ALJDEC decisions subject to certification as final

2011A-3241-ROC · Registrar of Contractors · 2012-01-24

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: January 9, 2012, at 8:00 a.m. APPEARANCES: Complainant Cheryl Smith appeared on her own behalf; Respondent Urban Ease Development, Inc. appeared through Thomas R. May, its qualifying party and officer. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure In November 2008, the Arizona Registrar of Contractors (“the Registrar”) issued License No. KB-2.250461-D for dual residential and small commercial contracting to Urban Ease Development, Inc. (“Respondent”). On June 3, 2011, the Registrar received a complaint from Cheryl Smith (“Complainant”) regarding 108 specific alleged deficiencies in Respondent’s repair of flood damage at her house at 4236 East Montecito Avenue, Phoenix, Arizona (“the project”). Complainant requested that the Registrar require Respondent to return all monies that Complainant had paid to Respondent for the job to allow her to “hire a reputable contractor.” The specific items in Complainant’s June 3, 2011 complaint included Respondent’s alleged failure to complete the job, theft of personal property, failure to remove trash or debris, installation of the wrong cabinets and a damaged sink in the kitchen, installation of the wrong cabinet in a bathroom, failure to install trim pieces on the kitchen countertop, failure to seal the floor tile in various locations, hollow- sounding floor tile in various locations, poor installation of or failure to install light fixtures and ceiling fans, failure to ground electrical outlets, failure to paint all six sides of various doors, failure to obtain a permit for and improper installation of the hot water heater, and missing window screens and cranks, shelves, door stops, and other fixtures. The Registrar assigned Complainant’s complaint to its inspector, Jeff Fleetham, for investigation. On June 21, 2011, Inspector Fleetham performed the first jobsite inspection in this matter. At the first jobsite inspection, Complainant amended her complaint to allege an additional 11 specific complaints regarding Respondent’s work on the roof of her house. On June 27, 2011, Inspector Fleetham issued a 12-page Corrective Work Order (“CWO”) that required Respondent to perform certain corrective actions within twenty-one days. Inspector Fleetham’s June 27, 2011 CWO included the following header: Respondent shall complete project per original contract agreement, properly executed change orders, local building codes, and manufacturer's installation instructions.

No written record, contract, invoice, plan, specification, or properly executed change orders were provided at time of inspection. Only cabinet shop drawings were provided at time of inspection by the complainant. This corrective work order is written based on the assumption that all work described was based on verbal agreements. This inspector has no first hand knowledge of verbal agreements between the Complainant and Respondent.

(Emphasis in original.) The June 27, 2011 CWO referred the parties back to the header on 61 items of complaint, indicating that Respondent was not required to take action on the items because although the items may have evidenced a deficiency, there was no evidence that they were included in the scope of the parties’ verbal agreement. The June 27, 2011 CWO did not require Respondent to correct 28 alleged deficiencies because either Inspector Fleetham had not observed any deficiency or the items had been corrected by others before the jobsite inspection. The June 27, 2011 CWO also did not require Respondent to correct 27 alleged deficiencies because Inspector Fleetham could not assign fault for the observed deficiency or could not verify a deficiency. The June 27, 2011 CWO required Respondent to correct only four confirmed deficiencies that appeared to be within the scope of its verbal agreement with Complainant.[1] Complainant filed two addenda to her complaint to the Registrar. The first addendum alleged an additional 31 specific items of complaint, including Complainant’s alleged overpayments to Respondent, missing smoke alarms, repairs to the air conditioning unit for which Complainant paid a third party, improperly balanced ceiling fans, rattling doors, inconsistent grout, improperly anchored electrical receptacles, inconsistent finishes on the kitchen cabinets, additional deficiencies in the hot water heater installation, improper trim installation, missing floor grout, additional construction debris and paint and plaster on certain personal property and fixtures, Respondent’s attempt on May 31, 2011, to cash a $10,000.00 check that had been previously returned by Complainant’s bank on September 30, 2010, for insufficient funds (“NSF”) and which Complainant had replaced, and the stress that Respondent’s “shady behavior” caused Complainant to experience. Complainant’s second addendum involved 23 specific items of complaint, including Respondent’s failure to paint all six sides of additional doors, failure to properly install a security door, plaster and other debris on window screens and other fixtures, failure to hang cabinets in the laundry room correctly, use of exterior paint in the interior of Complainant’s house, additional deficiencies in the installation of the hot water heater, additional hollow sounding floor tiles, failure to label breakers in the electrical service after rewiring it, and failure to upgrade the electrical service to 200 amps. On July 19, 2011, and on August 2, 2011, Inspector Fleetham performed second and third jobsite inspections. On August 8, 2011, Inspector Fleetham issued a 7-page CWO, requiring Respondent to take certain corrective actions within fifteen days. The August 8, 2011 CWO included the following heading: Respondent shall complete project per original contract agreement, properly executed change orders, local building codes, and manufacturer's installation instructions.

