ALJDEC decisions subject to certification as final

2010A-308474169-ROC · Registrar of Contractors · 2011-01-24

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: January 12, 2011 at 8:00 a.m. APPEARANCES: Complainant Salt River Materials Group appeared through Mark A. Kirkorsky, Esq.; Respondent Modern Stone Solutions, Inc., dba Tuscan Stone, appeared through Ryan J. Lorenz, Esq., Clark Hill P.L.C. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure In October 2004, the Arizona Registrar of Contractors (“the Registrar”) issued License No. ROC201000, Class K-5 for dual stone veneer to Modern Stone Solutions, doing business as (“dba”) Tuscan Stone (“Respondent”). Salt River Materials Group (“Complainant”) is a materialman that supplies cement and other construction materials to licensed contractors and others. On July 1, 2010, the Registrar received a complaint from Complainant’s attorney that alleged that Respondent had failed to pay Complainant $12,214.00 for materials purchased for use in Respondent’s contracting business. Respondent did not resolve the complaint, and Complainant requested that the Registrar issue a citation against Respondent. On September 27, 2010, the Registrar issued a Citation and Complaint against Respondent, charging violations of A.R.S. § 32-1154(A)(11) and (13) (namely, A.R.S. § 32-1124(B)). Respondent filed a timely written answer to the Citation and Complaint, denying any statutory violations and affirmatively alleging that because it used the materials in manufacturing, not contracting, Complainant’s complaint was outside the scope of the Registrar’s regulatory authority. The Registrar referred the matter to the Office of Administrative Hearings, an independent agency, for an evidentiary hearing. A hearing was held on January 12, 2011. Respondent presented the testimony of Shawn Falconbridge, its vice president and qualifying party, and submitted four exhibits. Complainant presented the testimony of Barbara Genualdi, its credit manager, and submitted one exhibit. Hearing Evidence Mr. Falconbridge testified that more than 95% of Respondent’s business was manufacturing. He explained that Respondent mixed cement, pumice and sand aggregates, mineral oxide coloring, and water, and placed the product into molds, to manufacture a precast concrete product that resembled natural stone or brick veneer. Respondent submitted a copy of its Product Selection Guide. Mr. Falconbridge testified that authorized dealers used the Product Selection Guide to market Respondent’s manufactured product to the public. Mr. Falconbridge testified that persons who purchased the product were responsible for hiring an installer through a network of qualified installers. Respondent’s Product Selection Guide did not show Respondent’s license number, preceded by the acronym, “ROC.” Mr. Falconbridge testified that Respondent only installed the product if no other installer was available. Mr. Falconbridge testified that installation comprised less than 5% of Respondent’s business. Mr. Falconbridge testified that Respondent put its license number, preceded by the acronym, “ROC,” on forms used in its installation business. However, Respondent did not submit such forms at the hearing. Respondent’s website listed thirteen authorized distributors in Arizona, New Mexico, and Nevada. Respondent’s website did not list any installers; instead, the website stated that “[w]e haven’t added any Installers to our list at this time. Please check back to find an Installer soon.” Between July 8, 2009, and September 25, 2009, Complainant supplied Respondent with 1,560 bags of Rapid Power Type III cement, for a charge of $12,714.00. Respondent’s only payment on its account was $500.00 on November 19, 2009. Respondent admitted that it owed $12,214.00 to Complainant for the cement. Mr. Falconbridge testified that Respondent had not used most of the cement that it purchased from Complainant on a specific job. Mr. Falconbridge testified that, instead, Respondent had used the cement to manufacture inventory to be able to fill anticipated orders from distributors. Mr. Falconbridge testified that between July 8, 2009, and November 20, 2009, Respondent had accumulated accounts payable of more than $500,000.00 and had liquidated its assets to satisfy loans secured by those assets. Mr. Falconbridge testified that Respondent was insolvent and could not pay anything more to Complainant. Mr. Falconbridge testified that Respondent did not know that it was insolvent and unable to pay when it ordered the concrete from Complainant.

Mr. Falconbridge admitted that when Respondent ordered the concrete from Complainant, Respondent had “some limited cash flow” and was still operating as a business. Mr. Falconbridge testified that because he was not in charge of keeping Respondent’s books, he could not provide additional detail about the state of Respondent’s finances between July 8, 2009, and September 25, 2009. Mr. Falconbridge testified that he knew at the hearing that Respondent was insolvent at the time based on Respondent’s year-end financial reports for 2009. Respondent did not submit the year-end financial records or any other bank or financial records at the hearing. On June 1, 2010, Respondent’s attorney sent a letter to its creditors, including Complainant, notifying them as follows: [Respondent] has recently completed divesting itself of its remaining assets, all of which were encumbered by first- position, perfected security interests. In the end, the purchaser of these assets forgave debts and assumed equipment leases amounting to approximately $372,000 in exchange for possession of the assets, which were valued at $140,000. As a result, no cash or other monetary consideration was paid to [Respondent] in connection with the transfer of these assets. [Respondent] anticipated and negotiated for additional consideration to use for the benefit of its other creditors, but its leverage was minimal.

