ALJDEC decisions subject to certification as final

2011A-2384-ROC-rf · Registrar of Contractors · 2012-09-13

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

RECOVERY FUND PAYOUT HEARING: August 24, 2012, at 1:00 p.m. APPEARANCES: Complainant Lez McKenzie appeared on Complainants’ behalf; Respondent Mark Robert Marty dba Mark Marty did not appear; the Registrar of Contractors was represented by Mary DeLaat Williams, Esq., Assistant Attorney General. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure 1. The Arizona Registrar of Contractors (“the Registrar”) issued License No. KB-1.171495-D to Mark Robert Marty doing business as (“dba”) Mark Marty (“Respondent”). Respondent’s current address of record is 5210 Coral Burst Cir., Loveland, Colorado 80538-5662. 2. The Registrar received a complaint against Respondent from Lez McKenzie (“Complainant”) regarding the front entry door that Respondent had installed during the course of his construction of Complainant’s new home at 28315 North Rio Mountain Court, Scottsdale, Arizona (“the workmanship complaint”). 3. The Registrar issued a Citation and Complaint in the workmanship complaint against Respondent charging possible violations of A.R.S. § 32-1154(A)(3), namely A.A.C. R4-9- 108,[1] and A.R.S. § 32-1154(A)(23).[2] 4. The Registrar referred the workmanship complaint to the Office of Administrative Hearings (“the OAH”), an independent state agency, for an evidentiary hearing on whether Respondent had violated the charged statutes. A hearing was held in the OAH before Administrative Law Judge (“ALJ”) Dorinda M. Lang. 5. ALJ Lang issued a recommended decision on the workmanship complaint that concluded that Complainant had established that Respondent violated the charged statutes. 6. The Registrar issued an Order substantially adopting ALJ Lang’s recommended decision on the workmanship complaint. As a result of Respondent’s proven statutory violations, the Registrar did not require Respondent to repair the door but, instead, suspended Respondent’s license unconditionally for fourteen days, as well as imposing other disciplinary sanctions on the license. 7. The Registrar’s December 12, 2011 Order also noted as follows: As of July 20, 2011, A.R.S. § 32-1154(F) allows a Complainant to file a claim with the Residential Contractors’ Recovery Fund even in instances whereby discipline imposed is limited in duration, so long as such discipline is imposed as a result of an Order to remedy a violation of A.R.S. § 32-1154. . . .

8. On or about February 10, 2012, Complainant filed a claim in the amount of $8,713.00 to the Residential Contractors’ Recovery Fund (“the Fund”) to recover the cost to repair the door. Complainant’s wife, Erica McKenzie, was added as a party complainant. 9. On or about May 14, 2012, the Registrar issued a Notice of Denial of Recovery Fund Claim, stating in relevant part as follows: Pursuant to A.R.S. § 32-1132(A), an award from the Recovery Fund is limited to actual damages suffered by the Complainant(s) as a direct result of the residential contractor’s violation, but shall not exceed an amount necessary to complete or repair a residential structure or appurtenance.

Pursuant to A.R.S. § 32-1134(A)(2)[, ](3) and (5) the Registrar is required to subject all Recovery Fund claim files to examination by an accountant to ensure that all claims paid are appropriate. In order to fulfill this fiduciary responsibility and determine an amount payable (if any), the Registrar must request sufficient documentation to support all payments from the Fund. This includes having conclusive proof of the extent of all claimed damages. Anything less mandates that the Registrar deny the unsubstantiated portion of any claimed loss.

Background:

On or about September 4, 2007, the Complainants entered into a contract with Mark Marty (a sole proprietor), license number 171495, for the construction of a residential home. . . . On or about April 25, 2011, the Complainants filed a complaint against the Respondent with the Registrar of Contractors. Inspector Scott Deering inspected the alleged poor work and found the Respondent to be at fault. A citation was issued to the Respondent, ultimately revoking the license as a direct result of the complaint.

On or about February 10, 2012 Complainants filed a claim with the Recovery Fund. Included in the claim are three bids to correct the poor work. The first, from Landmark Design for $6,151.95, was supplied by an unlicensed contractor and cannot be used to determine damages per ARS §32-1132(A). The second, from Colletti Design, license 152026, for $8,713.00, was considered, as was the third bid from First Impression Security Doors, license 267258, for $10,523.55.

