ALJDEC decisions subject to certification as final

2010A-308476052-ROC · Registrar of Contractors · 2011-05-11

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 21, 2011, at 8:00 a.m. APPEARANCES: Complainant United Technologies, Inc. appeared through Fidelis V. Garcia, Esq.; Respondent Sonoran Design and Development, Incorporated appeared through Travis S. Williams, Esq., Williams & Cluff, P.L.C. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure On March 18, 2006, the Arizona Registrar of Contractors (“the Registrar”) issued License No. ROC217923, Class C-39R for residential air conditioning and refrigeration excluding solar to United Technologies, Inc., doing business as (“dba”) Uni-Tech (“Complainant”). On March 30, 2006, the Registrar issued License No. ROC218390, Class B for residential general contracting to Sonoran Design and Development, Incorporated (“Respondent”). On September 24, 2010, the Registrar received a complaint from Complainant against Respondent that alleged that Respondent had failed to pay Complainant $26,030.40 for custom heating, ventilation, and air conditioning (“HVAC”) work at a residential job at 2797 East Locust Drive in Chandler, Arizona (“the Gerhart residence”). Complainant requested that the Registrar issue a citation against Respondent and on December 8, 2010, the Registrar issued a Citation and Complaint against Respondent, charging a violation of A.R.S. § 32- 1154(A)(11). Respondent filed a timely written answer to the Citation and Complaint, denying any statutory violation and affirmatively alleging that it did not have a written contract with Complainant and had to hire another contractor to repair and complete Complainant’s work. Although Respondent asserted in the written answer that Complainant had only contracted to perform the rough-in for the HVAC system at the Gerhart residence, it did not assert that Respondent did not owe anything to Complainant due to offsets from earlier jobs. The Registrar referred the matter to the Office of Administrative Hearings, an independent agency, for an evidentiary hearing. A hearing was held on April 21, 2011. Complainant in its case-in-chief cross-examined Respondent’s qualifying party and president, Robert William Golda, presented the testimony of Complainant’s qualifying party and president, José Luis Granado, Jr., and submitted twelve exhibits. Respondent presented Mr. Golda’s direct testimony, cross-examined Mr. Granado, and submitted seven exhibits. Hearing Evidence The Weight, Buddingar, and Messer Jobs Respondent is in the business of building large custom homes. Mr. Golda testified that although Respondent’s contract with homeowners generally requires construction to be complete within a year, the contract also provides that the time for completion will be extended by seven days for every change order. After additional time is allowed for the 50 to 60 change orders that are typical for large custom homes, Respondent generally completes homes within 1½ to two years. Mr. Golda testified that all of the change orders have costs associated with them. In 2006, Respondent accepted Complainant’s proposals to install the HVAC systems in two custom homes that Respondent was building in Chandler: (1) Proposal dated April 28, 2006, for $25,200.00 to install the HVAC system at the Weight residence; and (2) Proposal dated October 9, 2006, for $39,470.00 to install the HVAC system at the Messer residence. The contracts for the Weight and Messer residences did not provide that amounts paid or due under one contract would be offset against amounts paid or due under the other contract. In 2006, Respondent also subcontracted to Complainant installation of the HVAC system at the Chandler residence of the Buddingars, who where Mr. Granado’s personal friends, but the contract was not submitted into evidence. Respondent did not dispute at hearing that a written contract existed for the Buddingar residence and submitted into evidence Complainant’s October 4, 2006 memorandum that showed the amended project total of $24,375.00 and Mr. Granado’s note that “I meet you half way on the Aug 1st price increase per our conversation.” The credible evidence of record established that the usual practice in construction is for HVAC contractors to bill 50% of the contract price after the rough-in and to bill the remaining 50% after installation of the equipment and start-up of the HVAC system. Mr. Golda testified that after Complainant completed installation of the HVAC systems at the Buddingar, Weight, and Messer residences, it submitted invoices to Respondent for more than the 50% remaining of the contract price. Mr. Golda testified that although Complainant stated that the additional costs were required for changes that Complainant made to the HVAC systems, Complainant did not submit change orders or explain the changes to Mr. Golda’s satisfaction. Mr. Golda testified that he paid Complainant’s second invoices under protest for the Buddingar, Weight, and Messer residences because at that time, the owners were trying to get their “loan lock” and Complainant “was holding Respondent hostage” by threatening to delay bank payments by demanding more money. Mr. Golda testified that he felt that Complainant was “duping” Respondent and that in 2006, he had “had it” with Complainant. Mr. Granado testified that the HVAC contractor must use its expertise to determine the actual HVAC requirements of a custom home after construction has started because custom homes frequently are constructed differently from the plans on which the HVAC contractor based the load calculations for the HVAC systems described in its proposal. Mr. Granado testified that a wall of windows, higher ceilings, or additional square footage will increase the required capacity of the HVAC system and increase its cost. Mr. Granado testified that Mr. Golda never complained to him about the amounts of Respondent’s final payments to Complainant for the HVAC systems in the Buddingar, Weight, or Messer residences. Mr. Granado testified that he thought he was on good terms with Mr. Golda. The Gerhart Residence In late June 2008, Respondent subcontracted to Complainant at least the rough-in for installation of the HVAC system at the Gerhart residence. Mr. Golda testified that Mr. Granado came to him looking for work. Mr. Golda testified that he told Mr. Granado that Complainant owed Respondent $12,551.00 for the overcharges on the Weight, Buddingar, and Messer residences and that if Complainant wanted to bid on installation of the HVAC system at the Gerhart residence, Complainant would have