All corrective work shall be completed in compliance with local building codes and manufacture[r’]s installation instructions.

(Emphasis in original.) The August 8, 2011 CWO indicated that Respondent was not required to take action on eight items because although the items may have evidenced a deficiency, there was no evidence that they were included in the scope of the parties’ verbal agreement. The August 8, 2011 CWO did not require Respondent to correct 17 alleged deficiencies because either Inspector Fleetham had not observed any deficiency or the items had been corrected by others before the jobsite inspection. The August 8, 2011 CWO also did not require Respondent to correct 13 alleged deficiencies because Inspector Fleetham could not assign fault for the observed deficiency. The August 8, 2011 CWO required Respondent to correct 17 confirmed deficiencies that appeared to be within the scope of its verbal agreement with Complainant.[2] Subsequently, Complainant filed a third addendum to her complaint to allege two additional deficiencies. On August 30, 2011, Inspector Fleetham performed a fourth jobsite inspection. On September 1, 2011, Inspector Fleetham issued a third CWO to Respondent, requiring it to correct the bowed wall in Complainant’s hallway within fifteen days. Inspector Fleetham did not require Respondent to take any action regarding the tile from I AM FLOORING & MORE because he did not observe any deficiency in the tile, even though Complainant’s complaint alleged that the tile was “second quality.” On October 20, 2011, the Registrar issued a Citation and Complaint against Respondent, charging violations of A.R.S. § 32-1154(A)(2), (3), namely A.A.C. R4-9-108, and (13), namely A.R.S. § 32-1158. Respondent filed a timely written answer to the Citation and Complaint, denying any statutory violations and affirmatively alleging that Complainant owed Respondent $10,702.94 and that Complainant had denied Respondent reasonable access to perform repairs to comply with the CWOs by obtaining an injunction against harassment against Respondent’s qualifying party and officer, Thomas May. The Registrar referred the matter to the Office of Administrative Hearings, an independent agency, for an evidentiary hearing. A hearing was held on January 9, 2012. Inspector Fleetham testified. Complainant submitted two exhibits and presented the testimony of two witnesses: (1) Herself; and (2) Daniel Smith, her brother and a union plumber who helped Complainant oversee Respondent’s work on the project. Respondent submitted seven exhibits and presented the testimony of two witnesses: (1) Mr. May; and (2) Jason Curran, Respondent’s employee who performed work on the project. Additional Evidence Complainant’s house is an older block house that was built in the late 1950’s or early 1960’s. After Respondent remodeled a kitchen for Complainant’s father, Terry Smith, Mr. Smith referred Respondent to Complainant because her house needed a new roof. Respondent subsequently contracted with Complainant to replace the roof on her house. During the summer of 2010, Respondent hired Roman Roofing, Inc., License No. C-42.247523-R to replace the roof on Complainant’s house. Complainant paid Respondent in full for the job. Subsequently, the hot water heater in Complainant’s house burst while she and her family were away, causing extensive damage. Complainant made a claim to her homeowner’s insurer, American Family Insurance (“American Family”). Terry Smith suggested that Complainant again contact Respondent to obtain a bid for repairs. On or about August 12, 2010, Respondent submitted a proposal to Complainant to perform certain work for a total contract price of $35,363.00. Complainant did not sign to accept the proposal. Complainant subsequently provided a copy of the unsigned proposal to Inspector Fleetham, but did not provide a copy of a signed contract. American Family asked Respondent to increase the amounts of the specific line items on its proposal. Respondent submitted into evidence its revised proposal to Complainant to perform certain work for a total contract price of $36,067.00. The revised proposal did not include Respondent’s business address, the estimated date of completion, the dollar amount of any advance deposit or progress payments to be paid, or notice of Complainant’s right to file a complaint to the Registrar within the applicable time period set forth in A.R.S. § 32-1155(A), along with the Registrar’s telephone number and website address. The revised proposal provided that Respondent would perform certain work to remediate the water damage from the hot water heater that had burst, including the following: (1) Replacing plaster walls and texture; (2) Replacing base trim; (3) Replacing 10 interior doors; (4) Replacing an entry door; (5) Cleaning, sealing and painting interior walls; (6) Replacing carpet and pad; (7) Replacing kitchen tile porcelain; (8) Replacing kitchen base cabinets with medium grade cabinets; (9) Replacing laminate counter tops in the kitchen; (10) Replacing a base cabinet in the master bathroom; and (11) Replacing a damaged bath vanity and sink. Respondent’s revised proposal did not include replacing the hot water heater that burst, performing any work on the windows of Complainant’s house, replacing the kitchen sink or stove, installing