ALJDEC decisions subject to certification as final

2010A-21209527-ROC · Registrar of Contractors · 2010-06-02

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: May 20, 2010 at 1:00 p.m. APPEARANCES: Complainant Jerry Hall appeared on his own behalf; Respondent Arizona Hydro Pro Carpet Clean dba Arizona Hydro Pro Construction appeared through Daxton R. Watson, Esq., Mack Drucker & Watson PLLC. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure On May 3, 2001, the Arizona Registrar of Contractors (“the Registrar”) issued License No. ROC164639, Class KB-2 for dual residential and small commercial contracting to Respondent Arizona Hydro Pro Carpet Clean dba Arizona Hydro Pro Construction, a limited liability company. Respondent’s qualifying party and managing member is Raymond Odom, Jr. On December 10, 2009, the Registrar received a complaint from Complainant Jerry Hall against Respondent’s license. Complainant alleged that Respondent had failed to pay Complainant $4,200.00 in wages at a rate of $20.00/hour for work performed at 11600 E. Saguaro Dr. in Scottsdale[1] between July 17, 2009 and August 27, 2009. The Registrar sent a copy of the complaint to Respondent for its immediate attention. On January 6, 2010, the Registrar received Complainant’s request that a citation be issued against Respondent’s license. On February 4, 2010, the Registrar issued a Citation and Complaint against Respondent’s license, charging A.R.S. § 32-1154(A)(10) and (11). Respondent timely filed a written answer to the Citation and Complaint, denying any statutory violation. Respondent’s qualifying party admitted that Respondent had hired Complainant to perform work, but affirmatively alleged that Complainant’s claim was a civil matter that could not be asserted because Complainant was unlicensed, that Complainant’s work was substandard, that the costs to repair Complainant’s work exceeded the amounts owed, and that Complainant had fraudulently inflated his claimed hours. The Registrar referred the matter to the Office of Administrative Hearings, an independent agency, to schedule and to conduct a fair hearing. A hearing was held on May 20, 2010. Complainant testified on his own behalf and submitted four exhibits. Respondent presented the testimony of its qualifying party, Mr. Odom, and submitted four exhibits. Hearing Evidence Respondent specializes in performing contracting work to remediate water damage to structures pursuant to contracts with property insurance companies. The value of the work required for remediation jobs may vary between a few hundred dollars and $100,000.00. Respondent’s contracting work is sporadic and uneven. Mr. Odom is Respondent’s only employee. For large jobs, he subcontracts out the work to appropriately licensed contractors. For small jobs, Respondent hires unlicensed independent contractors at a rate of $20.00 per hour to perform the remediation work required by Respondent’s contracts with insurance companies. Mr. Odom and his attorney argued that the so-called “handyman’s exception” set forth in A.R.S. § 32- 1121(A)(14) allows licensed contractors to hire unlicensed independent subcontractors to perform small insurance jobs if their wages and the costs of materials on the job do not exceed $1,000.00. Respondent also argued that A.R.S. § 32-1153 prevented Complainant from claiming more than $1,000.00 in unpaid compensation from Respondent in a complaint to the Registrar against Respondent’s license. Mr. Odom admitted that Respondent had hired Complainant to perform the remediation work on Respondent’s behalf for damage to the property at 11600 E. Saguaro Dr., which had occurred when a hot water heater had overflowed. Respondent submitted a blank document entitled “Sole Proprietor/ Independent Contractor Waiver,” which Mr. Odom testified all independent contractors are required to sign and which provided in relevant part as follows: I am performing work as Sole proprietor / Subcontractor for Arizona Hydro-Pro, LLC. I am not an employee of Arizona Hydro- Pro, LLC, for Worker’s compensation, State Withholding tax, health insurance or any other employee benefits. I understand that if I have any employees working for me, I must maintain Workman’s compensation and am responsible for paying any employee benefits to them.

I have / have not (circle one) attached a copy of my Arizona contracting license to this waiver. (If you have a license a copy must be attached.)

Mr. Odom testified that he had not had time to locate the form that Complainant had signed; Mr. Odom believed that Respondent’s bookkeeper had the signed form. Complainant testified that he had not signed a Sole Proprietor/Independent Contractor Waiver. Complainant admitted that he did not have a contractor’s license issued by the Registrar. Complainant testified that he believed that he was Respondent’s employee, not an independent contractor. Complainant submitted a series of Daily Time Sheets dated from Saturday, July 10, 2009 to Wednesday, August 26, 2009, which described time allegedly spent on the job at 11600 E. Saguaro Dr. and the work allegedly performed.

