ALJDEC decisions subject to certification as final

2010A-308473112-ROC · Registrar of Contractors · 2011-10-11

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

DE NOVO HEARING: September 20, 2011, at 8:00 a.m. APPEARANCES: Complainant Agave Tile, Inc. did not appear; Respondent Builders Guild, Inc. was represented by James B. Wright, Esq., Folk & Associates, P.C. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure In December 1987, the Arizona Registrar of Contractors (“the Registrar”) issued License No. ROC072528, Class B-1 for commercial general contracting to Builders Guild, Inc. (“Builders Guild,” “Respondent,” or “the General Contractor”). In January 1998, the Registrar issued License No. ROC139607, Class L-48 for commercial ceramic, plastic, and metal tile to Agave Tile, Inc. (“Agave,” “Complainant,” or “the Subcontractor”).[1] Complainant’s former address of record was 6025 North 11th Street, Phoenix, Arizona 85014-1934. Complainant’s current address of record is 15223 North Hana Maui Drive, Phoenix, Arizona 85022-3660. On or about August 16, 1999, the Registrar received a complaint against Respondent from Complainant. The complaint alleged that Respondent owed Complainant $13,295.00 for work that Complainant had performed on Building G of Tempe High School in Tempe, Arizona (“the project”) pursuant to its subcontract with Respondent. The Registrar designated this complaint as Case No. M00-0230. On September 20, 1999, Complainant requested a hearing in Case No. M00- 0230. The Registrar subsequently issued a Citation and Complaint against Respondent,[2] charging violations of A.R.S. § 32-1154(A)(11)[3] and former (7).[4] The Registrar referred Case No. M00-0230 to the Office of Administrative Hearings (“the OAH”), an independent state agency, for an evidentiary hearing. On January 11, 2000, Administrative Law Judge (“ALJ”) Sondra J. Vanella of the OAH amended the complaint to include additional charges that Complainant alleged that Respondent owed. A hearing was held on March 20, 2000, in Case No. M00-0230. Complainant was represented by its attorney, and Respondent was represented by its vice president, Mark Ostrand. On or about April 3, 2000, ALJ Vanella issued a decision in Case No. M00- 0230, concluding that Complainant had established that Respondent violated the charged statutes and, as a result, recommending that the Registrar revoke Respondent’s license unless it paid $52,434.07 to Complainant. If Respondent presented proof that it paid Complainant, ALJ Vanella recommended that the Registrar place Respondent’s license on active suspension for a period of fourteen days, followed by a one-year period of disciplinary probation, and required Respondent to post an additional surety bond, cash deposit, or alternative deposition in the amount of $1,500.00. On April 7, 2000, the Registrar adopted ALJ Vanella’s recommendation and issued a Decision and Order revoking Respondent’s license in Case No. M00- 0230. Respondent retained an attorney and appealed the Registrar’s Decision and Order in Case No. M00-0230 to the Maricopa County Superior Court, and the appeal was designated as Case No. CV2000-12522. In its appeal, Respondent submitted the affidavits of eight witnesses that stated that Complainant’s performance of the subcontract was deficient in certain specific respects and excused payment. On April 13, 2001, in Case No. CV2000-12522, Maricopa County Superior Court Judge Michael A. Yarnell upheld Respondent’s appeal of the Registrar’s Decision and Order in Case No. M00-0230, for the following reasons: The [ALJ] found a violation of A.R.S. § 32-1154(A)(7) and (11). It is clear from the record below that the [ALJ] considered and ruled upon the legal and factual disputes as to payment.

The parties’ various legal and factual contentions on this appeal are well briefed and not fully recited in this minute entry decision. In summary, the General Contractor contends the [Registrar] exceeded [its] jurisdiction by adjudicating materially disputed Subcontractor payment and performance issues. The General Contractor contends that when the supplemental evidence presented on appeal is considered, the [Registrar’s] decision is not supported by substantial evidence, particularly as to final payment and the issues surrounding building G. The General Contractor also contends the sanction of payment of $52,434.07, a fourteen-day full license suspension and a one-year probation is unduly harsh. The Subcontractor disputes these contentions.

