ALJDEC decisions subject to certification as final

2009A-880725-ROC · Registrar of Contractors · 2011-12-05

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

RECOVERY FUND PAYOUT HEARING: November 16, 2011, at 8:00 a.m. APPEARANCES: Complainants James Hebets and Carol Hebets appeared through Jerome K. Elwell, Esq., Warner Angle Hallam Jackson & Formanek, P.L.C.; Respondent Ridgeline Design and Construction, L.L.C. appeared through Lawrence Carter Reid, its qualifying party and managing member. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure 1. In April 1994, the Arizona Registrar of Contractors (“the Registrar”) issued License No. ROC102054, Class B for residential general contracting to Ridgeline Design and Construction, L.L.C. (“Respondent”). 2. The Registrar received a complaint against Respondent from James Hebets and Carol Hebets (“Complainants”) alleging that Respondent abandoned an extensive remodeling project at Complainants’ existing residence at 5015 Lake Country Road in Flagstaff, Arizona, after Respondent had departed from plans and specifications on the project. The Registrar designated Complainants’ complaint as Case No. F09-0088. 3. Complainants requested a hearing and the Registrar referred Case No. F09-0088 to the Office of Administrative Hearings (“the OAH”), an independent state agency. 4. A hearing was held in Case No. F09-0088 in the OAH before Administrative Law Judge (“ALJ”) M. Douglas on March 17, 2010. Subsequently, ALJ Douglas issued a recommended decision to the Registrar, which made findings summarized in relevant part as follows: 1. Respondent abandoned the project in April 2008, and left Complainants with an unfinished residence;[1] 2. Subsequently, the parties became embroiled in civil litigation and on or about September 9, 2009, the superior court issued: (a) An order requiring Respondent to provide the plans for the project to Complainants, and (b) An order awarding Complainants $120,000.00 for damages and attorney’s fees;[2] 3. Complainants paid Respondent more that $60,000.00 for construction work that it had not completed when it abandoned the project;[3] 4. Respondent installed a septic tank and built a decorative wall on Complainants’ neighbor’s property, contrary to plans and without Complainants’ knowledge, and billed Complainants for this work;[4] and 5. Although Complainants had earlier considered purchasing a portion of their neighbor’s property, Respondent’s placement of the septic tank forced Complainants to purchase their neighbor’s property at a premium price.[5] 5. As a result of these and other factual findings in Case No. F09-0088, ALJ Douglas concluded that Complainants established that Respondent violated A.R.S. § 32-1154(A)(1),[6] (2),[7] former (7),[8] and (18).[9] As a result, ALJ Douglas recommended that the Registrar revoke Respondent’s license. 6. On or about April 29, 2010, the Registrar issued a final Order substantially adopting ALJ Douglas’ recommended decision in Case No. F09-0088. On or about October 7, 2010, the Registrar revoked Respondent’s license. 7. On or about October 22, 2010, Complainants made a claim to the Residential Contractors’ Recovery Fund (“the Fund”) for the damages caused by Respondent’s proven violations of A.R.S. § 32-1154(A). The Registrar redesignated Case No. F09- 0088 as Case No. 2009-880725. 8. On or about July 1, 2011, the Registrar issued a Notice of Claim for Administrative Payout in the amount of $30,000.00 in Case No. 2009-880725. 9. On or about July 18, 2011, Respondent requested a hearing on the proposed payout in Case No. 2009-880725. The Registrar referred the matter back to the OAH for an evidentiary hearing. 10. A Recovery Fund Payout Hearing was held on November 16, 2011. Complainants submitted one exhibit and presented the testimony of Complainant James Hebets. Respondent submitted six exhibits and presented the testimony of L.C. Reid, its qualifying party and managing member. Hearing Evidence 11. The $120,000.00 judgment in Complainants’ favor against Respondent was a partial summary judgment entered in Complainants’ cross-complaint against Respondent in the architect’s interpleader action against Complainants and Respondent in Coconino County Superior Court Cause No. CV 2008-332. After the hearing before ALJ Douglas and the Registrar’s final Order in Case No. 2009-880725 (formerly Case No. F09-0088), Complainants filed claims for additional damages against Respondent in Cause No. CV 2008-332. 12. On or about April 19, 2011, the parties entered into a Settlement Agreement and Mutual Release (“the Settlement Agreement”) to resolve Complainants’ remaining civil claims against Respondent in Cause No. CV 2008-332. The Settlement Agreement included the following relevant provisions: 3. The Parties agree to stipulate to a Judgment (the “Stipulated Judgment”) in the Lawsuit in favor of the Hebets and solely against Ridgeline in the amount of $45,000.00 plus interest at 4% per annum from the date of the Stipulated Judgment until paid in full. The Parties agree that the Stipulated Judgment shall be in addition to the First Judgment already obtained by the Hebets and referenced in the Recitals above.[10] The Hebets agree not to execute on the Stipulated Judgment unless and until Mr. Reid defaults on the Note discussed below, as described therein.

