ALJDEC decisions subject to certification as final

09F-2365-ROC · Registrar of Contractors · 2009-10-05

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: September 29, 2009 at 8:00 a.m. APPEARANCES: Complainant Alice Jahneke appeared through Frederick A. Rispoli, Esq., Bryan Cave LLP; Respondent O’Connor Bro’s Inc. did not appear. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure On December 4, 2007, the Registrar of Contractors (“the Registrar”) issued License No. ROC239778, Class B- for residential general contracting to Respondent O’Connor Bro’s Inc., a corporation. Respondent’s qualifying party is Timothy Patrick O’Connor, an employee. Respondent’s address of record is 9820 W. Westcott Drive, Peoria, Arizona 85382. On December 4, 2007, the Registrar issued License No. ROC239779, Class B-02 for general small commercial contracting to Respondent. On October 21, 2008, the Registrar received a complaint from Complainant Alice Jahneke against Respondent’s License No. ROC239778, which alleged 28 specific items of complaint in Respondent’s reconstruction of Complainant’s residence after a fire. The complaint was assigned to Inspector Phil Coscia for investigation. On November 7, 2008, the Registrar received Complainant’s addendum to the complaint, which alleged 36 additional items of complaint. The Registrar referred the complaint to Respondent for his immediate attention. Inspector Coscia performed a jobsite inspection and, on December 4, 2008, issued a Corrective Work Order (“CWO”) to Respondent, directing him within fifteen days to correct by appropriate means the following items of the original and amendment to the complaint: item list from the initial complaints

Contractor should correct the following items by the appropriate means:

2. 8x8x16 CMU’s were used to fill openings in wall built with 8x4x16 block. 3. Space under roof trusses to top of rear wall. 4. Missing boards at fascia. 10. Mortar was not used to repair/adhere all masonry blocks. 11. Depths of the window sills in wood-framed walls are not consistent with sills in the existing masonry walls. 12. Ensure the window opening in front wall of NE bedroom is properly framed and completed. 13. Loose masonry block around rough opening for window in East wall of bedroom. 14. Ledge to new window opening in north bedroom (front wall) has large hole/crack 15. The strike side jamb to rear door of master bedroom is not vertically straight 16. Roofing nails protruding through plywood 21. Plumbing work for new kitchen and laundry room requires completion by a properly licensed contractor. Work should be done according to contract, plans and meet compliance with all relevant building code(s) of the local jurisdiction. 23. Masonry block is missing around ridge beam to peak of west- front roof 25. Ensure that there is water supplying the water-leveler for the pool 27. Contractor to complete all work as stated on the written contract, and/or as shown on the plans and specifications. All work by the contractor, and his subcontractors, should be properly performed and meet compliance with ROC’s and industry workmanship standards. Contractor is responsible to have all required inspections performed by a local building official and if necessary make any corrections necessary to comply with the building code(s) of the local jurisdiction. . . . .

item amendment of November 7th, 2008

Contractor should correct the following items by the appropriate means:

1. Roof shingles extend over the edge of roof in an uneven manner around the entire house. 4. Where roof meets eaves on addition, roof (poorly cut barge rafter at SE corner) is at an angle instead of cut straight or level 6. Small area of roof addition not shingled (under barge rafter mentioned in #4) 9. Area where roof meets overhang in front of house finished with metal, instead of wood, then painted over. 10. Inside window sills not even depth and not deep enough and not deep enough [sic] to hang blinds, i.e.; top of sill on left side of window is ½” deep but top of sill on right side of window is 1” deep 13. Install water heater as shown on plan or as agreed upon with the owner 18. Eaves not caulked where fascia meets 2x4’s prior to painting. Gaps visible on East, West and South sides of house 19. Wood and CMU are not flush for rough opening to front bedroom window. 21. The contract calls for a service porch to be built. 23. It appears that a “finished patio cover” was included in the signed contract. 24. Remove remaining posts for pool fence. 25. Cable/phone box should be returned to its former condition. 27. Wood backing for upper cabinets in kitchen is loose 30. Some gable braces are not nailed 32. The permit should be posted in a conspicuous place on the worksite 33. Building plans should be accessible to the local building official for required inspections