This Court finds that while the [Registrar] often will defer to the court system on construction contract payment and performance issues, the [Registrar] does have jurisdiction to adjudicate as [it] may find appropriate and necessary to its administrative function materially disputed Subcontractor payment and performance issues.

The [ALJ] issued no particular findings or conclusions concerning the allegations by the General Contractor that payment, particularly final payment, was contractually excused by reason of the Subcontractor’s alleged non-performance. Counsel for the Subcontractor, on the record during oral argument of this administrative appeal, conceded that the “counterclaim” and “offset” issues had not been litigated at the administrative hearing. The [ALJ] issued no explanation or support for the extent and nature of the sanction imposed.

While it might, in some general contractor vs. subcontractor cases, be feasible to fairly separate a timely payment issue from one of material performance, this is not such a case. The issues are inexorably intertwined. It is not fair to any party including the [Registrar] to adjudicate one issue without a consideration of the other. The adjudication of the entire alleged sum due under the Subcontract from the General Contractor to the Subcontractor by the [Registrar] without consideration of or ruling upon the alleged non-performance, counterclaim and setoff of the General Contractor, is an abuse of discretion, arbitrary and capricious.

This Court will not substitute its judgment for that of the [Registrar], either for or against the Subcontractor. The appropriate remedy on this record is a remand for a full de novo rehearing of the administrative issues.

IT IS ORDERED vacating the April 7, 2000, Order of the Registrar of Contractors in Case No. M00-0230.

FURTHER ORDERED remanding this matter to the Registrar of Contractors for a full de novo rehearing of the Subcontractor’s complaint.

FURTHER ORDERED on rehearing, specific findings of fact and conclusions of law shall be made concerning the alleged non- performance, counterclaim and setoff claims of the General Contractor and the support and rationale for any sanction imposed.

Complainant appealed Judge Yarnell’s order in Maricopa County Superior Court Case No. CV2000-12522 to Division One of the Arizona Court of Appeals, where it was designated as Court of Appeals Case No. 1 CA-CV 01- 0362. On September 17, 2002, Judge John C. Gemmill of the Court of Appeals issued a memorandum decision, with Judges Jefferson L. Lankford and Edward C. Voss concurring, affirming Judge Yarnell’s order because although Judge Gemmill disagreed with Judge Yarnell’s reasoning, he agreed with the result. Judge Gemmill specifically found that ALJ Vanella had considered Respondent’s affirmative defense in her decision, but that her decision lacked clarity, especially in light of the additional evidence that Respondent submitted on appeal, as follows: Despite substantial evidence that plainly supports many of the ALJ’s findings, other findings contain sweeping assertions that raise questions regarding the factual accuracy of certain findings. For example, Finding 20 reads: “Builders Guild submitted no evidence of flaking, poor bonding, or any evidence of poor workmanship on the part of Agave, at the hearing on this matter.” The literal accuracy of this statement seems doubtful, as Mark Ostrand testified that the reason Builders Guild withheld payment was due to flaking in the grout’s top coat. Ostrand also read a copy, during his testimony, of project architect Tom Allen’s report (allegedly faxed to Agave) that suggested Agave’s tile work was unevenly spaced, broken, chipped, and installed improperly. The ALJ’s findings also state that Agave never received a “punch list” for either Building N (Finding 16) or Building G (Finding 3), but these statements seem to conflict at least in part with Finding 12, which references an April 7, 1999 punch list.

Our concern is that these findings are internally inconsistent. Some of the ALJ’s findings are written in absolute terms expressing the complete absence of evidence, when clearly some evidence exists in the administrative record. Although we agree the ALJ considered and rejected Builders Guild’s argument that non-payment was justified due to the quality of Agave’s work, we cannot agree with the ALJ’s assertions in Findings 3 and 12 that no evidence of this argument exists.[5]