Mr. Odom supervised Complainant to some extent and some of Mr. Odom’s instructions were reflected on Complainant’s Daily Time Sheets. Mr. Odom went on vacation to Hawaii in August 2009, however, he did not return until Complainant had substantially completed the work at 11600 E. Saguaro Dr. Complainant also submitted copies of invoices that totaled $84.84, which he testified were for materials that he had purchased for the job. The total time claimed on Complainant’s Daily Time Sheets was 227.5 hours, which at $20.00/hour would require a payment of $4,550.00.[2] Complainant testified that, if the task was described and an amount of time provided, he had actually spent the time performing the task. He did not charge for some time if Mr. Odom had ordered him to repair the initial work or for other reasons. Mr. Odom testified that Complainant did not provide the Daily Time Sheets to Respondent until five or six weeks after the work had been completed, which made it impossible to verify the individual time entries. Mr. Odom testified that the time entries on Complainant’s Daily Time Sheets were excessive for the tasks described, duplicative, and contradictory. Respondent submitted an accounting of the hours that Complainant had submitted on the Daily Time Sheets for the tasks described therein, which showed 93 allowable hours. At $20.00/hour, 93 hours of labor would have been worth $1,860.00. Respondent’s accounting also reflected that Complainant had paid $80.86 for materials used on the job. Mr. Odom testified that Respondent had not paid anything to Complainant for the job because the costs of repairing workmanship deficiencies and collateral damage caused by Complainant exceeded the amounts owed to him for labor and materials. These costs included the following: 1. On July 28, 2009, Complainant had flipped an electrical breaker and, by mistake, had shut off power to the refrigerator-freezer. The mistake had not been noticed until the food in the refrigerator-freezer had spoiled and the smell of spoiled food had permeated the refrigerator-freezer. As a result, Respondent had to pay $1,024.00 to purchase a new refrigerator-freezer, $49.55 for the labor to purchase the refrigerator-freezer; $150.00 to remove and reset the refrigerator-freezer, and $100.00 to reimburse the homeowner for the spoiled food. 2. The smell of spoiled food had also permeated parts of the condominium, which required ozone treatment to deodorize the building, at a cost of $980.00. 3. Respondent also had to reset an exterior door that had to be removed to remove and replace the refrigerator-freezer, at a cost of $66.22. 4. Finally, Respondent had to pay other workman to repair Complainant’s deficient workmanship in patching drywall in the living room ($144.93), painting the ceiling of the living room ($215.00), painting the hallway ($125.00), cleaning Respondent’s overspray in the hallway ($111.34), and painting a wall in the bedroom ($215.00). According to the Registrar’s record, Respondent’s license is current and in good standing. There is no disciplinary history against the license and, apparently, this is the only complaint pending against the license.

CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[3] Complainant bears the burden of proof and must establish Respondent’s statutory violations by a preponderance of the evidence.[4] Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.[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] 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.”[7] A.R.S. § 32-1121(A)(14) concerns “[p]ersons who are not required to be licensed” and includes among the persons to whom Arizona contracting statutes do not apply the following: 14. Any person other than a licensed contractor engaging in any work or operation on one undertaking or project by one or more contracts, for which the aggregate contract price, including labor, materials and all other items, but excluding any electrical fixture or appliance that was designed by the manufacturer, that is unaltered, unchanged or unmodified by any person, that can be plugged into a common household electrical outlet utilizing a two pronged or three pronged electrical connector . . . is less than one thousand dollars. . . . The work or operations which are exempt under this paragraph shall be of a casual or minor nature. This exemption does not apply: . . . .

(b) In any case in which the work or construction is only a part of a larger or major operation, whether undertaken by the same or a different contractor . . . .

