ALJDEC decisions subject to certification as final

2009A-4231705-ROC-rf · Registrar of Contractors · 2015-08-25

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: August 4, 2015 APPEARANCES: Complainant James Corcoran was represented by Jeff Adams. The Registrar of Contractors was represented by Assistant Attorney General John Tellier. ADMINISTRATIVE LAW JUDGE: Tammy L. Eigenheer _____________________________________________________________________ FINDINGS OF FACT On or about August 19, 2008, Complainant James Corcoran entered into a contract with Drewco Homes LLC (“Drewco”), license number 220805, to build a new home at 5980 W. Paso Bonito Trail, Prescott, Arizona. The original contract called for Drewco to build a 2,226 square foot home with a 905 square foot garage, a 686 square foot covered deck, and a 518 square foot open deck for a total project of 4,335 square feet. The contract included a spreadsheet breaking down the cost for the project into the various elements and a schedule of draws to pay for the project. The original contract price was $403,783.00. Complainant alleged that he had paid Drewco $163,603.00 of the total contract price. While some items in the contract were rather specific, i.e. “Danze Sonora collection, brushed nickel, single handle lavatory faucets, single handle kitchen faucet with spray, roman tub filler and two shower faucets (see attached pictures of each item). Elongated high line toilets in white porcelain. Jetted tub in master bath. Takagi TK 3-LP Gas tankless water heater mounted in garage”, other items in the contract were vague, i.e. “1/2 Log siding using #2 Pine.” Exhibit 2. On or about June 2, 2009, Complainant filed a complaint with the Registrar of Contractors (“Registrar”) alleging abandonment, poor work, disregard of plans or codes, and failure to provide documents regarding material costs. The Registrar assigned the complaint to its investigator John Prince. On June 15, 2009, and August 27, 2009, Investigator Prince inspected Drewco’s work. On or about September 3, 2009, Investigator Prince issued a Corrective Work Order (“CWO”) directing Drewco to remedy its defective work. On or about September 22, 2009, Complainant requested an administrative hearing. On or about February 12, 2010, the Registrar cited Drewco for abandonment, poor work, disregard of plans and specifications or building codes, failure to complete a project for the price stated in the contract or modification of the contract, knowingly contracting beyond the scope of its license, and failure to take appropriate corrective action. On or about July 15, 2010, the Office of Administrative Hearings held a hearing. The Administrative Law Judge’s findings of fact found that Complainant provided credible testimony and evidence that he had been required to correct Drewco’s construction errors and complete the construction of his new residence. The Administrative Law Judge’s conclusions of law found that the credible evidence established Drewco had violated provisions of A.R.S. § 32-1154(A)(1), (2), (3), (9), and (23). On or about August 26, 2010, the Registrar accepted the Administrative Law Judge’s decision. On or about November 24, 2010, as a direct result of Complainant’s complaint, the Registrar revoked Drewco’s license. In or about August 2009, Complainant engaged the services of Encore Construction, LLC (“Encore”) to finish and correct Drewco’s work while the underlying complaint was pending. On or about August 26, 2009, a bank account was opened in Encore’s name with the authorized signers of Kirk Petersdorf, Encore’s member and Qualifying Party; Shelly Petersdorf; and Complainant. At least 84 checks were written from Encore’s account to different material suppliers, laborers, and subcontractors, and all were signed by Complainant. The account was closed on or about January 25, 2010. On or about October 12, 2009, Complainant entered into an employment agreement with Ron Meneou, the officer and Qualifying Party for R and H Remodeling, Inc. (“R&H”). Under the employment agreement, Mr. Meneou would manage the completion of the construction of Complainant’s residence on a cost-plus basis with a 10 percent construction coordination fee. Mr. Meneou was also able to complete certain tasks related to the construction for $20.00 per hour. Between October 21, 2009, and January 7, 2010, Encore issued Mr. Meneou 25 checks totaling more than $27,000.00. On or about January 28, 2010, Complainant and Mr. Meneou, on behalf of R&H, executed an addendum to the October 12, 2009 employment agreement.[1] The addendum provided as follows: The contractor license of R and H Remodeling, Inc ROC179683, qualifying party, Ronald Alan Meneou will be used to complete the construction of 5890 Paso Bonito Trail, Prescott, AZ. The contractor’s license is currently in an inactive status. The homeowner agrees to incur any and all fees related to reactivating the contractor’s license. Furthermore, the homeowner agrees to assume and timely pay any and all accounting and banking fees and any and all tax obligations and consequences incurred during the completion of 5890 Paso Bonito Trail. The Contractor and Homeowner agree that all accounting functions will be handled through the office of the Homeowner. A bank account will be setup at Compass Bank for the duration of the project and shall be closed upon completion of the project.

