ALJDEC decisions subject to certification as final

2009A-7100488-ROC · Registrar of Contractors · 2011-06-14

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: May 25, 2011, at 1:00 p.m. APPEARANCES: Complainant Paul Moskovitz appeared through Scott Humble, Esq., Turley Childers Humble & Torrens, P.C.; Respondent Curiel Whitworth Construction dba C W C Company did not appear; the Arizona Registrar of Contractors appeared through Seth T. Hargraves, Esq., Assistant Attorney General. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________ FINDINGS OF FACT Background and Procedure 1. In August 2006, the Arizona Registrar of Contractors (“the Registrar”) issued License No. ROC222744, Class B for general residential contracting to Curiel Whitworth Construction doing business as (“dba”) C W C Construction (“Respondent”). Respondent’s address of record is 67 South Higley Road, Suite 103, Box 112, Gilbert, Arizona 85296-1167. 2. On or about December 20, 2006, Respondent entered into a contract with Paul Moskovitz (“Complainant”) to perform certain remodeling work at Complainant’s residence at 34392 North 99th Way, Scottsdale, Arizona 85262 for a contract price of $26,000.00. 3. On or about June 17, 2007, the Registrar received a complaint against Respondent from Complainant that alleged various deficiencies in Respondent’s work. The Registrar designated Complainant’s complaint as Case No. 08-0120. 4. The Registrar’s inspector, Scott Deering, performed a jobsite inspection in Case No. 08-0120. Inspector Deering found Respondent to be responsible for deficient work and issued a Corrective Work Order. 5. The Registrar issued a Citation and Complaint in Case No. 08- 0120, charging Respondent with violating A.R.S. § 32- 1154(A)(2), (3), namely A.A.C. R4-9-108, former (7), (15), and (23). 6. Respondent failed to file a timely answer to the Registrar’s Citation and Complaint in Case No. 08-0120. 7. The Registrar issued a Decision and Order in Case No. 08- 0120, finding that Respondent’s failure to timely answer the Citation and Complaint was deemed an admission of the charges contained therein under A.R.S. § 32-1155. The Registrar suspended Respondent’s license until it accomplished the work described in Complainant’s complaint and the Corrective Work Order. The Registrar also required Respondent to pay a $500.00 civil penalty under A.R.S. § 32-1154(D). 8. The Registrar suspended Respondent’s license for its failure to rectify the issues underlying the complaint and revoked Respondent’s license for its failure to pay the civil penalty imposed in Case No. 08-0120. 9. On December 23, 2009, the Registrar received Complainant’s claim to the Residential Contractors’ Recovery Fund (“the Fund”). The Registrar designated Complainant’s claim to the Fund as Case No. RF10-0488, and later redesignated the claim as Case No. 2009-7100488. 10. On January 28, 2011, the Registrar sent a letter to Complainant in Case No. 2009-7100488, informing him that it had determined to deny his claim to the Fund for the following reasons: Prior to Inspector Deering’s review of your claim, we received documentation that the home at 34392 N. 99th Way, Scottsdale, AZ had been conveyed through warranty deed, dated July 15, 2010 to Dallas L. and Mary J. Vernon, via a ‘short-sale’. You informed the agency that you did not have any further liability on your mortgage obligations for this property. The repairs of the project were not done prior to the sale of the property; therefore, the bids are no longer applicable to document your alleged loss as it applies to the required statutory analysis pursuant to A.R.S. § 32-1132(A).

On January 4th 2011 you submitted paperwork on the sale of the home. The paperwork was reviewed, and it is not evident that the workmanship issues of the complaint adversely impacted the sales price in any quantifiable amount. The Fund cannot use bids as a quantification of estimated loss where you are no longer able to perform the completion / repairs on the project.

Therefore, it does not appear that you meet the legal requirements of A.R.S. § 32-1131 et seq. to access the Fund due to your failure to demonstrate and support your allegations of compensable “actual damages” as defined by § 32-1132(A).

