ALJDEC decisions subject to certification as final

2008A-41675151-ROC · Registrar of Contractors · 2011-09-12

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: August 24, 2011, at 8:00 a.m. APPEARANCES: Complainants Brian Nylund and Martin Norden appeared on their own behalf; Respondent Oso Contracting, L.L.C. appeared through Amy Howard, its bookkeeper. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure In June 2005, the Arizona Registrar of Contractors (“the Registrar”) issued License No. ROC208370, Class B for residential general contracting to Oso Contracting, L.L.C. (“Respondent”). On May 6, 2008, the Registrar received a complaint from Brian Nylund against Respondent concerning a kitchen remodel that Respondent had undertaken at Mr. Nylund’s residence at 1928 East Des Moines Street in Mesa, Arizona. Mr. Nylund alleged 24 specifically enumerated complaints, stated that he had paid Respondent $20,000.00 of the $32,000.00 contract amount, and requested that the Registrar require Respondent to reimburse Mr. Nylund $6,054.62 for deposits for granite countertops and cabinets that Respondent had failed to supply, plus $504.00 for 90 days’ rental for a storage container, $840.00 for an emergency re-keying of Mr. Nylund’s house, and $400.00 to compensate Mr. Nylund for being without hot water for eight days. The Registrar designated Mr. Nylund’s complaint as Case No. 08- 4167. The Registrar assigned Mr. Nylund’s complaint in Case No. 08-4167 to its inspector, Jack Clark, for investigation. Inspector Clark performed a jobsite inspection in Case No. 08-4167. On June 5, 2008, Inspector Clark issued a Corrective Work Order (“CWO”) that required Respondent to obtain plans, permits, and inspections as required, and to provide a written contract to Mr. Nylund, but noting that the contract might require Mr. Nylund to be responsible for the costs of plans and permits. With respect to the workmanship deficiencies that Mr. Nylund alleged, the June 5, 2008 CWO also required Respondent to correct the electrical outlets in the kitchen that were not level and to correct the “abrupt change in ceiling height in the kitchen.” Inspector Clark concluded the June 5, 2008 CWO by stating that “[a]ll other complaints should be part of, and defined by the written contract.” On June 19, 2008, the Registrar received Mr. Nylund’s addendum to the complaint in Case No. 08-4167 alleging that other contractors had told him that the moisture resistant drywall that Respondent had installed 24” on center (“O.C.”) on the kitchen ceiling needed to be removed and waterproof drywall installed 12” O.C. In addition, Mr. Nylund alleged that the other contractors had told him that the drywall would need to be removed for the city to inspect the electrical wiring in the ceiling. Mr. Nylund also complained that although Respondent’s qualifying party and managing member, William Conrad “Barry” Howard, had submitted contract proposals, the proposals required Mr. Nylund to pay for permits and a structural engineer to modify the ceiling truss to repair that sagging ceiling. On July 3, 2008, Inspector Clark issued a second CWO in Case No. 08-4167, informing Respondent that the June 5, 2008 CWO remained in force, but that Respondent was not required to take any corrective action with respect to the addendum items because the use of moisture resistant drywall was neither required nor prohibited for kitchen ceilings, and the City of Mesa Building Services Department left the number and size of inspection holes up to the assigned inspector. Mr. Nylund requested that the Registrar schedule a hearing in Case No. 08- 4167 and amend the complaint to add his partner, Martin Norden. The Registrar issued a Citation and Complaint and amended the caption in Case No. 08-4167 to include Mr. Norden (hereinafter, Mr. Nylund and Mr. Norden are referred to collectively as “Complainants”). Respondent requested that Case No. 08-4167 be closed under A.R.S. § 32-1155(C) because it was not allowed to inspect the work and another contractor completed the project. The Registrar redesignated Case No. 08-4167 as Case No. 2008-41675151. On February 1, 2011, the Registrar issued an Order Denying Request for Case Closure and Quashing Citation and Complaint in Case No. 2008-41675151, in relevant part as follows: On January 20, 2009, the Registrar issued a Citation and Complaint in this matter. Respondent failed to file a timely written Answer to the Citation and Complaint. On May 22, 2009, the Registrar issued a Notice of Amendment in this matter providing that Martin Norden would be added as Co-Complainant. The Notice of Amendment further provided that a Default Decision and Order would be issued in due course because of Respondent’s failure to file a timely written Answer.