Exhibit 9. On or about January 27, 2010, a corporate bank account at Compass Bank was opened in R&H’s name with the authorized signers of Mr. Meneou; Holly Meneou, R&H’s Vice President; and Complainant and a mailing address of 1923 W. Peoria Avenue, Phoenix, Arizona, the address of Complainant’s company. At least 138 checks were written from R&H’s account to different material suppliers, laborers, subcontractors, and 39 checks to Mr. Meneou, and all were signed by Complainant. On or about February 29, 2012, Complainant filed a claim with the Residential Contractors’ Recovery Fund (the Fund) alleging damages of $177,800.34. The Registrar requested additional documentation to determine if Complainant was eligible to access the Fund, including Yavapai County Assessor documents showing the legal land classification. Upon receipt of the requested information, the Fund began calculating Complainant’s actual damages. Complainant indicated payments for the project had come from at least nine different sources including the following: Drewco ($163,603.00), Amex card charges ($52,255.11), Compass bank line of credit ($71,913.85), Complainant’s personal bank account ($14,033.54), JD Medical Distributing Company, Inc. ($40,828.77), M&I Bank wires to subcontractors ($38,382.13), Encore ($85,482.76), R&H ($111,799.21), and a joint account Complainant held with his son, Joseph Corcoran ($3,084.97). Complainant provided copies of checks, draw request forms, invoices, spreadsheets, and bank statements to establish these payments were made. The Fund continued to request additional information to make its determination including cancelled checks, proof the draws were actually paid, Complainant’s contract with Encore, and Encore’s scope of work. On or about February 28, 2014, James Barbour contacted Mr. Petersdorf to request additional information including a copy of the contract between Complainant and Encore and copies of the cancelled checks. After more than two months had passed, Mr. Barbour received the cancelled checks from Complainant, but did not receive a copy of the contract between Complainant and Encore. After a review of the documents submitted, the Fund concluded that it was not able to calculate Drewco’s scope of work, and therefore, was unable to determine the cost to complete or repair Drewco’s work. In support of its conclusion, the Fund asserted that the increase in price from $403,783.00 to $581,583.34 showed that “change orders must have been executed.” Exhibit 1 at 8. The Fund also found that it could not determine the state of the project at the time that Drewco abandoned it to determine the cost to complete the work In email correspondence, Complainant raised issues to Drewco with numerous products used by Drewco in the construction, i.e. “[t]he laundry room has the cheapest looking hose connections for the washer that I have ever seen”, “the fireplaces that have been installed will not work at all”, “[t]he hardware on the back roof is unacceptable no matter if the architect called it out.” Exhibit 3. On or about April 29, 2009, Complainant stated that “[f]rom this point on, we need to agree on items being used on this project, I am spending too much money to have anything chosen without my input or approval.” Exhibit 3. Other correspondence discussed numerous possible change orders based on Complainant’s concerns including plumbing for different and/or additional sinks, adding a wet bar case and upper cabinets with a wine rack section, changing the front door and hardware, additional stone work, wood flooring in lieu of carpet, and glass block in the master shower. Exhibit 3 at 4-5. Complainant acknowledged that he had included upgrades in the final residence, such as the wood flooring rather than carpet. Complainant argued that the $177,800.34 he paid beyond the original contracted amount, while in part may be attributable to upgrades from the original plan, was largely the result of Drewco’s abandonment and poor work. Drewco did not request to appear telephonically at the hearing and did not request that the hearing be continued. Although the hearing continued throughout the day, Drewco did not appear through an authorized member, employee, or attorney. Consequently, the Drewco did not present any evidence. CONCLUSIONS OF LAW 1. This matter lies within the Registrar’s jurisdiction.[2] 2. The Notice of Hearing mailed to Drewco at its address of record was reasonable. Drewco is deemed to have received notice of Recovery Fund Eligibility/Payout Hearing.[3] 3. Complainant bears the burden of proof to establish his eligibility to recover a payout from the Fund by a preponderance of the evidence.[4]