Because “the ALJ’s findings either contain potentially significant factual errors or lack sufficient clarity to permit a complete and reliable appellate review,”[6] the Court of Appeals affirmed the superior court’s minute entry order upholding Respondent’s appeal and remanding the matter to the Registrar for a de novo hearing. The De Novo Hearing After remand, the Registrar redesignated Case No. M00-0230 as Case No. 2010-[number redacted] and referred the matter to the OAH for a de novo hearing on the merits. On August 4, 2011, the Registrar issued a Notice of Rehearing, setting a hearing on September 20, 2011, at 8:00 a.m. at the OAH. The Registrar mailed a copy of the Notice of Rehearing to Complainant at its former address of record, to Complainant at its current address of record, and to its attorney. On September 15, 2011, at Respondent’s request, the assigned Administrative Law Judge issued an order allowing Respondent to submit at the hearing the witnesses’ affidavits that it had submitted in its appeal in Maricopa County Superior Court Case No. CV2000-12522, and to present telephonically the testimony of two witnesses. The order noted Complainant’s right to object to the weight that the Administrative Law Judge should give the affidavits in her recommendation to the Registrar. Respondent’s attorney, party representative, and a witness appeared for the duly noticed de novo hearing. Complainant did not request to appear telephonically at the de novo hearing and did not request that the hearing be continued. Although the start of the duly noticed hearing was delayed fifteen minutes to allow Complainant additional travel time, it did not appear, through an officer, employee, or attorney, and did not contact the OAH to request that the start of the hearing be further delayed. Consequently, Complainant did not present any evidence to prosecute its complaint against Respondent. Respondent submitted the affidavits with attached exhibits that it had submitted to the superior court to support its appeal in Maricopa County Superior Court Case No. CV2000-12522 of the Registrar’s final Decision and Order in former Case No. M00-0230, as follows: 17.1 Thomas Allen, the architect on the project, stated that Complainant’s tile work was incomplete and deficient in many respects, including the wrong grout color, discolored tile, grout joints that were not equally spaced, tile that was not set level in some areas, chipped and broken tiles on the floor, improper base tile around the serving areas, and incomplete base tile in some areas. Mr. Allen also stated that he met with Complainant numerous times to point out the deficiencies, but that Complainant failed to correct all the deficiencies, and that as a result the tile needed to be replaced in some areas. 17.2 Curt Birkey, the president of Conrep West, the manufacturer’s representative for the Bostik mortars and grouts that were used on the project, stated that Complainant’s grout work was deficient in many respects, including inconsistent grout joint widths, consistently low grout joints, inconsistent grout color, and that the topcoat was not bonding properly. Mr. Birkey also stated that he met with Respondent and provided recommendations to correct the deficiencies. Mr. Birkey stated that after Respondent conveyed the recommendations to Complainant, it solicited a letter from Bostik to controvert Respondent’s complaints, but that Complainant failed to provide Bostik with the correct specifications for the project. 17.3 Robert Carter, Respondent’s president, stated that although Complainant had been provided with instructions on lead time for delivery of materials and a schedule of work, Complainant had failed to provide material or services within the requested time frames. Mr. Carter also stated that the subcontract provided that the subcontractor’s right to progress payments depended on the subcontractor’s compliance with instructions and the schedule of work. Mr. Carter also stated that Complainant submitted invoices that included change orders that Respondent did not approve. 17.4 Andre Kalaj, the president of Roma Tile, License No. ROC128296, Class L-48, stated that Respondent subcontracted to Roma Tile completion of the tile work that originally had been subcontracted to Complainant was deficient in numerous respects, including the width and level of grout joints, unlevel tiles, slope of tile floors toward drains, departures from plans, and improper layout of tile and generally poor workmanship. Mr. Kalaj stated that Roma Tile corrected the deficiencies, and that Respondent paid $11,000.00 to Roma Tile for its performance of the subcontract. 17.5 Ronald Nadzieja, the Senior Project Manager for Abacus Project Management, the construction manager on the project, stated that Complainant’s poor performance of its subcontract resulted in the numerous deficiencies, including causing numerous problems on the project that resulted in increased costs and delay. 17.6 Mark Ostrand, Respondent’s Project Manager on the project, stated that Respondent initially attempted to work with Complainant to address deficiencies and approved Complainant’s plan to address deficiencies by replacing sections of the tile, but that Complainant’s repairs were worse than the original installation, and included the same deficiencies, including uneven joint widths, broken and chipped tile, crooked and uneven tile, high and low areas of tile, grout haze, low joints, inconsistent color, grout pitting and efflorescence. Mr. Ostrand stated that despite numerous opportunities, Complainant failed to repair deficiencies, resulting in increased costs and delay. Mr. Ostrand also stated that Respondent was not informed of the scheduled inspection by the Registrar’s inspector, Robert Dragoon, and that Inspector Dragoon’s report was inconclusive because Complainant misrepresented the project’s requirements and Respondent’s specific complaints to Inspector Dragoon. 17.7 John Hellemn, Respondent’s Project Superintendent in the project, stated that Complainant failed to perform its work in accordance with project schedules and that its installation of tile in various areas had inconsistent grout joint widths, broken and chipped tile throughout, unlevel tile with a significant number of tiles out of alignment, consistently low grout joints, grout haze on the tiles, inconsistent grout color, poor transitions between vertical and horizontal tiles, improper tile layout, tile floors that did not slope properly toward drains, and failure to adhere to project specifications. Mr. Hellemn stated that Complainant’s poor performance of its subcontract resulted in increased costs and delay, and that Complainant refused to remedy the deficiencies in a timely manner. 17.8 Pete Salazar, the owner of Salazar Tile, Inc., which had a commercial tile license in 1999, stated that Salazar Tile, Inc. helped Respondent complete the tile work on the project. Mr. Salazar identified numerous deficiencies in Complainant’s tile work, including inconsistent grout joint widths, broken and chipped tile throughout, consistently low grout joints, grout haze on the tile, pitting in the grout, and departures from project specifications. Mr. Salazar stated that after the project owner and architect rejected Complainant’s work, Salazar Tile, Inc. helped correct the deficiencies, and that Respondent paid Salazar Tile, Inc. $19,584.68 for the work. CONCLUSIONS OF LAW This dispute lies within the Registrar’s jurisdiction to resolve.[7] Because the copies of Notice of Rehearing that the Registrar mailed to Complainant’s former and current addresses of record and to its attorney were reasonable, Complainant is deemed to have received notice of the de novo hearing.[8] Complainant bears the burden of proof and must establish Respondent’s statutory violations by a preponderance of the evidence.[9] Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.[10] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[11] Complainant’s failure to appear at the duly noticed de novo hearing or to offer any evidence to prosecute its complaint precludes a finding that Respondent violated any statute. Respondent established that any failure to pay by Respondent was excused by Complainant’s deficient workmanship and delay on the project. RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the Registrar’s final order in this matter, Case No. 2010-[number redacted] (former Case No. M00-0230) against Respondent Builders Guild, Inc.’s License No. ROC072528 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, October 11, 2011. /s/ Diane Mihalsky Administrative Law Judge Transmitted electronically to: William A. Mundell, Director Registrar of Contractors ----------------------- [1] On November 4, 2003, after the dispute in this matter arose, Complainant placed its commercial license on inactive status. Complainant also holds current License No. ROC130924, Class C-48 for residential ceramic, plastic, and metal tile.