any light fixtures or ceiling fans, installing any floor tile except in the kitchen, doing any work in the showers, bathtubs, or Jacuzzi in the bathrooms, installing a door bell, upgrading the electric service or installing electric outlets, duct work, paint specifications, any work in the laundry room, doing any HVAC work, installing shelves in any room or closet, or performing any work other than the eleven items specified in Respondent’s revised proposal. On or about August 26, 2010, Complainant signed the revised proposal to accept it, and the proposal became the parties’ contract. American Family’s usual practice is to issue joint checks made payable to the homeowner/policy holder and to the contractor for repairs performed as part of an insurance claim. However, Complainant refused to sign a joint check agreement. Because Mr. May knew Complainant’s father, Respondent agreed that American Family could issue checks for repairs made payable solely to Complainant. The terms of Complainant’s mortgage contract required her to allow the mortgage holder, BAC Home Loans Servicing, L.P. (“BAC Home Loans”), to monitor Respondent’s completion of the contract and to authorize American Family to release funds on the insurance claim as work was completed. On or about September 28, 2010, Complainant issued a personal check to Respondent in the amount of $10,000.00 to begin work on the project. Respondent deposited the check. On or about September 30, 2010, Complainant’s bank returned the check to Respondent for NSF. On or about October 3, 2010, Complainant issued another personal check to Respondent in the amount of $10,000.00. The October 3, 2011 personal check cleared but Respondent did not return the September 28, 2011 personal check to Complainant. Respondent started the project. In November 2010, Complainant decided that she wanted tile throughout the house, upgraded kitchen cabinets, and ceiling fans, as well as additional upgrades. Respondent prepared a document entitled “budget” that showed an additional cost of $1,495.00 for the tile, with a unit price of $1.41, and an additional price of $495.00 for the kitchen cabinets. The only specification for the kitchen cabinets on the budget was “color as light [as] possible.” On or about November 23, 2010, Complainant signed the budget to indicate her acceptance. Mr. May testified that Complainant selected and purchased the floor tile directly from the supplier. Mr. Curran testified that because grout must dry before it was sealed, he did not seal the tile before he left the project. Mr. May testified that at Complainant’s request, Respondent salvaged the upper cabinets from the kitchen and installed them in the laundry room at no additional cost. Over the next several months, Complainant endorsed an American Family check in the amount of $8,364.06 to Respondent, paid Respondent $5,000.00 in cash, and gave Respondent a personal check in the amount of $2,000.00. On February 7, 2011, Complainant owed Respondent $10,702.94 under the August 26, 2010 contract. In February 2011, Complainant lost her job. As of the date of the hearing, she had not found other employment. On February 23, 2011, Complainant’s parents, Terry and Patricia Smith, issued a check to Respondent in the amount of $3,100.00 for “partial payment on kitchen cabinets.” Mr. May testified that Respondent agreed to reimburse the payment to Complainant’s parents after Respondent received full payment from Complainant. On or about February 25, 2011, Respondent requested a Loss Draft Inspection from BAC Home Loans, to confirm that the job was 98% complete. Respondent’s last day on the project was March 3, 2011. Mr. Curran testified that he turned on water to the house to test Respondent’s repairs on the project and saw water coming out of the wall in the kitchen. Mr. Curran testified that the leak was coming from a pipe in the wall that Respondent had not worked on and that someone had placed sand bags on the opposite side of the wall on the exterior of Complainant’s house. Mr. Curran testified that he turned off the water and notified Marcel Janota, the American Family adjuster assigned to oversee the project, Complainant, and Complainant’s brother, Mr. Dan Smith. Within ten or twelve days, Complainant moved back into the house. The record in this matter does not reflect who repaired the leak, who replaced the hot water heater, or if it was replaced, or who performed the repairs that Inspector Fleetham’s CWOs noted. Over the next several months, Respondent attempted to collect from Complainant the monies that Mr. May felt were due under the August 25, 2010 contract and the “budget” document. Complainant did not respond to Respondent’s attempts or complain about Respondent’s work on the project. Mr. May denied threatening Complainant, but he testified that he left a message saying that Respondent “might pull the trigger on a lien” if it were not paid. In late May 2011, Mr. Janota told Mr. May that Complainant had received $17,000.00 from American Family for her claim. On May 31, 2011, Respondent deposited Complainant’s September 28, 2010 check that her bank had originally returned as NSF. After Respondent’s second attempt to negotiate Complainant’s September 28, 2010 check, her bank returned the check a second time, marked “NSF.” On June 2, 2011, the day