ALJDEC decisions subject to certification as final

2010A-795998-ROC · Registrar of Contractors · 2011-10-20

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

RECOVERY FUND PAYOUT HEARING: October 7, 2011, at 8:00 a.m. APPEARANCES: Complainant Rogelio Delgadillo appeared on his own behalf; Respondent Kory Excavation, L.L.C. appeared through Adrian Kory, a member. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure 1. In February 2007, the Arizona Registrar of Contractors (“the Registrar”) issued License No. ROC229195, Class K-41 for dual septic tank and systems to Kory Excavation, L.L.C. (“Respondent”). 2. On November 10, 2009, the Registrar received a complaint against Respondent from Rogelio Delgadillo (“Complainant”) alleging Respondent’s poor workmanship and failure to complete the design and installation of a septic system at Complainant’s residence at 1012 Sade Court, Rio Rico, Arizona. The Registrar designated the complaint as Case No. S10-0079. 3. The Registrar assigned Case No. S10- 0079 to its inspector in its Sierra Vista, Arizona office, Mike Nieves, for investigation. On December 1, 2009, Inspector Nieves issued a Corrective Work Order (“CWO”) in Case No. S10-0079 that required Respondent within 20 calendar days to provide an approved septic system design and complete installation of the septic system. Inspector Nieves’ CWO noted that because Respondent’s license was suspended for nonrenewal, it could not itself perform or subcontract to others any contracting work until the suspension was lifted. 4. Complainant requested that the Registrar issue a citation against Respondent in Case No. S10-0079. On February 18, 2010, the Registrar issued a Citation and Complaint against Respondent, charging violations of A.R.S. § 32- 1154(A)(1),[1] (2),[2] (9),[3] (20),[4] (23),[5] (3), namely A.A.C. R4-9-108,[6] and (13), namely A.R.S. § 32-1124(B).[7] 5. Respondent failed to file a timely written answer to the Citation and Complaint in Case No. S10-0079. 6. The Registrar redesignated Case No. S10-0079 as Case No. 2010-795998. On September 20, 2010, the Registrar issued a Decision and Order in Case No. 2010-795998, deeming Respondent’s failure to answer the Citation and Complaint to be an admission of the charges contained therein under A.R.S. § 32-1155(B). As a result of Respondent’s admitted statutory violations, the Registrar revoked Respondent’s license unless it complied with the CWO and required Respondent to pay $500.00 civil penalty. Respondent did not comply with the CWO or pay the civil penalty, and the Registrar revoked its license. 7. On or about May 10, 2011, the Registrar received Complainant’s claim to the Residential Contractors’ Recovery Fund (“the Fund”) in Case No. 2010-795998 in the amount of $10,082.07 for the monies that Complainant had paid to others to complete design and installation of the septic system at his residence. 8. On August 5, 2011, the Registrar issued a Notice to Contractor of Claim for Administrative Payout in Case No. 2010-795998 in the amount of $10,082.07. 9. Respondent requested a hearing on the amount of the proposed payout in Case No. 2010-795998, alleging that it had fully performed the parties’ contract. The Registrar referred the matter to the Office of Administrative Hearings, an independent agency, for an evidentiary hearing. 10. A Fund payout hearing was held on October 7, 2011. Complainant testified and submitted nine exhibits. Respondent presented the testimony of its member, Adrian Kory, and submitted five exhibits. Additional Evidence 11. In September 2006, Complainant hired Respondent to design and install a septic system for the residence that he was constructing in Rio Rico. Complainant testified that the first verbal contract was for $8,500.00. Complainant paid Respondent $6,300.00 to begin the work. 12. Complainant was acting as owner/builder in construction of his residence. In November 2006, Complainant’s building permit for the residence was approved. 13. On or about January 19, 2007, Respondent submitted a proposal to Complainant in the amount of $12,450.25 for a conventional pit septic system with two borings. Respondent requested that Complainant pay the remaining amount of the January 19, 2007 invoice in order for Respondent to purchase the materials that it needed to begin construction of the system. In September 2007, Complainant paid Respondent another $4,200.00. 14. Respondent, on Complainant’s behalf, submitted a permit application for its design of the septic system to the Arizona Department of Environmental Quality (“ADEQ”). 15. On or about March 6, 2008, ADEQ notified Complainant that it had determined not to issue a Discharge Authorization on the application. ADEQ summarized the reasons for its determination as follows: The results of this inspection indicate that the site absorption rate, morphology, subsurface characterization, and seepage pit depth for this wastewater treatment facility design are mischaracterized and/or have major deficiencies according to [ADEQ’s] rules and regulations. [ADEQ] has determined that the site conditions at this location do not meet the minimum requirements for a 4.02 General Permit. An application for an alternative onsite wastewater system needs to be designed for this parcel without the use of seepage pits.