[2] The undersigned Administrative Law Judge has been unable to locate a copy of the Citation and Complaint in the voluminous electronic file that the Registrar provided in this matter, and bases the charged violations on the administrative law judge’s decision and the superior court’s order on appeal. [3] A.R.S. § 32-1154(A)(11) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[f]ailure by a licensee . . . to pay monies in excess of seven hundred fifty dollars when due for materials or services rendered in connection with the licensee’s operations as a contractor when the licensee has the capacity to pay or, if the licensee lacks the capacity to pay, when the licensee has received sufficient monies as payment for the particular construction work project or operation for which the services or materials were rendered or purchased.” [4] A.R.S. § 32-1154(A)(7) formerly included among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[t]he doing of a wrongful or fraudulent act by the licensee as a contractor resulting in another person being substantially injured.” The former statute applied to Complainant’s complaint in Case No. M00-0230. [5] Memorandum Decision in Case No. 1 CA-CV 01-0362 at ¶¶ 14-15 (footnote added). [6] Id. at ¶ 16. [7] See A.R.S. § 32-1101 et seq. [8] See A.R.S. §§ 41-1092.04; 41-1092.05(D). [9] 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). [10] See A.A.C. R2-19-119(B)(2). [11] Morris K. Udall, Arizona Law of Evidence § 5 (1960).

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