ALJDEC decisions subject to certification as final

2010A-308477764-ROC · Registrar of Contractors · 2011-07-27

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: July 11, 2011, at 8:00 a.m. APPEARANCES: Complainant Karla Holdaway appeared on her own behalf; Respondent 21st Century Construction Co., L.L.C. did not appear. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure In September 2006, the Arizona Registrar of Contractors (“the Registrar”) issued License No. ROC224789, Class KB-2 for dual residential and small commercial contracting to 21st Century Construction Co., L.L.C. (“Respondent”). Respondent’s address of record is 6448 East Dale Lane, Cave Creek, Arizona 85331-6554. On December 21, 2010, the Registrar received a complaint from Karla Holdaway (“Complainant”) regarding Respondent’s substantial renovation and addition to her home at 5893 East Onyx Avenue in Paradise Valley, Arizona (“the project”), alleging thirteen specific items of complaint. According to the complaint, Complainant paid Respondent more than $260,000.00 for its work on the project. The Registrar assigned the complaint to its inspector, Rick Oelke, for investigation. Inspector Oelke contacted the parties, obtained the parties’ contract, the plans for the substantial renovation and addition, and other documents, and performed a jobsite inspection. On January 28, 2011, Inspector Oelke issued a Corrective Work Order (“CWO”) that required Respondent to perform certain corrective actions within fifteen days, in relevant part as follows: 1) Contractor has deviated from the approved, executed construction documents without a written change order. The contractor has violated §ARS 32-1158 and §ARS 32-1154.A.2. Contractor and complainant dispute the inclusion of the exposed beams over the front entry. The beams are clearly part of the executed construction documents and would be expected to be included with the general construction agreement. Contractor had deviated from the plans and constructed something other than as specified on the construction documents. Contractor has invoiced the complainant for the un-documented changes. Contractor’s intent or ability to incorporate the front entry beams in the erection of the project, for the price stated (a violation of §ARS 32-1154.A.9), cannot be determined due to lack of required documentation.

2) The executed construction agreement between the parties included specific material allowances. The contractor verified at the jobsite inspection that the costs extended to the complainant for those materials would be direct expenses, without overhead or profit added. The contractor should provide material invoices on all materials that fall within the scope of the allowance items upon request.

3) Contractor has deviated from the approved, executed construction documents without a written change order. Several areas of the home observed at the jobsite inspection did not remotely resemble the plan design. An invoice for the changes in the areas affected was observed. The contractor has violated §ARS 32-1158 and §ARS 32-1154.A.2. Contractor is required to build in accordance with executed documents.

4) The contractor agreed on site that the owner had made payment of construction draws through “phase 4”, described in the executed construction agreement as “…construction has been completed thru trim, order cabinets and countertops”. The physical construction has only been completed to pre- drywall phase. Contractor has violated the executed draw agreement, a violation of §ARS 32-1154.A.2. The contractor is responsible to pay all subcontractors for work within the completed phase per [sic] of §ARS 32-1129. Non-payment to subcontractors could not be verified at the time of the jobsite inspection.

5) Complainant’s claim of abandonment could not be established at the time of the jobsite inspection. Contractors [sic] last day of services on site was within 2 weeks prior to the jobsite inspection. Contractor has exceeded the agreed completion date as specified in the executed construction agreement. Contractor is required to perform according to the executed construction agreement. . . . .

11) The contractor is required to assure that all required permits are in place, and that all required inspections are passed. Contractor agreed on site that “at-risk” demolition had been started prior to obtaining necessary permits. Contractor should do no progressive work without having all required inspections passed.