to agree to perform the rough-in as consideration for the amount that Respondent felt it overpaid on past jobs. Mr. Golda testified that he told Mr. Granado that if Respondent was satisfied with Complainant’s rough-in for the HVAC system at the Gerhart residence, Respondent would hire and pay Complainant to install equipment and start up the HVAC system at the Gerhardt residence and would consider Complainant’s proposals to install HVAC systems in three other custom homes that Respondent was constructing at the time. Mr. Golda testified that Respondent’s agreement with Complainant for it to install the rough-in for the HVAC system at the Gerhart residence at no additional cost to Respondent was not in writing. Mr. Granado denied that Complainant ever agreed to install the rough-in for the HVAC system at the Gerhart residence at no cost to compensate Respondent for past overpayments on earlier jobs. Mr. Granado testified that Complainant never proposes to perform the HVAC rough-in alone, but always submits proposals for the entire job because the rough-in is labor- intensive and the most costly part of the job. Mr. Granado testified that Respondent approached Complainant about submitting a proposal for the Gerhart residence, that Complainant submitted a proposal in the amount of $34,800.00, and that Respondent accepted the proposal. Mr. Granado testified that because Complainant was busy with the commercial side of its business,[1] he had been unable to locate Complainant’s copy of the signed proposal for the Gerhart residence. Mr. Granado testified that he first heard about the alleged offset after Complainant filed its complaint for nonpayment to the Registrar against Respondent. Complainant started installation of the HVAC system at the Gerhart residence in August 2008. On October 6, 2008, Respondent submitted Invoice #4 to Bruce Gerhart for “rough Mechanicals,” including $16,938.01 for the HVAC system. Mr. Gerhart’s construction lender’s inspector inspected the work and approved Respondent’s invoice and on October 10, 2008, the construction lender paid Respondent the total amount of Invoice #4. On October 15, 2008, Complainant submitted invoice #S7482 to Respondent in the amount of $19,140.00 for 55% of the “[b]id according to proposal” for the rough-in for the HVAC system at the Gerhart residence. Mr. Granado testified that although Complainant had not yet completed the rough-in, Mr. Golda requested an early invoice so that Respondent could submit it to the construction lender to support Respondent’s request for a progress payment. Complainant substantially completed the rough-in for the HVAC system at the Gerhart residence on or about October 18, 2008. Complainant last performed work at the Gerhart residence in December 2008. Respondent did not pay Complainant anything for the rough-in for the HVAC system at the Gerhart residence. Mr. Granado testified that he did not know that anything was amiss until Mr. Golda stopped returning Complainant’s calls and responding to Complainant’s facsimiles. On November 5, 2009, Chas Roberts Air Conditioning, Inc., License No. ROC019133, Class C-39R (“Chas Roberts”) submitted to Respondent a Standard Bid Proposal & Contract in the amount of $20,480.00 to install the equipment and start up the HVAC system at the Gerhart residence. Respondent accepted Chas Roberts’ bid and paid it to complete the HVAC system. Mr. Golda testified that the line item cost for the HVAC at the Gerhart residence was $23,000.00, with a variance of an additional $10,350.00, and that the construction lender paid Respondent a total of $33,350.00 for the HVAC system. Respondent did not submit into evidence any payment applications for the Gerhart residence, other than Invoice #4, and did not submit any documentary evidence of the line item cost or total payments for the HVAC system at the Gerhart residence. According to the Registrar’s records, on the date of the hearing, Respondent’s license had been suspended by operation of law on April 7, 2010, when it was placed on inactive status. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[2] 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.[3] Complainant bears the burden of proof and must establish cause to discipline Respondent’s contractor’s license by a preponderance of the evidence.[4] Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.[5] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[6] Complainant established that it performed the rough-in for the HVAC system at the Gerhart residence pursuant to its agreement with Respondent. Because Mr. Golda’s testimony that Mr. Granado orally agreed that Complainant would install the rough-in at the Gerhart essentially for free was not credible, Respondent did not establish that it is entitled to any offset for Complainant’s alleged overcharges on the Weight, Messer, and Buddingar jobs. Therefore, Complainant established that Respondent violated A.R.S. § 32-1154(A)(11)[7] by failing to pay Complainant more than $750.00 for installation of the rough-in for the HVAC system at the Gerhart residence. With respect to the amount of the parties’ agreement for the installation of the HVAC system at the Gerhart residence, Mr. Granado’s testimony was credible that the parties contracted for Complainant to install the system for a total cost of $34,800.00 and that the general practice was that 50% of the contract price was due after rough-in. Therefore, Complainant established that Respondent owes $17,400.00 for the rough-in for the HVAC system at the Gerhart residence. RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the Registrar’s final order in this matter, Respondent Sonoran Design and Development, Incorporated’s License No. ROC218390, Class B be revoked. It is further recommended that if prior to the effective date of the Registrar’s final order, the Registrar receives satisfactory proof in writing from Respondent that it has paid Complainant United Technologies, Inc. $17,400.00 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, May 11, 2011.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] On February 4, 2000, the Registrar issued License No. ROC152187, Class L-39 for commercial air conditioning and refrigeration to Complainant. [2] See 32-1101 et seq. [3] 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 . . . .” [4] 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). [5] See A.A.C. R2-19-119(B)(2). [6] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [7] 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.”

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