ALJDEC decisions subject to certification as final

2009A-45856494-ROC · Registrar of Contractors · 2010-12-10

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: November 29, 2010 at 8:00 a.m. APPEARANCES: Complainant Durham Communications, Inc. appeared through Crystal A. Russell, Esq.; Respondent Bolt Enterprises, L.L.C. appeared through Brad Zellers, its former managing member. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Overview 1. This case involves Brad Zellers’ entry into a subcontract with Complainant Durham Communications, Inc. (“Complainant” or “Durham Communications”) and Complainant’s subsequent complaint for non-payment. Both of these events occurred before the Registrar of Contractors (“the Registrar”) issued a license to the current named Respondent in this matter, Bolt Enterprises, L.L.C. (“Bolt Enterprises” or “Respondent”). 2. Robert Zellers and Brian Zellers are Brad Zellers’ brothers. Events subsequent to filing of the complaint established that Robert and Brian Zellers have no current business association with Brad Zellers or Complainant. The name that Brad Zellers chose for Respondent is similar to the name of Robert Zellers and Brian Zellers’ licensed contracting business, Bolt Security Monitoring Services, L.L.C. (“Bolt Security Monitoring”). 3. Brad Zellers is not listed on Respondent’s license or on the current articles of organization on file for Bolt Enterprises at the Arizona Corporation Commission. However, Brad Zellers represented Respondent at the hearing, is authorized to act on its behalf, and manages its operations. 4. After Brad Zellers entered into a settlement with Complainant, the Registrar closed the complaint that had been opened against Bolt Security Monitoring and issued a license to Respondent. After Complainant requested that the complaint be reopened due to Mr. Zellers’ breach of the settlement, the Registrar issued the Citation and Complaint against Respondent. 5. Based on the evidence summarized below, Complainant established not only that Respondent breached the settlement agreement without legal excuse, but that Respondent entered into the settlement solely to allow the Registrar to issue a license to Respondent. Complainant also established that Respondent’s license application obscured Brad Zellers’ managing role in Respondent’s operations because he is not qualified to be licensed in Arizona. Additional Background and Procedure 6. In May 1990, the Registrar issued License No. ROC086328, Class L- for commercial low voltage communication systems to Complainant. 7. In July 2005, the Registrar issued License No. ROC209951, Class K-67 for low voltage communication systems to Bolt Security Monitoring Services. 8. On or about February 24, 2009, the Registrar received Complainant’s complaint against “Brad Zellers of Bolt Enterprises.” 9. The complaint alleged that Brad Zellers and Bolt Enterprises owed Complainant $42,939.22 for work that Complainant performed pursuant to a subcontract at the Villagio condominiums in Tempe, Arizona (“the Villagio” or “the Villagio job”). According to the complaint, the amount of the contract was $69,370.12, and Complainant had substantially completed the contract work on December 18, 2008. 10. The Registrar designated Complainant’s complaint as Case No. 09-4585. The Registrar subsequently redesignated the complaint as Case No. 2009-45856494. 11. The Registrar referred the complaint to the attention of Bolt Security Monitoring. In March 2009, Brian Zellers informed the Registrar that “Bolt Security Monitoring Services is not involved with Bolt Enterprises and has nothing to do with this complaint filed with the [Registrar].” 12. In March 2009, Brad Zellers (hereinafter “Mr. Zellers”) on behalf Bolt Enterprises sent a letter to the Registrar that stated in relevant part as follows: Bolt Security Monitoring Services L.L.C. has no connection to this complaint or the jobs in question, does not have a business relationship of any kind with Bolt Enterprises, and is in fact a direct competitor of ours. . . .

Although we are working toward it, Bolt Enterprises is not a licensed contractor at this time. This is why we hired Durham Communications, ROC086328, to complete the work at two jobs [sic] sites, Aventura Community in Scottsdale and Villagio at Tempe. Complaint No. 09-4858 is specific to Villagio at Tempe. You will also find Complaint No. 09-4679 on record, filed by us against Durham Communications, that is specific to Aventura Community . . . .

As stated in their Villagio complaint, the last work performed by Durham was on 02/17/2009, at which time they completed much of the remaining list of unfinished items. Then the next day, on 02/18/2009 they filed the complaint for non-payment. After more than a year the Aventura job is still not completed, which is the basis of Complaint 09-4679. Our company views the unpaid balance in dispute as a reasonable hold-back and our only tool in getting these two jobs completed to specification and code. As of this letter [sic] they are not.