11. Complainant requested a hearing in Case No. 2009-7100488. The Registrar referred Complainant’s claim to the Fund to the Office of Administrative Hearings (“the OAH”), an independent agency, for an evidentiary hearing. 12. On February 23, 2011, the Registrar issued a Notice of Hearing in Case No. 2009-7100488. The Registrar sent a copy of the Notice of Hearing to Respondent at its address of record. 13. A hearing was held on May 25, 2011. 14. Respondent did not request to appear telephonically at the hearing and did not request that the hearing be continued. Although the duly noticed hearing did not conclude for several hours, Respondent did not appear, through an authorized officer, employee, or attorney. Hearing Evidence on Issue of Whether Complainant Established Compensable Damages that Make Him Eligible for a Payout from the Fund Respondent’s Appeal to Superior Court 15. On or about March 30, 2009, after the Registrar issued the Decision and Order in Case No. 08-0120, Respondent filed a Complaint for Judicial Review of Administrative Decision to the Maricopa County Superior Court (“appeal”). Respondent’s appeal was designated as Maricopa County Superior Court Case No. LC 2009-000217-001. 16. Complainant’s attorney appeared on his behalf in Respondent’s appeal in Case No. LC 2009-000217-001. 17. Montgomery Lee, Esq. of the State of Arizona Attorney General’s Office appeared on the Registrar’s behalf in Case No. LC 2009-000217-001. 18. On October 6, 2009, the Maricopa County Superior Court dismissed Respondent’s appeal in Case No. LC 2009-000217-001 because Respondent had failed to timely file an opening brief. 19. Complainant submitted at hearing an affidavit from his attorney that stated that he had incurred $15,457.50 in attorneys’ fees and $1,533.50 for costs in prosecuting Complainant’s complaint to the Registrar in Case No. 08-0120, defending Respondent’s appeal in Maricopa County Superior Court Case No. LC 2009-000217-001, and preparing a counterclaim to Respondent’s appeal, including a statement of costs in superior court.[1] The Net Cost to Repair Respondent’s Work 20. Doug Ulmer, who reviewed Complainant’s claim to the Fund on the Registrar’s behalf, testified that the Registrar’s goal for most workmanship complaints is to have the contractor perform corrective work. If the contractor fails to perform the corrective work, suspension or revocation of the contractor’s license for such failure is a necessary step for the homeowner to make a claim to the Fund. 21. Complainant attached to his claim to the Fund a low bid in the amount of $18,814.00 to repair and complete Respondent’s work. Complainant also claimed $3,500.00 to replace the allegedly undersized steam unit that Respondent had installed in the shower at his residence. 22. Mr. Ulmer testified that when Complainant filed his claim to the Fund, he met the Fund’s eligibility requirements because he was an owner-occupant as required by A.R.S. § 32- 1131 and an “injured person” as required by A.R.S. § 32-1132. 23. Complainant claimed that he paid Respondent $21,000.00 of the $26,000.00 contract price. Although Complainant submitted statements from his American Express credit card that showed payments to Respondent, the statements also showed credits. Complainant admitted at the hearing that although he believed he paid Respondent more than $15,000.00, he could only document having paid Respondent $15,000.00. 24. Mr. Ulmer testified that because Complainant did not pay the full contract amount to Respondent, he was in a “net gain situation.” Any damages that Complainant established would have to be offset against the money that Complainant owed to Respondent under the contract. Complainant’s Short Sale of the Residence 25. Complainant testified that he did not pay anyone to repair Respondent’s work because neither Respondent nor the Fund gave him any money. 26. On October 27, 2010, Complainant informed the Registrar in a letter than he sold the house in which Respondent had performed the work and that he had a new address. 27. The Registrar submitted a printout of a Warranty Deed that Complainant signed on July 21, 2010, to convey the property to the buyers. 28. Mr. Ulmer testified that after Complainant sold the house, the Registrar could not use bids to repair Respondent’s work to quantify Complainant’s damages because Complainant could no longer repair Respondent’s work. 29. The Registrar requested that Complainant provide evidence to establish that the sale price of his former residence was reduced in any amount due to Respondent’s poor work. 30. Complainant did not provide the evidence that the Registrar requested. Instead, on January 4, 2011, Complainant sent a letter to the Registrar, stating in relevant part as follows: Again I must state my frustration with this process as you are asking for information after the fact. The house closed on 8-9- and to ask for additional information documented in the contract is next to impossible.

My lawyer as well as myself was [sic] in contact with your office to make sure no other information was necessary on our part as me [sic] made it very clear the house was up for sale and was due to close in August.[2] [Footnote added.]

31. Complainant attached to his January 4, 2011 letter a printout of a Statistical Market Analysis for comparable properties, including his former residence. The Statistical Market Analysis did not state any negative value for Respondent’s poor work. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[3] The Notice of Hearing that the Registrar mailed to Respondent at its address of record was reasonable, and it is deemed to have received the Notice of Hearing.[4] Complainant bears the burden of proof and must that he is eligible to recover a payout from the Fund by a preponderance of the evidence.[5] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[6] The Registrar’s final Decision and Order in Case No. 08-0120 established that Respondent violated A.R.S. § 32-1154(A)(2), (3), former (7), (15), and (23). The violation of former A.R.S. § 32-1154(A)(7)[7] established that Respondent’s statutory violations substantially injured Complainant. After a contractor has been found to have violated A.R.S. § 32-1154(A), to be eligible to recover a payout from the Fund under A.R.S. § 32-1131(3), a claimant must establish that he owned and resided in a residential property during either one of two relevant time frames: (1) when the claimant entered the contract with the contractor for the work to be performed, or (2) when the contractor performed the work or committed the statutory violation that injured the claimant. See McMurren v. JMC Builders, Inc. (“JMC”), 204 Ariz. 345, 351 ¶ 11, 63 P.3d 1082, 1087 (App. 2003) (citing A.R.S. § 32-1131(3)).[8] Mr. Ulmer testified that Complainant met this statutory requirement. The issue at hearing was not whether Complainant was a “person injured” under A.R.S. § 32-1131(3),[9] but whether his claimed damages were compensable under A.R.S. § 32-1132(A). A.R.S. § 32-1132(A) limits a payout from the Fund to a claimant’s “actual damages”: 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. . . .

