ALJDEC decisions subject to certification as final

2010A-308474606-ROC-rhg · Registrar of Contractors · 2012-11-09

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: October 10, 2012, at 8:00 a.m. This matter was held open until October 22, 2012, to allow parties sufficient time to submit legal memorandums. APPEARANCES: Nahid Vaziri (hereinafter “Complainant”) appeared through her attorney, David F. Gaona, Esq., Gaona Law Firm. Carbone Construction Group LLC (hereinafter “Carbone”) appeared through its attorney, Jeffery M. Hall, Esq., Jeffery M. Hall, PLC. ADMINISTRATIVE LAW JUDGE: M. Douglas _____________________________________________________________________

Evidence and testimony were presented and the following Findings of Fact, Conclusions of Law and Recommended Order on Limited Rehearing are made: FINDINGS OF FACT 1. The Order Granting Motion for Rehearing provided, in pertinent part, as follows: On January 9, 2012, Counsel for Respondent submitted a timely Motion for Rehearing in this matter. On or about January 23, 2012, Counsel for Complainant submitted a written Response in opposition thereto. On or about January 30, 2012, Counsel for Respondent submitted a Reply in Support of Respondent’s Motion for Review of Decision and Motion to Partially Strike Complainant’s Response. On or about January 31, 2012, Counsel for Respondent submitted Respondent’s Notice of Errata, maintaining that it gives Notice of an error in its January 30, 2012 Reply. On or about January 30, 2012, the Administrative Law Judge issued a Recommended Order denying Respondent’s Motion for Rehearing.

The Registrar rejects the Administrative Law Judge’s attached Recommended Order.

Instead, IT IS ORDERED that Respondent’s Motion for Rehearing is GRANTED in accordance with A.A.C. R4-9-120(C)(6). The Rehearing shall be limited in scope to the alleged violation of A.R.S. § 32-1154(A)(9) and the issue of whether or not Complainant orally requested work outside the scope of the contract and thereby waived the requirements of Section 8 and Section 13 of the contract that any modifications to the contract be in writing.

IT IS FURTHER ORDERED that a Limited Rehearing be scheduled in the normal course of docketing in the Phoenix area. A Notice of Limited Rehearing will be issued in due course.

Justification: In its December 5, 2011 Order, the Registrar adopted the Administrative Law Judge’s Finding of Fact No. 17 which states:

The Respondent’s actions, in utilizing oral change orders instead of the written change orders required by the parties’ written construction agreement and then presenting the Complainant with a list of increased labor costs allegedly due for the oral change orders, are found to be in violation of the terms of the parties’ written construction agreement and are found to constitute a violation of the charged provisions of A.R.S. § 32-1154 (A) (9) (failure in a material respect to complete a construction project for the price stated in the contract).

In Sitkin v. Smith, 35 Ariz. 226, 276 P. 521 (1929), our Supreme Court pointed out that provisions requiring changes to the scope of work to be in writing are very common in building contracts but “that does not prevent the parties from subsequently making another and different agreement, or from orally altering, changing, or modifying the written contract when they mutually agree thereon.” The Court held that “if plaintiffs intended to rely upon [the contract] as written they should have made their request or order for changes in writing, but, having themselves disregarded the contract in that respect and secured the acquiescence therein of the contractor, they certainly consented to waive that condition.” Thus, Respondent’s mere acquiescence to oral change orders from Complainant and billing Complainant for additional labor costs is not a violation of A.R.S. § 32- 1154(A)(9) in and of itself.

A.R.S. § 32-1154(A)(9) prohibits “[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.” (Emphasis added). Thus, on Rehearing the Administrative Law Judge must determine if Complainant orally modified the contract and if Respondent completed the work for the price stated in the oral modification of the contract.

2. Complainant testified that the parties’ written contract required that all changes to the contract be in writing. Complainant stated that she regarded the requirement for written changes with exact costs to be an essential part of the parties’ construction agreement.[1] 3. Complainant testified that she had oral conversations with Carbone regarding various construction changes. Complainant acknowledged that she sometimes initiated the conversations regarding changes to the contract. Complainant stated that she did not give Carbone authorization to proceed with the proposed changes and that she would not have done so until Carbone provided written change orders with exact figures.[2] 4. Complainant testified that she never instructed Carbone’s employees to perform extra work or changes in the construction agreement without written change orders. Complainant testified that she did not sign change orders provided by Carbone because she agreed with some parts and disagreed with other parts of the written change orders. Complainant stated that she orally instructed Carbone to revise the unsigned written change orders and then resubmit the revised change orders to her.[3] 5. Complainant testified that everything she agreed to orally should have been placed in a written change order with a fixed price. Complainant stated that she never agreed to dispense with the contractual requirement for written change orders. Complainant stated that she always expected Carbone to provide written change orders with exact costs.[4] 6. Complainant testified that Carbone suggested that the floor be installed diagonally. Complainant stated that she was not informed that it would cost additional money. Complainant testified that she did not receive a written change order for the installation of the floor diagonally.[5] 7. Complainant testified that she was very concerned about costs and wanted to know the cost of each item of construction.[6] 8. Complainant testified that Carbone provided several estimates before the parties entered into their construction agreement. Complainant stated that the parties’ contract incorporated the third estimate provided by Carbone.[7] 9. Complainant stated that she had previously testified that she had not approved any changes to the construction project after April 21, 2010. Complainant acknowledged that she had authored an email on April 25, 2010, at 3:21 p.m. that provided, in pertinent part, as follows: I know there are some changes and it would be more expenses. If you please send me the all other cost and the all other changes I can come up with amount and I will pay you the difference and also keep the one payment for the end.[8]

