ALJDEC decisions subject to certification as final

2010A-105902920-ROC · Registrar of Contractors · 2010-09-09

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: July 7, 2010

APPEARANCES: Complainant Roy Sooman appeared and was represented by attorney David Brnilovich, Jennings, Strouss & Salmon, PLC; Respondents were represented by attorney Daphne Reaume, Berk & Moskowitz, PC, accompanied by President and Qualifying Party of both Respondents Tom Frederick.

WITNESSES: Roy Sooman Tom Frederick

ADMINISTRATIVE LAW JUDGE: Eric A. Bryant _____________________________________________________________________

Complainant brings this action primarily alleging that Respondents aided and abetted unlicensed contracting activity. Respondents deny the charges. Prior to the hearing, Respondents filed a Motion to Dismiss Citation and Complaint, arguing for dismissal on the grounds of lack of standing, lack of ROC jurisdiction over a contract dispute, and lack of authority to award the relief requested (characterized as rescission of contract). Complainant responded with arguments against dismissal. This tribunal took the matter under advisement for ruling after the evidentiary hearing. After considering the arguments, the motion is denied. The ROC has authority to determine if Respondents have violated the provisions in the Citation and Complaint based on Complainant’s complaint.[1] This tribunal entered the complaint file received from the Registrar of Contractors into the record. At hearing, the parties offered Exhibits A through F and Exhibits 1 through 7, all of which were admitted. Based upon the entire record, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law, and Decision finding violations of the law and recommending revocation of the licenses. FINDINGS OF FACT 1. Respondent American Modular Service, Inc. (“AMS”) was the holder of a class KB-1 license (No. 143165), a dual building contractor’s license issued by the Registrar of Contractors (“ROC”). It authorized Respondent AMS to perform general residential and general commercial construction. Tom Frederick was Respondent AMS’s corporate President and Qualifying Party. Respondent AMS’s license was cancelled in September 2007. 2. Respondent RBW Consultants, Inc. (“RBW”) is also the holder of a class KB-1 license (No. 241609), a dual building contractor’s license. Tom Frederick is Respondent RBW’s corporate President and Qualifying Party. Respondent RBW’s license was issued in January 2008 and is current and active. 3. This complaint concerns a residence built on property known as “Laurel Cove Subdivision Lot #6” (hereinafter “Lot 6”). In November 2006, Complainant and his wife entered into an agreement with TM Development Group, LLC (“TM”) for the sale of the Lot 6 real property and construction of a new home on Lot 6 by TM.[2] Thomas M. Brown presented himself as the principal of TM and acted as its agent. There is evidence that neither TM nor Thomas Brown were licensed contractors at that time.[3] Furthermore, TM held itself out to Complainant as a contractor. Complainant did not check with the ROC to see whether TM was a licensed contractor. 4. In February 2007, the Lot 6 land was deeded from TM to Complainant and his wife. 5. In June 2007, Respondent AMS sold its corporate assets, including the use of the name “American Modular Service, Inc.,” to another entity. The corporate entity that was known as “American Modular Service, Inc.” did not dissolve, but remained an entity.[4] Although the parties purport that Respondent AMS sold its ROC license to the other entity, that is not legally possible as an ROC license cannot be sold or transferred. Therefore, Respondent AMS legally retained ROC license 143165.[5] 6. Respondent AMS failed to notify the ROC as to the sale of the use of the name “American Modular Service, Inc.” and failed to change its name with the ROC or otherwise cancel or inactivate the 143165 license at that time.[6] 7. In July 2007, Respondent AMS entered into a contract with TM to provide TM with “supervision” services for construction of the house on Lot 6.[7] Respondent AMS was paid $5,000. The agreement restricted Respondent AMS from obtaining or hiring subcontractors or approving payments. It appears that the parties intended that TM would perform those tasks, which are typically performed by a general contractor. The agreement proclaimed that TM was the owner of the Lot 6 real property and therefore TM presented itself to Respondent AMS as either an owner/builder for the project or that the project was a spec home being built for future sale. Tom Frederick testified that Respondent AMS believed that TM was a licensed contractor, but did not verify that belief with the ROC. Building a spec home is not exempted from licensure; an owner/builder who intends to occupy the home is exempted from licensure. In reality, however, TM did not own the property and was neither an owner/builder nor a licensed contractor building a spec home. TM was contracting without a license. 8. The same day that TM hired Respondent AMS as a “supervisor” in July 2007, TM obtained a construction permit from the City of Phoenix for the project on Lot 6. Complainant was listed as the owner of the property and Respondent AMS as the general contractor on the project. There is no evidence that Respondent AMS was aware of the contents of the permit at that time. Therefore, Respondent AMS did not make itself aware of the contents of the permit for the project of which it was the “supervisor.” 9. Based on the evidence submitted, Respondent AMS did little, if any, active supervision of the work on Lot 6 during the Fall of 2007. 10. On September 1, 2007, the entity who bought Respondent AMS’s assets and name, and who believed that it had bought Respondent AMS’s ROC license, cancelled the 143165 license.[8] It informed the City of Phoenix in October 2007 that the license had been cancelled.[9] Based on that information, the City of Phoenix put a hold on the permit for the Lot 6 project. Complainant did not find out about the hold until January 2008, when an issue with a lode bearing wall also arose. The evidence also shows that Respondent AMS did not know about the permit hold or the bearing wall situation until it was informed about it by Complainant in January 2008.[10] 11. In January 2008, Respondent RBW obtained a license (241609) and substituted itself into the Lot 6 permit as the general contractor. Tom Frederick signed a “Change of Record Affidavit” form with the City of Phoenix to make that substitution.[11] The form noted that the owner of the property was Complainant and not TM, but this had no apparent effect on Tom Frederick or Respondents. Respondent RBW took care of the bearing wall issue and then the project continued with TM performing as general contractor, even though not licensed. Respondent RBW did not inquire as to TM’s licensure status and does not appear to have taken over the duties of the general contractor on the project at that point. The project continued as it had before January 2008. Respondent RBW failed to understand that TM was contracting without a license.[12] At best, Respondent RBW remained willfully ignorant of TM’s licensure status. At worst, Respondent RBW knew TM was not licensed and allowed TM to continue operating as a general contractor. 12. The project was completed and a Certificate of Occupancy was issued. 13. At hearing and in post-hearing memoranda, Complainant asks for restitution of the purchase price of the home. CONCLUSIONS OF LAW 1. The burden of proof at an administrative hearing is generally upon a complainant.[13] Further, the standard of proof at hearing is by preponderance of the evidence.[14] Therefore, Complainant bears the burden of showing, by a preponderance of the evidence, that Respondents have violated the statutes cited in the Citation and Complaint.[15] Complainant has met that burden. 2. The Citation and Complaint alleges violations of Arizona Revised Statutes (A.R.S.) § 32-1154(A)(10), (A)(15), (A)(20), and (A)(13) by way of A.R.S. § 32-1124(B). Subsection (A)(10) prohibits aiding and abetting an unlicensed person to contract without a license. Subsection (A)(15) prohibits acting under a different name than the one for which the contractor is licensed. Subsection (A)(20) allows the ROC to discipline a licensee upon discovery of facts after the license has been issued that would have been grounds for denial of the license. And subsection (A)(13) prohibits violating any ROC statute, namely A.R.S. § 32-1124(B) which requires that a contractor’s proper name appear on all documentation. 3. The evidence is sufficient to show that Respondents have violated those statutes cited in the Citation and Complaint. 4. The evidence shows that Respondents were grossly negligent at best and intentionally deceptive at worst by entering into the arrangement with TM and by continuing it in January 2008. Respondents failed to check the licensure of TM, first as a routine matter in July 2007 and then when common sense dictated it in January 2008. The evidence clearly shows that both Respondents, through the Qualifying Party Tom Frederick, aided and abetted TM and Thomas Brown to engage in unlicensed contracting on Complainant’s project. The other allegations are also supported by the evidence. 5. Complainant’s restitution claim is a matter not clear on the record here, and is better suited for adjudication in the civil courts. This tribunal declines to award restitution in this case. 6. As noted, Respondent AMS’s license was cancelled. Pursuant to A.R.S. § 32-1154(C), the cancellation of the license does not deprive the ROC or this tribunal of jurisdiction and does not render the Registrar powerless to discipline the license in this matter. 7. Respondents’ conduct in this matter is unacceptable. As license holders, Respondents have a duty to make sure that they do not aid and abet unlicensed activity. This, at minimum, requires that the license status of all contractors that Respondents work with be verified through the ROC, an easy process. Failure to do so allows unscrupulous persons like TM to prey on folks like Complainant. 8. Under the circumstances of this case, this tribunal concludes that the appropriate remedy is to revoke the licenses. Respondents pose harm to the people of this state. RECOMMENDED ORDER IT IS RECOMMENDED that Class KB-1 license 143165, held by Respondent American Modular Service, Inc., and Class KB-1 license 241609, held by Respondent RBW Consulting, Inc., be revoked.