On or about May 22, 2009, Respondent submitted written correspondence in this matter with the Registrar maintaining, among other things, that Respondent did not receive a copy of the Citation and Complaint in this matter. Respondent also stated that it had “been locked off this project since April 30, 2008 and denied access to this date.” On or about May 27, 2009, Respondent submitted written correspondence with the Registrar maintaining, among other things, that a review of the U.S. Postal Service website revealed that the Citation was not delivered to Respondent. Respondent further requested that this matter be closed due to an unreasonable denial of access of the part of Complainants. Attached to Respondent’s written correspondence was a copy of a letter from the Scottsdale Airpark Post Office providing, among other things, that “we believe that the [Respondent] may not have received notice that there was a certified item available for pick up at the post office.”

On or about June 29, 2009, Complainants submitted written correspondence with the Registrar providing, among other things, that Respondent chose to terminate his relationship with Complainants on or about April 29, 2008.

On or about January 19, 2010, Complainant Brian Nylund submitted written correspondence with the Registrar providing, among other things, that Respondent has been “sending out erroneous invoices and has gone so far as hiring a collection agency which is now affecting my credit reports.”

Upon review and consideration, and with good cause appearing, IT IS ORDERED that Respondent’s Request to Close this matter be DENIED. From a review of all of the documentation submitted in this matter it appears that there exists a factual dispute as to an alleged denial of access to Respondent.

IT IS FURTHER ORDERED that the January 20, 2009 Citation and Complaint be QUASHED as it appears such was not delivered to Respondent by the U.S. Postal Service. The Registrar will re- issue the Citation and Complaint in this matter, and mail such to Respondent’s correct and complete address of record in accordance with statutory requirements. A new deadline by which Respondent is required to file a formal written Answer will be set forth in the re-issued Citation and Complaint. If Respondent previously filed a written Answer in this matter Respondent must re-file any such Answer in accordance with the timeframe set forth in the re-issued Citation and Complaint.

Note: A.R.S. § [32-1155(C)] did not become law until September 26, 2008, almost four (4) months after Complainants filed their Complaint with the Registrar. As such, subsection (C) does not apply to this case.

