ALJDEC decisions subject to certification as final

2010A-308475862-ROC · Registrar of Contractors · 2011-05-12

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 7, 2011

APPEARANCES: Complainants appeared and were represented by attorney Guy Bluff, Bluff & Associates; Respondent was represented by attorney Whitney Cunningham, Cunningham Mott PC, accompanied by corporate Vice President Jim Carlo.

WITNESSES: Julie McGuire Jim Carlo

ADMINISTRATIVE LAW JUDGE: Eric A. Bryant _____________________________________________________________________

Complainants bring this action against Respondent based on a court judgment they received against Respondent. The Registrar of Contractors has issued a Citation and Complaint that cites Arizona Revised Statutes (A.R.S.) § 32-1154(A)(7)(doing a fraudulent act that substantially injures another) and (A)(11)(failure to pay more than $750 for materials or services rendered to a contractor). Respondent denies the allegations. Before the hearing started, the parties raised two legal issues as pre-hearing matters: 1) Whether the complaint was filed within the two-year period for filing complaints with the Registrar of Contractors under A.R.S. § 32-1155; and 2) Whether the language of A.R.S. § 32-1154(A)(7) as it existed before it was amended in September 2009, is applicable to this matter. The facts necessary to decide those legal issues are not disputed. Therefore, the following rulings are made. Timeliness of the ROC Complaint Respondent built a new house for Complainant.[1] A Certificate of Occupancy for the house was issued on September 8, 2008.[2] Complainants closed escrow on the house on October 1, 2008.[3] Complainants moved into the home on October 15, 2008.[4] The Arbitration Award in favor of Complainants was issued on July 27, 2009. The Judgment affirming that Arbitration Award was issued November 5, 2009. Complainants filed their complaint with the ROC on September 13, 2010. A.R.S. § 32-1155(A) provides that a complaint can be filed with the ROC within two years from the date “of an act that is cause for suspension or revocation of a license. . . . The two year period prescribed by this subsection shall commence on the earlier of the close of escrow or actual occupancy for a new home or other new building construction and otherwise shall commence on completion of the specific project.” Here, the project was new home construction. Therefore, the two-year period for filing a complaint began on the earlier of two dates: close of escrow or actual occupancy. In this case, close of escrow occurred first, on October 1, 2008. That is the date the two-year period began to run. Therefore, Complainants had until October 1, 2010, to file a complaint. This tribunal concludes that the complaint is timely and will not be dismissed on that basis. The complaint was filed on September 13, 2010, before the deadline of October 1, 2010. Applicable Language for Claim of Violation of A.R.S. § 32-1154(A)(7) Prior to September 30, 2009, A.R.S. § 32-1154(A)(7) prohibited contractors from “[t]he doing of a wrongful or fraudulent act” that substantially harmed another.[5] The Arizona Legislature amended the statute in 2009, striking “wrongful” from it.[6] The current version of the statute, without “wrongful,” was cited and quoted in the Citation and Complaint issued in this matter.[7] In their Hearing Memorandum and at hearing, Complainants argued that the older version of the statute should apply to this case because the actions alleged as a violation occurred before the effective date of the new version. However, Complainants provide no legal authority supporting that claim.[8] Based on the lack of cited legal authority, Complainants’ motion that the former language of A.R.S. § 32-1154(A)(7) be applied in this case is denied. Respondent’s Motion to Strike At the hearing, Respondent moved to strike a claim made for the first time in Complainants’ Hearing Memorandum filed the day before the hearing: that Respondent committed a fraudulent act during the course of the construction of the home.[9] The Administrative Law Judge found that this claim had not been made in the complaint filed by Complainants and granted the motion, striking the claim for lack of notice as a matter of due process. Respondent received less than one day of notice of that claim. Complainants did not give Respondent adequate notice of a factual basis for a claim of fraud based on any facts other than the Arbitration Award and Judgment. Merits of Complaint This tribunal entered the complaint file received from the Registrar of Contractors into the record. The parties stipulated to admission of Exhibits C-1 through C-29 by Complainants and Exhibit R1 by Respondent.[10] Testimony from the two witnesses listed above was presented. Based upon the entire record, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law, and Recommended Order finding no violation. FINDINGS OF FACT 1. Respondent is the holder of license B.082893-R, a general residential contracting license issued by the Registrar of Contractors (“ROC”). The license authorizes Respondent to operate as a general contractor for residential projects. Joseph Carlo, Sr. is the Qualifying Party. The license is currently suspended for lack of renewal. 2. The parties entered into a construction agreement for the building of a home for Complainants. After the home was built, a contractual dispute arose between the parties and they took the dispute to binding arbitration. 3. An Arbitration Award was issued on July 27, 2009, finding in favor of Complainants and awarding them $75,691.90 as overpayment to Respondent.[11] The Arbitration Award was formalized in a Judgment issued from the Mohave County Superior Court on November 5, 2009.[12] 4. On September 13, 2010, Complainants filed a complaint against Respondent with the ROC, claiming “Non-payment of Judgment” and the “doing of a fraudulent act” by Respondent.[13] The complaint relies entirely on the Arbitration Award. 5. The Arbitration Award found that Respondent did not fulfill its contractual duty “in many instances in connection with the issues in dispute, and has either failed to maintain the necessary records or has failed to produce the necessary records.”[14] The Arbitration Award also found that “[t]he method by which CB Development applied supervision, overhead and builders’ fees to additive and deductive change to the contract was inequitable. . . .”[15] And, “Finally, the method by which CB Development actually calculated its ‘mark-up’ is found to be disturbing and misleading” because Respondent’s interpretation of the contract language “is not within the reasonable expectations of the a [sic] consumer.”[16] 6. In addition, the Arbitration Award found that Complainants were entitled to a credit for money that they paid Respondent but that Respondent did not pay to a concrete subcontractor in the amount of $12,549.00.[17] 7. Complainants argue that the Arbitration Award supports a finding that Respondent committed a fraudulent act. They also argue that the failure to pay the Judgment is a violation of the no-pay provision. In their Hearing Memorandum, filed the day before the hearing, they argue for the first time that the Arbitration Award shows that Respondent violated the no-pay provision with respect to non-payment to subcontractors that worked on the job. 8. Respondent argues that the only claims made by Complainants in the complaint are that the Arbitration Award and Judgment constitute violations of the no-pay provision and fraudulent act provision. Respondent denies that the Arbitration Award supports finding violations of those provisions. CONCLUSIONS OF LAW 1. The burden of proof at an administrative hearing is generally upon a complainant.[18] Further, the standard of proof at hearing is by preponderance of the evidence.[19] Therefore, Complainants bear the burden of showing, by a preponderance of the evidence, that Respondent has violated the statutes cited in the Citation and Complaint.[20] Complainants have not met that burden. 2. As noted above, only the allegations of fraud and non-payment are at issue. A.R.S. § 32-1154(A)(7) prohibits contractors from “The doing of a fraudulent act by the licensee as a contractor resulting in another person being substantially injured.” The phrase “fraudulent act” has not been defined by the Arizona Legislature in the ROC statutes. At common law, fraud could be established through nine elements, as listed by the Arizona Supreme Court: In considering whether the evidence taken in its strongest light establishes actionable fraud, the plaintiffs must show a concurrence of nine elements, which are: "'(1) A representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) his intent that it should be acted upon by the person and in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) his reliance on its truth; (8) his right to rely thereon; (9) his consequent and proximate injury.'" [Citations omitted.][21]

