ALJDEC decisions subject to certification as final

2011A-1543-ROC · Registrar of Contractors · 2011-11-23

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: November 7, 2011 APPEARANCES: Janet M. Spears, Esq. represented Complainant 34 Degree North. Terri L. Fleming appeared on behalf of Respondent Mountain View Construction, L.L.C. ADMINISTRATIVE LAW JUDGE: Sondra J. Vanella _____________________________________________________________________ The question presented by this matter is whether Respondent Mountain View Construction, L.L.C. (“Mountain View”) is subject to discipline for acts or omissions in violation of A.R.S. § 32-1154(A). 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. Mountain View is the holder of a Class B-1 license (No. 265209) issued by the Registrar of Contractors (“ROC”). Terri Fleming is Mountain View’s qualifying party and member. According to the ROC’s official records, Mountain View’s license was suspended on October 14, 2011, for lack of bond.[1] 2. On June 23, 2010, Complainant 34 Degrees North (“34 Degrees”) contracted with Mountain View for Mountain View to construct Gila County Chopper, a motorcycle shop, in Strawberry, Arizona. John and Maureen Botkin are the members comprising 34 Degrees, and they are the owners of Gila County Chopper. See Exhibit 6. The contract price was $414,710.00. Id. 3. On June 25, 2010, the Botkins and 34 Degrees entered into a second contract with Mountain View to construct the motorcycle facility. See Exhibit R1. The June 25, 2010 contract specified that the total contract price for the construction of Gila County Chopper was $459,710.45, that the owners of the project would pay to Mountain View a deposit in the amount of $42,976.89, plus tax in the amount of $2,023.11, for a total deposit of $45,000.00. Id. The contract further specified that the remaining contract balance of $396,065.87, plus sales tax in the amount of $18,644.58, for a total amount of $414,710.45, would be financed through Compass Bank as a construction loan. Id. The contract also contained the following pertinent terms: i. Mountain View agreed to charge $50.00 per hour for personal time and work performed and would present a weekly invoice documenting total hours; ii. Mountain View agreed to a cap of total charges not to exceed $64,000.00; iii. The total amount of wages paid to Mountain View was built into the total contract amount; iv. The Botkins agreed to pay any and all costs that exceeded the total contract amount of $459,710.45, except for Mountain View’s charges subject to the cap; v. The Botkins agreed to pay for cost overruns during the course of construction upon each occurrence at the time that the amount was due to be paid; and vi. Mountain View agreed that any cost reductions would be credited or bank funds not used, lowering the total contract amount and resulting in a cost reduction to the Botkins. Id. Degrees has paid Mountain View $126,997.46. 4. On March 14, 2011, Mr. Botkin, on behalf of 34 Degrees, filed a complaint against Mountain View with the ROC alleging that Mountain View abandoned the project, breached the contract, embezzled and misappropriated funds, stole materials, billed for hours not worked, forced the Botkins to sign subcontracts, departed from plans, was responsible for construction deficiencies, failed to pay withholding taxes and to comply with labor laws, and failed to pay monies due to material suppliers and contractors. 5. ROC Inspector Tom Sandoval investigated 34 Degrees’ complaint. 6. On April 1, 2011, Inspector Sandoval conducted a jobsite inspection. Mr. and Mrs. Botkin and Mr. Fleming were present for the inspection. The Botkins had already hired a replacement contractor at the time of the jobsite inspection. 7. On April 13, 2011, Inspector Sandoval issued a Corrective Work Order (“CWO”) under which the ROC gave Mountain View 15 days to take corrective action as follows: Items 1, 2, 3, 5, and 6, were listed as violations against the ctr. but were not workmanship issues. No action required.

4a] Current stairwell is 14 plus beet [sic] high and has no rebar or grout as required by code and plan. This was a change from the original plan and was addressed by both parties prior to erection. The complainant wanted to save money and deviated from the plan with a different style of steps. As we were talking the complainants wife stated that they did not approve any changes here but I had heard her husband state that they were aware of this. At that point I asked the complainant if he was aware of the change just to make sure that I had heard this right and he stated yes. In the opinion of this inspector the wall was built to what the owners wanted and would have had the proper materials grouted and steel if the ctr. would have been allowed to finish the job. No action required at this time.

