ALJDEC decisions subject to certification as final

2009A-20514879-ROC · Registrar of Contractors · 2014-05-05

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 14, 2014

APPEARANCES: Complainant Mark Bons appeared behalf of Complainants; the Residential Contractors’ Recovery Fund intervened in this matter and was represented by Assistant Attorney General Seth Hargraves; Respondent did not appear.

WITNESSES: James L. Barbour, Fund Claims Reviewer Mark Bons

ADMINISTRATIVE LAW JUDGE: Eric A. Bryant _____________________________________________________________________

Complainant seeks payout from the Residential Contractors’ Recovery Fund (“Fund”). The Fund appeared through Assistant Attorney General Seth Hargraves, challenging Complainant’s request. The parties agree that Complainant is eligible for recovery, but disagree as to whether Complainant has actual, compensable damages. As noted above, Respondent did not appear or participate. This tribunal entered Exhibits 1 through 6 submitted by the Fund, as well as Exhibit A from Complainant. Based upon the entire record, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law, and Recommended Order finding that Complainant has not shown an amount of actual damages. FINDINGS OF FACT 1. Respondent was the holder of License No. K-5.235772-D. The license was issued in July 2007 and was revoked in June 2009 due to a 2009 complaint filed by Complainants.[1] That complaint concerned a poorly built pool and backyard fixtures. Complainants hired Respondent to make corrections in 2007. Complainants paid Respondent $21,908.49 for the work.[2] Respondent botched the job twice. 2. Complainants filed a claim with the Fund on October 7, 2013. Complainants provided three bids for the repairs.[3] These bids are from 2010 and are from contractors who were properly licensed at the time. The bids also appear to be for repair or replacement that is not beyond the scope of the contract Complainants had with Respondent. The lowest bid is for $20,902.63. 3. The evidence shows that Complainants sold the home in October 2013 for a price of $425,000.00.[4] The sale documents show that Complainants disclosed the problems with the pool to the buyers.[5] It also appears that the buyers requested that Complainants repair the pool, but the specific repairs requested are not evident.[6] Complainants responded to the repair request by stating: “Per contract – pool/equipment sold AS IS. However, seller agrees to address the following pool repair requests: all GCFI’s, leak at spa pump, propane filled to test spa.”[7] 4. The Fund denied Complainants’ claim, finding that Complainants did not prove a “diminution in value” of the property and, therefore, have shown no damages. Complainants challenge that denial, and submitted Exhibit A at the hearing. 5. Exhibit A is a letter “To Whom It May Concern” from the buyers of the home. The letter is dated April 13, 2014 and is clearly intended to be used for this matter. The letter is signed but not notarized. It states that the buyers could have paid as much as $450,000.00 for the home, but paid $425,000.00. The buyers state that they would have paid up to the $450,000.00 if the pool had been “in fully functional condition without need of major repair.” 6. The Administrative Law Judge can give Exhibit A some weight, but not much weight. The letter is hearsay, which is allowed, but there is not enough information about the buyers from which to make a determination of its reliability. The buyers did not testify and the letter is not notarized. Notarization would provide some authenticity for the signatures, but would not add much weight. Without the testimony of the buyers (or at least one of them), not much weight is given Exhibit A. CONCLUSIONS OF LAW 1. The burden of proof at an administrative hearing is generally upon the person who brings the action.[8] Further, the standard of proof at hearing is by preponderance of the evidence.[9] The Fund denied payout because it found that Complainants had no actual damages as defined by statute. Here, Complainants bear the burden of showing, by a preponderance of the evidence, that they have actual damages as defined by statute and that the amount they claim is reasonable and proper. Complainants have not met the burden to show any particular amount of actual damages. 2. Complainants are injured persons within the definition in A.R.S. § 32-1131(3) and are, therefore, entitled to recovery from the Fund.[10] 3. Under the facts and circumstances of this case, the Registrar of Contractors is empowered to determine and award, based on actual damages, an appropriate payment to Complainant from the Fund pursuant to A.R.S. §§ 32-1132 and 32-1154(F). Complainants have the burden of establishing the amount of the award that is appropriate. 4. The statute authorizing the Fund to payout claims limits awards to “actual damages.”[11] Although it does so awkwardly, the statute defines what “actual damages” are, and how they may be established, in the second, third, and fourth sentences of subsection (A): [Second sentence] An award from the fund is limited to the actual damages suffered by the claimant as a direct result of the contractor's violation but shall not exceed an amount necessary to complete or repair a residential structure or appurtenance within residential property lines. [Third sentence] Actual damages shall not be established by bids supplied by or the value of work performed by a person or entity that is not licensed pursuant to this chapter and that is required to be licensed pursuant to this chapter. [Fourth sentence] If the claimant has paid a deposit or down payment and no actual work is performed or materials are delivered, the award of actual damages shall not exceed the exact dollar amount of the deposit or down payment plus interest at the rate of ten per cent a year from the date the deposit or down payment is made or not more than thirty thousand dollars, whichever is less. (Emphasis added.)