13. In April 2009, one Dave Butler[1] on behalf of Bolt Enterprises sent a letter to the Registrar’s inspector, in relevant part as follows: This is a follow-up to our telephone conversation of Monday, March 30, 2009. As I stated, we completed the ROC General/Business test on March 30th, and I’m pleased to say with a passing score. We will take the trade portion of the test in the next two weeks to secure a K-67 dual low voltage license. Other licenses may follow as we evaluate what supports our business best.

We have dropped our complaint against Durham Communications, ROC complaint 09-4679. We did this based on your input, and Durham’s verbal commitment to complete their remaining open items.

As for Durham Communications ROC complaint 09-4858, we have elected to begin a payment process despite their refusal of our offer. Our contract with Durham only required a 50% up-front payment, then the balance due upon completion, and we acknowledge that they are close enough to being done on both jobs for us to start the payments. After wrestling with them on these jobs for well over a year it will be good to be done in all respects.

14. On or about June 23, 2009, Complainant sent to the Registrar via facsimile a fully executed copy of a Settlement Agreement entered into that same date by Brian Durham on behalf of Complainant and Mr. Zellers on behalf of Bolt Enterprises. In Section 2 of the Settlement Agreement, Mr. Zellers on behalf of Bolt Enterprises agreed to pay Complainant $40,392.45 plus 6% annual interest in eight monthly installments of $5,220.95 each, with the first installment due on July 10, 2009. 15. The Settlement Agreement further provided in relevant part as follows: 3. Each of the parties by signing this Settlement Agreement, agree to be bound by each of the terms, conditions and covenants set forth in this Settlement Agreement, and do, on behalf of his or her or its representatives, heirs, successors and assigns, hereby irrevocably and unconditionally FOREVER RELEASE AND DISCHARGE each other from all claims, manner of judgments, damages, rights, suits, controversies, debts, sums of money, agreements, charges, grievances, demands, obligations, liabilities, actions, cause and causes of action of any and every kind, nature and character whatsoever, whether known or unknown, foreseen or unforeseen, which any party now has, has ever had, or in the future may have, arising from or in any way related to or arising from any claim or obligation, express or implied, relation to or associated with [Case No. 09-4585]. . . . .

5. Upon the receipt of all payments described in Section 2 above, Complainant shall prepare and file a Notice of Dismissal with the Arizona Registrar of Contractors advising that all payments have been made. Upon the receipt of all payments described in Section 2 above, Complainant shall release any and all passwords, manuals and other materials related to the Villagio system to Respondent.