4b] Current concrete embeds in concrete for Structural and Steel building to be installed above basement area per plans. This was the area that was finished by the new ctr. that had not been hired yet. According to the ctr. this was better to wait to make sure the bolts fit correctly when the steel arrived. The structural engineer agreed that this was an appropriate fix and the new ctr. also agreed that this is better since the bolts would match up perfectly. No action required.

4c] Column/Pier alignment incorrect to support upper steel building per plan. According to the plans at the jobsite the alignment was slightly off on the prints. The prints also did not have any measurements to go off of. It did have a 1/8” equals one foot but that could not be used as it was not drawn to scale. The ctr. stated that he had been in contact with the architect on this and that he had sent a cad drawing to him and it was agreed that it was correct. I did talk to the architect and he stated that this was true about the cad drawings. This was not at the jobsite so I could not verify the exact dimensions. No action required.

4d] Waterproofing outside of building not maintained shoddy workmanship. The waterproofing had fallen off at three sides and ctr. agreed that he would have corrected this prior to backfilling but that he was not allowed to finish the job. This does need to be corrected but complainant stated that they would not let ctr. do anything on this job anymore. Contractor to correct by appropriate means.

4e] Rebar missing for upper level concrete floor. According to the ctr. this would have been finished if he would have not been barred from the job. The new ctr. had already finished this prior to jobsite. No action required.

4f] Additional deficiencies may be identified as we engage a new General contractor. There were additional items added at the jobsite and ctr. agreed to address.

Addendum items:

1] Building is 5.5 inches too tall right now. Contractor stated that this was not the case but if it was that this would have been taken care of if he would have been allowed to finish. This cannot be corrected without taking the building down and complainant does not want to do that. One support can be cut and made bigger if necessary but ctr. will not be allowed to finish the job. No action required.

2] Cold joints different size blocks. This was at the north wall and according to the ctr. and the complainant the walls are grouted solid and rebar every 8 inches vertically. In order to correct this it would have to be torn down and the structural integrity would be lost. The complainant does not want this to happen and was only pointing this out to show workmanship. This is more for aesthetics than for structure. No action required.

3] Area of concrete at door opening has foot prints and drag marks. The ctr. agreed to this and stated that he could correct if the complainant would allow him to finish and do corrections. This was an area of about 8 X feet and ctr. needs to correct. Contractor to correct by appropriate means.

4] Concrete wall at interior wall has no footing. This was not needed according to the prints. No action required.

5] Window lintels do not embed in walls. According to the blueprints the steel only needed to go 8” over each side and this could not be shown at jobsite. Contractor did send pictures of this and it looked to extend the 8 inches as required. No action required.

6] Concrete voids over lintels. There were two lintels that had voids and the ctr. agreed to correct. Contractor to correct by appropriate means and per jobsite agreement.

Emphasis in original.

8. On September 9, 2011, 34 Degrees’ complaint was amended to include the following allegation: Additonal [sic] construction defect. On 7-29 it was discovered that Mountain view construction [sic] during the tim ethey [sic] were general contractor on our project built and grouted the lower walls incorrectly in that they left out a large ibeam and the upper support beam for the second floor steel structure. We will now have to re- engineer and or demolish part of the building to accomodate [sic] this support beam. The attached document shows the are [sic] the beam was to be placed and the detail as to which it [sic] was to be done.