10. Complainant testified that she received Carbone’s final invoice and authored an email to Carbone on May 12, 2010, at 5:35 p.m. that provided, in pertinent part, as follows: Now you are asking for $50,327.05 almost 70% additional cost to the original estimate and 32% over your last estimate (April 25th). Therefore 1- I need extra time to put all my change order either signed or verbal together and find out the cost and all additional amount relate to the change order.[9]

11. Complainant acknowledged that she entered into verbal change orders with Carbone. Complainant testified that the verbal change orders were supposed to be revised and placed into writing by Carbone and resubmitted to Complainant for her signature.[10] 12. Complainant testified that she expected all changes to the contract that involved increased costs to be in writing.[11] 13. Complainant testified that her email on April 25, 2010, at 3:21 p.m. was about changes in contract amounts rather than change orders. Complainant stated that Carbone was pressuring her for the final payment for the construction project. Complainant testified that she wanted to know exactly where the parties stood regarding extra costs and credits.[12] 14. Carbone’s qualifying party, Christopher James Carbone (hereinafter “Mr. Carbone”), testified that he believed that he prepared three estimates before the parties entered into a written construction agreement. Mr. Carbone stated that portions of the construction agreement provided that the final construction price was to be determined based on a time-and- material basis.[13] 15. Mr. Carbone testified that it was not a lump-sum or fixed-price contract because the scope of the contract was constantly changing. Mr. Carbone stated that Complainant provided regular oral change orders on a weekly basis.[14] 16. Mr. Carbone testified that he kept a planner on the construction project and would reduce requested changes to written change orders on a daily basis. Mr. Carbone stated that he would provide the written change orders to Complainant during construction meetings. Mr. Carbone testified that he asked Complainant to review the written change orders and then return the signed change orders to him.[15] 17. Mr. Carbone testified that Complainant changed her mind on numerous occasions, resulting in verbal change orders. Mr. Carbone stated that there were additional verbal change orders through the entire construction project.[16] 18. Mr. Carbone testified that the Final Invoice Breakdown contained all of the credits due to Complainant and all of the verbal change orders requested by Complainant.[17] 19. Mr. Carbone testified that the capping of the glass blocks and the grinding of the floor were reflected in signed change orders. Mr. Carbone stated that the granite overage was a cost-and-material matter where the Complainant dealt directly with the supplier. Mr. Carbone stated that all of the remaining items were verbal change orders.[18] 20. Mr. Carbone reviewed the verbal change orders and testified that they were normal types of additional work that would occur during the construction process. Mr. Carbone stated that when Complainant directed verbal changes to be made, he gave her a price for the cost of doing the requested additional work and stated that the additional work would be performed for the stated cost. Mr. Carbone testified that Complainant was present during the construction process at least five days a week.[19] 21. Mr. Carbone testified that Complainant was aware of all of the extra work being performed pursuant to the verbal change orders and never directed Carbone not to perform the requested additional work. Mr. Carbone stated that all of the verbal change orders were completed because Complainant requested the additional work.[20] 22. Mr. Carbone acknowledged that he provided the construction contract to Complainant. The contract provided that that Carbone is to be paid a fixed fee of $34,938.75 for the completion of the agreed-upon construction work.[21] 23. Mr. Carbone testified that the handwriting on the contract is his. Mr. Carbone acknowledged that the contract specifically provided that any alterations or deviations from the attached estimate and specifications that involved extra costs would be executed only upon written consent from Complainant.[22] 24. Mr. Carbone testified that during the construction process, he advised Complainant of things that could be done that would constitute a change order if Complainant agreed to the performance of the additional work. Mr. Carbone stated that it would have been difficult to prepare written change orders at the construction site.[23] 25. Mr. Carbone testified that he presented Complainant with six different written change orders. Mr. Carbone stated that he placed the requirement for written change orders in the construction agreement. Mr. Carbone testified that he believed that written change orders were important. Mr. Carbone acknowledged that Complainant did not provide Carbone with written authorization to alter the contract to provide verbal change orders rather than written change orders. Mr. Carbone stated that Complainant did not agree to waive the contractual requirement for written change orders.[24] 26. Mr. Carbone testified that some of the verbal changes orders were the result of telephone calls. Mr. Carbone stated that he always discussed prices for the verbal change orders before proceeding with the work. Mr. Carbone testified that he did not want to seem to be non-trusting and that he wanted to be cooperative with Complainant.[25] 27. Mr. Carbone testified that none of the verbal change orders were fabricated and that Carbone does not perform free work.[26] 28. Mr. Carbone’s wife, Diane Christine Carbone (hereinafter “Mrs. Carbone”), testified that she had a telephone conversation with Complainant regarding the written and verbal change orders. Mrs. Carbone stated that Complainant acknowledged that she had authorized verbal change orders.[27] 29. Mrs. Carbone testified that she recorded a telephone message from Complainant. Mrs. Carbone stated that Complainant requested a verbal change order during the telephone message. The recording was introduced into evidence as Exhibit No. R-12.[28] 30. Complainant testified that Mr. Carbone never gave her a price when they discussed changes. Complainant stated that she was relying upon the contractual requirement that all change orders be placed in writing. Complainant testified that the only change orders that she approved were the written signed change orders.[29] 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.[30] 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. An administrative tribunal cannot remake a contract to include terms not agreed upon by the parties. See, e.g., Isaak v. Massachusetts Indemnity Life Ins. Co., 127 Ariz. 581, 584, 623 P.2d 11, 14 (1981). 4. One may waive contractual rights where there has been an intentional relinquishment of a known right. See, e.g., Meineke v. Twin City Fire Insurance Co., 181 Ariz. 576, 580, 892 P.2d 1365, 1369 (App. 1994). 5. The Order Granting Motion for Rehearing cited Sitkin v. Smith, 35 Ariz. 226, 276 P. 521 (1929). This decision provides that although provisions of a construction contract requiring changes to the scope of work are to be in writing, those contractual provisions do “not prevent the parties from subsequently making another and different agreement, or from orally altering, changing, or modifying the written contract when they mutually agree thereon.” Id. at 230, 276 P. at 522. The decision further provides that “if Plaintiffs intended to rely upon [the contract] as written, they should have made their request or order for changes in writing, but, having themselves disregarded the contract in that respect and secured the acquiescence thereon of the contractor, they certainly consented to waive that condition.” Id. at 230-31, 276 P.2d at 522. 6. Complainant acknowledged that she received Carbone’s final invoice and that she authorized verbal change orders in her email of April 25, 2010, quoted in Finding of Fact No. 9. 7. Credible testimony and evidence established that the parties entered into oral change orders for additional construction work in this matter. The manner in which the additional construction work was agreed upon and performed and the actions of Complainant in continuing to order and receive the benefit of the additional construction work supports an inference that the parties intended to waive, modify, or rescind their contractual provision that all change orders were to be in writing. This Tribunal concludes that the credible evidence of record is insufficient and fails to support a finding that Carbone violated the charged provision of A.R.S. § 32-1154(A)(9).[31] RECOMMENDed order on limited rehearing In view of the foregoing, it is recommended that this Citation, together with the Complaint upon which it is based, be dismissed. 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, November 9, 2012.