McMurren stated that a claimant who sold his house may still be an injured person under A.R.S. § 32-1131(3), but that under A.R.S. § 32-1132(A), the cost of repairs may no longer be the measure of his damages.[10] Where damage to real property can no longer be measured by the cost to repair the damage, the measure of damages “is the difference in the market value of the [property] immediately before and immediately after the injury.”[11] Despite the Registrar’s request, Complainant did not provide any evidence that he (or his mortgage company) received less for the house in the short sale than he would have received if Respondent’s poor work had been repaired. Complainant also argued that under A.R.S. § 32-1132(A),[12] he was entitled to a payout from the Fund for the attorneys’ fees he incurred in defending Respondent’s appeal in Maricopa County Superior Court Case No. LC 2009- 000217-001. The Registrar was not responsible for Respondent’s appeal or Complainant’s decision to hire an attorney to prosecute his claim to the Registrar and to defend Respondent’s appeal. A.R.S. § 32-1132(A) is in Article 2.1 of Chapter 10 of Title 32, entitled “Residential Contractors’ Recovery Fund.” The statutes at issue in the Registrar’s Decision and Order on Case No. 08-0120 and Respondent’s appeal in Case No. LC 2009- 000217-001, specifically, A.R.S. §§ 32-1154 and 32-1155, are in Article 3, entitled “Regulation.” These two articles were enacted at different times to address different issues. The legislature did not intend in A.R.S. § 32- 1132(A) to require the Fund to reimburse claimants for attorneys’ fees that they incurred in prosecuting claims against or in defending contractors’ appeals from the Registrar’s orders entered under A.R.S. §§ 32-1154 and 1155. RECOMMENDED ORDER In view of the foregoing, it is recommended that on the effective date of the Registrar’s final order, Case No. 2009-7100488 (former Case No. RF10-0488) be closed as Complainant Paul Moskovitz is ineligible to recover a payout from the Fund because he has failed to submit evidence to establish any compensable damages. 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, June 14, 2011.

/s/ Diane Mihalsky Administrative Law Judge Transmitted electronically to: William A. Mundell, Director Registrar of Contractors ----------------------- [1] The record in this matter does not show whether Complainant recovered any costs from Respondent in superior court. [2] Complainant did not produce at the hearing and the Registrar’s electronic file did not contain any earlier notice of the sale than Complainant’s October 27, 2010 letter. [3] See 32-1101 et seq. [4] See A.R.S. §§ 41-1092.04; 41-1092.05(D). [5] 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). [6] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [7] A.R.S. § 32-1154(A)(7) 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.” [8] In McMurren, after the residence in which the claimant 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 claimant lived temporarily in a motor home parked in the driveway. The residence subsequently was turned into a group home. The court held that the claimant had established that he was eligible for a payout from the Fund because he had lived in the residence when he entered the contract and during the time the contractor performed the repairs. See McMurren, 204 Ariz. at 351 ¶ 11, 63 P.3d at 1088. [9] A.R.S. § 32-1131(3) defines “person injured” in relevant part as follows:

[A]ny 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. . . . [10] McMurren addressed the issue of whether a sale of a property precludes a claim to the Fund, in relevant part as follows:

[T]he [Administrative Law Judge] 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. . . .

Additionally, the ALJ's interpretation would allow a person who purchases a damaged residence at a discounted price from an owner who hired a contractor who caused the damage to begin occupying that residence and make a claim against the Fund, even though both parties were aware of the damage before the sale. That interpretation would permit an otherwise uninjured but knowledgeable purchaser to orchestrate becoming a "person injured," but would deny compensation to an owner who knowingly sells a damaged residence at a reduced value before filing a claim, even though the owner resided, or intended to reside, in the residence at the time the contractor was hired or when the claim accrued. . . .

204 Ariz. at 351 ¶¶ 18, 19, 63 P.3d at 1088. Because the issue in McMurren was the effect of a change in use on an owner’s eligibility for a Fund payout, the quoted language is dicta. [11] Mikol v. Vlahopoulos, 86 Ariz. 93, 95, 340 P.2d 1000, 1001 (1959). [12] The relevant portion of A.R.S. § 32-1132(A) provides as follows: “Notwithstanding any other provision of law, monies in the residential contractors' recovery fund shall not be directly awarded for attorney fees or costs except in contested cases appealed to the superior court.”

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