9. Inspector Sandoval testified regarding the findings contained in the CWO, including drag marks and foot prints in the concrete and the concrete voids over the lintels. Specifically, Inspector Sandoval testified that as to item 2 of the Addendum items, regarding the cold joints in different size blocks, because they are filled with solid concrete, the structural integrity is not compromised. Regarding item 4a of the CWO, Inspector Sandoval testified that the stairwell was not built per plans. However, Inspector Sandoval testified that Mr. Botkin advised him that the change was approved by 34 Degrees in order to reduce costs. Inspector Sandoval testified that Mr. Fleming called him to ask for guidance in complying with the CWO given that the Botkins would not return his calls. Inspector Sandoval advised Mr. Fleming to send a certified letter requesting access to perform the required corrective work. Mr. Fleming did so. See Exhibit R4. The Botkins did not respond. At hearing, the Botkins did not address their denial of access to Mountain View. 10. 34 Degrees’ insurance company hired Daryl E. Young, P.E., a forensic engineer, to examine the building and “summarize structural items that are not in compliance with the approved construction documents or industry standard, as well as, any other structural deficiencies . . .” See Exhibit 9. Mr. Young testified at hearing regarding his findings which are set forth in a report. Id. Regarding the masonry lintels, Mr. Young testified that they are not in compliance with the plans, and that there are voids and air pockets in the grout. However, Mr. Young acknowledged that based on his visual inspection, he could not determine if this condition would impact the structural integrity of the building. Mr. Young further testified that the construction of the steel lintel does not comply with the plans. However, Mr. Young also testified that destructive testing would be required to determine if the structural integrity was compromised. Mr. Young testified that for the building to be in compliance with the construction plans, it would take a significant amount of work to remove and replace the lintel and reconstruct the wall. 11. Mr. Young testified that the cold joints in the masonry walls are not contained in the plans and that the joints leave the wall susceptible to water infiltration. Regarding missing control joints, Mr. Young testified that there is a greater probability of random cracking due to shrinkage, but that this is not a structural failure, but rather a serviceable issue. 12. Mr. Young further testified that there is a discrepancy in the floor to floor height, and that such height differential resulted in differing heights of steel required, resulting in a 5 ½ inch steel shim placement under a steel column. 13. Regarding the column/pier alignment, Mr. Young testified that this was out of compliance with the construction plans, but he would have to defer to the engineer of record to determine whether a structural deficiency exists. 14. On cross-examination, Mr. Young acknowledged that there was no indication of structural failure at the concrete lintels. Regarding the missing vertical control joints, Mr. Young testified that they were specified on the plans, but that no structural problems due to the missing control joints were noted at the time of his inspection. 15. Mr. Botkin testified that on January 21, 2011, Mr. Fleming called him to say that he was “upside down” on the project and that he would not continue without an additional bank draw of $5,000.00. Mr. Botkin believed, based upon his own calculations and the receipts he possessed, that Mr. Fleming still had funds remaining from those that had previously been paid. Mr. Botkin requested a reconciliation of expenses three times, and on all three occasions, Mr. Botkin determined that Mountain View had funds remaining available. Mr. Botkin determined that by January 21, 2011, Mountain View had $11,000.00 remaining from the $126,997.46 already paid. Mr. Botkin testified that in an email correspondence, Mr. Fleming advised that he had reimbursed himself for obtaining his commercial contracting license. Mr. Botkin testified that Mountain View was responsible for paying for the concrete and the concrete pump, yet failed to do so. Therefore, the Botkins incurred this expense. See Exhibits 23 and 24. Mr. Botkin further testified that Mountain View hired undocumented workers and that he and Mr. Fleming discussed hiring Mr. Fleming’s brother and paying him “under the table,” thereby saving $5.00 per hour. 16. Mr. Fleming testified that the Botkins had obtained several bids for the project and that all bids came in between $550,000.00 and $600,000.00 based on the plans and specifications. Mr. Fleming testified that he advised Mr. Botkin that Mountain View could undertake the construction project for less than the other bids he obtained. Mr. Botkin explained to Mr. Fleming that the bank would only lend a certain amount of money for construction and, therefore, in order to proceed, two contracts would need to be executed. Mr. Fleming testified that because he knew Mountain View could not complete the construction for the amount of the construction loan, he placed the clause in the contract concerning the $50.00 per hour rate for his work. See Exhibit R1. Mr. Fleming further testified that the Botkins removed over $20,000.00 of line items in the bank contract, and that is why he placed the provision in the contract regarding cost overruns to be paid by the owners during the course of construction. Id. 17. Mr. Fleming testified that because the Botkins removed the line items for the concrete and the pump from the bank contract, they agreed to pay separately for these items. Further, Mr. Fleming testified that another tenant of the building was supposed to construct a brewery and install the floor on that part of the building. Because of this, Mr. Botkin took the money for this portion of the floor out of the bank budget, resulting in 34 Degrees having to pay for additional concrete. 