ALJDEC decisions subject to certification as final

08F-T0727-ROC · Registrar of Contractors · 2009-01-14

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: January 8th, 2009; 9:00 a.m. APPEARANCES: Complainant, Westcor Framing, Inc., was represented by Mr. David E. Ward, Attorney-at-Law. Respondent, Louis Marson and Sons, Inc., was represented by Mr. Louis Marson, owner. 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. CONCLUSIONS OF LAW 1. Respondent, Louis Marson and Sons, Inc., is, and during all time material hereto was, a contractor licensed by and doing business in the State of Arizona, holding Class B License number 064861. 2. Complainant, Westcor Framing, Inc., entered into a subcontract with Respondent for the framing work on a condominium project named River Walk Lofts. 3. Respondent failed to pay Complainant for the work performed by Complainant and Complainant filed the instant Complaint with the Arizona Registrar of Contractors on December 10th, 2007, seeking an Order from the Registrar directing Respondent to do so. 4. Respondent’s owner, Mr. Louis Marson, answered the subsequent Citation and Complaint from the Registrar of Contractors by stating that his company had not been paid by the project’s developer, and that respondent would pay the Complainant after the developer had paid the Respondent. The Respondent did not deny that it owed the money mentioned by the Complainant in the Complaint. 5. At the administrative hearing these positions were repeated in the testimonies of Ms. Julianne Quinn, the Complainant’s legal assistant, and Mr. Marson. There is no dispute therefore that money is owed from Respondent to Complainant, but only dispute as to whether Respondent is presently obligated to pay it, and how much is owed. There also does not seem to be a significant dispute that Respondent has not been paid by the developer. 6. Respondent contended that the parties’ contract contains a so- called “pay-when-paid” clause whereby the parties agreed that Respondent would not be contractually obligated to pay Complainant until after the developer had paid the Respondent. The clause may be found at contract paragraph 9, section C, and states: “Upon receipt of payment from owner, the Contractor shall schedule release of funds.” Resp.’s Ex. 1. Complainant denies that the language relied upon by Respondent signifies any such thing. 7. Complainant produced credible evidence in Ms. Quinn’s testimony and business records that the amount owed is $84,151.00. Mr. Marson testified that the Respondent owes merely $69,385.00. The greater weight of evidence is that the amount owed is $84,151.00. 8. 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.7, and 11. 3. A.R.S. 32-1154.A.11 requires a licensed contractor such as this Respondent to pay its subcontractors monies in exceeding $750.00 when due for services or materials the Complainant provides to Respondent in connection with Respondent’s contracting business, when the contractor has the capacity to pay or when he has been paid for the particular project in question. 4. In this case Respondent has not been paid for the project, but there is insufficient evidence to conclude that Respondent lacks the ability to pay. 5. “Pay-when-paid” clauses in contracts are strictly construed by the Arizona courts. The general rule in contracts between a general and a subcontractor is that the credit risk is incurred by the general contractor unless the contract contains an “express condition clearly expressing that [a shifting of the risk to the subcontractor is] the intention of the parties.” Darrell T. Stuart Contractor of Arizona v. J. A. Bridges and Rust-Proofing, Inc., 2 Ariz.App. 63, 406 P.2d 413 at 415 (1965), citing Thos. J. Dyer Co. v. Bishop International Engineering Corp., 303 F.2d 655 (1962). In that case the court rejected that the risk had been shifted from the general contractor to the subcontractor by the contract’s language “shall be paid to the subcontractor upon . . . . final acceptance and payment by the government.” 406 P.2d at 414. 6. The decision in the Darrell T. Stuart case was upheld and approved later in the case of Watson Construction Company v. Reppel Steel & Supply Company, Inc., 123 Ariz. 138, 598 P.2d 116 (Az. App., Div. 1, 1979). In that case the subject contract contained a clause stating that “At all times subcontractor shall be paid to the extent that the contactor has been paid on his account.” The court held that language to be insufficient as a “pay-when-paid” clause to shift the credit risk to the subcontractor. 598 P.2d at 118. 7. It is therefore concluded that the Respondent does owe the Complainant $84151.00 on the subject propjet, and is in violation of A.R.S. 32-1154.A.11 as cited. 8. There is no evidence of any wrongful or fraudulent violation of A.R.S. 32-1154.A.7 by Respondent in this case, independent of the failure to pay the money owed.

RECOMMENDED ORDER In view of the foregoing Findings of Fact and Conclusions of Law it is hereby recommended that Respondent’s Class B License number 064861 be revoked in the effective date of this Order. It is further recommended that in the event the Registrar receives written proof that Respondent has paid the Complainant $84,151.00, 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 suspension shall not occur, and Citation and Complaint T08- 0727 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, January 13th, 2009.

______________________________________ Grant Winston Administrative Law Judge

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

Armando Contreras Registrar of Contractors 3838 N. Central Ave., Ste. 400 Phoenix, AZ 85012-1906

By ___________________________

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Office of Administrative Hearings 100 N. Stone Ave., Suite 704 Tucson, AZ 85701 520-628-5488 Fax: 520-628-5575 www.azoah.com