ALJDEC decisions subject to certification as final

2010A-308472581-ROC-rf · Registrar of Contractors · 2013-05-23

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: May 8, 2013, at 8:00 a.m. APPEARANCES: Michael Joseph Perri and Roslyn Thompson (hereinafter “Complainants”) appeared through Michael Joseph Perri. The Registrar of Contractors appeared by and through Assistant Attorney General, Elizabeth A. Campbell, Esq. Nu Vista Homes Inc (hereinafter “Nu Vista” or “Respondent”) failed to appear. ADMINISTRATIVE LAW JUDGE: M. Douglas _____________________________________________________________________

Evidence and testimony were presented and the following Findings of Fact, Conclusions of Law and Recommended Order are made: FINDINGS OF FACT The Notice and Order of Recovery Fund Ineligibility provided, in relevant part, as follows: The Complainant(s) named above filed a claim for payment with the Residential Contractors’ Recovery Fund pursuant to A.R.S. § 32-1154(F). After a review of the claim and all supporting documentation, the Fund has determined, based upon A.R.S. § 32-1131 et seq., that the Complainant(s) is/are ineligible for a payment from the Fund for one or more of the following reasons: Complainants do not meet the legal definition of a “person injured” as required by § 32-1131.3.

Background and Procedural History:

On March 8, 2010, Mega Financial Services LLC (“Mega”) entered into a purchase contract with Shin Y. Su for the purchase of the residence located at 3310 E Huber in Mesa, Arizona. At the time of the contract, Michael Perri and Roslyn Thompson were the managing members of Mega and remain so today. At the time of the contract, the owner of the residence was Mega. Mega remains the owner of this property today.

On April 23, 2010, Michael Perri and Roslyn Thompson, on behalf of Mega filed complaint (2010-[number redacted]) with the Registrar of Contractors alleging poor workmanship. Inspector Beau Cruz reviewed the complaint and issued a Corrective Work Order on May 19, 2010. On September 15, 2010 a Citation and Complaint was issued by the Agency. On September 22, 2010, the Registrar received the Respondent’s written answer to the complaint. On February 11, 2011, the Agency issued a Notice of Amendment on the complaint informing the Respondent that on or about August 13, 2010, Complainant filed a Request to Amend the original April 23, 2010 complaint form to request that Mega be removed as the Complainant in this matter, and that Michael Perri and Roslyn Thompson be named in its place and that the Registrar accepts such amendment and its contents are incorporated into the original Complaint Form dated April 23, 2010 and Citation and Complaint dated September 15, 2010. The disciplinary case went to hearing before Administrative Law Judge Brian Brendan Tully on May 31, 2011.

The Registrar’s Order dated July 25, 2011, in relevant part, sets forth the following in the incorporated ALJ’s Findings of Fact:

“1. Shin Y. Su entered into an agreement with Mega Financial Services, L.L.C. (“Mega”) dated March 8, 2010, for the purchase of the Subject Residence. Those parties also entered into written Addendums (Finding of Fact #8); and 2. Shin Y. Su and Mega closed escrow on the sale of the Subject Residence on March 19, 2010. (Finding of Fact #11); and 3. On April 23, 2010, Mega filed a written Complaint with the Registrar alleging deficient workmanship by Respondent. The Registrar designated the Complaint as Case No. 2010-[number redacted] (Finding of Fact #13); and 4. On February 11, 2011, the Registrar issued a Notice of Amendment in Case No. 2010-[number redacted] that removed Mega as the named Complainant and substituted Complainants (Finding of Fact #18); and 5. Complainants have no privity of contract with Respondent (Finding of Fact #20).”

After the issuance of the Registrar’s Order, but prior to the imposition of the disciplinary terms in this Order, Respondent filed a Request for Rehearing. On June 28, 2012, the Agency issued an Order Denying Petition for Rehearing/Order Denying Request to Vacate/Order Setting Compliance Hearing. On August 7, 2012 a Compliance Hearing was held before ALJ Eric Bryant. On September 28, 2012, the Agency issued a Compliance Hearing Order in favor of Complainants and effective November 8, 2012, the Respondent’s license was immediately suspended by the terms of this Order.

