ALJDEC decisions subject to certification as final

2010A-308474188-ROC-rf · Registrar of Contractors · 2013-01-14

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: November 13, 2012 (record held open to December 21, 2012)

APPEARANCES: Complainants appeared and were represented by Richard D. Lyons, Esq.; Respondent appeared through Joseph M. O’Connor, Esq.; the Residential Contractors’ Recovery Fund intervened in this matter and was represented by Assistant Attorney General Elizabeth Campbell, Esq.

WITNESSES: Cie Scott

ADMINISTRATIVE LAW JUDGE: Eric A. Bryant _____________________________________________________________________

Complainants seek a payout from the Residential Contractors’ Recovery Fund (“Fund”). The Fund appeared through Assistant Attorney General Elizabeth Campbell, challenging Complainants’ eligibility for payout from the Fund. Respondent appeared at the hearing to also challenge Complainants’ eligibility. The only issue for which the parties were given notice and for which the hearing was held is Complainants’ eligibility for recovery from the Fund. After the hearing concluded on November 13, 2012, the parties submitted post-hearing memoranda arguing their respective positions. This tribunal entered the claim file received from the Registrar of Contractors into the record, along with Complainants’ Exhibit A, Respondent’s Exhibits A through C,[1] and the Funds’ Exhibits 1 through 5. Based upon the entire record, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law, and Recommended Order finding that Complainants are not eligible for recovery from the Fund. FINDINGS OF FACT 1. Respondent was the holder of License No. B.190705-R. After an evidentiary hearing held over several days in 2011, Respondent was found to have aided and abetted an unlicensed contractor while remodeling the property that is the subject of this claim from the Fund. Respondent’s license was revoked due to that violation. 2. Complainants made a claim to the Fund in July 2012.[2] The Fund conducted a preliminary check of the claim and determined that the owner of the property during the relevant time periods was BBSHH, LLC (“BBSHH”). Complainants are the sole members of BBSHH. The Fund notified Complainants that they are ineligible for recovery because they were not the owners of the property at the time of the contract or injuries and are, therefore, not “persons injured” as defined in the Fund statutes.[3] Because of this, the Fund found that Complainants are not eligible for recovery from the Fund. Complainants requested a hearing. 3. The parties stipulated at the Fund eligibility hearing to the following facts: a. The date of contract between the parties was May 6, 2010.

b. The date that Respondent last performed work was June 26, 2010.

c. The subject property was transferred from Complainants to BBSHH on June 25, 2008, and remains titled to BBSHH to this date.

d. The subject property was classified by the county assessor as mixed use classes 3[4] and 4.1[5] in tax year 2010.

e. The subject property is 2/3 rented and 1/3 owner occupied.[6]

The evidentiary record shows that the subject property was classified as class 4.1 in 2012.[7] 4. Cie Scott testified at the hearing that BBSHH was formed to hold title to the property so that Complainants would not hold title in their personal capacity. She testified that Complainants have always planned to occupy the home once they remodeled it. She testified that during the construction work by Respondent, the house was occupied by tenants. She also testified that the house currently has three tenants in it. Complainants stay in a portion of the house periodically. 5. The evidence shows that the majority of the residence has been rented out for at least two and a half years since May 2010. 6. The record in this matter does not contain any evidence from which this tribunal could find that Complainants or BBSHH were “damaged by the failure of a residential contractor or a dual licensed contractor to adequately build or improve a residential structure or appurtenance. . . .”[8] CONCLUSIONS OF LAW 1. The burden of proof at an administrative hearing is generally upon the person asserting a claim.[9] Further, the standard of proof at hearing is by preponderance of the evidence.[10] Therefore, Complainants bear the burden of showing, by a preponderance of the evidence, that they are eligible for recovery from the Fund.[11] Complainants have not met that burden. 2. Only a “person injured by an act, representation, transaction, or conduct of a residential contractor” is eligible for recovery from the Fund. “Person injured” is defined in A.R.S. § 32-1131(3) as: 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.

This provision requires that the person seeking recovery from the Fund be (1) an owner (2) who has been damaged by the contractor’s failure to adequately build or improve a structure that is (3) on real property classified as class three property by the tax assessor and (4) who actually occupies or intends to occupy the residence. 3. The relevant times for determining whether a person is a person injured as defined by statute and is, therefore, eligible for recovery from the Fund are (1) the time the contract is entered into or (2) the time the claim accrues.[12] 4. Complainants do not meet even one of the four statutory requirements listed above that are necessary to be considered a “person injured” under the statute. 5. First, Complainants were not the owners of the property at the relevant times; BBSHH was the owner.[13] 6. Second, even if Complainants were treated as the owners, there is no evidence in the record that Respondent failed to adequately build or improve the subject property. Respondent was found to have aided and abetted an unlicensed contractor only. 7. Third, even if the first two requirements were met, the property was classified as mixed use during the relevant time period. This included both class 3 and class 4.1 classifications. The clear language of the statute requires that the property be classified as class 3 only. It does not contemplate mixed use property as being eligible property. 8. Finally, even if all three of the above requirements were met, Complainants have not occupied the home as their residence, and the evidence does not support a finding that they intended to occupy the home as a residence within the meaning of the statute. If they had intended to occupy the residence, they would have done so by now because the residence is obviously habitable. Yet, Complainants continue to use it as their “vacation home” and not their primary residence. 9. Complainants argue that they should be treated as the owners of the property because they are the sole members of BBSHH. That argument is not persuasive because it eviscerates the legal distinction between a limited liability company and the members of the limited liability company in their personal capacity. A limited liability company is a separate legal entity from the members of the limited liability company. 10. Neither does the Administrative Law Judge find Complainants’ reference to Shelby v. Ariz. Registrar of Contractors, 172 Ariz. 95, 834 P.2d 818 (1992) to be persuasive. That case concerned a condominium association’s standing as a person injured under the statute. That case is not pertinent because an LLC’s ownership of property is in no way analogous to ownership by a condominium association. In addition, the definition of “person injured,” quoted above in Conclusion of Law 2, specifically includes “homeowner’s or unit owner’s associations.” 11. Complainants have not shown that they are eligible for recovery from the Fund. RECOMMENDED ORDER In view of the foregoing, IT IS RECOMMENDED that the Registrar of Contractors find that Aaron and Cie Scott are not eligible for recovery from the Fund and close this case.

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, January 14, 2013.

/s/ Eric A. Bryant Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] These Exhibits are attached to Respondent’s Pre-Hearing Brief. [2] Exhibit 1. [3] Exhibit 5. [4] Class 3 property is defined as the owner’s (or a relative of the owner) primary residence. A.R.S. § 42-12003. [5] The record does not reveal what “class 4.1”means, but all parties proceeded as if it meant residential property that was rented out to tenants. [6] Complainants’ Exhibit A. [7] Respondent’s Exhibit B. [8] A.R.S. § 32-1131(3). [9] Utah Construction Company v. Berg et al, 68 Ariz. 285, 205 P.2d 367 (1949); A.A.C. R2-19-119(B). [10] Smith v. Arizona Dept. of Transportation, 146 Ariz. 430, 706 P.2d 756 (App. 1985); A.A.C. R2-19-119(A). [11] Culpepper v. State, 187 Ariz. 431, 437, 930 P.2d 508, 514 (Ct. App. 1996). [12] McMurren v. JMC Builders, Inc., 204 Ariz. 345, 351, 63 P.3d 1082, 1089 (App. 2003). [13] BBSHH is not a party to this action.

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