Analysis:

Pursuant to ARS §32-1132(A) an award from the fund is limited to the actual damages suffered by the Complainant as a direct result of the contractor’s violation but shall not exceed an amount necessary to complete or repair a residential structure. In determining “actual damages”, it is crucial to determine the extent of the injury within the limitations of the Fund statutory scheme. In doing such, the Fund must look at the totality of the project. The Fund must abide [by] its fiduciary responsibility and cannot award monies from the Fund that would result in a windfall in favor of the Complainant. Based upon all available evidence in this claim, Complainant paid Respondent a total of $818,786.00 towards a contract amount of $828,062.00. The resulting balance due to Respondent is therefore greater than the low bid from a licensed contractor to repair the deficient work of respondent and no award from the Fund is therefore possible. . . . .

Conclusion:

Based on the above, the agency will close this claim with no payment from the Fund. If Complainant(s) disagree(s) with this finding, Complainant(s) may choose to request a hearing. . . .

10. Complainants requested a hearing on the Registrar’s determination that they were not entitled to a payout from the Fund “in order to demonstrate that the information used to deny [our] claim was based on a change in work request that subsequently was adjusted downward due to changes made during the construction of our home.” The Registrar referred the matter to the OAH for an evidentiary hearing. 11. On July 9, 2012, the Registrar issued a Notice of Recovery Fund Eligibility/Payout Hearing setting a hearing on August 24, 2012, at 1:00 p.m. The Registrar sent a copy of the Notice of Recovery Fund Eligibility/Payout Hearing to Respondent at his address of record. 12. A recovery fund payout hearing was held on August 24, 2012, at 1:00 p.m. Complainant Lez McKenzie submitted three exhibits and testified on Complainants’ behalf. The Registrar submitted six exhibits and presented the testimony of Eric Ulinger, the Fund’s Supervisor. 13. Respondent did not request to appear telephonically and did not request that the hearing be continued. Although the hearing did not conclude until after 2:30 p.m., Respondent did not appear personally or through an attorney. Consequently, Respondent did not present any evidence. Hearing Evidence 14. Mr. McKenzie testified that over the course of construction, the price of the home was raised and lowered many times. Mr. McKenzie submitted numerous change orders that showed fluctuating contract amounts between March 21, 2008, the date of the first change order, and September 3, 2008, the date of the fifteenth change order. As of September 3, 2008, the total revised contract amount was $813,466.00.[3] 15. Mr. McKenzie testified that he paid more than the full contract amount. Mr. McKenzie testified that he did not understand Respondent’s accounting system and that because he did not keep all of the documents relating to Respondent’s construction of the house, he had to rely on the bank’s records. 16. Mr. McKenzie testified that he paid Respondent directly to perform additional work in the garage of the house and that he still has a copy of his cancelled personal check to Respondent for such work. Mr. McKenzie did not submit a copy of his personal check into evidence. 17. Mr. Ulinger testified that the Registrar must determine the contract amount and whether the full contract amount has been paid. If any monies are owed under the contract, the amounts owed must be deducted from the cost of repairing deficient workmanship, and if the amount owed exceeds the cost of repair, the claimant has not suffered any compensable damages. 18. Mr. Ulinger testified that Complainants were given an opportunity to provide documents to establish the contract amount and the amounts that had been paid to Respondent under the contract. Mr. Ulinger testified that the Registrar considered all the documents that Complainants provided. 19. The Registrar submitted a copy of the contract for construction of the home. The original contract amount was $818,786.00. The contract required Complainants to pay a $5,000.00 deposit for Respondent to begin work.[4] 20. The Registrar also submitted a copy of Respondent’s Non- Lender Invoice dated February 24, 2009, that showed the original contract amount of $818,786.00 and the additional net amount of $9,951.00 for authorized change orders 1 – 20, for a total revised contract amount of $828,737.00.[5] 21. Respondent’s February 24, 2009 Non-Lender Invoice showed that the construction lender had paid a total of $811,785.50 for construction draws nos. 1 – 10, consisting of the following three itemized amounts: (1) $692,884.40 (Draws 1 - 8); (2) $69,991.50 (Draw 9); and (3) $48,909.60 (Draw 10). 22. Respondent’s February 24, 2009 Non-Lender Invoice did not show a credit for Complainants’ $5,000.00 deposit, but showed a payment by the owner in the amount of $9,933.00, for a total outstanding balance of $7,018.50.[6] 23. Mr. Ulinger testified that he would have preferred to have a copy of Respondent’s authorized change order no. 20 to calculate the total contract amount, but Complainants did not provide that document. Mr. Ulinger testified that Complainants also did not provide any authorized change orders or other contract documents dated after Respondent’s February 24, 2009 Non-Lender Invoice. 24. The Registrar submitted a spreadsheet that Mr. Ulinger had prepared based on the documents that Complainants submitted to the Fund.[7] The spreadsheet showed that Respondent was paid eleven draws and the initial $5,000.00 deposit, for a total of $818,786.00, which was the initial contract amount. None of the draws shown on the spreadsheet matched the amounts shown on Respondent’s February 24, 2009 Non-Lender Invoice. The eleventh draw was paid on April 27, 2009. 25. The Registrar submitted two of the bids that Complainants submitted to establish the cost of repairing the door, including Colletti Design’s low bid in the amount of $8,713.00. [8] 26. Mr. Ulinger’s spreadsheet contained the following calculation: Unpaid Balance on Contract - $9,951.00 Costs Plus Bids/Estimated Loss Amount + $8,713.00