On October 4, 2012, Michael Perri and Roslyn Thompson filed a claim with the Fund. The claim submission included a copy of the March 8, 2010, Purchase Contract, a properly executed Settlement Statement dated March 19, 2010, and copies of the 2010 Maricopa County Assessors documentation and a Warranty Deed signed March 17, 2010.

Analysis:

Complainants do not meet the legal definition of a “person injured” as required by § 32-1131.3. Section 32-1131.3 requires, as a threshold issue, that an applicant to the Fund be the owner of the subject property either at the time of contract execution or the date the injury accrued. Further, the owner must also occupy or intend to occupy the subject property at these relevant time periods. See McMurren v. J.M.C. Builders, Inc., 204 Ariz. 345 (App. 2003). A search of the Maricopa County Assessors/Recorders websites showed the property was owned by Mega in March 2010, when the purchase contract was executed and the injury accrued.

The Legislature, in adopting the statutory scheme pertaining to the Recovery Fund, chose to limit eligibility to access the Fund to individual ‘persons injured’ that ‘own’ and ‘occupies or intends to occupy’ the property as a ‘residence’ at the time of contract execution. The Fund has a fiduciary responsibility to ensure that only eligible applicants obtain compensation from the Fund. The monies in the Fund are held in trust for such purpose and the administration of such monies requires that all applicants bear their burden of proof to prove their eligibility. Mega has not and cannot bear that burden of proof, as Mega, a business entity, cannot occupy a residential structure as a residence.

While the definition of “person injured” has been amended numerous times since the Fund’s creation in 1981, the Legislature has never included in that definition a limited liability company, corporation, partnership, or similar business entity that by law, may own residential real property. As such, the Legislature did not intend that a corporation, partnership or LLC could meet the definition of a “person injured,” which it could have chosen to do. Moreover, the Registrar has never interpreted “person injured” to include a limited liability company. See U.S. Parking Systems v. City of Phoenix 160 Ariz. 210 (App. 1989)(judicial deference is afforded an agency charged with responsibility of carrying out specific legislation and agency’s interpretation of its own statutes should be given great weight). A legal business entity simply cannot occupy or intend to occupy property as a “residence” and Mega is therefore not a “person injured.”

Based upon all the foregoing this claim must be denied as ineligible.

Conclusion:

The Complainant(s) has fifteen (15) days from the date of mailing of this Notice to request, in writing, an administrative hearing to contest this ineligibility determination. Such request must be received by the Registrar no later than 5:00 p.m. on January 29, 2013.