[Emphases in original.] On December 31, 2008, the Registrar received Complainant’s request for hearing, which alleged that Respondent had not performed any of the items on the CWO. On April 29, 2009, the Registrar issued a Citation and Complaint against Respondent’s license, charging violations of A.R.S. § 32-1154(A)(1), (2), (5), (7), (19), (23), (3) (namely A.A.C. R4-9-108), and (13) (namely A.R.S. § 32-1124(B)). The Registrar sent a copy of the Citation and Complaint to Respondent at its address of record. Respondent timely answered the complaint, denying any statutory violations. The Registrar referred the matter to the Office of Administrative Hearings, an independent agency, to schedule and to conduct a fair hearing. On July 29, 2009, the Registrar issued a Notice of Hearing, setting a hearing on September 29, 2009 at 8:00 a.m. The Registrar mailed a copy of the Notice of Hearing to Respondent via certified mail at its address of record and by regular mail at another address. A hearing was held on September 29, 2009. Complainant testified and submitted fourteen exhibits, including an exhibit that consisted of 16 photographs of her residence as Respondent had left it. Inspector Coscia also testified. Although the beginning of the duly noticed hearing was delayed fifteen minutes to allow Respondent additional travel time, it did not appear through a duly authorized employee or attorney, did not contact the Office of Administrative Hearings to request a continuance or that the time for the hearing be further delayed, and did not present any evidence to defend its license. Additional Evidence In May 2008, Complainant’s residence was severely damaged by fire, smoke, and the water that firefighters used to extinguish the fire. The only thing left was the shell of the house. Complainant had socialized with Respondent’s qualifying party Tim O’Connor for sixteen years. Her younger son was best friends with Mr. O’Connor’s son. Complainant had been with Mr. O’Connor on several jobs and she had congratulated Mr. O’Connor when he got his license. Complainant trusted Mr. O’Connor. After the fire, Complainant and Mr. O’Connor agreed that Respondent would reconstruct Complainant’s residence. They agreed that Respondent would also add a room at the back of the residence, a service panel, and a covered porch. At the time of the agreement, Complainant did not know how much her homeowner’s insurer would pay for her claim. However, before it fully evaluated the claim and set a reserve, the insurer had agreed to begin releasing funds to Complainant’s mortgage company to be held in escrow for repairs. The mortgage company required Complainant to provide a contract with an appropriately licensed contractor. On May 18, 2008, Complainant and Mr. O’Connor on behalf of Respondent signed an “Agreement Regarding Repair Work,” which did not include an amount or scope of work but did include the following terms: The parties intend that the Repair Work will include all repairs required to restore the Building to the condition it was in prior to the above referenced damage . . . .

Prior to commencement of the Repair Work, O’CONNOR BROTHERS CONSTRUCTION INC. shall submit a detailed written scope of Repair Work for review by the Owner or Owner’s Agent. . . . . . . .

TIME FOR PERFORMANCE OF REPAIR WORK. O’CONNOR BROTHERS CONSTRUCTION INC. will begin the Repair Work promptly after approval of the written Scope of Repair Work by the Owner . . . . . . . .

In consideration for the performance of the Repair Work, the Owner will pay O’CONNOR BROTHERS CONSTRUCTION INC. the full amount of the insurance proceeds received by the Owner from its insurer account of the damage to the Building. . . .