4. Mr. Reid, in repayment of monies paid to Tru-Cut Carpentry and for non-owned property improvements, agrees to execute a Promissory Note (the “Note”) in favor of the Hebets in the amount of $45,000.00 plus interest at the rate of 4% compounded annually, principal and interest to be paid in three annual installments of $15,929.83, commencing on June 1, 2011, with the balance to be paid in full by June 1, 2013. The Note shall be secured by a Deed of Trust on Collateral in favor of the Hebets.[11]

5. The Parties agree that the Hebets may pursue a claim at the Residential Contractors Recovery Fund (the “Recovery Fund”) administered by the Arizona Registrar of Contractors and Ridgeline may pursue defense of said claims. Any amounts obtained from the Recovery Fund shall be applied in satisfaction of the First Judgment only, and shall have no effect upon the amounts owed under the Note.

(Footnotes added.) 13. Mr. Reid testified that he made the first $15,929.83 payment that the Settlement Agreement required. 14. Mr. Reid testified that the $120,000.00 superior court judgment to which the recommended decision referred was solely for attorney’s fees. Mr. Reid argued that Complainants had not established any damages that qualified for a payout from the Fund. 15. Mr. Hebets testified that the $120,000.00 superior court judgment to which the recommended decision referred included the more than $60,000.00 in overpayments to which the recommended decision also referred. Mr. Hebets testified that Respondent had not done anything for the $60,000.00 that it had received from Complainants for services and materials on the project. 16. Mr. Hebets testified that the Settlement Agreement resolved his claims for additional damages that the partial summary judgment did not address, including the following: (1) More that $25,000.00 in interest that he was forced to pay on the construction loan due to the two-year delay caused by Respondent’s refusal to release the plans; (2) A difference of more than $25,000.00 between the price that Complainants were forced to pay to the neighbor for the land on which Respondent had installed the septic tank and the fair market value of the land; and (3) An additional $20,000.00 that Complainants paid to Respondent to install the septic tank at another location, from which Respondent had moved it to the neighbor’s land. 17. Mr. Reid denied that his refusal to release the plans delayed Complainants’ completion of the project and testified that they could have moved the septic tank back on their land at a lesser cost than the premium price they paid to their neighbor. Mr. Reid testified that the carpentry subcontractor did not complete the work because Complainants were behind on their payments. CONCLUSIONS OF LAW 1. This matter lies within the Registrar’s jurisdiction.[12] Complainants bear the burden of proof and must establish their eligibility for a payout and the amount of the payout from the Fund by a preponderance of the evidence.[13] Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.[14] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[15] 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.”[16] 4. The Registrar’s final Order in Case No. 2009-880725 (formerly Case No. F09-0088) established that Respondent violated the charged statutes. Therefore, Complainants are eligible for a payout from the Fund. The legislature has described the purpose of the Fund and has imposed the following limitations on the amounts of the payouts that the Registrar may award from the Fund in relevant part as follows: 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. . . . A.R.S. § 32-1132(A). The legislature has not authorized the Registrar to provide a payout from the Fund for attorney’s fees, interest, or consequential damages such as the premium price that Complainants were forced to pay for their neighbor’s land, even though a court may award these expenses in a homeowner’s civil action against a contractor. 