ALJDEC decisions subject to certification as final

2010A-308471985-ROC · Registrar of Contractors · 2011-05-05

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 18, 2011

APPEARANCES: Complainants appeared on their own behalf; Respondent was represented by General Manager for Production Victor A. Petersen, accompanied by Qualifying Party Vic Petersen, salesman Warren Petersen, Production Manager Justin Floyd, and Superintendent Greg Nelson.

WITNESSES: Geoff Galgan, ROC Inspector Matthew Perry Martha Perry Warren Petersen Justin Floyd Greg Nelson Victor A. Petersen

ADMINISTRATIVE LAW JUDGE: Eric A. Bryant _____________________________________________________________________

Complainants bring two complaints against Respondent in these consolidated actions. The Registrar of Contractors has cited allegations of violations of Arizona Revised Statutes (A.R.S.) § 32-1154(A)(2)(failure to follow plans, specifications, or building codes); (A)(3) by way of ROC Rule A.A.C. R4-9-108 (poor workmanship), (A)(7)(doing a fraudulent act that substantially injures another); (A)(16)(false or misleading advertising that may cause injury to the public); and (A)(23) (failure to comply with a Corrective Work Order). Respondent denies the allegations. This tribunal entered both complaint files received from the Registrar of Contractors into the record. The parties presented evidence, including marked Exhibits 1 through 6 submitted by Complainants and Exhibits A through G submitted by Respondent, and testimony at the hearing. Early in the hearing, Complainants noted that there were no workmanship items in the complaints. Therefore, only the allegations of false advertising and fraud were addressed at the hearing. Based upon the entire record, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law, and Recommended Order finding no violation. FINDINGS OF FACT 1. Respondent is the holder of license B.099261-R, a general residential contracting license issued by the Registrar of Contractors (“ROC”). The license authorizes Respondent to operate as a general contractor for residential projects. Vic Petersen is the Qualifying Party.

2. In late August 2009, Complainants and Respondent entered into a contract for Respondent to build a new house. According to the “Lot Purchase and Building Contract” (hereinafter “purchase agreement”) signed by Complainants, the contract documents also included plans, a “Standard Features List,” and “options addendum.”[1] 3. Complainants filed complaints against Respondent, one in March 2010 and one in September 2010, complaining about items or features that they allege were promised but not delivered to them. The complaints contain claims based on the contract documents and representations alleged to have been made by Respondent and do not address workmanship issues. Nevertheless, ROC Inspector Geoff Galgan inspected the jobsite on April 21, 2010 and wrote a Corrective Work Order (“CWO”). In that CWO, Inspector Galgan made conclusions about what was included in the contract between the parties. He also testified about those conclusions at the hearing. While this Administrative Law Judge usually gives deference to an ROC Inspector’s opinions about workmanship issues, such deference will not be given about the contractual and representation issues presented here. Instead, the Administrative Law Judge will look at the evidence directly and make his own conclusions. 4. Complainants claim fraud and false advertising by Respondent with regard to six items: a) a 14 SEER rated air conditioner was advertised and contacted for, but not received; b) variable speed air handlers for the air conditioner were advertised but not provided; c) Trane Vortica blowers were contracted for and not delivered; d) ceilings were to have flat paint by contract; e) block wall fences is not “ultra private” as contracted for; and f) HVAC system is not within “Energy Star Program” as contracted for.[2] 5. In support of the false advertising claims, Complainants submitted Exhibit 3 into evidence. Exhibit 3 is a flyer/poster created by Respondent and displayed in Respondent’s sales offices. It lists various features of Respondent’s homes under the heading “YOU GET MORE WITH A VIP HOME!” Two of the features that Complainants have highlighted are “14 Seer Units” and “Variable Speed Air Handlers.” At the bottom of the flyer/poster it states that the features are subject to change and to consult contract paperwork for “actual features.” 6. In support of the fraud claims, Complainants submitted contract documents in Exhibit 1, which includes the purchase agreement and an “Included Features” list (“Features List”). Complainants rely on the Features List for the claims that they should have received items 4a, 4c, 4d, 4e, and 4f listed above in Finding of Fact 4. Reference to those items appear in bullet points at various points in the list as follows: -High efficiency air conditioner (up to 14)

-Trane Vortica Blowers

-Sherwin Williams Paint washable at walls, Flat at ceiling

(Ultra private block fence

(Energy Star Program[3]