16. On July 24, 2009, the Registrar issued License No. ROC257548, Class K-67 for dual low voltage communication systems to Respondent Bolt Enterprises. Two employees are listed on that license: Meredith LaRue, qualifying party, and John Nelson. Mr. Zellers is not listed on Respondent’s license. 17. On September 4, 2009, the Registrar issued an Order of Closing in Case No. 09-4585 because the parties had entered into the Settlement Agreement. 18. On November 2, 2009, Complainant informed the Registrar that Respondent had only made the first payment that Section 2 of the Settlement Agreement required and had changed the locks on the equipment, in violation of Section 5 of the Settlement Agreement. 19. On June 4, 2010, the Registrar issued an Order Quashing Order of Closing because “[a] review of the Complaint and settlement documents reveal that the named Respondent should be Bolt Enterprises, LLC, License No. 257548.” 20. On July 14, 2010, the Registrar issued a Citation and Complaint against Respondent’s license, charging a violation of A.R.S. § 32-1154(A)(11). 21. Ms. LaRue on behalf of Respondent filed a timely written answer to the Citation and Complaint, denying any statutory violation and affirmatively alleging that Complainant’s failure to perform warranty repairs excused Respondent’s failure to pay according to the terms of the Settlement Agreement. 22. The Registrar referred the matter to the Office of Administrative Hearing, an independent agency, for an evidentiary hearing. 23. A hearing was held on November 29, 2010. Complainant submitted eleven exhibits and presented the testimony of two witnesses: (1) Frank Puma, Community Manager of the Villagio condominiums, who provided documents and testified pursuant to Complainant’s subpoena duces tecum; and Brian Durham, Complainant’s general manager. Respondent presented the testimony of two witnesses: (1) Mr. Zellers, Respondent’s former managing member; and (2) Ms. LaRue, Respondent’s qualifying party. Additional Evidence Related Entities and Licenses 24. In May 2004, the Registrar issued License No. ROC196013, Class K-67 for dual low voltage communication systems to Northern Arizona Alarm, L.L.C. (“Northern Arizona Alarm”). Mr. Zellers was listed as a member on that license. 25. According to the records of the Arizona Corporation Commission (“ACC”), in January 2008, Bolt Enterprises, L.L.C. was incorporated, with Meredith LaRue as the sole member. 26. In October 2008, the Registrar suspended Northern Arizona Alarm’s license for failure to comply with the final order in Case No. A08-0094. The Registrar subsequently revoked Northern Arizona Alarm’s license after it failed to pay the $500.00 civil penalty imposed in Case No. A08-0094. 27. In September 2009, the Registrar of Contractors issued a second license to Bolt Enterprises, License No. ROC269220, Class L-16 for commercial fire protection. The same two employees, Mr. Nelson and Ms. LaRue, are listed on that license. Mr. Zellers is not listed on the license. 28. According to ACC’s records, in March 2010, Respondent Bolt Enterprises’ articles of organization were amended to remove Ms. LaRue as managing member and to add Mr. Zellers as managing member. 29. Bolt Security Guard Services is the trade name for a company that Mr. Zellers’ wife, Diana Zellers, owns. According to the records of the Arizona Secretary of State, the trade name was registered in May 2010. The Registrar has not issued any contractor’s license to Bolt Security Guard Services. 30. According to ACC’s records, in September 2010, Bolt Enterprises’ articles of organization were amended to remove Mr. Zellers as managing member and to add Ms. LaRue as managing member. The Contracts for Villagio at Tempe and Other Projects 31. In March 2007, Bolt Security Guard Services submitted a proposal to the Villagio to provide security guards and patrols for 56 hours per week, at a cost of $1,285.20 per week. The proposal was unsigned. 32. In October 2007, Bolt Security Guard Services submitted a proposal to the Villagio to “[i]nstall a complete Video Surveillance System,” including four nodes of Fire Tide wireless surveillance equipment. Mr. Zellers signed the proposal. 33. In January 2008, Northern Arizona Alarm submitted to the Villagio invoice no. 895 for $56,161.45 for “Video surveillance Systems 70% Down Payment on a Total Installation amount of $76,408.90.” Mr. Puma testified at the hearing that he did not know who Northern Arizona Alarm was. 34. In early 2008, a distributor of Fire Tide video surveillance equipment referred Mr. Zellers to Complainant. 35. In January and February 2008, Mr. Zellers hired Complainant to repair another contractor’s work and complete installation of Fire Tide video surveillance equipment at the Aventura condominiums. In March 2008, Complainant completed the work at Aventura and Mr. Zellers paid Complainant in full. 36. In March 2008, Mr. Zellers hired Complainant to furnish and install an access control system at the Advantage Office Suites and Cliffs sites, for a total contract price of $6,558.00. Complainant completed the work and Mr. Zellers paid most of the contract price. As of the date of the hearing, Mr. Zellers had not paid $1,392.45 of the contract price to Complainant. 37. In March 2008, Complainant submitted a proposal to Mr. Zellers at “Bolt Security” to install a 4-node Fire Tide video surveillance system at the Villagio, for a total cost of $69,370.12, plus taxes, payable 50% down and the remainder due at the completion of the job. The proposal did not include ongoing maintenance of the security system after it was installed. 38. Mr. Zellers accepted the proposal and paid Complainant $36,829.05 to begin the job. In July 2008, Complainant substantially completed the job at the Villagio and submitted invoices to Mr. Zellers for the equipment and labor to complete the job. 39. In June 2008, the Villagio Homeowners Association paid Bolt Enterprises $25,072.55. The amount was comprised of $1,003.36 for “June monitoring” and $24,069.19 for “balance of video sys.” Mr. Puma testified that Villagio had paid Respondent in full for installation of the video monitoring system. 40. In September 2008, Bolt Enterprises issued a punch list of items for Complainant to repair on the Villagio job. By the end of October, Complainant had completed all items on the punch list. 41. In November 2008, Bolt Enterprises issued another punch list of items for Complainant to repair on the Villagio and Aventura jobs. Mr. Durham testified that although he was beginning to suspect that Mr. Zellers was attempting to avoid payment to Complainant, it repaired the hardware issues at the Villagio. 