ALJDEC decisions subject to certification as final

2010A-308474232-ROC · Registrar of Contractors · 2011-01-25

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: January 13, 2011, at 8:00 a.m. APPEARANCES: Complainant Bikram Yoga Tempe, L.L.C. appeared through Ben Zorensky, its co-owner; Respondent Kastle Homes, L.L.C. appeared through Larry Hargrove, its managing member and qualifying party. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT In August 2006, the Arizona Registrar of Contractors (“the Registrar”) issued License No. ROC223751, Class B-2 for small commercial general contracting to Kastle Homes, L.L.C. (“Respondent”). Respondent’s qualifying party and managing member is Larry Hargrove. Bikram Yoga Tempe, L.L.C. (“Complainant”) is in the business of operating a hot yoga studio in Tempe, Arizona. On July 6, 2010, the Registrar received a complaint from Complainant against Respondent that alleged that Respondent had failed to pay Complainant $9,500.00 pursuant to a promissory note that Mr. Hargrove had executed on Respondent’s behalf to reimburse Complainant for its payment to Respondent’s subcontractor, BTS AC and Htg., L.L.C. (“BTS”). Respondent did not resolve Complainant’s 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)(9), (11), and (13) (namely, A.R.S. § 32-1124(B)). Mr. Hargrove, on Respondent’s behalf, timely answered the Citation and Complaint, denying any statutory violations and affirmatively alleging that Complainant had elected to pay $19,785.00 to BTS without Mr. Hargrove’s knowledge or consent. Mr. Hargrove admitted that he had signed a promissory note to show Respondent’s “good intentions,” but stated that the Complainant’s payment to BTS was “totally fraudulent according to standard business practice,” and that in any event, Respondent was unable to pay the note due to the economy. The Registrar referred the matter to the Office of Administrative Hearings, an independent agency, for an evidentiary hearing. A hearing was held on January 13, 2011. Complainant presented the testimony of Ben Zorensky, its co-owner, and submitted 15 exhibits. Mr. Hargrove testified on Respondent’s behalf and submitted one exhibit. Hearing Evidence Complainant leased its hot yoga studio at 1825 E. Guadalupe #103/104 in Tempe. After the roof on the hot yoga studio developed a leak, Complainant’s landlord provided another space for Complainant to use to conduct its business while the roof was repaired at the studio on E. Guadalupe. Complainant decided to take the opportunity to upgrade the studio on E. Guadalupe. On or about November 5, 2008, Respondent submitted an estimate to perform certain repairs and upgrades to the hot yoga studio on E. Guadalupe, and Complainant accepted the estimate. Respondent subsequently started the work, and Complainant eventually paid $148,125.00 to Respondent. Respondent hired BTS, License No. ROC156060, Class K-39 for dual air conditioning and heating, to perform certain upgrades to the heating and air conditioning system at Complainant’s hot yoga studio on E. Guadalupe. On or about January 27, 2009, BTS filed a preliminary twenty-day lien notice against the leased property on E. Guadalupe that contained Complainant’s hot yoga studio. BTS informed Complainant that Respondent owed it $19,785.00. At that time, Complainant still owed Respondent at least $10,000.00 for the final installment on the original contract and change orders. BTS’s preliminary twenty-day lien notice upset Mr. Zorensky because Complainant’s landlord had set a deadline for it to move back into the hot yoga studio on E. Guadalupe, and had informed Complainant that if it did not move, it would be charged double rent. In addition, at that time Mr. Zorensky’s wife, who is Complainant’s co-owner, was eight months pregnant. Mr. Zorensky testified that he met with Mr. Hargrove and Bill Robbins of BTS in late March 2009. Mr. Zorensky testified that Mr. Hargrove agreed that Complainant should pay BTS, and that Respondent would pay Complainant the difference between its payment to BTS and the amount that Complainant still owed to Respondent. Complainant paid $19,785.00 to BTS. On or about March 27, 2009, Mr. Hargrove on Respondent’s behalf executed a promissory note to Complainant in the amount of $11,785.00, payable on or before April 30, 2009, including interest. On or about April 8, 2009, Respondent paid $2,285.00 to Complainant. On or about April 30, 2009, Mr. Hargrove on Respondent’s behalf executed a second promissory note to Complainant in the amount of $9,500.00, payable on or before May 30, 2009. On or about June 5, 2009, Respondent tendered a check to Complainant in the amount of $500.00. On that day, Mr. Hargrove on Respondent’s behalf executed a third promissory note to Complainant in the amount of $9,000.00, payable on or before June 30, 2009. Respondent’s $500.00 check was returned to Complainant for insufficient funds. Respondent made no further payments on its promissory notes. Mr. Hargrove testified that he executed the promissory notes only to show Respondent’s good intentions, not because he felt that Respondent owed anything to Complainant. Mr. Hargrove testified that he did not approve Complainant’s payment to BTS. Mr. Hargrove testified that Respondent did not approve BTS’s work or statement of the amount that Respondent owed, and that Complainant’s payment to BTS deprived Respondent of bargaining leverage over it to force BTS to repair its work or to reduce the amount owed on its statement. Mr. Hargrove testified that due to the economy, Respondent was unable to pay anything more to Complainant. According to the Registrar’s record, on December 25, 2008, Respondent’s license was suspended as a matter of law for lack of bond. As of the date of the hearing, Respondent’s license had not been reinstated. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[1] 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.[2] Complainant bears the burden of proof and must establish Respondent’s statutory violations by a preponderance of the evidence.[3] Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.[4] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[5] 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.”[6] Complainant established that Respondent still owes $9,500.00 to reimburse Complainant for its payment to BTS for services rendered to Respondent in the course of its contracting business. Mr. Hargrove’s signature on the three promissory notes renders incredible his hearing testimony that he did not agree to Complainant’s payment to BTS. Complainant also established that it paid more for the renovation of its hot yoga studio on E. Guadalupe than its contract with Respondent required, due to its payment to BTS. Respondent did not establish that it was not paid for Complainant’s job or any other affirmative defense. Therefore, Complainant established that Respondent violated A.R.S. § 32- 1154(A)(9)[7] and (11)[8] by failing to reimburse Complainant for the $9,500.00 that it paid to BTS. Complainant did not present any evidence to establish that Respondent violated A.R.S. § 32-1154(A)(13) (namely, A.R.S. § 32-1124(B)).[9]

RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the Registrar’s final order in this matter, Respondent Kastle Homes, L.L.C.’s License No. ROC223751, Class B-2 be revoked. It is further recommended that if prior to the effective date of the final order, the Registrar receives satisfactory proof in writing from Respondent that it has paid Complainant Bikram Yoga Tempe, L.L.C. $9,500.00 by certified or cashier’s check, the Registrar not revoke Respondent’s license but, 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 25, 2011.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] See 32-1101 et seq. [2] 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 . . . .” [3] 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). [4] See A.A.C. R2-19-119(B)(2). [5] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [6] Black’s Law Dictionary at page 1220 (8th ed. 1999). [7] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[f]ailure in a material respect by the licensee to complete a construction project or operation for the price stated in the contract, or in any modification of the contract.” [8] 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.” [9] 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.”

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