S. §32- 1154(A)(1), abandonment, (A)(7), a wrongful act with substantial injury, and (A)(9), failure to complete a project for the price stated. 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. The less demanding evidentiary standard in the administrative hearing does not mean that any type of evidence is entitled to serious consideration or significant weight. 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. There is no violation of (A)(1). The Respondent was dilatory but the evidence does not show the Respondent abandoned the project before the contract was terminated by the Complainants. The same reasoning applies to (A)(9). The contract was not completed because of the termination and no (A)(9) violation can be determined based on the facts of this case. 5. The Respondent relies on the Complainants failure to abide by the contract provision requiring a written notice of a material breach and allowing the Respondent 14 days to cure the breach, as a defense. The Complainants acknowledge they were aware of the provision when they sent the August 6 2007 termination letter to the Respondent. The Complainants failure to adhere to the contract is based on past defaults not responded to by the Respondent but not alleged by the Complainants, as a material breach at the time of their occurrence[10]. Those defaults were never the subject of a notice of material breach. In addition, the fact that the Respondent was taken off the building permit on July 25, 2007, nearly two weeks before the August 6, 2007 letter, indicates the Complainants (understandably frustrated) did not intend to adhere to letter of the contract. The contract provision was clear and not obfuscation. Contractual provisions which are understood and voluntarily agreed to, cannot be arbitrarily disregarded. Something more than frustration due to unjustified delay is necessary before the notice and cure provisions can be ignored. 6. This leaves (A)(7) as the remaining issue. Despite the fact that the Respondent has one defense to the wrongful act violation based on the Complainants failure to give adequate notice of termination and opportunity to cure, the fact remains the Respondent is in violation of (A)(7) for a number of reasons. The first is the Respondent’s failure to obtain a permit before beginning the trenching[11]. The attempt to pass on the subsequent fine for the permit violation, to the Complainants, is clearly a wrongful act and the amount of $1,064.00 is clearly substantial injury. The delays and failure to timely complete the project without justification or reasonable excuse is also a wrongful act. This failure to timely complete was over a period of two and a half months prior to termination of the contract and the Complainants failure to give notice as required by the contract is therefore irrelevant. The nature of the substantial injury is difficult to assess because of personal issues involving Mrs. Holt’s parents. The delay caused extreme anxiety, stress and frustration but the personal psychological injury cannot be assessed. 7. For the reason stated in footnote 1 and because the Respondent did not declare the Complainants in breach and terminate the contract under paragraph H, the provision regarding Respondent’s recovery of !00% on the balance of incomplete work is given no effect. Based on the evidence, it is concluded the additional wrongful act is the fact that the Respondent has retained money from the Complainants’ deposit which is not justified by the cost of the work (including materials) performed by the Respondent. 8. Considering the evidence in its entirety, it is concluded that partial restitution in the amount of $5,000.00 is appropriate under A.R.S. §32- 1156.01. Such partial restitution does not bar the Complainants from seeking additional relief in a civil forum. Recommended Order It is recommended commencing the effective date of the Order[12] that the Respondent’s Class KB-01 license shall be suspended until the Respondent makes partial restitution by paying or tendering payment of Five Thousand ($5,000.00) Dollars, to the Complainants. Done this day, May 7, 2008

______________________________________ Allen Reed Administrative Law Judge

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

Fidelis V. Garcia, Director Registrar of Contractors 3838 N. Central Ave. Phoenix, AZ 85012

By ___________________________

----------------------- [1] Two contracts are in the record. They are the same although one contract has the insertion of 100% for recovery of profit and overhead in case of a breach by the owner whereas an earlier version did not have this insertion. The 100% was filled in after the signature of the Complainant Loralee Holt. It is uncertain when it was added in with respect to the signature of Mr. Douglas Holt. In light of this unexplained variation, the provision is not given effect. [2] A bid in January, 2007 for the entire project was $113,501.14. The Complainants attempted to reduce the cost by proposing to do the HVAC, framing, drywall, doors and windows, trim, painting, flooring and other work themselves. [3] The Complainant, Mr. Holt testified he did the final sewer line connection, removed the test ball, set the toilet and installed other bathroom fixtures. He also testified the Respondent did not connect the east side water line to the meter. [4] The plans had been revised (relocation of the bathroom) prior to the execution of the contract. According to the Respondent, the plans cost $4,000.00 [5] The delay seems inordinate. [6] The Complainant, Mrs. Holt is caring for her parents and needed the addition completed in timely manner. [7] Or possibly $7,000.00, since the amounts are somewhat speculative because no firm evidence was presented to establish actual costs claimed by the Respondent such as the asserted (additional) $4,000.00 paid for the plans. [8] A landscaper had to reconnect sprinkler lines, cover trenches, and spread gravel. Complainants paid $1,120.00 for landscaping (Exhibit 5). There is some dispute whether the Respondent was to provide the gravel which was an additional $640.06. [9] There was no evidence or argument that the Respondent did anything inappropriate so as to require an injunction. The injunction was obtained because of concern for Mrs. Holt’s father’s psychological well being. The Complainants did not want him disturbed. [10] Arguably this can be construed to be a waiver of the breach. [11] Although the Respondent should have informed the Complainants they needed a permit before beginning demolition, the Complainants share some responsibility for acts they undertook by themselves. [12] Forty (40) days from the date of the Order or from the date of certification if certified by the Director of OAH.

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