On February 1, 2011, Complainant requested a hearing. On March 2, 2011, the Registrar issued a Citation and Complaint against Respondent, charging violations of A.R.S. § 32-1154(A)(1), (2), (3), namely A.A.C. R4-9-108, (9), (13), namely A.R.S. § 32-1158, and (23). Respondent filed a timely written answer to the Citation and Complaint, denying any statutory violations and affirmatively alleging that its attorney sent a letter to Complainant about scheduling Respondent to perform the repairs required by the CWO, but she did not respond, and that Complainant was responsible for all delays and cost overages on the project. The address on the letterhead of Respondent’s written answer was its address of record. The Registrar referred the matter to the Office of Administrative Hearings (“the OAH”), an independent agency, for an evidentiary hearing. On May 13, 2011, the Registrar issued a Notice of Hearing setting a hearing at the OAH on July 11, 2011, at 8:00 a.m. The Registrar mailed a copy of the Notice of Hearing to Respondent at its address of record and to Respondent’s attorney. A hearing was held on July 11, 2011. Inspector Oelke testified. Complainant submitted three exhibits and presented the testimony of three witnesses: (1) Herself; (2) Andy Pulsipher, the project architect; and (3) Jason Fowler, the senior project manager for Sage Luxury Homes, L.L.C., License No. ROC233417, Class B (“Sage Luxury Homes”), the general contractor Complainant hired to complete the project. Respondent did not request to appear telephonically at the hearing and did not request that the hearing be continued. Although the start of the duly noticed hearing was delayed thirty minutes to allow Respondent additional travel time, Respondent did not appear, through an authorized member, employee, or attorney, and did not contact the OAH to request that the start of the hearing be further delayed. Consequently, Respondent did not present any evidence to defend its license. Additional Evidence On or about May 28, 2010, Complainant accepted Respondent’s proposal to substantially remodel and construct an approximately 1,255 square foot addition to Complainant’s residence for a fixed price of $328,000.00 (“the contract”). The estimated time to complete the project was six to nine months. The contract required Complainant to make six payments, as follows: (1) $65,600.00 at the start of the project; (2) $65,600.00 at the completion of Phase 1 of the project; (3) $65,600.00 at the completion of Phase 2 of the project; (4) $65,600.00 at the completion of Phase 3 of the project; (5) $55,760.00 at the completion of Phase 4 of the project; and (6) $9,840.00 for retainage upon Complainant’s full acceptance of the project. The contract described the six phases of construction as follows: (1) Site preparation, demolition, underground sewer and water, stemwalls, footers, and slabs; (2) Framing, setting trusses, shear walls, and roof, and setting windows and exterior doors; (3) Rough-in of electrical, plumbing, and heating, ventilation, and air conditioning (“HVAC”); (4) Interior drywall, interior doors, fireplaces, insulation, and interior trim; (5) Roofing, exterior stucco, exterior paint, and garden walls; and (6) Permanent electrical and gas service, kitchen and bathroom cabinets, counters, fixtures, and appliances, tile shower and floors, and install flooring throughout the house.[1] The contract required the project to be built according to plan and written change orders for any deviations from the contract. The contract did not apprise Complainant of her right to file a written complaint to the Registrar for alleged violations of A.R.S. § 32-1154(A) or that she needed to file such a complaint within the time frames set forth in A.R.S. § 32-1155(A). The contract did not contain the Registrar’s telephone number, but did include the Registrar’s website address. Inspector Oelke testified that he performed the initial jobsite inspection on January 21, 2010. Complainant was present at the jobsite inspection. Scott Fisher attended the inspection on Respondent’s behalf, but was 20 minutes late. Inspector Oelke testified that he reviewed the plans that Complainant provided, and that Respondent deviated from the plans in many structural and cosmetic aspects of construction, including framing, plumbing, HVAC, electrical, doors, and windows. Inspector Oelke testified that the plans had not been amended, but Mr. Fisher claimed that the architect verbally approved the deviations. Mr. Pulsipher, the architect on the project, testified that he did not approve any deviations from the approved plans. Inspector Oelke testified that Mr. Fisher acknowledged that Respondent had asked for and accepted the fifth payment that was due under the contract upon Respondent’s completion of Phase 4 of construction. Inspector Oelke testified that at the time of the jobsite inspection, Respondent had only completed Phase 1 and nearly completed Phase 2. Inspector Oelke testified that Respondent’s work on Phase 3 was “not even close” to completion. Complainant testified that Respondent did not attempt to comply with the CWO or perform any more work on the project after the CWO was issued. Inspector Oelke testified that he scheduled a prehearing jobsite inspection on July 8, 2011, but neither party appeared for the inspection. Inspector Oelke testified that when he visited the jobsite, he saw that Complainant had “moved forward” by hiring another general contractor to complete the project. Inspector Oelke testified that Complainant’s decision to hire a replacement general contractor was reasonable and legitimate. Mr. Fowler testified that when Sage Luxury Homes started construction on the project in March 2011, everything was incomplete. Sage Luxury Homes tried to get Respondent’s subcontractors to perform warranty work and to correct deviations from plans and other deficiencies, but the subcontractors refused because Respondent had not paid them. Sage Luxury Homes brought in its own subcontractors to complete the project. According to the Registrar’s record, Respondent’s license is current and in good standing. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[2] The Notice of Hearing that the Registrar mailed to Respondent at its address of record was reasonable, and Respondent is deemed to have received notice of the hearing.[3] Complainant bears the burden of proof to establish Respondent’s statutory violations by a preponderance of the evidence.[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] Complainant established by a preponderance of the evidence that Respondent violated A.R.S. § 32-1154(A)(1),[6] (2),[7] (3), namely A.A.C. R4-9-108,[8] (9),[9] (13), namely A.R.S. § 32-1158,[10] and (23).[11] With respect to the penalty, Respondent’s proven statutory violations are serious. Three factors are considered in aggravation of the penalty: (1) Respondent’s failure to attempt to comply with the CWO; (2) Respondent’s failure to attend the hearing; (3) Respondent’s dishonesty in billing Complainant and accepting payments in amounts that were far more than Complainant owed under the contract. RECOMMENDED ORDER In view of the foregoing, it is recommended that on the effective date of the Registrar’s final order, the Registrar revoke License No. 224789 previously issued to Respondent 21st Century Construction Co., L.L.C. It is further recommended that if on or before the effective date of the Registrar’s final order, the Registrar receives satisfactory written proof from Respondent that it has paid Complainant Karla Holdaway and that she has accepted an amount of money sufficient to reimburse her for her monetary damages caused by Respondent’s statutory violations, the Registrar should not revoke Respondent’s license but, instead, close Case No. 2010- [number redacted]. It is further recommended that the Registrar require Respondent to pay the sum of $500.00 as a civil penalty pursuant to A.R.S. § 32-1154(D).