If a timely written request for hearing is received, the matter concerning ineligibility shall be set for an administrative hearing. Complainant(s) may retain legal representation or Complainant(s) may represent himself/herself/themselves at the administrative hearing. At the administrative hearing, Complainant(s) will bear the burden of proof to establish eligibility pursuant to A.R.S. § 32-1131, et seq. . 2. Complainants disagreed with the Registrar of Contractors’ determination that they were ineligible for a payout from the Contractors’ Recovery Fund (hereinafter the “Fund”) and requested an administrative hearing. The Registrar of Contractors referred the matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. 3. A Recovery Fund Eligibility Hearing was held on May 8, 2013. Michael Joseph Perri (hereinafter “Mr. Perri”) testified on Complainants’ behalf and presented sixteen exhibits. The Registrar of Contractors presented the testimony of the Fund’s supervisor, Eric Ulinger (hereinafter “Mr. Ulinger”), and presented five exhibits. 4. Mr. Perri testified that Complainants were the owners of the residence located at 3310 Huber Street, Mesa, Arizona. Mr. Perri stated that the Complainants are also the owners of Mega Financial Services LLC (hereinafter “Mega Financial”). Mr. Perri testified that the residence was sold to Complainants, not Mega Financial, and that only the title for the residence was placed in the name of Mega Financial. Mr. Perri stated that the title was placed in the name of Mega Financial at the request of the seller. 5. Mr. Perri testified that Complainants had the right to transfer the residence from Mega Financial to Complainants at any time without the seller’s permission. Mr. Perri stated that, with the sole exception of the title to the property, all of the paperwork for the purchase of the property was in Complainants’ names, not Mega Financial’s name. 6. Mr. Perri testified that Complainants paid the loan payment and all utility bills for the residence through their personal account. Mr. Perri stated that the homeowners association shows the residence at 3310 Huber Street, Mesa, Arizona, as being owned and occupied by Complainants, not Mega Financial. 7. Mr. Perri testified that the Registrar of Contractors allowed Complainants to amend their workmanship Complaint against Nu Vista to indicate that they were the Complainants in the workmanship Complaint, not Mega Financial. Mr. Perri stated that Complainants would not have continued with the disciplinary process if Complainants had known that they would not be considered eligible for a payout from the Fund. Mr. Perri testified that the Registrar of Contractors should be bound by its approval of amending Complainants’ workmanship Complaint to identify Mr. Perri and Roslyn Thompson as Complainants in the place of Mega Financial. 8. Mr. Perri acknowledged that the warranty deed for the residence at 3310 Huber Street, Mesa, Arizona, identifies Mega Financial as the owner of the residence. Mr. Perri testified that Mega Financial did not reside at the residence. Mr. Perri stated that Complainants were the owner- occupants of the residence and that Complainants should be eligible for payment from the Fund. 9. Mr. Ulinger testified that he is the supervisor for the Fund. Mr. Ulinger stated that he was familiar with Complainants’ claim for damages from the Fund. Mr. Ulinger testified that he agreed with the determination that Complainants were not eligible for a payout from the Fund. 10. Mr. Ulinger testified that Mega Financial is shown as the owner of the residence located at 3310 Huber Street, Mesa, Arizona on the warranty deed and on the official records of the county assessor’s office. Mr. Ulinger stated that he personally checked the county records on May 7, 2013, and found that Mega Financial was still shown as the owner of the residence. 11. Mr. Ulinger testified that payment from the Fund is restricted to owner- occupants. Mr. Ulinger stated that Mega Financial cannot be an occupant of the residence because it is a limited liability company. Mr. Ulinger acknowledged that Complainants reside in the residence located at 3310 Huber Street, Mesa, Arizona. Mr. Ulinger testified that Complainants are not eligible for payment from the Fund because they are not the owners of the residence. CONCLUSIONS OF LAW 1. The burden of proof at an administrative hearing falls to the party asserting a claim, right, or entitlement and the standard of proof on all issues in these matters is by a preponderance of the evidence. See A.A.C. R2-19-119. 2. A preponderance of the evidence is “such proof as convinces the trier of fact that the contention is more probably true than not.” Morris K. Udall, Arizona Law of Evidence § 5 (1960). 3. A.R.S. § 32-1131(3) defines a “person injured” who is eligible to recover from the Fund as follows: "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. Included in this definition are lessees of residential real property who contract directly with a residential contractor or indirectly with a subcontractor of that contractor and homeowners' or unit owners' associations after transfer of control from the builder or developer for damages to the common elements within the complex.

