ALJDEC decisions subject to certification as final

09F-2259-ROC · Registrar of Contractors · 2009-11-09

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: October 27, 2009 APPEARANCES: Todd Baxter, Esq. represented Pulte Home Corporation, doing business as Pulte Home Corporation Arizona Division, and Pulte Development Corporation. Stephanie Fierro, Esq. represented Marlam Industries, Inc. ADMINISTRATIVE LAW JUDGE: Sondra J. Vanella _____________________________________________________________________

The question presented by this consolidated matter is whether Pulte Home Corporation, doing business as Pulte Home Corporation Arizona Division, Pulte Development Corporation, and/or Marlam Industries, Inc. is subject to discipline for acts or omissions in violation of A.R.S. § 32- 1154. Based on the evidence of record, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law and Recommended Order: FINDINGS OF FACT 1. Pulte Home Corporation, doing business as Pulte Home Corporation Arizona Division (“Pulte Home”), is the holder of a Class B- license (No. 064206) issued by the Registrar of Contractors (“ROC”). Pulte Development Corporation (“Pulte Development”) is the holder of a Class B- license (No. 079383) issued by the ROC. 2. Marlam Industries, Inc. (“Marlam”) is the holder of a Class C-30 license (No. 063529) issued by the ROC. 3. The instant mater involves a payment dispute between Pulte Home and Pulte Development (collectively “Pulte”), on the one hand, and Marlam on the other hand. Pulte had contracted with Marlam for Marlam to provide and install countertops in the homes constructed by Pulte in various subdivisions. See Exhibit 1. The contract specifically provides for the following in pertinent part: Any discrepancies with payment must be brought to the attention of Pulte/Del Webb in writing within ninety (90) days of services provided or supplies delivered. After ninety (90) days, payments will be considered accepted as issued.