It is further recommended that if Respondent fails to pay the entire amount of the civil penalty on or before thirty days following the effective date of the Registrar’s final order, the Registrar revoke Respondent’s license, effective on such deadline date. No future license shall be issued to any entity consisting of persons associated with Respondent, as defined in A.R.S. § 32-1101(A)(5), unless Respondent tenders payment of any outstanding prior civil penalty. 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, July 27, 2011.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] The contract did not provide that Complainant make additional payments to Respondent upon its completion of Phases 5 and 6. [2] See A.R.S. § 32-1101 et seq. [3] See A.R.S. §§ 41-1092.04; 41-1092.05(D). [4] See A.R.S. § 41-1092.07(G)(2); A.A.C. R2-19-119(A); see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [5] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [6] A.R.S. § 32-1154(A)(1) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[a]bandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.” [7] A.R.S. § 32-1154(A)(2) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[d]eparture from or disregard of plans or specifications or any building codes of any state or any political subdivision of the state in any material respect which is prejudicial to another without consent of the owner or the owner’s duly authorized representative and without the consent of the person entitled to have the particular construction project or operation completed in accordance with such plans and specifications and code.” [8] A.R.S. § 32-1154(A)(3) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[v]iolation of any rule adopted by the registrar.” A.A.C. R4-9-108 requires that “[a]ll work shall be performed in a professional and workmanlike manner” and that “[a]ll work shall be performed in accordance with any applicable building codes and professional industry standards.” [9] A.R.S. § 32-1154(A)(9) 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.” [10] A.R.S. § 32-1154(A)(13) 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. § 32-1158(B) requires contractors to include certain terms in contracts that they enter with property owners after December 31, 2007, including apprising the property owner of her right to file a written complaint to the Registrar for alleged violations of A.R.S. § 32-1154(A), the time frame set forth in A.R.S. § 32-1155(A) for the filing of such a complaint, and the Registrar’s telephone number. [11] A.R.S. § 32-1154(A)(23) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[f]ailure to take appropriate corrective action to comply with this chapter or with rules adopted pursuant to this chapter without valid justification within a reasonable period of time after receiving a written directive from the registrar.”

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