4. The evidence established that the residence located at 3310 Huber Street, Mesa, Arizona is owned by Mega Financial. Complainants reside in the residence. 5. “Words contained in statutes are to be given their ordinary meaning unless the context in which they are used suggests another meaning.”[1] The Registrar’s statutes should be read together in light of their purpose “to regulate the conduct of those engaged in the business of contracting so as to discourage certain bad practices which might be indulged in to the detriment of the public.”[2] 6. A.R.S. § 32-1154(B)(2) defines “owner” to include limited liability companies and other legal entities,[3] but does not require owners to reside at the property to be eligible to make a workmanship complaint against a contractor for violations of A.R.S. § 32-1154(A). Only a natural person can reside at a property; a corporation or limited liability company cannot reside at a property. A.R.S. § 32-1131(3) does not expressly include members or trustees of legal entities among the owners who are entitled to recover from the Fund. 7. In interpreting a statute, “[w]e first consider the language of the statute and, if it is unclear, turn to other factors, including ‘the statute's context, subject matter, historical background, effects, consequences, spirit, and purpose.”’[4] If the Fund makes a payout to Complainants, A.R.S. § 32-1139(B) automatically suspends Nu Vista’s license by operation of law until it repays the amount of the payout, plus ten percent interest. A.R.S. § 32-1139(B) further provides that for purposes of the Registrar’s licensing statutes, that corporate officers for Nu Vista are personally liable for the payout.[5] This requirement is consistent with other statutes in Title 32, Chapter 10, that require corporate license applicants to list their officers, members, or directors on their license applications[6] and that the persons listed on a contractor’s license are personally responsible for its statutory violations.[7] 8. Nu Vista’s corporate officers are personally responsible for Nu Vista’s violations of A.R.S. § 32-1154(A) and are personally liable for any payout from the Fund that the Registrar may make to reimburse a claimant for the damages caused by Nu Vista’s statutory violations, even though Nu Vista is a corporation.[8] 9. The legislature recognized the difference between natural persons and the legal entities with which they may be associated when it declined to allow the natural persons listed on a corporate license to avoid responsibility for the corporation’s acts. 10. “Statutes are not interpreted in a vacuum . . . and legal relationships mandated by one statute cannot be ignored in interpreting another.”[9] “Where a term is used in one provision of a statute and omitted from another, that term should not be read into the section where it is omitted.”[10] The legislature knew how to pierce the corporate veil and ignore the corporate form when it saw a reason to do so in the Registrar’s statutes, but the language that the legislature used in A.R.S. § 32-1131(3) does not indicate that it intended to make eligible for Fund payouts natural persons who reside at a residence and are members of a limited liability company that owns the residence. 11. Complainants do not own the residence at 3310 Huber Street, Mesa, Arizona. Complainants do not meet the legal definition of a “person injured” as required by § 32-1131(3). A.R.S. § 32-1131(3) requires, as a threshold issue, that an applicant to the Fund be the owner of the subject property either at the time of contract execution or at the date the injury accrued. 12. This Tribunal concludes that Complainants failed to meet their burden to establish, by a preponderance of the evidence, that they are eligible for payment from the Fund pursuant to A.R.S. § 32-1131, et seq. RECOMMENDed order In view of the foregoing, it is recommended that this matter be closed because Complainants failed to establish that they are eligible for a payout from the Fund. In the event of certification of this 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 the certification. Done this day, May 23, 2013.

/s/ M. Douglas Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors

----------------------- [1] Sunpower of Arizona v. Registrar of Contractors, 166 Ariz. 437, 440, 803 P.2d 430, 443 (App. 1990). [2] See Sunpower, 166 Ariz. at 440, 803 P.2d at 443 (quoting Security Ins. Co. of New Haven v. Day, 6 Ariz. App. 403, 406, 433 P.2d 54, 57 (1967)). [3] A.R.S. § 32-1154(B)(2) defines “owner” as follows: [A]ny person, firm, partnership, corporation, association or other organization, or a combination of any of them, that causes a building, structure or improvement to be constructed, altered, repaired, maintained, moved or demolished or that causes land to be excavated or otherwise developed or improved, whether the interest or estate of the person is in fee, as vendee under a contract to purchase, as lessee or another interest or estate less than fee, pursuant to a construction contract. [4] McMurren v. JMC Builders, Inc., 204 Ariz. 345, 350 ¶ 12, 63 P.3d 1082, 1087 (App. 2003) (citing Norgord v. State ex rel. Berning, 201 Ariz. 228, P7, 33 P.3d 1166, ¶ 7 (App. 2001), quoting Hobson v. Mid-Century Ins. Co., 199 Ariz. 525, P8, 19 P.3d 1241, ¶ 8 (App. 2001)). [5] A.R.S. § 32-1139(B) provides in relevant part as follows: Any person who is or was, at the time of the act or omission, named on a license that has been suspended because of a payment from the recovery fund is not eligible to receive a new license or retain another existing license that also shall be suspended by operation of law, nor shall any suspended license be reactivated, until the amount paid from the fund is repaid as provided in this subsection. [6] See A.R.S. §§ 32-1101(A)(5) and 32-1122(B)(1)(d). [7] See A.R.S. § 32-1154(A)(21). [8] See Dietel v. Day, 16 Ariz. App. 206, 208, 493 P.2d 455, 457 (1972) (“[A] legitimate purpose of incorporation is to avoid personal liability and if the corporate fiction is too easily ignored and personal liability imposed, then incorporation is discouraged.”). [9] Hughes v. Industrial Commission, 113 Ariz. 517, 520, 558 P.2d 11, 14 (1976) (citing McClain v. Church, 72 Ariz. 354, 236 P.2d 44 (1951)). [10] U.S. Parking Systems v. City of Phoenix, 160 Ariz. 210, 211, 772 P.2d 33, 34 (App. 1989) (citing Dunlop v. First Nat’l Bank of Arizona, 399 F. Supp. 855 (D. Ariz. 1975)).

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