The Court also noted that a claim of fraud cannot be based on unkept promises: In order that a representation constitute actionable fraud, it must relate to either a past or existing fact. It cannot be predicated on unfulfilled promises, expressions of intention or statements concerning future events unless such were made with the present intention not to perform. [Citation omitted]. "Were the general rule otherwise, every breach of contract could be made the basis of an action in tort for fraud." [Citation omitted].

Arizona's Court of Appeals has pointed out:

"A primary reason given for the rule not permitting predication of fraud on promises which are not subsequently kept is that a promise to perform in the future is not a representation which can be shown to be true or false at the time it was made, and therefore, a person has no right to rely, in a legal sense, on a representation of a fact not in existence." [Citation omitted.][22]

Here, Complainants’ fraud claim is based solely on the Arbitration Award. That Award did not find that Respondent committed fraud. It found Respondent’s recordkeeping to be inadequate, Respondent’s accounting to be inequitable, and Respondent’s interpretation of its contractual obligations to be “disturbing and misleading.” None of these findings amount to fraud, and nothing else in the Award supports a finding of fraud. In addition, at best, Complainants’ fraud claim is based on an unkept promise of Respondent, which does not rise to the level of fraud. 3. Arizona Revised Statutes § 32-1154(A)(11) prohibits contractors from failing to pay more than $750 when due for materials or services rendered in connection with operations as a contractor. Regarding non- payment of the Judgment, Complainants’ complaint does not present such a claim. Complainants did not provide materials or services to Respondent and, therefore, the no-pay provision is not applicable. Regarding non- payment to the concrete subcontractor mentioned in the Arbitration Award, there are two reasons that this tribunal does not find a violation on this record. First, the claim was not raised in the complaint, only non-payment of the Judgment was raised. Second, there is no evidence on this record that the concrete subcontractor asserts that it was not paid. This tribunal is reluctant to find a no-pay violation when the party to be paid has made no such claim. 4. The evidence does not show violations of the statutes cited in the Citation and Complaint issued in this matter. 5. This matter should be dismissed. RECOMMENDED ORDER Based on the foregoing, it is hereby recommended that Citation and Complaint 2010-[number redacted] against Respondent CB Development, Inc. 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, May 12, 2011.

/s/ Eric A. Bryant Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] Exhibit C-4. [2] Exhibit R1. [3] Uncontested testimony of Julie McGuire. [4] Exhibit C-10. [5] A.R.S. § 32-1154(A)(7)(2008). [6] 2009 Ariz. Sess. Laws, ch. 99, § 3. [7] Indeed, it was also cited and quoted in Complainant’s complaint. Exhibit C-10. [8] See McGuire’s Hearing Memorandum at 13-14. [9] Id. at 8-12. [10] Although all these Exhibits were admitted, only a few are relevant to the limitations issue. Otherwise, due to the nature of the claim, only the Arbitration Award (Exhibit C-2) and Judgment (Exhibit C-3) are relevant. [11] Exhibit C-2. [12] Exhibit C-3. [13] Exhibit C-10. [14] Id. at 2. [15] Id. [16] Id. at 3. [17] Id. at 8. [18] Utah Construction Company v. Berg et al, 68 Ariz. 285, 205 P.2d 367 (1949). [19] Smith v. Arizona Dept. of Transportation, 146 Ariz. 430, 706 P.2d 756 (App. 1985). [20] Culpepper v. State, 187 Ariz. 431, 437, 930 P.2d 508, 514 (Ct. App. 1996). [21] Staheli v. Kauffman, 122 Ariz. 380, 383, 595 P.2d 172, 175 (1979); see also Echols v. Beauty Built Homes, Inc., 132 Ariz. 498, 500, 647 P.2d 629, 631 (1982). [22] Id.

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