ALJDEC decisions subject to certification as final

2009A-7100159-ROC · Registrar of Contractors · 2010-09-22

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

RECOVERY FUND PAYOUT HEARING DATES: August 12, 2010 at 8:00 a.m. and September 7, 2010 at 8:00 a.m. APPEARANCES: Complainant Cesar J. Colmenero appeared on his own behalf; Respondent Sol Custom Construction, Inc. did not appear; the Arizona Registrar of Contractors appeared through Montgomery Lee, Esq., Assistant Attorney General. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT 1. On February 20, 2006, the Arizona Registrar of Contractors (“the Registrar”) issued License No. ROC217027, Class KB-2 for dual residential and small commercial contracting to Respondent Sol Custom Construction, Inc. Respondent’s address of record is 11623 W. Cyprus Dr., Avondale, AZ 85392- 4114. 2. On April 14, 2008, the Registrar received a complaint against Respondent from Complainant Cesar J. Colmenero alleging that Respondent had failed to complete two houses that it had contracted to construct at 1510 S. 177th Ave. in Phoenix, Arizona. The Registrar designated this complaint as Case No. 08-3736. 3. Complainant requested a hearing in Case No. 08-3736, and on November 7, 2008, the Registrar issued a Citation and Complaint against Respondent that charged violations of A.R.S. § 32-1154(A)(1) and (7). 4. Respondent filed a timely written answer to the Citation and Complaint in Case No. 08-3736, denying any statutory violations. Respondent affirmatively alleged that the parties had a partnership agreement for Respondent to provide the labor and materials, the Complainant to provide the financing to construct houses, and the parties to split the profits on sales of the houses. Respondent alleged that Complainant had breached the partnership agreement by withholding financing for continued construction. 5. The Registrar referred Case No. 08-3736 to the Office of Administrative Hearings (“the OAH”), an independent agency. A hearing was held before Administrative Law Judge (“ALJ”) Sondra Vanella on March 24, 2009. 6. On May 8, 2009, the Registrar accepted ALJ Vanella’s recommended decision in Case No. 08-3736. ALJ Vanella concluded that Complainant had established that Respondent violated the charged statutes and recommended that Respondent’s license be suspended until it provided proof that it had repaired and completed the two houses at 1510 S. 177th Avenue. 7. On September 8, 2009, Complainant filed a claim to the Residential Contractors’ Recovery Fund (“the Fund”) for a house located at 1314 S. 177th Ave. in Phoenix. Complainant provided copies of seventeen canceled checks made payable to Respondent, dated between January 26, 2007 and May 22, 2007, in the total amount of $356,900.00. 8. On October 20, 2009, the Registrar suspended Respondent’s license as a result of its failure to comply with the final order in Case No. 08-3736. 9. On June 1, 2010, the Registrar issued a Notice to Claimant of Recovery Fund Ineligibility because Complainant “did not intend to own and/or occupy the property as [his] permanent residence.” 10. On June 14, 2010, the Registrar received Complainant’s request for hearing. Complainant alleged that he intended to live in the house, that he lost everything because of the economy, and that the house was the only one he owned. 11. On July 2, 2010, the Registrar issued a Notice of Recovery Fund Payout Hearing. The Registrar sent a copy of the Notice of Recovery Fund Payout Hearing to Respondent at its address of record. 12. A recovery fund payout hearing commenced in the OAH on August 12, 2010, before the undersigned ALJ. 13. Complainant testified that the house at 1314 S. 177th Ave. was the back house at issue in Case No. 08-3736. Because he split the 2-acre lot, the county recorder assigned a new address to the back house. 14. Complainant testified that the front and back houses that formerly shared the address of 1510 S. 177th Ave. were almost identical. Complainant testified that he borrowed $151,900.00 to construct the back house (or unit B) and $176,496.52 to construct the front house because he intended to occupy the back house and wanted to keep his payments low. Complainant testified that at the time, Respondent was losing interest in performing the parties’ partnership agreement. 15. The Registrar submitted copies of the two contracts between the parties to construct the houses at 1510 S. 177th Ave. that Complainant had attached to his complaint in Case No. 08-3736. The contracts described the two houses that Respondent would construct at that address as follows: (1) A 2,585 square foot single-family house, designated unit A, for a total price of $180,000.00; and (2) A 2,085 square foot single-family house, designated unit B, for a total price of $150,000.00. 16. Complainant submitted copies of the checks that he had attached to his claim to the Fund. Five of the checks in the total amount of $108,500.00 referenced PO# 106[1]; three checks in the total amount of $64,000.00 referenced PO# 107; one check in the amount of $27,000.00 referenced PO# 107-108; one check in the amount of $29,000.00 looked like the PO# had been changed from PO# 107 to PO# 108, or vice versa; and four checks in the total amount of $30,180.00 contained no reference to any specific PO#. 17. The Registrar submitted a fully executed copy of the parties’ partnership agreement that Respondent had attached to its written answer in Case No. 08-3736. The partnership agreement was dated January 7, 2007, and provided that “[t]he primary purpose of the partnership is home building” on six properties, as follows: |PO# |Address | |104 |4122 E. Ridge Rd., Phoenix, AZ | | |85040 | |105 |4155 E. Darrow Rd., Phoenix, AZ | | |85040 | |106 |1314 S. 177th Ave., Goodyear, AZ | | |85338 | |107 |1314 S. 177th Ave., Goodyear, AZ | | |85338 | |108 |4310 E. Fremont, Phoenix, AZ 85042 | |110 |10228 E. Broadway, Mesa, AZ 85208 |