42. Bolt Enterprises still did not pay Complainant. Instead, in January 2009, Mr. Zellers prepared a third punch list of items that allegedly required correction. After Complainant’s attorney attempted to negotiate an agreement with Mr. Zellers to resolve Complainant’s two outstanding invoices, Mr. Zellers submitted a fourth punch list in February 2009. At that point, Complainant filed the instant complaint to the Registrar. 43. After Respondent entered into the Settlement Agreement with Complainant to resolve its complaint to the Registrar, Respondent made one payment to Complainant, in the amount of $5,220.95 on July 10, 2009. As noted above, the Registrar subsequently issued License Nos. ROC257548 and ROC259220 to Respondent. 44. Mr. Durham testified that on the date of the hearing, Respondent owed Complainant $40,967.47 under the Settlement Agreement. 45. Mr. Zellers did not allege that Respondent had performed the settlement agreement. Instead, he argued that Complainant had failed to perform warranty work and failed to provide the security codes for the equipment that it had installed on the Villagio and Aventura jobs. When his attention was called to the terms of the Settlement Agreement, Mr. Zellers attempted to distinguish between claims involving the “physical installation” of the security system, which he opined that Respondent had released in the Settlement Agreement, and claims involving the operation of the system, which he opined that Respondent had not released. 46. Ms. LaRue testified that Complainant’s performance of the contracts for the Villagio and Aventura jobs was “up and down” and that Respondent had lost the monitoring contract at Aventura because of system malfunctions. Ms. LaRue admitted that she sent an e-mail to Mr. Durham on February 23, 2010, stating that the Fire Tide Equipment was still working. 47. According to the Registrar’s record, Respondent’s License No. ROC257548 is current and in good standing. This is the only complaint pending against the license. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[2] Complainant bears the burden of proof and must establish Respondent’s statutory violation by a preponderance of the evidence.[3] Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.[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] 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.”[6] A.R.S. § 32-1154(A)(11) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[f]ailure by a licensee . . . 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 or, if the licensee lacks the capacity to pay, when the licensee has received sufficient monies as payment for the particular construction work project or operation for which the services or materials were rendered or purchased.” Complainant established that Respondent in the Settlement Agreement released the claims that it attempted to raise at the hearing as affirmative defenses to Complainant’s claim for non-payment. Ms. LaRue’s and Mr. Zellers’ testimony about ongoing warranty issues also was not credible and appeared to be calculated to avoid paying Complainant. Therefore, Complainant established that Respondent violated A.R.S. § 32- 1154(A)(11) by failing to pay Complainant $40,969.47 for the Villagio job pursuant to the Settlement Agreement. Complainant also established three factors in aggravation of any penalty to be imposed as a result of Respondent’s proven statutory violation: (1) Respondent engaged in unlicensed contracting when it entered into the subcontract with Complainant;[7] (2) Respondent entered into the Settlement Agreement in bad faith, never intending to perform it, but solely to cause Complainant’s complaint to be closed long enough for the Registrar to issue a license to Respondent; and (3) Mr. Zellers is Respondent’s de facto managing member, despite having been listed on Northern Arizona Alarm’s revoked license, and is not qualified to manage Respondent’s contracting operations under A.R.S. §§ 32-1122(D)[8] and 32-1154(A)(10)[9] and (21).[10] RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the Registrar’s final order in this matter, Respondent Bolt Enterprises, L.L.C.’s License No. ROC257548, Class K-67 be revoked. It is further recommended that if on or before the effective date of the Registrar’s final order, the Registrar receives written proof from Respondent that is satisfactory to the Registrar that Respondent has paid Complainant Durham Communications, Inc. $40,967.47 by certified or cashier’s check, the Registrar not revoke Respondent’s license, but instead that Respondent’s Class K-67 license be placed on disciplinary probation for a period of 365 days, commencing on the date on which the Registrar receives Respondent’s proof that it has fully paid Complainant. 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, December 10, 2010.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] The record does not show Mr. Butler’s title or capacity at Bolt Enterprises. [2] See 32-1101 et seq. [3] 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). [4] See A.A.C. R2-19-119(B)(2). [5] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [6] Black’s Law Dictionary at page 1220 (8th ed. 1999). [7] It is unlawful for anyone without a contractor’s license in good standing to engage in contracting. See A.R.S. § 32-1151. “Commercial contractor” is defined as anyone who “does himself or by or through others” performs construction. A.R.S. § 32-1101(A)(3). [8] The statute requires the persons listed on a license, including the responsible managing employee under A.R.S. § 32-1127, to be of good character. Good character means that the person has not committed an act that would be cause for suspension or revocation of a license and was not named on another license that was revoked in another state. [9] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[a]iding or abetting a licensed or unlicensed person to evade this chapter, knowingly combining or conspiring with a licensed or unlicensed person, allowing one’s license to be used by a licensed or unlicensed person with intent to evade this chapter.” [10] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[h]aving a person named on the license who is named on any other license in this state or in another state which is under suspension or revocation unless the prior revocation was based solely on a violation of this paragraph.”

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