According [sic], [Respondent] remains insolvent and without any funds to satisfy creditors’ demands. The owners of the company ceased all operations some time ago and do not intend to restart the business. Certified financials from the company are available to demonstrate the company’s insolvency. Unfortunately, these circumstances will result in [Respondent] not being able to satisfy any obligations owed to your company.

Ms. Genualdi testified that she called the attorney to request Respondent’s certified financials, but that the financials were never provided to Complainant. According to the Registrar’s record, Respondent’s license was suspended by operation of law after its bond was canceled on October 28, 2010. Respondent’s license was suspended by operation of law on November 1, 2008, for non-renewal, but Respondent renewed its license on November 19, 2008. According to the record, Respondents’ license was renewed through October 31, 2010.

CONCLUSIONS OF LAW Complainant bears the burden of proof and must establish Respondent’s statutory violations by a preponderance of the evidence.[1] Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.[2] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[3] 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.”[4] If Respondent’s only business were manufacturing veneers, rather than manufacturing and installing such veneers, at least on occasion, it would not need a license and the Registrar would lack jurisdiction over Complainant’s complaint for non-payment. Since Respondent has a license and used that license, at least on occasion, the Registrar has jurisdiction over Complainant’s complaint. The administratively suspended status of Respondent’s license does not preclude Complainant from pursuing its administrative remedy nor preclude the Registrar from conducting this disciplinary proceeding.[5] Respondent admitted that it owed Complainant $12,214.00. Respondent therefore admitted a potential violation of A.R.S. § 32-1154(A)(11).[6] Respondent’s assertion that it did not use the cement it purchased from Complainant “in connection with [its] operations as a contractor” under A.R.S. § 32-1154(A)(11) is an affirmative defense that Respondent bears the burden to prove. Respondent did not submit any evidence to allow apportionment of the concrete that Complainant provided among Respondent’s installations, other contractors’ installations, and inventory. The evidence of record does not preclude the possibility that the 5% of Respondent’s business that Mr. Falconbridge testified involved installation of stone veneers used most of the cement that Complainant supplied between July 8, 2009, and September 25, 2009. Therefore, Respondent did not bear its burden to establish that the Registrar lacks jurisdiction over any portion of Complainant’s claim. Similarly, Respondent continued to order supplies from Complainant throughout the period during which it now claims it was insolvent. The record does not confirm or reveal the reasons for Respondent’s alleged insolvency. Although Respondent claims to have favored certain creditors over others based on security interests, Mr. Falconbridge admitted that Respondent had cash flow and paid some bills between July and September, 2009. Because Mr. Falconbridge did not have any knowledge of Respondent’s income or accounts payable, Respondent’s evidence leaves open the possibility that it selectively paid its obligations, including self- imposed obligations to its principals, and that these selective payments later rendered it unable to pay unsecured creditors like Complainant. Therefore, Respondent also did not bear its burden to establish that it “lacks the capacity to pay” and has not “received sufficient monies as payment for the particular construction work project or operation for which the . . . materials were . . . purchased” under A.R.S. § 32-1154(A)(11). Because the Products Selection Guide and website printouts did not appear to have been used in the conduct of Respondent’s contracting business, Complainant did not establish that Respondent violated A.R.S. § 32- 1154(A)(13) (specifically, A.R.S. § 32-1124(B)).[7] 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 revoke License No. ROC201000, Class K-5 previously issued to Respondent Modern Stone Solutions, Inc., dba Tuscan Stone. It is further recommended that if, on or before the effective date of the order, the Registrar receives satisfactory proof in writing that Respondent has paid Complainant $12,214.00 by certified or cashier’s check, the Registrar not revoke Respondent’s license and, instead, close Case No. 2010-[number redacted]. 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, January 24, 2011.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] 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). [2] See A.A.C. R2-19-119(B)(2). [3] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [4] Black’s Law Dictionary at page 1220 (8th ed. 1999). [5] See A.R.S. § 32-1154(C), which provides that “[t]he expiration, cancellation, suspension or revocation of a license . . . shall not deprive the registrar of jurisdiction to proceed with any investigation of or action or disciplinary proceeding against such license, or to render a decision suspending or revoking such a license . . . .” [6] This statutory subsection 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.” [7] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[f]ailure in any material respect to comply with this chapter.” A.R.S. § 32-1124(B) requires that licensed contractors include their license number, which “shall be preceded by the acronym ‘ROC,’” on “all written bids submitted by the licensee and . . . on all advertising, loan forms, lending institution forms, letterheads and other documents used by the licensee in the conduct of business regulated by this chapter.”

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

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