First, actual damages are defined in the second sentence as being a “direct result” of a violation of the ROC statutes. The “but” clause of the second sentence then further defines actual damages as the amount needed to repair or complete a project by stating that awards from the Fund are limited to no more than an amount necessary for repair or completion. The fourth sentence defines actual damages in the context of a contractual agreement when there has been a deposit but no work has been performed. The fourth sentence defines actual damages in the same way that the second sentence does, by stating a limitation to Fund awards in the deposit context. Finally, the third sentence prohibits use of certain evidence to establish actual damages. 5. This tribunal concludes that damages that are awardable from the Fund include only those that result directly from the violations found in the underlying complaint.[12] Here, Complainants have such damages. The property was directly damaged by Respondent’s poor workmanship and other violations. 6. At hearing, the Fund argued that Complainants no longer have any damages because they sold the property and cannot now have the repairs made with an award from the Fund. But A.R.S. § 32-1132(A) does not require a claimant to use the payout to repair the property. It merely uses the cost of repair or replacement as the means to quantify “actual damages.” There is no rule established by the statute that provides that an injured person waives the right to recovery from the Fund if the person sells the property.[13] Therefore, that argument from the Fund is rejected. 7. However, it is clear by the phrase “actual damages suffered by the claimant” that the Legislature intends for the Fund to discount an award with any reduction of damages through third-party recovery or other means. Recovery of damages from another source would reduce the amount “suffered” by a claimant. Therefore, in a case wherein a claimant has sold the damaged property to another, there may be a recovery, through that sale, of all or part of the actual damages that were suffered by the claimant. 8. The Notice and Order of Denial of Recovery Fund Claim (“Notice of Denial”) cites McMurren v. JMC Builders, Inc., 204 Ariz. 345, 63 P.3d 1082, (App. 2003) for the propositions that (a) a claimant who sells his house may still be an injured person, but (b) the cost of repairs are no longer the measure of damages. The Administrative Law Judge has carefully reviewed the McMurren case and finds that the court does state proposition (a), but does not state proposition (b). Furthermore, the Notice of Denial also states that when “damage to real property can no longer be measured by the cost to repair the damage . . .,” the measurement to be used is the difference between the market values of the property immediately before and after the injury, citing Mikol v. Vlahopoulos, 86 Ariz. 93, 95, 340 P.2d 1000, 1001 (1959) as support. Again, the Administrative Law Judge has carefully read the Mikol case and finds that it does not support the Fund’s statement in the Notice of Denial. In Mikol, the Arizona Supreme Court held: Generally, the measure of damages for a permanent injury to land, that is, an injury which will remain even though the cause has been abated, is the difference in the market value of the land immediately before and immediately after the injury. If the land may be put back in its original condition, the cost of restoration may be used as the measure of damages, if it does not exceed the diminution in the market value of the land.[14]

Here, the injury to the property is not permanent like it was in the Mikol case, so the difference in market values is not the measure of damage. However, the second sentence of the above quote supports, in principle, the Administrative Law Judge’s ruling above that, in a case wherein a claimant has sold the damaged property to another, any recovery, through that sale, of all or part of the actual damages suffered by the claimant, should reduce the amount of payout from the Fund. 9. In summary, in a case wherein an eligible claimant has sold the property that was damaged by the contractor, the damages recoverable from the Fund remain the cost of repair or replacement, but that amount can be reduced by any recovery from a third party, such as the contractor’s bond or the purchaser of the property who gives the claimant value for the damaged portion of the property. The inquiry in the case of sold property is whether or not the buyer gave the claimant any value for the damaged portion of the property and, if so, what value was given. 10. Here, the evidence does not show the amount of value given for the damaged property. Complainants have requested the lowest bid as the recovery amount,[15] but have not quantified any reduction in that amount that they received from the sale of the property. It is clear from the sale documents that the damaged pool was known to the buyers and appears to have been a consideration in establishing a purchase price. However, whether the purchase price was reduced due to the damaged pool and by how much is not stated in the sale documents, nor was it proven by adequate evidence at hearing. Complainants made the decision to sell the property before completing the claim to the Fund and they were in the best position to quantify the amount that the damaged pool reduced the purchase price. They have failed to do so. 11. In addition, Complainants bear the burden of providing a preponderance of evidence to support their claim that they have been damaged in the amount of the lowest bid. They have failed to do so because the evidence shows that they received an unspecified amount of recovery from the buyer. In that circumstance, the Fund should not pay an award. RECOMMENDED ORDER In view of the foregoing, IT IS RECOMMENDED that the Registrar of Contractors find that Mark and Margy Bons have not established an amount of actual damages for recovery from the Fund and close this case.

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 Decision will be 40 days from the date of that certification.

Done this day, May 5, 2014.

/s/ Eric A. Bryant Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] Exhibit 1. [2] Id. [3] Exhibit 1. [4] Exhibit 4. [5] Id. [6] Id. (Residential Buyer’s Inspection Notice and Seller’s Response at 1). [7] Id. (Residential Buyer’s Inspection Notice and Seller’s Response at 3). [8] Utah Construction Company v. Berg et al, 68 Ariz. 285, 205 P.2d 367 (1949); Arizona Administrative Code (A.A.C.), OAH Rule R2-19-119(B). [9] Smith v. Arizona Dept. of Transportation, 146 Ariz. 430, 706 P.2d 756 (App. 1985); A.A.C. R2-19-119(A). [10] For this reason, the holding in McMurren v. JMC Builders, Inc., 204 Ariz. 345, 63 P.3d 1082, (App. 2003), which construed the statutory definition of “person injured” found in A.R.S. § 32-1131(3), is not applicable to Complainants’ claim. [11] A.R.S. § 32-1132(A) (second sentence). [12] This does not include “diminution of value” in the property. [13] This is supported by dicta from the McMurren court: “Further, the ALJ's interpretation penalizes owners who are damaged but who transfer ownership of their property before making a claim against the Fund. Such impediments would thwart the Fund's legislative purpose of providing protection for owners whose residences are damaged by a contractor's substandard work.” 204 Ariz. at 351, 63 P.3d at 1088. [14] 86 Ariz. at 95, 340 P.2d at 1001 (citations omitted). [15] See Exhibit 1.

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