Spreadsheet Calculation of Damages - $1,238.00[9]

Mr. Ulinger testified that because Complainants’ unpaid balance on the contract exceeded the cost of repairing the door, Complainants did not establish that they had suffered any compensable damages under A.R.S. § 32- 1132(A). 27. Mr. Ulinger testified that construction draws rarely satisfy the full cost of construction and that the homeowner usually must secure a second loan or write a personal check to finish paying for construction. Mr. Ulinger testified that he could not add the $9,933.00 payment by the owner that was shown on Respondent’s February 24, 2009 Non-Lender Invoice to his calculation of payments made because it was not shown on any of the documents that Complainants had provided to support their claim. Mr. Ulinger testified that there were many missing documents and that the final contract amount may have exceeded the amount shown on Respondent’s February 24, 2009 Non-Lender Invoice. 28. Mr. McKenzie testified that Respondent had not filed a lien against Complainants’ home and did not claim that Complainants owed any monies to Respondent for construction. / / / / CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[10] The Notice of Recovery Fund Eligibility/Payout Hearing that the Registrar mailed to Respondent at his address of record was reasonable. Respondent is deemed to have received notice of the recovery fund payout hearing.[11] A.R.S. § 32-1132(A) provides that “[a]n 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. . . .” Complainants bear the burden of proof to establish the amount, if any, that they are entitled to recover from the Fund under A.R.S. § 32-1132(A) by a preponderance of the evidence.[12] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[13] A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”[14] The payments shown on Respondent’s February 24, 2009 Non-Lender Invoice and the payments shown on the spreadsheet that Mr. Ulinger prepared based on other documents that Complainants provided are inconsistent and contradictory. Complainants did not submit any evidence to explain or resolve the inconsistencies and contradictions. Complainants did not present evidence to establish conclusively the final sum of the parties’ contract or that they or their construction lender paid Respondent the final contract amount in full, including the net amount of all authorized change orders. Complainants did not establish that the cost of repairing the door exceeded the amount that appears to remain due under the contract. Therefore, Complainants did not sustain their burden to establish that they are entitled to recover a payout from the Fund in any amount. RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the Registrar’s final order, Case No. 2011-2384 be closed because Complainants Lez and Erica McKenzie have not established that they are entitled to a payout in any amount from the Residential Contractors’ Recovery Fund. 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, September 13, 2012.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] 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.” [2] 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.” [3] See Complainants’ Exhibit 3. [4] See the Registrar’s Exhibit 2 at 7. [5] See the Registrar’s Exhibit 3. Respondent’s Non-Lender Invoice miscalculated the revised contract amount as $828,719.00. [6] Due to the miscalculated contract amount, the amount shown as outstanding on the Non-Lender Invoice was $7,000.50. [7] See the Registrar’s Exhibit 5. [8] See the Registrar’s Exhibit 4. [9] The Registrar’s Notice of Denial of Recovery Fund Claim set forth the original contract amount as $828,062.00 and total payments of $818,786.00 to calculate the balance due as $9,276.00. Mr. Ulinger testified that the discrepancy in the contract amount on the Notice of Denial of Recovery Fund Claim and in the spreadsheet was due erroneous input of data. Mr. Ulinger testified that even after the numbers were corrected, Complainants’ evidence still did not establish that they were damaged by Respondent’s proven violations of A.R.S. § 32-1154(A). [10] See A.R.S. §§ 32-1131 to 32-1140. [11] See A.R.S. § 41-1092.04; A.R.S. § 41-1092.05(D). [12] See A.A.C. R2-19-119(A) and A.A.C. R2-19-119(B)(1); see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [13] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [14] Black’s Law Dictionary at 1220 (8th ed. 1999).

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