16. In June 2009, Respondent submitted a modified proposal to Complainant for a conventional pit septic system with two borings, with additional equipment, in the total amount of $25,568.54. Respondent’s proposal showed a $4,200.00 credit. 17. In May 2009, ADEQ approved the modified conventional pit septic system. On or about June 29, 2009, Complainant paid Respondent another $9,000.00 to purchase equipment and materials to begin installation of the modified conventional pit septic system. 18. Respondent ordered the equipment and materials from Premier Environmental in Payson, Arizona (“Premier”). Complainant testified that Todd T. Christianson, P.E. at Premier said that Respondent ordered $8,200.00 in equipment and materials from Premier, but that Respondent’s check bounced. Complainant submitted Mr. Christianson’s letter dated September 15, 2011, stating that Premier’s bank returned Respondent’s check for the equipment and materials because Respondent’s account had insufficient funds to honor the check. Mr. Christianson’s letter stated that when he contacted Mr. Kory, Mr. Kory stated that he had cancelled the check because it was for a large sum of money and he did not know whether Premier would deliver. Mr. Christianson’s letter stated that because at that point he did not feel comfortable with Respondent, he cancelled the order. 19. Complainant testified that at this point, he decided that he could not afford the septic system that Respondent proposed to install and began looking into less expensive alternatives. 20. On or about January 17, 2010, Complainant obtained a bid in the total amount of $17,940.18 for an alternative septic system from Robert Schmeltzer of Bob’s Backhoe, Inc., License No. ROC235096, Class C-37R for residential plumbing. The bid included a line item of $5,850.00 for installation. 21. Complainant testified that at this point, he felt that Respondent owed him a credit of $13,200.00. Complainant offered an offset in the amount of $5,850.00 to Respondent if it would install the equipment and materials that Complainant purchased for the septic system. 22. On May 5, 2010, Complainant paid Southwest Biosystems, L.L.C. $2,000.00 for “ASTM Soil Analysis & Alternative Septic Design” and $7,750.00 for materials and equipment for an aerated septic system. 23. Respondent installed the tanks into the ground and connected the lines to the valves, but did not complete installation of the aerated septic system that Complainant had purchased from Southwest Biosystems, L.L.C. Complainant and his friends and family completed installation of the septic system. 24. During installation, Complainant incurred two more expenses for installation of the aerated septic system: (1) On July 16, 2010, Complainant paid $150.00 to Arizona Precast Septic Concepts, L.L.C. (“Arizona Precast”) for labor to repair a cracked jet tank; and (2) On July 27, 2010, Complainant paid $182.07 to Arizona Precast for an 8” riser, a 6” aerator extension riser, and an 8” aerator extension riser. 25. Complainant requested an award from the Fund in the amount of $10,082.07 to reimburse him for the monies that he had paid others to complete the septic system and to obtain a certificate of occupancy for his residence. 26. Respondent presented its own and other contractors’ invoices in the total amount of $11,700.00, and Mr. Kory testified that Respondent incurred $27,850.00 in costs and charges for the work it performed on Complainant’s septic system. Respondent also disputed whether the risers were necessary for the alternative aerated septic system. CONCLUSIONS OF LAW 1. This matter lies within the Registrar’s jurisdiction.[8] 2. Complainant bears the burden of proof to establish the amount that he is entitled to recover from the Fund by a preponderance of the evidence.[9] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[10] 3. The Registrar’s final decision in Case No. S10-0079 established that Respondent violated the charged statutes. 4. The legislature has imposed the following limitation on awards that the Registrar can make from the Fund: An award from the fund is limited to the actual damages suffered by the claimant as a direct result of the contractor’s violation but shall not exceed an amount necessary to complete or repair a residential structure or appurtenance within residential property lines. . . .

A.R.S. § 32-1132(A). 5. Complainant’s contract with Respondent was for a fixed sum, not time and materials. Because the measure of Complainant’s damages is the cost to complete the septic system, expenditures by Respondent before it abandoned the contract are irrelevant. Moreover, Respondent’s revoked license and self-interest limit the evidentiary weight of its member’s testimony, and it is unlikely that Complainant purchased parts for the septic system that were unnecessary or not installed, especially since Complainant is not requesting any payout from the Fund for the cost of installing the aerated septic system. Therefore, Complainant has established that he is entitled to an award from the Fund in the amount of $10,082.07.[11] RECOMMENDED ORDER In view of the foregoing, it is recommended that on the effective date of the Registrar’s final order, the Registrar order the Residential Contractors’ Recovery Fund to pay $10,082.07 to Complainant Rogelio Delgadillo. It is further recommended that the Registrar under A.R.S. § 32- 1139(B) charge this amount in Case No. 2010-795998 (formerly S10-0079) to License No. ROC229195 previously issued to Respondent Kory Excavation, L.L.C. 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, October 20, 2011.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] 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.” [2] 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.” [3] 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.” [4] A.R.S. § 32-1154(A)(20) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[s]ubsequent discovery of facts which if known at the time of issuance of a license or the renewal of the license would have been grounds to deny the issuance or renewal of the license.” [5] 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.” [6] 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.” [7] 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. § 32-1124(B) requires that licensed contractors include their license number “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.” [8] See 32-1101 et seq. [9] See A.A.C. R2-19-119; see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [10] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [11] The basis of the calculation is set forth in Finding of Fact Nos. 22 and 24, as follows: $2,000.00 + $7,750.00 + $150.00 + $182.07 = $10,082.07.

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