(Emphasis in original.) On May 4, 2011, the Registrar issued a Re-Issued Citation and Complaint in Case No. 2008-41675151 against Respondent, charging violations of A.R.S. § 32-1154(A)(1), (2), (3), namely A.A.C. R4-9-108, (7), and (23). Respondent filed a timely written answer to the Re-Issued Citation and Complaint in Case No. 2008-41675151, denying any statutory violation and affirmatively alleging that since April 30, 2008, Complainants had denied access to Respondent to comply with the June 5, 2008 CWO or to complete the project. The Registrar referred the matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. A hearing was held in Case No. 2008-41675151 on August 24, 2011. Because Inspector Clark had passed away since he issued the June 5 and July 3, 2008 CWOs, Inspector Dennis Cook testified about the condition of the jobsite and the Registrar’s policies. Complainants submitted ten exhibits and presented the testimony of Mr. Nylund. Respondent submitted twenty exhibits and presented the testimony of three witnesses: (1) William “Bill” Dietert, Respondent’s foreman on the project; (2) Roger Stricklett, Mr. Nylund’s and Mr. Howard’s mutual acquaintance, who witnessed the contract negotiations between them; and (3) Mr. Howard. Hearing Evidence Before the dispute at issue developed, Mr. Stricklett, Mr. Howard, and Mr. Nylund rode motorcycles together. One morning they went to Mr. Nylund’s house after a motorcycle ride, and Mr. Nylund and Mr. Howard discussed over breakfast remodeling Mr. Nylund’s kitchen with new cabinets and granite countertops. Mr. Stricklett testified that the parties discussed both a fixed-price contract and a time-and-materials contract, but seemed to favor a time-and-materials contract. Mr. Howard prepared a Computer-Assisted-Design (“CAD”) plan for the layout of the new kitchen cabinets, and estimated that the kitchen remodel would cost approximately $32,000.00. Mr. Howard testified that the parties made a verbal contract that Respondent would perform the remodel under a time-and-materials contract, plus 25% for profit and overhead. Mr. Howard testified that no permit was required to replace the kitchen cabinets and countertops. Mr. Nylund chose the cabinets and granite for the countertops and on or about April 8, 2008, paid a $10,000.00 deposit to Respondent. On or about April 15, 2008, Mr. Nylund made a second payment in the amount of $10,000.00 for deposits on the granite, cabinets, dumpster, electrical, plumbing, and demolition. On April 18, 2008, April 22, 2008, and April 29, 2008, Respondent submitted invoices to Mr. Nylund for the costs of labor and material to date on the kitchen remodel job, plus 25% for profit and overhead. Mr. Nylund disputed that he ever agreed to pay Respondent for profit and overhead, or that the parties ever had any kind of agreement regarding how much Respondent would be paid or the scope of work. Mr. Nylund testified that he allowed Respondent to begin demolition in the kitchen because Mr. Howard said he had more than 30 years’ experience in construction and could get good deals on cabinetry, flooring, and other construction materials, and that he trusted Mr. Howard to provide a contract. On or about April 7, 2008, Respondent started demolition on Complainants’ kitchen. A leak developed in a water pipe in the concrete slab in the garage, and Respondent repaired the leak. Mr. Howard testified that after Respondent repaired the plumbing leak, Mr. Nylund decided to expand the scope of the project to have Respondent move the hot water heater and to construct a small office and laundry in the garage. Mr. Howard testified that Complainants’ house is 40 to 50 years old, and the sag in the kitchen ceiling was a preexisting condition caused by a sagging truss that Respondent discovered when it removed the dropped ceiling. Mr. Howard testified that when he tried to explain to Mr. Nylund that a structural engineer needed to be retained to prepare plans to repair the truss, Mr. Nylund balked at the expense. Mr. Howard testified that Mr. Nylund performed, or hired unlicensed contractors to perform, construction work after Respondent’s crew left for the day, including installation of ductwork, installation of a sink without a vent, and electrical wiring. Mr. Howard testified that as the scope of the project expanded, Mr. Nylund refused to incur the additional costs of the plans and permits that would be required, and insisted that he would not pay more than $32,000.00 for everything. On the evening of April 29, 2008, Mr. Howard left a message on Mr. Nylund’s telephone that he would be there in the morning to get his tools, and that he had a receipt for everything, and that he would sit down with Mr. Nylund to go through “every f---ing penny.” On the morning of April 30, 2008, Mr. Dietert showed up at Complainants’ house and found it locked, with Mr. Nylund inside refusing to admit Mr. Dietert and Respondent’s crew to continue work. Because Mr. Howard had a key to Complainants’ house, Mr. Dietert called him. After Mr. Howard arrived at Complainants’ house on April 30, 2008, Mr. Nylund still refused to allow Respondent’s crew into the house. Mr. Howard contacted the Mesa Police Department, who sent an officer to standby while Mr. Howard and Mr. Dietert retrieved Respondent’s tools from Complainants’ garage. On April 30, 2008, Respondent sent two letters to Mr. Nylund, one informing him that his refusal to allow Respondent’s crew into his house terminated the parties’ agreement and that certain tools were missing, and the other returning Mr. Nylund’s key. On May 2, 2008, Respondent sent an invoice to Mr. Nylund in the amount of $2,765.60 for materials and labor on the project as of April 30, 2008. Mr. Nylund testified that he considered the May 2, 2008 invoice to be fraudulent, especially since Respondent did not furnish the cabinets or countertops