4. “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[5] 5. Complainant is an injured persons within the definition in A.R.S. § 32- 1131(3)[6] and is, therefore, entitled to recovery from the Fund. 6. Under the facts and circumstances of this case, the Registrar is empowered to determine an award, based on actual damages, and to make an appropriate payment to Complainant from the Fund pursuant to A.R.S. § 32-1132[7] and A.R.S. § 32-1154(G).[8] 7. Complainant argued that because the difference in the initial contracted price and the final cost of the project was in excess of $177,000.00, the actual damages suffered by Complainant had to have exceeded the $30,000.00 maximum payout allowed by the Fund. 8. The original contract was overly vague in many respects and it is not possible to determine what the parties intended when they entered into the contract as demonstrated by the email communications that the materials Drewco used in the project were not acceptable to Complainant and Complainant’s requests to upgrade different parts of the project. As such, it is impossible to determine what was included in Drewco’s original scope of work. 9. It may be assumed that Drewco’s scope of work falls somewhere on the spectrum from the initial contract to the final project. However, to determine Complainant’s actual damages, it is necessary to determine exactly where on that spectrum Drewco’s scope of work falls compared to the work the other contractors performed to complete that scope of work and, ultimately, the cost of those contractors’ performance. 10. The only evidence presented was Complainant’s assertions and representations as to what the original contract included and what upgrades Complainant eventually requested. The absence of contradictory evidence does not render the evidence offered specific enough to determine Complainants’ actual damages. RECOMMENDED ORDER Based on the foregoing, it is recommended that Complainant James Corcoran’s claim to the Residential Contractors’ Recovery Fund in Case 2009- 4231705 be closed as Complainant did not establish that he is are eligible for a payout from the Residential Contractors’ Recovery Fund in any amount. 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 five days from the date of that certification. Done this day, August 25, 2015.

/s/ Tammy L. Eigenheer Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director Registrar of Contractors ----------------------- [1] R&H is a licensed contractor through the Registrar holding license B.179683-R. R&H’s license was suspended on October 12, 2009, when Complainant entered into the employment agreement with Mr. Meneou and was inactive on January 28, 2010, when Complainant and Mr. Meneou amended the contract to include R&H. See Exhibit 10. [2] See A.R.S. §§ 32-1101 to 32-1169. [3] See A.R.S. §§ 41-1092.04; 41-1092.05(D). [4] 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). [5] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [6] A.R.S. § 32-1131(3) provides as follows:

"Person injured" means any owner of residential real property which is classified as class three property under section 42-12003 and which is actually occupied or intended to be occupied by the owner as a residence including community property, tenants in common or joint tenants who are damaged by the failure of a residential contractor or a dual licensed contractor to adequately build or improve a residential structure or appurtenance on that real property. Included in this definition are lessees of residential real property who contract directly with a residential contractor or indirectly with a subcontractor of that contractor and homeowners' or unit owners' associations after transfer of control from the builder or developer for damages to the common elements within the complex.

[7] A.R.S. § 32-1132 provides, in relevant part, as follows:

A. The residential contractors' recovery fund is established, to be administered by the registrar, from which any person injured by an act, representation, transaction or conduct of a residential contractor licensed pursuant to this chapter that is in violation of this chapter or the rules adopted pursuant to this chapter may be awarded in the county where the violation occurred an amount of not more than thirty thousand dollars for damages sustained by the act, representation, transaction or conduct. 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. 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. . . .

[8] A.R.S. § 32-1154(G) provides as follows:

Notwithstanding any other provisions in this chapter, if a contractor's license has been revoked or has been suspended as a result of an order to remedy a violation of this chapter, the registrar may order payment from the residential contractors' recovery fund to remedy the violation. The registrar shall serve the contractor with a notice setting forth the amount claimed or to be awarded. If the contractor contests the amount or propriety of the payment, the contractor shall respond within ten days of the date of service by requesting a hearing to determine the amount or propriety of the payment. Failure by the contractor to respond in writing within ten days of the date of service shall be deemed a waiver by the contractor of the right to contest the amount claimed or to be awarded. Service may be made by personal service to the contractor or by mailing a copy of the notice by registered mail with postage prepaid to the contractor's latest address of record on file in the registrar's office. If service is made by registered mail, it is effective five days after the notice is mailed. Except as provided in section 41-1092.08, subsection H, the contractor or injured person may seek judicial review of the registrar's final award pursuant to title 12, chapter 7, article 6. An applicant to the residential contractors' recovery fund pursuant to this subsection must show that the applicant has proceeded against any existing bond covering the residential contractor and has not collected on the bond in an amount of thirty thousand dollars or more.

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