18. The Registrar moved for a directed verdict because Complainant’s evidence did not establish any damages to the house he purportedly intended to make his residence as a result of Respondent’s contracting law violations. The checks did not indicate whether PO# 106 or PO# 107 referred to the back house at 1510 S. 177th Ave. or the house at 1314 S. 177th Ave. 19. To allow Complainant to present additional evidence to establish that Respondent’s statutory violations damaged him, the ALJ scheduled a further hearing on September 7, 2010. The OAH sent a copy of the Order Setting Further Hearing to Respondent at its address of record. 20. At the further hearing, Complainant submitted an estimate from J & J General Contractor, License No. ROC219498, for $63,106.95 to repair and complete a house located at 1308 S. 177th Ave. 21. The Registrar presented the testimony of claim reviewer, Sylvia Arce. Ms. Arce testified that the Registrar contested Complainant’s intent to occupy the residence at 1314 S. 177th Ave. because the primary purpose of the partnership agreement was to build houses on speculation for eventual sale. In addition, Complainant’s evidence did not allow the Registrar to ascertain how much money Complainant had spent on the house that he stated on his claim to the Fund that he intended to occupy, as opposed to the houses that were built on speculation for sale. 22. Although the beginning of the hearing on both dates was delayed fifteen minutes to allow Respondent additional travel time, it did not appear, personally or through an attorney, or contact the Office of Administrative Hearings to request a continuance or that the start of the hearing be further delayed. Consequently, Respondent did not present any evidence. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[2] The Notice of Recovery Fund Payout Hearing and Order Setting Further Hearing that were mailed to Respondent at its address of record were reasonable. Respondent is deemed to have received the Notice of Recovery Fund Payout Hearing and Order Setting Further Hearing.[3] Complainant bears the burden of proof and must establish eligibility to recover from the Fund and the amount of his compensable damages by a preponderance of the evidence.[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] The Registrar’s final decision in Case No. 08-3736 established that Respondent’s violation of A.R.S. § 32-1154(A)(1)[7] and (7)[8] substantially injured Complainant. A.R.S. § 32-1131(3) defines a “person injured” who is eligible to recover from the Fund as “any owner of residential real property . . . which is actually occupied or intended to be occupied by the owner as a residence . . . .” To be eligible to recover any amount from the Fund, Complainant must establish that he intended to occupy as his residence the house at 1510-B or 1314 S. 177th Ave. when the parties entered the partnership agreement or when Respondent constructed the house.[9] The evidence of record failed to establish that prior to filing his claim to the Fund, Complainant had intended to live in one of these homes. Therefore, Complainant did not establish that he is eligible to recover any amount from the Fund. Complainant paid substantial amounts to Respondent to construct other houses on speculation for sale under the partnership agreement. Complainant did not establish that he paid the contract amount to complete the house at 1510-B or 1314 S. 177th Ave. Complainant also did not establish that J & J General Contractor’s estimate related to the house that Complainant testified at hearing that he intended to occupy. Therefore, Complainant has not established that Respondent’s proven statutory violations caused any actual damages under A.R.S. § 32- 1132(A)[10] to the house that he purportedly intended to occupy as his residence. RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the Registrar’s final order, Case No. 2009-7100159 be dismissed. 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, September 22, 2010.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] The record does not explain what the acronym “PO” stands for. As noted in Finding of Fact No. 17, Complainant’s and Respondent’s partnership agreement assigned PO#’s to each address at which they agreed to build houses. Complainant’s checks to Respondent referenced the PO#’s in the parties’ partnership agreement. [2] See 32-1101 et seq. [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] Black’s Law Dictionary at page 1220 (8th ed. 1999). [7] 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.” [8] This statutory subsection formerly included 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.” The former statute applied to the underlying workmanship complaint in Case No. 08-3736. [9] Cf. McMurren v. JMC Builders, Inc., 204 Ariz. 345, 347, 63 P.3d 1082, 1084 (App. 2003). In that case, after the residence in which the homeowner had been living at least part-time was damaged by fire, the homeowner hired the contractor to perform repairs. Because the dwelling was uninhabitable after the fire, the homeowner lived temporarily in a motor home parked in his driveway. The residence subsequently was turned into a group home. The court held that the homeowner had established that he was eligible for a payout from the Fund because he had lived in the residence when he entered the contract for the contractor to repair the damages and had lived at the residence while the contractor performed the repairs. See id. at 351, 63 P.3d at 1088. [10] This statute provides that 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 . . . .”

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