At the bottom of the Features List it states that features are subject to change and that one should refer to “the Detail Sheet for Complete and Current Features List.” 7. Respondent submitted into evidence several detail sheets signed by Complainants as Exhibits A, E, F, and G.[4] Those detail sheets reveal that the parties agreed to an Energy Star HVAC system,[5] an air conditioner described as “14 Seer Performance,”[6] “Trane Vortica Bowers,”[7] and a paint sheen level on the ceiling described as “eggshell/satin.”[8] As the purchase agreement noted, the detail sheet is part of the contractual agreement. 8. Finally, with respect to the block wall fence surrounding the backyard, Complainants submitted photographs showing that the back of the house abuts a hill and the backyard grading slopes up as it moves away from the house.[9] The photographs show that at some points on the fence, the top of the fence is about six feet above the ground. However, at one point in the very back corner of the yard, where the ground is sloping upward, the top of the fence is about four feet above the ground and is easy to look over. Complainants testified that this is not an “ultra private block fence” as listed in the Features List. Respondent countered with testimony that the privacy statement in the Features List refers to the fact that it is a block wall and not a chain link fence. CONCLUSIONS OF LAW 1. The burden of proof at an administrative hearing is generally upon a complainant.[10] Further, the standard of proof at hearing is by preponderance of the evidence.[11] Therefore, Complainants bear the burden of showing, by a preponderance of the evidence, that Respondent has violated the statutes cited in the Citation and Complaint.[12] Complainants have not met that burden. 2. As noted above, only the allegations of fraud and false advertising are at issue. A.R.S. § 32-1154(A)(7) prohibits contractors from “The doing of a fraudulent act by the licensee as a contractor resulting in another person being substantially injured.” The phrase “fraudulent act” has not been defined by the Arizona Legislature in the ROC statutes. At common law, fraud could be established through nine elements, as listed by the Arizona Supreme Court: In considering whether the evidence taken in its strongest light establishes actionable fraud, the plaintiffs must show a concurrence of nine elements, which are: "'(1) A representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) his intent that it should be acted upon by the person and in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) his reliance on its truth; (8) his right to rely thereon; (9) his consequent and proximate injury.'" [Citations omitted.][13]

The Court also noted that a claim of fraud cannot be based on unkept promises: In order that a representation constitute actionable fraud, it must relate to either a past or existing fact. It cannot be predicated on unfulfilled promises, expressions of intention or statements concerning future events unless such were made with the present intention not to perform. [Citation omitted]. "Were the general rule otherwise, every breach of contract could be made the basis of an action in tort for fraud." [Citation omitted].

Arizona's Court of Appeals has pointed out:

"A primary reason given for the rule not permitting predication of fraud on promises which are not subsequently kept is that a promise to perform in the future is not a representation which can be shown to be true or false at the time it was made, and therefore, a person has no right to rely, in a legal sense, on a representation of a fact not in existence." [Citation omitted.][14]

In addition, the Arizona Court of Appeals has affirmed a longstanding legal principle that fraud cannot lie where a written agreement sets forth the terms that are the basis for the claim of fraud. In Jones v. Chiado Corporation,[15], a claim of fraud was presented with regard to a signed mutual release agreement. After listing the nine elements of fraud, the Court of Appeals stated: It is element eight [right to rely] with which we are concerned here. In . . . Mut. Benefit Health & Accident Ass'n v. Ferrell, 42 Ariz. 477, 27 P.2d 519 (1933) . . . the Arizona Supreme Court held that where a person testified that he was induced to sign a release in reliance on false representations that the release will not discharge all the claims expressly covered in its terms, no cause of action for fraud may be maintained because, under such facts, no right to rely existed. The court stated:

[W]hen a party has an equal opportunity to read and examine a contract with the other party, it is his duty to do so, and, if he fails, he will not be permitted to avoid it on the ground that he did not read it or supposed it was different in its terms from what it really was. As the Supreme Court of the United States said in the case of Upton v. Tribilcock, 91 U.S. 45, 50, 23 L.Ed. 203 [1875]: "It will not do for a man to enter into a contract and, when called upon to respond to its obligations, to say that he did not read it when he signed it, or did not know what it contained. If this were permitted contracts would not be worth the paper on which they are written . . ." [Citation omitted.]

In light of these legal principles, Complainants fraud claims show themselves to be based on either unkept promises not reduced to writing or representations that Complainants had no right to rely on because a written agreement set the terms of their bargain. At best, Complainants claims are breach of contract claims that are more appropriate for civil court. 3. Arizona Revised Statutes § 32-1154(A)(16) prohibits contractors from engaging in “False, misleading, or deceptive advertising whereby an member of the public may be misled and injured.” The only advertisement provided was Exhibit 3, the flyer/poster displayed in Respondent’s sales office.[16] The Administrative Law Judge does not find Exhibit 3 to be false, misleading, or deceptive in light of the fact that it states that it is subject to change and states that it will be superseded by “contract paperwork.” 4. The evidence does not show violations of the statutes cited in the two Citation and Complaints issued in these matters. 5. These matters should be dismissed. RECOMMENDED ORDER Based on the foregoing, it is hereby recommended that Citation and Complaint 2010-[number redacted] and Citation and Complaint 2010-[number redacted] against Respondent VIP Construction, Inc. dba VIP Homes be dismissed.

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, May 5, 2011.

/s/ Eric A. Bryant Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] Exhibit 1. [2] This list is based on Complainants opening statement at the hearing. [3] Exhibit 1, p. 8 (emphasis in original). [4] The only difference in the detail sheets that are apparent are the dates they were signed. Those dates are not material to this case. With respect to the items at issue, the detail sheets are identical. [5] Exhibit A at 4. [6] Id. at 6. [7] Id. [8] Id. at 7. [9] Exhibit 6. [10] Utah Construction Company v. Berg et al, 68 Ariz. 285, 205 P.2d 367 (1949). [11] Smith v. Arizona Dept. of Transportation, 146 Ariz. 430, 706 P.2d 756 (App. 1985). [12] Culpepper v. State, 187 Ariz. 431, 437, 930 P.2d 508, 514 (Ct. App. 1996). [13] Staheli v. Kauffman, 122 Ariz. 380, 383, 595 P.2d 172, 175 (1979). [14] Id. [15] 137 Ariz. 298, 670 P.2d 403 (App. 1983). [16] The Features List was made part of the contract and is, therefore, not advertising.

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