“In applying a statute, . . . its words are to be given their ordinary meaning unless the legislature has offered its own definition of the words or it appears from the context that a special meaning was intended.”[8] A.R.S. § 32-1121 applies to persons who are not required to be licensed, who may file suit against the property owners who hire them and do not pay in small claims or justice court, and who are not liable for unlicensed contracting in violation of A.R.S. § 32-1151. By its terms, A.R.S. § 32- 1121 has no application to licensed contractors like Respondent. “A cardinal rule of statutory interpretation is to give full effect to each statutory word or phrase so that no part is rendered void, superfluous, contradictory or insignificant.”[9] “Statutory provisions are to be read in the context of related provisions and of the overall statutory scheme. . . . The goal is to achieve consistency among the related statutes.”[10] Licensed contractors are required to comply with general labor statutes that require employers to provide workers’ compensation, social security, and unemployment insurance for their employees.[11] Nothing in A.R.S. § 32- 1121 or any other part of Title 32, Chapter 10 expresses any intent by the legislature to allow licensed contractors to evade the requirement that they comply with labor statutes through the fiction of calling the persons whom the contractor hires to do the contractor’s work “independent unlicensed contractors” and requiring them to sign, as a condition of employment, a “Sole Proprietor/ Independent Contractor Waiver.” Under Respondent’s own calculations, the compensation otherwise due to Complainant at a rate of $20.00/hour was $1,860.00, exclusive of offsets claimed and the materials used. Moreover, even if the compensation due to Complainant and the cost of the materials used did not exceed $1,000.00, presumably Respondent charged the insurance company for Respondent’s profit. Respondent’s practice of using the “handyman exception” to hire unlicensed contractors does not allow the Registrar to determine Respondent’s compliance with A.R.S. § 32-1154(A)(10). Respondent’s interpretation of A.R.S. § 32-1121 effectively would render A.R.S. § 32- 1154(A)(10) unenforceable, which is an absurd result. These legal authorities support the conclusion that Respondent as a licensed contractor was legally able to perform its contracting work only by hiring other appropriately licensed subcontractors or by hiring legal employees for whom Respondent complied with all applicable labor statutes. In any event, the value of the entire job exceeded $1,000.00, which renders the “handyman exception” inapplicable. Complainant in this matter therefore has borne his burden to establish that Respondent by hiring Complainant to do Respondent’s contracting work aided and abetted an unlicensed contractor, in violation of A.R.S. § 32-1154(A)(10).[12] A.R.S. § 32-1153 specifically concerns “court actions” and an administrative complaint to the Registrar is not a court action.[13] A.R.S. § 32-1153[14] therefore does not prevent Complainant from making a complaint to the Registrar of Contractors for unpaid wages in an amount greater than $1,000.00, even though Complainant is an unlicensed contractor. Respondent has established that Complainant’s time claimed on the Daily Time Sheets was excessive and that many of the tasks described were duplicative. With respect to the claimed offsets, although collateral damage or poor work may allow an Arizona employer to terminate an employee, the employer may not in most instances offset the wages otherwise due the employee to recoup the claimed expenses.[15] Respondent admits that it would have owed Complainant $1,860.00 if Complainant had performed the work in an expeditious and professional manner. Complainant therefore has established that Respondent violated A.R.S. § 32-1154(A)(11) by failing to pay him $1,860.00. RECOMMENDED ORDER Based on the foregoing, it is recommended that, on the effective date of the Registrar’s final order in this matter, the Registrar suspend Respondent Arizona Hydro Pro Carpet Clean dba Arizona Hydro Pro Construction’s License No. KB-2.164639-D until Respondent provides written proof that it has paid Complainant Jerry Hall $1,860.00. It is further recommended that if, on or before the effective date of the final order, the Registrar receives written proof from Respondent that it has paid Complainant $1,860.00, the Registrar should not suspend Respondent’s license and, instead, should close Case No. 2010-21209527. It is further recommended that, in addition to any license suspension that may result from this matter, Respondent’s Class KB-2 license be placed on disciplinary probation for a period of 30 days, commencing on the effective date of the Registrar’s order or the date on which Respondent files notice of compliance, whichever is later. 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, June 2, 2010.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] Evidence submitted at the hearing indicated that the property where the work was performed was actually located in Phoenix. [2] The record does not contain an explanation for the apparent discrepancy between the time sheets submitted and the amount claimed on the complaint to the Registrar. [3] See 32-1101 et seq. [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] See A.A.C. R2-19-119(B)(2). [6] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [7] Black’s Law Dictionary at page 1220 (8th ed. 1999). [8] Mid Kansas Federal Savings and Loan Ass’n of Wichita v. Dynamic Development Corp., 167 Ariz. 122, 128, 804 P.2d 1310, 1316 (1991). [9] Westburne Supply, Inc. v. Diversified Design and Construction, Inc., 170 Ariz. 598, 600, 826 P.2d 1224, 1226 (Ct. App. 1992). [10] Goulder v. Arizona Department of Transportation, 177 Ariz. 414, 416, 868 P.2d 997, 999 (App. 1993) (citations omitted). [11] See A.R.S. § 32-1154(A)(4). [12] 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.” [13] See Semple v. Tri-City Drywall, Inc., 172 Ariz. 608, 611-612, 838 P.2d 1369, 1372-73 (App. 1992) (Prevailing party in administrative claim before Registrar of Contractors was not entitled to attorney’s fees from its opponent under A.R.S. § 12-341.01(A) because administrative hearing is not an “action”). [14] This statute concerns “Proof of license as prerequisite to a civil action” and provides:

No contractor as defined in section 32-1101 shall act as agent or commence or maintain any action in any court of the state for collection of compensation for the performance of any act for which a license is required by this chapter without alleging and proving that the contracting party whose contract gives rise to the claim was a duly licensed contractor when the contract sued upon was entered into and when the alleged cause of action arose.

[15] See A.R.S. § 23-352.

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