/s/ M. Douglas Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors

----------------------- [1] 10/10/12 Hearing Record (hereinafter “H.R.”) at 12:06-13:10. [2] H.R. at 13:15-15:20. [3] H.R. at 15:21-22:30. [4] H.R. at 22:31-24:18. [5] H.R. at 24:19-25:14. [6] H.R. at 25:15-27:06. [7] H.R. at 28:25-29:20. [8] See Exhibit No. R-9 (April 25, 2010, 3:21 p.m. email). [9] See Exhibit No. R-9 (May 12, 2010 5:35 p.m. email). [10] H.R. at 49:30-52:10. [11] H.R. at 52:11-53:30. [12] H.R. at 57:00-59:05. [13] H.R. at 1:03:40-1:20:20. [14] H.R. at 1:20:21-1:23:06. [15] H.R. at 1:31:00-1:35:36. [16] H.R. at 1:35:37-1:43:49. [17] See Exhibit R-8C (Final Invoice Breakdown). [18] H.R. at 1:46:11-1:47:57. [19] H.R. at 1:48:12-1:58:10. [20] H.R. at 1:58:11-1:59:40. [21] See Exhibit C-1 (Construction Contract). [22] H.R. at 2:00:00-2:06:00. [23] H.R. at 2:18:10-2:27:05. [24] H.R. at 2:32:00-2:37:10. [25] H.R. at 2:43:00-2:48:10. [26] H.R. at 2:48:11-2:50:12. [27] H.R. at 2:56:30-3:06:29. [28] H.R. at 3:05:00-3:14:54. [29] H.R. at 3:16:30-3:20:08. [30] A.A.C. R2-19-119 provides, in pertinent part, as follows:

A. Standard of proof. Unless otherwise provided by law, the standard of proof is a preponderance of the evidence.

B. Burden of proof. Unless otherwise provided by law:

1. The party asserting a claim, right, or entitlement has the burden of proof;

2. A party asserting an affirmative defense has the burden of establishing the affirmative defense; and

3. The proponent of a motion shall establish the grounds to support the motion.

[31] A.R.S. § 32-1154(A)(9) includes among the grounds for disciplinary action against a contractor’s license, failure 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.

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