The “Agreement Regarding Repair Work” did not show Respondent’s license number. The parties envisioned that repairs would be complete within twelve weeks. Respondent never provided a scope of work. Based on Mr. O’Connor’s statements on what needed to be done and his estimate of what the work would cost, Complainant prepared a second agreement, which included a list of specific items of construction and the amount of $82,210.00 to perform the work described. Mr. O’Connor on behalf of Respondent and Complainant signed the agreement on June 16, 2008. The June 16, 2008 agreement did not show Respondent’s license number. The June 16, 2008 agreement included in the scope of work a 10’ extension at the rear of the house, which would include the kitchen, a third bedroom, a kitchen pantry, a laundry room, and small service porch, and a “[f]inished patio cover.” In the later part of June, Respondent started reconstruction. Respondent received an initial draw from the mortgage company in the amount of $25,384.08. Complainant paid Respondent an additional $18,000.00 by personal checks in July and August 2008. On August 14, 2008, Respondent received a second draw from the mortgage company in the amount of $25,384.08. On August 22, 2008, Respondent received a third draw from the mortgage company in the amount of $11,098.51. Complainant testified that she was satisfied with Respondent’s progress in June 2008. In July 2008, Respondent’s progress slowed and, in August 2008, Respondent only worked on the house sporadically. By September 2008, although Respondent had received a total of $79,866.67, which was 97% of the contract cost of $82,210.00. Complainant became concerned. September was the last month that her insurance company would pay a portion of the rent for substitute housing. Complainant was required to continue paying her mortgage while Respondent performed repairs. In September 2008, Complainant spoke to Mr. O’Connor about her concerns. Mr. O’Connor told her that he needed more money to pay Respondent’s crew to continue work on Complainant’s residence. Complainant contacted Respondent’s president, to no avail. Respondent performed no further work on Complainant’s residence. On September 26, 2008, Respondent issued a check to Complainant for $1,500.00 to repay her for unearned advances. Complainant’s bank returned the check to her for insufficient funds. Inspector Coscia testified that Respondent did not contact him about the CWO. Inspector Coscia did not perform a prehearing inspection because he understood that another contractor had made repairs and completed reconstruction of Complainant’s residence. Inspector Coscia testified that some of the items of Respondent’s deficient workmanship in the initial jobsite inspection not only needed repair but were “terrible” or “very poorly done.” The last contact that Complainant had with Mr. O’Connor was on December 19, 2008. He told her that Respondent would have completed the work if she had not filed a complaint to the Registrar. Complainant told Mr. O’Connor that she knew that she had been ripped off. Mr. O’Connor walked out of Complainant’s house and never directly contacted her again. On January 12, 2009, Mr. O’Connor on behalf of Respondent informed Wells Fargo Bank, which held Complainant’s mortgage, that “O’Connor Bro’s Inc. has been paid in full for all work” at Complainant’s residence and that it “[would] not be doing any additional work now or in the future . . . .” Between January and March of 2009, Complainant took photographs of the unfinished repairs, which she submitted at the hearing. The photographs show that the residence was a long way from being habitable. Drywall, exterior stucco, and windows had not yet been installed. Floors were unfinished. Complainant testified that she has a disabled son. His condition had deteriorated while the family lived in an unfamiliar rented apartment. On March 13, 2009, Complainant’s attorney on her behalf demanded that Respondent return the unearned funds that she had paid it. Respondent did not respond to Complainant’s demand. On May 14, 2009, Complainant entered into a contract with Strong Tower Construction LLC, License No. ROC221291, Class KB-02, to repair Respondent’s poor workmanship and complete reconstruction of Complainant’s residence, for a total contract price of $49,400.00. Strong Tower Construction LLC subsequently completed the contract and Complainant paid it in full. The Registrar’s record reveals that Respondent’s License No. ROC239778 was administratively suspended on February 9, 2009 for lack of bond and remained suspended as of the date of the hearing. Respondent’s License No. ROC239779 was also suspended for lack of bond on February 9, 2009, but was reinstated on February 17, 2009. CONCLUSIONS OF LAW The matter lies within the Registrar’s jurisdiction.[1] The notice of the hearing that the Registrar mailed to Respondent at its address of record was reasonable and Respondent is deemed to have received notice of the hearing.[2] Complainant bears the burden of proof to establish Respondent’s statutory violations and affirmative claims by a preponderance of the evidence.[3] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[4] A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”[5] The suspended status of Respondent’s license does not preclude Complainant from pursuing her administrative remedy nor preclude the Registrar from conducting these disciplinary proceedings.[6] If Respondent fails to comply with any condition that the Registrar sees fit to include in his final Decision and Order in this matter, its suspended license will be revoked. If the Registrar accepts this recommendation and, as a result of Respondent’s failure to comply with the Registrar’s final decision in this matter, the Registrar revokes Respondent’s license, in due course will lead to revocation of any other license that Respondent holds or on which Respondent or its qualifying party is listed[7] and may prevent any new license from being issued.[8] Complainant has established that Respondent violated A.R.S. § 32- 1154(13),[9] in that Respondent did not include its license number on either of the parties’ two contracts. The CWO required Respondent to post permits and plans at the jobsite, as required by the building codes of the political subdivision. Respondent’s failure to comply with this directive also constitutes a violation of A.R.S. § 32-1154(A)(2).[10] No evidence was presented at the hearing regarding any failure by Respondent to pay taxes or to notify the Respondent of disassociation of its qualifying party. Therefore, no violation of A.R.S. § 32- 1154(A)(5)[11] or (19)[12] was established. Complainant has established that Respondent failed to complete reconstruction of her residence pursuant to its contracts, even though it was paid 97% of the contract price, and failed to repair or complete construction according the CWO. Complainant therefore has established that Respondent violated A.R.S. § 32-1154(A)(1),[13] (3),[14] (7),[15] and (23).[16] The legislature has not empowered either the Office of Administrative Hearings or the Registrar to adjudicate or award money damages.[17] The Registrar may resolve contractual disputes if such resolution in ancillary to its regulatory mission and may penalize a contractor’s license by ordering payment of restitution if a proven statutory violation cannot or can no longer be remedied by corrective work.[18] Restitution may be appropriate when the contractor does not immediately respond to a property owner’s complaint and the workmanship deficiency is such that the property owner is justified in hiring another contractor to remedy a health or safety issue or to mitigate his damages.[19] In this matter, Respondent left Complainant’s residence uninhabitable and subsequently had its license administratively suspended. Complainant was required to pay rent while the uninhabitable condition of her home persisted. Complainant delayed hiring another contractor to perform repairs until she had obtained an inspection by the Registrar’s inspector and had waited more than five months after the CWO required Respondent to complete the job. Restitution is appropriate. The proper measure of Complainant’s restitution is the amount she paid to Strong Tower Construction LLC to complete Respondent’s contract, less the amount still owed under her original contract, or $44,713.27.[20] RECOMMENDED ORDER In view of the foregoing, on the effective date of the Registrar’s final order, it is recommended that the Registrar revoke License No. ROC239778, Class B- previously issued to Respondent O’Connor Bro’s Inc. It is further recommended that the Registrar not revoke Respondent’s license and, instead, close Case No. 09-2365 if, on or before the effective date of the Registrar’s order, Respondent has furnished to the Registrar proof in writing that it has paid $44,713.27 by registered or certified check to Complainant Alice Jahneke as restitution under A.R.S. § 32- 1156.01. If the Director of the Office of Administrative Hearings certifies this Administrative Law Judge Decision, the effective date of the order will be forty days from the date of certification. Done this day, October 5, 2009.

