ALJDEC decisions subject to certification as final

2010A-308472308-ROC-rf · Registrar of Contractors · 2012-10-31

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: October 26, 2012

APPEARANCES: Complainants appeared through attorney Matthew Pierce, Esq.; Respondent did not appear; the Residential Contractors’ Recovery Fund intervened in this matter and was represented by Assistant Attorney General Elizabeth Campbell, Esq.

WITNESSES: None (stipulated record)

ADMINISTRATIVE LAW JUDGE: Eric A. Bryant _____________________________________________________________________

Complainants each seek a payout from the Residential Contractors’ Recovery Fund (“Fund”) for damages caused by Respondent. The Fund denied Complainants’ eligibility for payout from the Fund based on a finding that Complainants are not “persons injured” as that term is statutorily defined. Complainants appeal that ruling. The only issue for which the parties were given notice and for which the hearing was held is Complainants’ eligibility. That is the only issue addressed herein.[1] This tribunal entered the claim files received from the Registrar of Contractors (“ROC”) into the record. Complainants and the Fund stipulated to various marked Exhibits that are all part of that file, designated as Exhibits 1 through 9.[2] No testimony was taken. The parties (except for Respondent) filed written memoranda arguing their respective positions. Based upon the entire record, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law, and Recommended Order finding Complainants to be ineligible for recovery from the Fund because they do not meet the statutory definition of “persons injured.” FINDINGS OF FACT 1. Respondent was the holder of License No: B.212407-R, a general residential contracting license issued by the ROC. The license authorized Respondent to operate as a general contractor for residential projects. The license has been revoked. 2. The parties stipulated to the record because there is no factual dispute. At hearing, the parties also stipulated that Complainants intended The facts relevant to eligibility are substantially the same as to all three Complainants and there is no reason to distinguish between them. The relevant facts are as follows. 3. In 2005-2006, Respondent was developing condominiums. Complainants gave money to Respondent for lot reservations as “prospective buyers” of condominiums in the project.[3] Respondent abandoned the project and was found to be in violation of the contracting statutes.[4] As noted, Respondent’s license was revoked. 4. Complainants made claims to the Fund, which were consolidated. The claims sought to have the Fund reimburse the payments for the lot reservations.[5] The Fund issued a Notice to Complainants of Recovery Fund Ineligibility (hereinafter “Notice”).[6] The Notice states that Complainants do not meet the definition of “person injured” found in A.R.S. § 32-1131(3). That definition reads, in pertinent part: "Person injured" means any owner of residential real property which is classified as class three property under section 42-12003 and which is actually occupied or intended to be occupied by the owner as a residence including community property, tenants in common or joint tenants who are damaged by the failure of a residential contractor or a dual licensed contractor to adequately build or improve a residential structure or appurtenance on that real property. . . .

The Fund concludes that Complainants were not “owners” under the definition because they never held legal or equitable title to a condominium. The Fund does not dispute that those with equitable title to property can be considered “owners” under the definition; it does not require legal title. The Fund states, however, that Complainants have not shown that they held equitable title.[7] 5. Complainants assert that they are “owners” under the broadest reading of that term. They do not claim to have held legal title to the property; they claim equitable title. CONCLUSIONS OF LAW 1. The burden of proof at an administrative hearing is generally upon the person who brings the action.[8] Further, the standard of proof at hearing is by preponderance of the evidence.[9] Therefore, in this matter Complainants bear the burden of showing, by a preponderance of the evidence, that they are eligible for recovery from the Fund.[10] Complainants have not met that burden. 2. The issue is whether Complainants are injured persons within the definition in A.R.S. § 32-1131(3) and are, therefore, entitled to recovery from the Fund. The specific issue is whether Complainants were “owners of residential real property” at the time of the contract or at the time of the abandonment. The law and evidence shows that they were not. 3. Equitable title can be held under the doctrine of equitable conversion: Equitable conversion is a fiction devised by the common law as a solution to changed circumstances which arose after the creation of a valid contract for the sale of real estate but before the execution of a deed conveying legal title to the buyer. In other words, when the buyer contracts to buy and the seller to sell, although legal title has not yet passed, equity treats as done that which should be done.

Although Arizona follows the doctrine of equitable conversion, the doctrine applies only to real estate contracts that are capable of being specifically performed.[11]

Although Complainants have tried to apply this doctrine to themselves, they cannot do so because the facts do not fit. 4. Complainants entered into lot reservation agreements with Respondent, not real estate sales contracts. The agreements entered into between Complainants and Respondent are not sales contracts and are not proper for specific performance, as they would be if they were real estate sales agreements. At best, they were option contracts giving Complainants the right to choose lots and enter into purchase contracts at a later time. 5. The evidence does not show that Complainants had either legal or equitable title to real property. Therefore, they are not owners under the definition of “persons injured.”[12] 6. Complainants do not meet the definition of “persons injured” under A.R.S. § 32-1131(3) and are, therefore, not eligible for recovery from the Fund. RECOMMENDED ORDER In view of the foregoing, IT IS RECOMMENDED that the Registrar of Contractors maintain the conclusion that Complainants are not eligible for recovery from the Fund.

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 Decision will be 40 days from the date of that certification.

Done this day, October 31, 2012.

/s/ Eric A. Bryant Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] Because the legal issue in the same, all three claims have been consolidated for hearing and decision. [2] There are marked Exhibits 10, 11, 13, and 14 offered by Complainants (there is no 12; 13 and 14 are attached to the Opening Brief). However, it was not shown that these Exhibits are part of the complaint files or claim files. Since the only documents stipulated to are those in the complaint files or claim files, Exhibits 10, 11, 13, and 14 are not admitted for lack of foundation. [3] Exhibits 3, 5, and 8. [4] Exhibit 1 (Order issued January 12, 2011, adopting Administrative Law Judge Decision regarding Complainants Czupta and Wrobel); Exhibit 6 (same regarding Complainant Kogucki). The Findings of Fact from the Administrative Law Judge Decision that was adopted by the Registrar contain more specific factual findings regarding the violations. [5] Exhibits 2, 4, and 7. [6] Exhibit 9. [7] Id. [8] Utah Construction Company v. Berg et al, 68 Ariz. 285, 205 P.2d 367 (1949); Arizona Administrative Code (A.A.C.), OAH Rule R2-19-119(B). [9] Smith v. Arizona Dept. of Transportation, 146 Ariz. 430, 706 P.2d 756 (App. 1985); A.A.C. R2-19-119(A). [10] Culpepper v. State, 187 Ariz. 431, 437, 930 P.2d 508, 514 (Ct. App. 1996). [11] Passey v. Great Western Associates II, 174 Ariz. 420, 427, 850 P.2d 133, 140 (App. 1993) (citations omitted). [12] Complainants argument may also be characterized as an argument that they were prospective owners. However, the statute does not use that phrase and there is no reason to think that it was intended by the Arizona Legislature.

-----------------------

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