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, September 9, 2010.

/s/ Eric A. Bryant Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] Arizona Revised Statutes (A.R.S.) § 32-1155(A). [2] Exhibit F. [3] This was not verified by ROC records, but the parties did not contest it. [4] Even though Respondent AMS sold its name, the corporate entity remained and will continue to be identified in this Decision as Respondent AMS. [5] The buyers of Respondent AMS’s assets formed American Modular Services, LLC (“AMS LLC”). There is evidence showing that Tom Frederick was then hired by AMS LLC as a “License Manager.” It is unclear what Frederick’s duties were. AMS LLC obtained a license from the ROC (237307) on September 1, 2007. That license was cancelled in January 2008. [6] Information from the Arizona Corporation Commission, contained in the complaint file, shows that in May 2007, Respondent AMS changed its corporate name to “RBW AMS, Inc.” No name change was submitted to the ROC. [7] Exhibit B. [8] Exhibit C. [9] Id. [10] This is evidence of poor “supervision” by Respondent AMS. [11] Exhibit D. [12] Why would Tom Frederick need to create and license Respondent RBW so that it could be the general contractor on the permit if TM had a license? [13] Utah Construction Company v. Berg et al, 68 Ariz. 285, 205 P.2d 367 (1949). [14] Smith v. Arizona Dept. of Transportation, 146 Ariz. 430, 706 P.2d 756 (App. 1985). [15] Culpepper v. State, 187 Ariz. 431, 437, 930 P.2d 508, 514 (Ct. App. 1996).

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