Id. at page 3. 4. At some point during construction (the record is unclear as to exactly when), Pulte replaced Marlam with another subcontractor, Mesa Fully Formed (“Mesa”). 5. On October 2, 2008, Pulte filed a complaint against Marlam with the ROC, alleging that Marlam owes Pulte $11,762.00 in overpayments issued and warranty charges. 6. On October 16, 2008, Marlam filed a complaint against Pulte with the ROC, alleging “short payments” by Pulte in the amount of $36,858.08. 7. At hearing, Janet Petersen, Pulte’s Accounting Manager, credibly testified about Pulte’s automated payment system. That system generates payments to its subcontractors bi-monthly based upon its superintendents inputting into a computer program the work that has been accomplished by the various subcontractors. Ms. Petersen further testified that if corrective work is necessary, a superintendent will contact the responsible subcontractor to perform such work. If the responsible subcontractor does not respond, Pulte hires a replacement contractor to perform the repairs, and backcharges the original subcontractor. 8. Pulte submitted into evidence a copy of its Open Payables Report for Marlam, as of February 26, 2008, April 18, 2008, and August 12, 2008. See Exhibit 3. That report reflects a balance due to Pulte from Marlam, due to overpayments made by Pulte to Marlam, in the total amount of $11,762.00. Ms. Petersen explained that Mesa performed the work for which Pulte mistakenly issued payment to Marlam, due to Pulte not timely changing the subcontractor from Marlam to Mesa in its computer system. Marlam was not the contractor that performed the work on the lots in question, yet Marlam accepted payment from Pulte. See Exhibits 2 and 4. Pulte issued two letters to Marlam dated February 26, 2008 and April 18, 2008, stating that Marlam owes funds to Pulte and requesting that Marlam review the attached supporting documentation and to remit payment to Pulte. See Exhibits 7 and 8. Marlam did not respond to either letter. Thereafter, Pulte retained a collection agency to pursue collection efforts against Marlam. At that point, Marlam responded to the collection agency claiming that Pulte owed it $36,858.08. See Exhibit 10. 9. Ms. Petersen further testified about some of the backcharges assessed to Marlam for corrective work performed by Mesa to Marlam’s original work. See Exhibit 5. 10. Michelle Riggan, Marlam’s Accountants Receivable Manager, contended that “Marlam did not request the overpayments”. Marlam urged that because those payments were “voluntarily” made by Pulte, there is no legal basis for the return of the money. However, Ms. Riggan also testified that she contacted Pulte and sent back one of the overpayments. Ms. Petersen credibly testified that she researched Pulte’s records, and if Marlam had returned a check, Pulte’s accounting records would reflect such. Ms. Petersen ran Pulte’s computer program for voided checks during the years 2007 and 2008, and further, pulled a hard copy file, and found no voided checks for Marlam. Ms. Riggan testified that she kept the other overpayments in a separate customer deposit account and deducted from it work performed by Marlam after September 2007. 11. Ms. Riggan acknowledged that she did not provide any documentation to Pulte as requested by Pulte establishing any amounts Marlam claims Pulte owes it. Ms. Riggan acknowledged that none of Marlam’s claimed “short pays” were brought to Pulte’s attention within the 90 days provided for in the parties’ contract. Further, the evidence presented at hearing by Marlam, including its Pay Reconciliation Worksheet consists of a list of backcharges with no supporting documentation, no dates, and no description of the backcharges. See Exhibit C. Ms. Riggan testified that the backcharges on the list span from January 2006 through October 2008, almost a three year period. Ms. Riggan further acknowledged that Marlam did not investigate any of the overpayments received after September 2007. As such, Marlam did not investigate any of the overpayments that Pulte is actually alleging. See Exhibit 3. Marlam acknowledged that “it should have paid more attention”, but “its accounting department was overwhelmed.” Ms. Petersen credibly testified that the documentation provided to Pulte by Marlam in October 2009 at the initially scheduled hearing date did not calculate to the claimed $36,000.00, did not document “short pays”, all but $450.00 had been accounted for in Pulte’s calculations, and $300.00 of the $450.00 had been voided because it was not billed within 90 days of service. CONCLUSIONS OF LAW 1. In this proceeding, Pulte bears the burden to prove, by a preponderance of the evidence, that Marlam is subject to discipline for violations of A.R.S. § 32-1154(A)(3) and/or (A)(7) as charged by the ROC in its May 6, 2009 Citation and Complaint. Marlam, on the other hand, bears the burden to prove, by a preponderance of the evidence, that Pulte is subject to discipline for violations of A.R.S. § 32-1154(A)(7) and/or (A)(11) as charged by the ROC in its June 11, 2009 Citation and Complaint. See Arizona Administrative Code (“A.A.C.”) R2-19-119. 2. 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). Pulte’s Complaint Against Marlam 3. Under A.R.S. § 32-1154(A)(3), a contractor is subject to discipline for “violation of any rule adopted by the registrar.” In this case, the ROC charged Marlam with a violation of A.A.C. R4-9-108, which, among other things, requires contractors to perform work in a professional and workmanlike manner and in accordance with any applicable building codes and professional industry standards. The Administrative Law Judge concludes, from the evidence presented, including Ms. Petersen’s credible testimony, that Pulte established that Marlam failed to perform some of its work in a professional and workmanlike manner and was backcharged for its deficient work. See Exhibit 5. Therefore, Marlam violated A.R.S. § 32-1154(A)(3). 4. Under A.R.S. § 32-1154(A)(7), a contractor is subject to discipline for “the doing of a wrongful or fraudulent act . . . as a contractor resulting in another person being substantially injured.” The Administrative Law Judge concludes that Pulte established that Marlam violated A.R.S. § 32-1154(A)(7) by Marlam’s failure to reimburse Pulte for the overpayments that Pulte mistakenly made to Marlam. Notwithstanding Marlam’s contention that it did not request the overpayments, Marlam acknowledged at hearing that it accepted payment for work it did not perform, and further failed to dispute any backcharges within the 90 day period provided for in its contract with Pulte, and only claimed such backcharges after Pulte filed its ROC complaint. Further Marlam failed to present any credible, probative, or substantial evidence establishing that it does not owe Pulte for the overpayments made by Pulte, or that Pulte owes Marlam any amount for backcharges or “short pays”. To the contrary, the evidence established that Marlam failed to investigate with any diligence, its own claims, or those of Pulte. Therefore, Marlam violated A.R.S. § 32- 1154(A)(7). 5. Based on Marlam’s violations of the charged provisions of A.R.S. § 32-1154(A), grounds exist to impose discipline against its license. 6. Upon consideration of all of the facts and circumstances presented by this case, the Administrative Law Judge concludes that Marlam’s Class C-30 license should be suspended. 7. The ROC’s authority in disciplinary matters such as the one presented herein includes the ability to impose reasonable conditions that allow the disciplined contractor to reduce the scope of the disciplinary action taken against it. The Administrative Law Judge deems the exercise of such authority to be appropriate in the instant case, and preferable to imposing discipline against Marlam’s license without providing a condition to reduce or eliminate same. 8. Upon consideration of all the evidence, the Administrative Law Judge concludes that it is reasonable to condition Marlam’s license suspension upon payment in the amount of $11,612.00 to Pulte, representing the amount of overpayments, minus the $150.00 that Pulte acknowledged it owed to Marlam. Marlam’s Complaint Against Pulte 9. Under A.R.S. § 32-1154(A)(11), a contractor is subject to discipline for “failure. . . to pay monies in excess of seven hundred fifty dollars when due for materials or services rendered in connection with the licensee’s operations as a contractor when the licensee has the capacity to pay . . . .” Based on the evidence presented, the Administrative Law Judge concludes that Marlam failed to establish by credible, probative, or substantial evidence that it was entitled to any monies from Pulte, but rather, the credible, substantial, and probative evidence of record established that Marlam owes Pulte for overpayments received. Therefore, Marlam failed to establish that Pulte violated A.R.S. § 32-1154(A)(11). 10. Under A.R.S. § 32-1154(A)(7), a contractor is subject to discipline for “the doing of a wrongful or fraudulent act . . . as a contractor resulting in another person being substantially injured.” The Administrative Law Judge concludes, from the evidence presented, that Marlam failed to establish that Pulte committed a wrongful or fraudulent act resulting in substantial injury to Marlam. Therefore, Pulte did not violate A.R.S. § 32-1154(A)(7). 11. Based on the foregoing, the ROC should not impose discipline against Pulte’s license. RECOMMENDED ORDERS The Administrative Law Judge makes the following Recommended Orders: With regard to Docket Number Nos. 09F-2259-ROC and 09F-2259W-ROC, it is recommended that no discipline be imposed against Pulte’s licenses, and that the Citation issued in Case Numbers 09-2259 and 09-2259W, together with the Complaint on which it is based, be dismissed. With regard to Docket Number 09F-1932-ROC, it is recommended, commencing on the effective date of the Order entered in this matter, that Marlam’s Class C-30 license shall be suspended until the ROC receives written proof that Marlam has paid to Pulte the sum of $11,612.00. It is further recommended that if Marlam pays the sum of $11,612.00 to Pulte on or before the effective date of the Order entered in this matter, then the aforementioned license suspension shall not take place and Case No. 09-1932 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 40 days from the date of that certification. Done this day, November 9, 2009.

/s/ Sondra J. Vanella Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors

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