ALJDEC decisions subject to certification as final

2011A-1255-ROC · Registrar of Contractors · 2011-08-03

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: June 27, 2011; the record closed on July 25, 2011 APPEARANCES: Assistant Attorney General Elizabeth Campbell represented Complainant Registrar of Contractors. James Sparks, Esq. represented Respondent Lifestyle Pools, Inc. ADMINISTRATIVE LAW JUDGE: Sondra J. Vanella _____________________________________________________________________ The question presented by this matter is whether Respondent Lifestyle Pools, Inc. (“Lifestyle”) violated A.R.S. § 32-1154(A)(21) as charged by the Arizona Registrar of Contractors in an April 1, 2011 Citation and Complaint. Based on the evidence of record, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law, and Recommended Order. FINDINGS OF FACT 1. Lifestyle is the holder of a Class B-5 license (No. 247744) issued by the Registrar of Contractors (“ROC”) on August 7, 2008. Eric Glade Maughan appears as qualifying party and president on License No. 247744. 2. On April 27, 1999, the ROC issued License No. 144837, a Class B-05 license to Whitewater Pools and Spas, Inc. (“Whitewater”). On December 18, 2007, License No. 144837 issued to Whitewater was voluntarily cancelled. 3. Eric Glade Maughan appeared as qualifying party and president on Whitewater’s License No. 144837, until his resignation on January 11, 2008. 4. Dave Mark Labav appears as an officer on License No. 144837. Martin Gregory Fraser appeared as an officer on License No. 144837 until his resignation on March 13, 2008. Don Walter Watson appeared as an officer on License No. 144837 until his resignation on March 13, 2008. Bob William Smith aka Robert W. Smith appeared as an officer on License No. 144837 until his resignation on March 13, 2008. 5. On or about August 28, 2007, Mr. Maughan sold Whitewater to Mr. Watson and Mr. Fraser for 2.5 million dollars. 6. On August 4, 2008, Mr. Maughan, on behalf of Lifestyle, filed with the ROC, an Assumption. See Exhibit 2. The Assumption form was printed from the ROC website, and states that Lifestyle “will assume from Whitewater Pools & Spas Inc. under license # 144837, the liability for all complaints, repairs, receipt of citations, filing of answers and appearing at hearings on all present and future charges and claims against Whitewater Pools & Spas Inc. as well as other matters of compliance with Chapter 10, Title 32, A.R.S. arising from the business operations of Whitewater Pools & Spas Inc.” Id. As such, the ROC was on notice that Lifestyle, one of its licensees, was assuming liability for Whitewater. Notwithstanding such knowledge, when the numerous complaints were filed against Whitewater, the ROC only sent notice of those filed complaints to Whitewater, despite the fact that Lifestyle was responsible under the Assumption for those complaints. Victoria Dell, a legal assistant employed by the ROC, testified at hearing that statute requires the ROC to send notice of Citations and Complaints to the licensee only. Ms. Dell testified that Lifestyle’s address was on file with the ROC’s licensing department at the time the Citations and Complaints were issued. 7. Between March 27, 2009 and March 3, 2011, the ROC revoked Whitewater’s license number 144837 approximately 31 times, resulting from complaints filed after January 11, 2008, when Mr. Maughan dissociated from Whitewater, with two exceptions of complaints filed in 2007 (Exhibits 3 and 12). 8. On April 1, 2011, the ROC issued a Citation and Complaint charging Lifestyle with a violation of A.R.S. § 32-1154(A)(21), which provides as follows: The holder of a license or any person listed on a license pursuant to this chapter shall not commit any of the following acts or omissions:

21. Having a person named on the license who is named on any other license in this state or in another state which is under suspension or revocation unless the prior revocation was based solely on a violation of this paragraph.