______________________________________ Diane Mihalsky Administrative Law Judge

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

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

By ___________________________ ----------------------- [1] See A.R.S. § 32-1101 et seq. [2] See A.R.S. §§ 41-1092.04; 41-1092.05(D). [3] See A.R.S. § 41-1092.07(G)(2); A.A.C. R2-19-119(A); see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [4] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [5] Black’s Law Dictionary at page 1220 (8th ed. 1999). [6] See A.R.S. § 32-1154(C). [7] See A.R.S. § 32-1154(A)(21). [8] See A.R.S. § 32-1122(E). [9] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license “[f]ailure in any material respect to comply with this chapter.” The specific statute violated is A.R.S. § 32-1124(B), which requires that licensed contractors to include their license number, which “shall be preceded by the acronym ‘ROC,’“on “all written bids submitted by the license and . . . on all advertising, loan forms, lending institution forms, letterheads and other documents used by the licensee in the conduct of business regulated by this chapter.” [10] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license “[d]eparture from or disregard of plans or specifications or any building codes of any state or any political subdivision of the state in any material respect which is prejudicial to another without consent of the owner or the owner’s duly authorized representative and without the consent of the person entitled to have the particular construction project or operation completed in accordance with such plans and specifications and code.” [11] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license “[f]ailure to pay income taxes, withholding taxes or any tax imposed by title 42, chapter 5, articles 1 and 4 and incurred in the operation of the licensed business.” [12] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license “[f]ailure to notify the registrar in writing within a period of fifteen days of any disassociation of the person who qualified for the license. Such licensee shall have sixty days from the date of such disassociation to qualify through another person.” [13] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license “[a]bandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.” [14] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license “[v]iolation of any rule adopted by the registrar.” The rule violated here was A.A.C. R4-9-108, which requires that “[a]ll work shall be performed in a professional and workmanlike manner” and that “[a]ll work shall be performed in accordance with any applicable building codes and professional industry standards.” [15] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license “[t]he doing of a wrongful or fraudulent act by the licensee as a contractor resulting in another person being substantially injured.” [16] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license “[f]ailure to take appropriate corrective action to comply with this chapter or with rules adopted pursuant to this chapter without valid justification within a reasonable period of time after receiving a written directive from the registrar.” [17] See J.W. Hancock Enterprises, Inc. v. Arizona State Registrar of Contractors, 142 Ariz. 400, 406, 690 P.2d 119, 125 (Ct. App. 1984). [18] See A.R.S. § 32-1156.01; Sunpower of Arizona v. Arizona Registrar of Contractors, 166 Ariz. 437, 441, 803 P.2d 430, 434 (Ct. App. 1990). [19] In Sunpower, the Arizona Court of Appeals upheld the Registrar’s power to order a contractor to return to a property owner the cost of a solar heater where, although the contractor had made several attempts to repair the heater, he could not make it provide a habitable degree of heat. See id. [20] The calculation follows: $82,210.00 (original contract) – $79,866.27 (amount paid Respondent) = $2,343.73; $49,400.00 (amount paid Strong Tower) - $2,343.73 = $44,713.27.

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