18. Mr. Fleming acknowledged offering to utilize his brother in an effort to save the Botkins money. However, ultimately, Mr. Fleming’s brother did not work on the project. 19. Mr. Fleming credibly testified about his efforts to contact the Botkins in order to secure access to the premises to perform the work required by the CWO, and the Botkins’ lack of response. 20. Mr. Fleming testified that the changes in the stair design, as well as the building height, were approved by the owners, the architect, and Mountain View, in an effort to reduce costs. 21. Mr. Fleming testified that Mountain View ceased work on the project after January 23, 2011, because 34 Degrees did not pay the requested draw, and there was a complete breakdown in communication. Mr. Fleming testified that Mr. Botkin stopped construction at the jobsite. Shortly thereafter, Degrees hired another contractor. 22. On cross-examination, Mr. Fleming testified that he only obtained his commercial contracting license in order to work on this project, and that it cost him $5,000.00 to do so. However, Mr. Fleming testified that he did not charge 34 Degrees for obtaining the license. Mr. Fleming acknowledged utilizing an undocumented worker on the project for three days. Mountain View paid the worker in cash and did not pay any required taxes. 23. George Caton, the architect of record for the project, testified that he prepared the stair design, that the design was originally for pre- manufactured stairs, and that a cost savings change was made to the design. Mr. Caton testified that the detail for the recessed slab area was approved and that there is no difference in structural capacity. Mr. Caton further testified that the dimensions of the structure were agreed upon by the parties. However, he was unaware as to whether the steel manufacturer received the dimensions, for which the general contractor and the owner share responsibility. CONCLUSIONS OF LAW In this proceeding, 34 Degrees bears the burden to prove, by a preponderance of the evidence, that Mountain View is subject to discipline for violations of A.R.S. § 32-1154(A)(1), (A)(2), (A)(3), (A)(5), (A)(7), (A)(9), (A)(11), (A)(12), and/or (A)(23) as charged by the ROC in its July 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). The Administrative Law Judge concludes that 34 Degrees met its burden of proof as to two of the ROC’s nine charges. Under A.R.S. § 32-1154(A)(1), a contractor is subject to discipline for “abandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.” The credible evidence of record established that Mr. Botkin requested that Mountain View stop work on the project over a monetary dispute and that very shortly thereafter, he hired a replacement contractor. The Administrative Law Judge concludes that Mountain View did not abandon the contract or refuse to perform, and therefore, did not violate A.R.S. § 32-1154(A)(1). Under A.R.S. § 32-1154(A)(2), a contractor is subject to discipline for “departure from or disregard of plans or specifications or any building codes . . . without consent of the owner . . .”. The Administrative Law Judge concludes that the credible evidence of record failed to establish that Mountain View departed from plans, specifications, or building codes. The evidence of record established that 34 Degrees approved the changes in the plans in order to reduce the cost of the project. Therefore, the Administrative Law Judge concludes that Mountain View did not violate A.R.S. § 32-1154(A)(2). Under A.R.S. § 32-1154(A)(3), a contractor is subject to discipline for “violation of any rule adopted by the registrar.” In this case, the ROC charged Mountain View with a violation of A.A.C. R4-9-108, which, among other things, requires contractors to perform work in a professional and workmanlike manner and in accordance with any applicable building codes and professional industry standards. The Administrative Law Judge concludes that the evidence of record established that Mountain View failed to perform some of its work in a professional and workmanlike manner, specifically, the drag marks and foot prints in the concrete and the concrete voids over the lintels. Therefore, the Administrative Law Judge concludes that Mountain View violated A.R.S. § 32-1154(A)(3). Under A.R.S. § 32-1154(A)(5), a contractor is subject to discipline for “failure to pay income taxes, withholding taxes or any tax imposed by title 42, chapter 5, articles 1 and 4 and incurred in the operation of the licensed business.” The evidence of record, especially the acknowledgement by Mr. Fleming, established that Mountain View failed to pay taxes when it utilized and paid in cash an undocumented worker. Therefore, the Administrative Law Judge concludes that Mountain View violated A.R.S. § 32- 1154(A)(5). Under A.R.S. § 32-1154(A)(9), a contractor is subject to discipline for “failure in a material respect . . . to complete a construction project or operation for the price stated in the contract, or in any modification of the contract.” The credible evidence of record failed to establish that Mountain View failed to complete construction for the price stated in the contract. Mr. Botkin acknowledged paying $126,997.46 of the contract price to Mountain View, a total amount not close to the full contract price. Therefore, the Administrative Law Judge concludes that Mountain View did not violate A.R.S. § 32-1154(A)(9). Under A.R.S. § 32-1154(A)(11), a contractor is subject to discipline for the “failure . . . 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 . . .” The credible evidence of record failed to establish that Mountain View failed to pay monies in excess of seven hundred fifty dollars when due for materials or services rendered in connection with its operations as a contractor. The evidence of record established that 34 Degrees was contractually obligated to pay for the concrete and pump truck due to the line item removal for those expenses from the bank contract and the provision contained in the contract between the parties. See Exhibit R1. Therefore, the Administrative Law Judge concludes that Mountain View did not violate A.R.S. § 32-1154(A)(11).