5. It appears that Respondent in the Settlement Agreement agreed to pay Complainants $45,000.00 to reimburse them for potential civil consequential damages and attorney’s fees that the court did not address in the partial summary judgment in Coconino County Superior Court Cause No. CV 2008-332. In any event, the parties’ Settlement Agreement unequivocally excluded the damages that the court awarded to Complainants in the partial summary judgment that the Registrar’s final order in Case No. 2009-880725 (formerly Case No. F09-0088) referenced. 6. Although the legislature has required a plaintiff in a civil action to exhaust a contractor’s bond and to attempt to recover damages from the contractor’s personal or real property or other assets before the civil court may direct the Fund to satisfy a civil judgment,[17] the legislature has not imposed any similar requirements on claimants who make administrative claims to the Fund. The legislature also has not limited the combined damages that a property owner may recover from the contractor directly and from the Fund, so long as the payout to the property owner from the Fund is for compensable damages as defined by A.R.S. § 32-1132(A) that have not been recovered from any other source. 7. The Registrar’s final Order in Case No. 2009-880725 (formerly Case No. F09-0088) and Mr. Hebets’ hearing testimony established that Respondent’s proven statutory violations caused Complainants to incur more than $60,000.00 in damages as defined by A.R.S. § 32-1132(A). Complainants also established that they have not received compensation from any other source for the damages. RECOMMENDED ORDER In view of the foregoing, it is recommended that on the effective date of the Registrar’s final order, the Registrar order the Residential Contractors’ Recovery Fund to pay $30,000.00 to Complainants James Hebets and Carol Hebets. 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 5, 2011.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] See Recommended Decision at Finding of Fact No. 4. [2] See Recommended Decision at Finding of Fact Nos. 5, 7, and 8. [3] See Recommended Decision at Finding of Fact No. 16. [4] See Recommended Decision at Finding of Fact Nos. 10, 13, 14, and 15. [5] See Recommended Decision at Finding of Fact Nos. 11 and 12. [6] A.R.S. § 32-1154(A)(1) 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.” [7] A.R.S. § 32-1154(A)(2) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[d]eparture from or disregard of plans or specifications or any building codes of any state or any political subdivision of the state in any material respect which is prejudicial to another without consent of the owner or the owner’s duly authorized representative and without the consent of the person entitled to have the particular construction project or operation completed in accordance with such plans and specifications and code.” [8] 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.” The former version of the statute applied to Complainants’ workmanship complaint against Respondent. [9] A.R.S. § 32-1154(A)(18) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[c]ontracting or offering to contract or submitting a bid while the license is under suspension or while the license is on inactive status.” [10] The partial summary judgment was not submitted. The Settlement Agreement stated that the First Judgment “resolv[ed] a portion of the Lawsuit, in the amount of $114,981.74 on March 2, 2010, with interest thereon at 10% from that date, which was recorded with the Coconino County Recorder’s office on April 15, 2010, document number 3558956 . . . .” [11] The Settlement Agreement defined the Collateral as Mr. Reid’s fee interest ownership of real property described as “Sunridge Lot 119, Flagstaff, Arizona, parcel number 11718148, with the address of 5235 East Mockingbird Drive, Flagstaff, Arizona.” [12] See 32-1101 et seq. [13] 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). [14] See A.A.C. R2-19-119(B)(2). [15] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [16] Black’s Law Dictionary at page 1220 (8th ed. 1999). [17] See A.R.S. § 32-1136(D)(3) and (4).

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