for which Mr. Nylund paid deposits. Mr. Howard testified that suppliers required custom cabinets and countertops to be paid for in full before scheduling delivery. On June 17, 2008, and June 23, 2008, Respondent sent letters to Mr. Nylund via certified mail, requesting access to comply with the June 5, 2008 CWO and attaching a proposed written contract that set forth the terms of the parties’ verbal agreement. Mr. Howard testified that Complainants refused to allow him to witness Inspector Clark’s jobsite inspections and have never allowed access for Respondent to comply with the June 5, 2008 CWO. Mr. Nylund testified that the terms of the proposed contract were too unreasonable for anyone to agree to, especially the 25% charge for profit and overhead. Mr. Nylund acknowledged that he never allowed Respondent access to correct the two items of workmanship on the June 5, 2008 CWO due to Respondent’s numerous statutory violations and Mr. Howard’s poor attitude. Mr. Nylund argued that the Registrar should unconditionally revoke Respondent’s license to prevent it from treating other homeowners so poorly. Respondent sent the May 2, 2008 invoice to a collection agency. Although Mr. Nylund did not pay the invoice, he testified that it adversely affected his credit. Inspector Cook testified that after he scheduled a prehearing jobsite inspection, Mr. Nylund called to say that there was no reason for an inspection because another contractor had completed and corrected Respondent’s work on the project. Inspector Cook testified that he reviewed Inspector Clark’s notes and the two CWOs before the hearing, and that Inspector Clark did not require Respondent to correct any items of workmanship other than the out-of-level outlets and uneven ceiling in the kitchen due to the incomplete stage of construction and lack of plans. Inspector Cook testified that the Registrar’s policy is that if a homeowner does not allow a properly licensed contractor to correct workmanship deficiencies, there is “not much” that the Registrar can do because restitution is not appropriate under such circumstances. Inspector Cook testified that it is up to the local building authority to determine whether a permit is required for a particular scope of work. According to the Registrar’s electronic record, Respondent’s license is current and in good standing, with no prior discipline. Only one complaint is pending against the license. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[1] Complainants bear the burden of proof and must establish Respondent’s statutory violations by a preponderance of the evidence.[2] Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.[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] Mr. Nylund’s testimony that the parties did not have any agreement about the scope of work or payment terms before Respondent started demolition on the kitchen was not credible. Mr. Nylund’s contention that a contractor is not entitled to profit and overhead was not reasonable. Respondent established that before April 29, 2008, Mr. Nylund demanded that Respondent expand its scope of work, but refused to pay for the expansion on a time-and-materials or fixed-price basis. Respondent established that Mr. Nylund locked Respondent off the job on April 30, 2008, after it indicated that it would not perform substantial additional work for no additional compensation, and refused to allow Respondent to complete the original project that it contracted to perform. Therefore, Complainants failed to establish that Respondent abandoned the contract in violation of A.R.S. § 32-1154(A)(1). Respondent established that Mr. Nylund locked Respondent off the job before it completed substantial construction on the kitchen remodel or the parties reached an agreement about who would be responsible for plans and permits for the expanded scope of work. Therefore, Complainants failed to establish that Respondent departed from plans, specifications, or building codes in its work at Complainants’ house in violation of A.R.S. § 32- 1154(A)(2). Complainants did not establish that Respondent committed a fraudulent act in violation of A.R.S. § 32-1154(A)(7). Construction is not a perfect art and, generally, a contractor should be afforded an opportunity to correct deficient workmanship before the Registrar suspends, revokes, or otherwise disciplines its license. As a licensed contractor whose license is current and in good standing, Respondent is presumed to have the expertise to complete construction projects in a professional, workmanlike, and timely manner. Respondent established that Complainants refused to provide reasonable access or to cooperate with Respondent to allow it to comply with the June 5, 2008 CWO. Because Complainants’ refusal of access provides a legal excuse for Respondent’s failure to correct the two items that the June 5, 2008 CWO required to be corrected, Complainants did not establish that Respondent violated A.R.S. § 32-1154(A)(3), namely A.A.C. R4-9-108, or A.R.S. § 32- 1154(A)(23). Because Complainants did not establish that Respondent violated any contracting statute, they have not established that they are entitled to restitution in any amount under A.R.S. § 32-1156.01. RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the Registrar’s final order in this matter, that the Registrar dismiss Case No. 2008-41675151 (former Case No. 08-4167) against Respondent Oso Contracting, L.L.C.’s License No. ROC208370. 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, September 12, 2011.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] See 32-1101 et seq. [2] See A.R.S. § 41-1092.07(G)(2); A.A.C. R2-19-119(A) and (B)(1); see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [3] See A.A.C. R2-19-119(B)(2). [4] Morris K. Udall, Arizona Law of Evidence § 5 (1960).

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