9. Lifestyle did not dispute that Whitewater’s license has been revoked multiple times. Mr. Maughan testified at hearing that he founded Whitewater in 1998, and that he sold the company to Don Watson and Martin Fraser in August 2007, and that the company was profitable when sold. Mr. Maughan testified that as one of the terms of the purchase contract, he agreed to remain qualifying party for Whitewater until the new owners could find a replacement. Mr. Maughan further testified that he continued as qualifying party for Whitewater until December 1, 2007, and filed the Notice of Dissociation on January 11, 2008, due to not being paid sums that were owed to him pursuant to the terms of the purchase contract. On August 4, 2008, Mr. Maughan filed an Assumption for Whitewater with the ROC. Mr. Maughan credibly testified that at that time he also requested from the ROC copies of any complaints that had been filed against Whitewater. However, the ROC denied his request stating that he could not obtain copies of the complaints because he was no longer listed on Whitewater’s license, but that he could pay to obtain redacted copies of the complaints. Mr. Maughan credibly testified that he did not obtain redacted copies because the information regarding the complaining party would have been redacted, defeating the purpose of obtaining the complaint forms, because redacted complaints would not provide the necessary information to rectify the complaints. Mr. Maughan testified that Whitewater went out of business shortly after Lifestyle obtained its license. Mr. Maughan credibly testified that he knew he was liable for any complaints against Whitewater’s license, but he was placed in a position under which he was powerless to resolve them because he could not obtain the information necessary to resolve them. 10. Chris Chase, a sales manager for Whitewater, had been employed by the company for five to six years at the time it was sold. Mr. Chase testified that Whitewater was “doing really well at the time it was sold,” employing sales people. Mr. Chase testified that he was employed with Whitewater when some of the ROC complaints were received. Mr. Chase testified that he approached Mr. Watson about the complaints on several occasions, and that Mr. Watson said, “don’t worry” or “shelve them.” Mr. Chase testified that Mr. Watson seemed indifferent about the complaints. Mr. Chase credibly testified that he was not aware of any pending complaints at the time Whitewater was sold. Mr. Chase testified that the new owners of Whitewater mismanaged the company and were interested in becoming a retailer rather than maintaining a construction company. 11. The ROC argued at hearing that Lifestyle is in violation of A.R.S. § 32-1154(A)(21) because Mr. Maughan was listed as qualifying party and president on Whitewater’s license until his resignation on January 11, 2008. The ROC further argued that many of the contracts underlying the numerous complaints against Whitewater date back to 2005 and 2006, and that the contracts and the work performed by Whitewater were executed and performed while Mr. Maughan was still listed on Whitewater’s license. The ROC argued that the purpose of the statute is to prevent “license hopping” by having individuals abandon a license that may be in trouble in order to work under a new or different license. 12. The Administrative Law Judge finds, based on the credible and probative evidence of record, that Mr. Maughan could not have had the foresight to know that Whitewater could not or would not meet its contractual obligations, as the company was profitable when sold. Further, Mr. Maughan did not simply leave Whitewater to start Lifestyle without any responsibility for unfulfilled contracts or poorly performed work. Mr. Maughan did not shirk responsibility for Whitewater. Mr. Maughan filed an Assumption in order for Lifestyle to assume liability for all complaints, repairs, receipt of citations, filing of answers, and appearing at hearings on all present and future charges and claims against Whitewater. Mr. Maughan further actively inquired of the ROC as to any pending complaints in order to resolve them and was denied access to those complaints by the ROC because he was no longer listed on Whitewater’s license. The ROC’s offer of redacted copies would have proved meaningless to Mr. Maughan for resolution purposes. The ROC’s argument that the Assumption does not add to the ROC’s statutory obligation to provide notice of proceedings in the underlying cases to anyone other than the licensee renders the Assumption meaningless, and is misleading to the parties to the Assumption. It also fails to protect the public from harm, because as Mr. Maughan credibly testified, he would have attempted to resolve the underlying complaints had he received notice of them. Instead, the complaints were unresolved, and as the record reflects, while some of the complaints were filed by homeowners that could have accessed the Residential Contractors Recovery Fund, many of the complaints were filed by subcontractors that do not have access to the Residential Contractors Recovery Fund. CONCLUSIONS OF LAW 1. In this proceeding, the ROC bears the burden to prove, by a preponderance of the evidence, that Lifestyle violated A.R.S. § 32- 1154(A)(21) as charged by the ROC in its April 1, 2011 Citation and Complaint. See Arizona Administrative Code R2-19-119. 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). 2. Under A.R.S. § 32-1154(A)(21), a contractor is subject to discipline for “[h]aving a person named on the license who is named on any other license in this or another state that is under suspension or revocation . . . .” 3. A.R.S. § 32-1101(A)(5) defines “person” as “an applicant, an individual, a member of a limited liability company, a qualifying party, any partner of a partnership or limited liability partnership or any officer, director, qualifying party, trustee of a trust, beneficiary of a trust or owner of at least twenty-five percent of the stock or beneficial interest of a corporation.” 4. The evidence demonstrated that Eric Glade Maughan appeared as qualifying party and president on Whitewater’s License No. 144837, until his resignation on January 11, 2008, and as qualifying party and president on Lifestyle’s License No. 247744. By virtue of these positions, Eric Glade Maughan is a person named on Whitewater’s and Lifestyle’s licenses. See A.R.S. § 32-1101(A)(5). Thus, Lifestyle stands in violation of A.R.S. § 32-1154(A)(21) because a person named on its license, i.e., Eric Glade Maughan, is a person named on a license from this State that has been revoked, i.e., Whitewater. 5. However, having considered the evidence and arguments presented, the Administrative Law Judge concludes that Lifestyle has presented a valid defense to the ROC’s charge in this matter. Mr. Maughan acted diligently and in good faith by filing the requisite Notice of Disassociation and Assumption with the ROC. Mr. Maughan further took the extra step of inquiring of the ROC as to whether any complaints were pending against Whitewater when he filed the Assumption, and was advised that because he was no longer listed on Whitewater’s license, he was not entitled to copies of those complaints. The ROC offered Mr. Maughan redacted copies of any pending complaints; however, such redacted copies would have proven useless to Mr. Maughan in any attempt to rectify the complaints as the pertinent contact information would have been redacted. The ROC argues that Mr. Maughan is listed on Whitewater’s license for purposes of disciplining Lifestyle’s license, yet also argues that Mr. Maughan/Lifestyle was not entitled to notice of pending complaints because he was no longer listed on Whitewater’s license, thereby depriving Lifestyle of an opportunity to rectify those complaints. Further, Mr. Maughan filed the Assumption with the ROC for the purpose of assuming from Whitewater “the liability for all complaints, repairs, receipt of citations, filing of answers and appearing at hearings on all present and future charges and claims against [Whitewater].” Because the ROC effectively refused to give Lifestyle the information to which it was entitled under the Assumption, the ROC deprived Lifestyle of the ability to act on those complaints. The public would have been better served in this case had the ROC provided the necessary information to Lifestyle. 6. Given the unusual and mitigating facts and circumstances presented by this matter, the Administrative Law Judge concludes that Lifestyle’s violation does not warrant discipline. RECOMMENDED ORDER In view of the foregoing, it is recommended that this matter be dismissed on the effective date of the Order entered in this matter. 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, August 3, 2011.

/s/ Sondra J. Vanella Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors -----------------------

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