ALJDEC decisions subject to certification as final

2010A-308472262-ROC · Registrar of Contractors · 2011-03-01

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: February 10, 2011, at 8:00 a.m. APPEARANCES: Complainant Fernwood Developments Ltd., L.L.C. appeared through Philip A. Overcash, Esq., Kutak Rock L.L.P.; Respondent Homechanix, Inc. appeared through John Becerra Palau, its qualifying party and president. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT In February 2006, the Arizona Registrar of Contractors (“the Registrar”) issued License No. ROC241913, Class KB-2 for dual residential and small commercial contracting to Homechanix, Inc. (“Respondent”). John Palau is Respondent’s qualifying party and president. Fernwood Developments Ltd., L.L.C. (“Complainant”) is a limited liability company that filed articles of organization with the Arizona Corporation Commission on or about March 18, 2009. On or about May 18, 2009, Complainant purchased a distressed 32-unit condominium development located at 15340 N. 25th St., Phoenix, Arizona (“the project”). The project consisted of eight 2-story buildings, each with two units on the first floor and two units on the second floor. Another developer started construction on the project, but abandoned construction in 2005. When Complainant purchased the project, transients were living in some of the units and vandals had stripped copper from the electrical and plumbing components. Many of the materials that had been incorporated into the project, such as exterior drywall and stucco, had deteriorated due to exposure to the elements. The permit for the project had expired. During August and September 2010, Respondent negotiated with Complainant for the contract to repair and complete the project. Because no current plans for the project existed and the permit had expired, Respondent based its bids on photocopies of the old plans. On or about September 28, 2010, the parties executed a contract for Respondent to act as general contractor in the repair and completion of the project, for a total contract price of $1,509,903.88. Mr. Palau testified that his original bid provided that Respondent would install 2¼” baseboards, but that the contract he signed provided that Respondent would install 3¼” baseboards, even though Complainant’s representative told him that the contract incorporated his bid, without any changes, and that he did not know about or approve the change when he signed the contract. Respondent’s contract excluded permits and permit fees. After Respondent started construction on the project, problems arose. For example, after Complainant’s on-site architect and project manager, Sake Reindersma, instructed Respondent to remove ceiling-mounted air conditioner units and related ductwork, the parties discovered that the units had been placed pursuant to an order of the City of Phoenix Building Safety Department. The City of Phoenix inspector required that fire dampers be installed in the first-floor condominiums to achieve the necessary fire rating. The addition of fire dampers lowered the ceilings of the first- floor condominiums and required the framing to be altered. Complainant was unable to locate the sewer tap for the project, and plumbing needed to be installed from the back of the project, rather than from the sewer tap at the front, as is customary. Mr. Reindersma ordered Respondent to cut into roof trusses to add gable end vents to the garages on the project, but refused to prepare a detail of the gable end vent until Respondent paid him. The changes and uncertainties delayed the project and increased the costs of completion. Complainant paid Respondent’s draw requests until January 2010. On or about February 1, 2010, Complainant deducted $10,000.00 from Respondent’s draw to pay for a $40,000.00 use/permit fee to Arizona Public Service Co. Complainant deducted $10,000.00 from Respondent’s next pay application, and refused to pay for remedial work that Respondent had performed at Mr. Reindersma’s direction. Both parties retained attorneys. On February 11, 2010, Respondent’s attorney issued a “Statutory Seven-Day Notice of Intent to Suspend Performance” based on its right to be paid under A.R.S. § 32-1129.04. Mr. Palau testified that he requested mediation, as the contract required, and that the parties asked the Registrar to perform a courtesy inspection to resolve any disagreements about workmanship, but Complainant refused, and the parties’ dispute escalated. Mr. Palau testified that Respondent’s last day on the project was February 18, 2010, and that he instructed his subcontractors to keep working on the project for Complainant. Complainant announced that it would obtain an independent, third-party inspection of the project. Mr. Palau testified that initially, he welcomed such an inspection, but he changed his mind when he learned that Mr. Reindersma and Terry L. Parker of Farm and Ranch Welding and Rep doing business as (“dba”) T L P Construction, License No. ROC221962, Class KB-1 (“T L P Construction”), would perform the inspection. Mr. Palau explained that Respondent’s relationship with Mr. Reindersma had become adversarial and that T L P Construction had competed with Respondent for the contract for the project. On or about February 24, 2010, Mr. Reindersma and Mr. Parker inspected the project and identified numerous incomplete or deficient items of construction. On February 26, 2010, Complainant’s attorney sent a letter to Respondent’s attorney, informing her that Complainant exercised its option under the contract to terminate the contract. In the letter, Complainant’s attorney quoted the termination clause of the contract that required Respondent to reimburse Complainant for the costs of hiring another contractor to complete the project. A day or two after Complainant terminated Respondent’s contract, Complainant hired Mr. Parker and T L P Construction to be the general contractor on the project. Some of Respondent’s subcontractors continued working on the project under T L P Construction’s supervision, but Mr. Parker terminated others. Some of Respondent’s subcontractors elected not to continue working on the project. T L P Construction hired new subcontractors to replace the ones that Mr. Parker had terminated or who had elected not to subcontract with T L P Construction. On April 8, 2010, the Registrar received Complainant’s attorney’s complaint against Respondent, alleging certain specific workmanship deficiencies. The complaint stated that Complainant had terminated the contract after paying Respondent $882,950.77, and requested that the Registrar require Respondent to pay $280,322.00 in restitution to Complainant “for its damages for the contractor’s defective and incomplete work.” The Registrar’s inspector, Mark Alyea, performed a jobsite inspection on April 27, 2010. Inspector Alyea testified that Mr. Palau, Mr. Reindersma, and Mr. Parker attended the jobsite inspection. Inspector Alyea testified that Mr. Palau was “adamant” that Respondent would not return to work on the project because Complainant had hired a new general contractor, Mr. Parker. On