Under A.R.S. § 32-1154(A)(12), a contractor is subject to discipline for “failure . . . to comply with safety or labor laws or codes of the federal government, state or political subdivision of the state.” 34 Degrees did not address this alleged violation. Therefore, the Administrative Law Judge concludes that Mountain View did not violate A.R.S. § 32-1154(A)(12). Under A.R.S. § 32-1154(A)(23), a contractor is subject to discipline for “failure to take appropriate corrective action . . . without valid justification within a reasonable period of time after receiving a written directive from the registrar.” The evidence demonstrated that a jobsite inspection by the appointed inspector for the ROC was held, pursuant to which the ROC issued a CWO to Mountain View directing it to perform specified remedial work. The evidence of record established that Mountain View attempted to gain access to the jobsite in order to do so, and that 34 Degrees failed to respond to such requests. Therefore, the Administrative Law Judge concludes that Mountain View was justified in not performing the corrective work, and did not violate A.R.S. § 32-1154(A)(23). 12. Under A.R.S. § 32-1154(A)(7), a contractor is subject to discipline for “the doing of a fraudulent act . . . 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.][2]

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.][3]

In this case, the evidence of record fails to establish a claim of common law fraud. 13. Constructive fraud is a term denoting a type of fraud involving unintentional deception or misrepresentation,[4] as opposed to intentional fraud. All nine elements at common law are still required for a claim of constructive fraud.[5] Constructive (unintentional) fraud may only be found when the parties have a confidential or fiduciary relationship, but not when they are dealing at arms length.[6] Here, the parties were dealing at arms length and, therefore, constructive fraud is not applicable. Therefore, 34 Degrees’ fraud claim fails. 14. Based on the two statutory violations delineated above, it is appropriate for the ROC to impose discipline against Mountain View’s Class B-1 license. 15. Upon consideration of all of the facts and circumstances presented by this case, the Administrative Law Judge concludes that the ROC should place Mountain View’s Class B-1 license on disciplinary probation for a period of 120 days. RECOMMENDED ORDER Based on the foregoing, the Administrative Law Judge makes the following Recommended Order: Mountain View’s Class B-1 license shall be placed on disciplinary probation for a period of 120 days commencing 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 forty (40) days from the date of that certification.

Done this day, November 23, 2011.

/s/ Sondra J. Vanella Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] Such suspended license status does not preclude this tribunal from conducting these administrative proceedings. A.R.S. § 32-1154(C).

[2] 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). [3] Id. [4] Black’s Law Dictionary 686 (8th ed. 2004). [5] Rhoads v. Harvey Publications, Inc., 145 Ariz. 142, 146, 700 P.2d 840, 844 (App. 1984). [6] Id. at 148, 700 P.2d at 842.

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