May 7, 2010, Inspector Alyea issued a Corrective Work Order (“CWO”) that required Respondent to perform certain corrective work within fifteen days, to wit: (1) To install 3¼” instead of 2¼” baseboards; (2) To reinstall electrical boxes, can lights, and duct work that was above the drywall at the ceilings of the upstairs units; (3) To complete the mechanical/storage rooms at the back patios; (4) To correct the installation of the flashing for the decks, upstairs entries, and back patios; (5) To install exhaust fans at the back of the units; (6) To drain and clean the bathtubs; (7) To repair excessive cracking in the exterior stucco; (8) To repair the front door entry casings; (9) To finish the drywall in the small closets in the master bedrooms; (10) To complete the drywall above the bedroom doors in two units; (11) To correct the void between the concrete floor and the stem wall in one unit; (12) To correct the drywall tape that was pulling away from the entry soffit in some of the units; (13) To remove grass that was growing out of the floor in the living room in one unit; (14) To complete the drywall above the bathroom door in one unit; (15) To install an expansion joint at the first floor on the side of the middle buildings on the north side of the project; (16) To repair the thin stucco around the entry doors of the units on the south side of the project; (17) To finish the drywall in all the units on the south side of the project; (18) To install the exhaust vents at the back patios to be flush with the drywall at the ceiling; (19) To repair the hole that was too large for the shower faucet in one unit; and (20) To repair the hole in the floor at the corner of the laundry room in the hallway of one unit. Inspector Alyea testified that all of the items on the CWO were “more or less punchlist items” that he would expect on any construction project. Inspector Alyea acknowledged that flashing can be reversed in a fiberglass decking system, that he had not seen the contract, but that Mr. Reindersma had told him that the contract required 3¼” baseboards, and that dropping the ceiling would modify the elevations of the soffits, can lights, exhaust vents, electrical boxes, and duct work. Inspector Alyea acknowledged that many of the items on the CWO indicated the incomplete state of the project at the time of his jobsite inspection, rather than indicating workmanship deficiencies. Mr. Parker testified that after Inspector Alyea issued the CWO, he instructed T L P Construction’s subcontractors to stop work for fifteen days. Mr. Parker testified that after the fifteen days passed, T L P Construction completed the project. On May 28, 2010, Complainant’s attorney informed the Registrar that Respondent “has defied the [CWO] issued on May 7, 2010,” and requested that the Registrar issue a citation against Respondent and “issue civil penalties against Respondent of $500 for each violation of A.R.S. § 32-1154 outlined in the [CWO].” (Emphasis in original.) On September 20, 2010, the Registrar issued a Citation and Complaint against Respondent, charging violations of A.R.S. § 32-1154(A)(1), (2), (3) (namely A.A.C. R4-9-108), and (23). Respondent filed a written answer to the Citation and Complaint, denying any statutory violations and affirmatively alleging that Complainant had refused to pay for materials and remedial work that its architect’s mistakes caused and had terminated Respondent’s contract on the project. The Registrar referred the matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. A hearing was held on February 10, 2011. The parties presented evidence to establish the facts set forth above. Inspector Alyea testified that he scheduled a prehearing jobsite inspection, but Complainant’s attorney informed him that a prehearing inspection was not necessary because the project was complete. Inspector Alyea testified that because he was unable to contact Mr. Palau, he went to the project at 10:00 a.m. on February 9, 2011. Inspector Alyea testified that the project appeared to be complete, the property was gated, and signs advertised that the units were for rent. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[1] Complainant bears the burden of proof and must establish cause for the Registrar to discipline Respondent’s license by a preponderance of the evidence.[2] Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.[3] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[4] 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.”[5] Respondent acknowledged that its work was incomplete when it left the job on February 18, 2010, and when Complainant terminated its contract on February 26, 2010. Respondent further acknowledged that it did not comply with the Registrar’s May 7, 2010 CWO. Respondent established that a good-faith dispute over payment caused it to leave the project and caused Complainant to terminate the contract. The good-faith monetary dispute that prevented Respondent from completing the project precludes a finding that cause exists for the Registrar to discipline Respondent’s license under A.R.S. § 32-1154(A)(1),[6] (2),[7] or (3) (namely A.A.C. R4-9-108).[8] Respondent also established that although Complainant technically allowed physical access to Respondent to comply with the CWO, as a practical matter, Respondent could not comply with the CWO because Complainant had hired another general contractor who had assumed control over the subcontractors on the project, and Respondent’s relationship with the new general contractor was adversarial. These circumstances provide a valid justification for Respondent’s failure to comply with the CWO and preclude a finding that cause exists for the Registrar to discipline Respondent’s license under A.R.S. § 32-1154(A)(23).[9] 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 dismiss Case No. 2010-[number redacted] against Respondent Homechanix, Inc.’s License No. ROC241913, Class KB-2. 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, March 2, 2011.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] See 32-1101 et seq. [2] 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). [3] See A.A.C. R2-19-119(B)(2). [4] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [5] Black’s Law Dictionary at page 1220 (8th ed. 1999). [6] This statutory subsection 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] This statutory subsection 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] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[v]iolation of any rule adopted by the registrar.” A.A.C. R4-9-108 requires that “[a]ll work shall be performed in a professional and workmanlike manner” and that “[a]ll work shall be performed in accordance with any applicable building codes and professional industry standards.” [9] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[f]ailure to take appropriate corrective action to comply with this chapter or with rules adopted pursuant to this chapter without valid justification within a reasonable period of time after receiving a written directive from the registrar.”

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