before Complainant filed her initial complaint to the Registrar, she obtained an Injunction against Harassment in Downtown (Phoenix) Justice Court Case No. CC2011108469000 against Mr. May that prohibited him from having any contact with Complainant and warned him that if he did not comply, he could be arrested and prosecuted for the crime of interfering with judicial proceedings. Complainant alleged in the application for the Injunction against Harassment that Mr. May had harassed her by demanding payment over the phone and in person and that Mr. May had told her brother that if she did not pay Respondent, “he will have to ‘pull the trigger’ on [her].” Complainant also expressed her fear that Mr. May would “try to cash the NSF check again causing additional fees to my checking account” and that Mr. May “[would] do what ever [sic] he can to cause [her] additional stress.” Mr. May provided Inspector Fleetham with a copy of the Injunction against Harassment. On Inspector Fleetham’s advice, neither Mr. May nor any other employee of Respondent appeared at the four jobsite inspections. The Injunction against Harassment remained in effect on the date of the hearing. Complainant did not request the presence of a police officer or additional security at the hearing. Mr. May appeared on Respondent’s behalf, but did not harass or threaten Complainant at the hearing. Inspector Fleetham testified consistently with the three CWOs that he issued on behalf of the Registrar. Inspector Fleetham testified that because Complainant did not provide him with a copy of a signed contract, he did not know the scope of Respondent’s work on the project. Inspector Fleetham testified that the CWOs noted the items of complaint that violated the Registrar’s standards and that if those items were within the scope of Respondent’s work on the project, under most circumstances, Respondent would be responsible for correcting them. Inspector Fleetham also testified that in this case, the Injunction against Harassment that Complainant obtained against Mr. May prevented Respondent from complying with the CWOs and constituted a denial of reasonable access. Complainant at the hearing did not ask the Registrar to require Respondent to perform any repairs. Instead, Complainant requested that the Registrar require Respondent to pay her $10,000.00 in restitution. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[3] Complainant bears the burden of proof to establish Respondent’s statutory violations by a preponderance of the evidence.[4] Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.[5] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[6] Construction is not a perfect art and, generally, a contractor should be afforded an opportunity to correct deficient workmanship before the Registrar suspends, revokes, or otherwise disciplines its license. Respondent established that Complainant’s Injunction against Harassment against Mr. May constituted a refusal to provide reasonable access to allow Respondent to perform appropriate corrective action to comply with the three CWOs. Complainant has not removed the Injunction against Harassment or indicated any willingness to allow Respondent to perform necessary repairs to its scope of work on the project. Therefore, Complainant did not establish that Respondent should be held responsible for departing from plans or code, in violation of A.R.S. § 32-1154(A)(2), or failure to perform its work on the project in a professional and workmanlike manner, in violation of A.R.S. § 32-1154(A)(3), namely A.A.C. R4-9-108. Complainant also has not established a right to restitution in any amount under A.R.S. § 32-1156.01. All of the workmanship deficiencies that Inspector Fleetham noted in Respondent’s scope of work were correctible and some deficiencies were actually corrected by others. Respondent established that Complainant obtained the Injunction against Harassment and filed the complaint to the Registrar to avoid paying Respondent the remaining amount due under the parties’ contract, not because she feared Mr. May or wished to have Respondent correct its deficient workmanship. The legislature has not empowered the Registrar to adjudicate or award money damages.[7] Although Complainant may be entitled to an offset for the cost to repair Respondent’s workmanship deficiencies against the amount that she still owes Respondent under the parties’ contract, such offset must be determined in a civil action filed to a court of competent jurisdiction, not in an administrative complaint to the Registrar. The revised proposal that became the parties’ contract violated A.R.S. § 32- 1154(A)(13), namely A.R.S. § 32-1158(B),[8] because it did not include Respondent’s business address, the estimated date of completion, the dollar amount of any advance deposit or progress payments to be paid, or notice of Complainant’s right to file a complaint to the Registrar within the applicable time period set forth in A.R.S. § 32-1155(A), along with the Registrar’s telephone number and website address.

RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the Registrar’s order, the Registrar suspend Respondent Urban Ease Development, Inc.’s License No. KB-2.250461-D until it has modified its proposal and contract forms to comply with the requirements of A.R.S. § 32- 1158(B) and that it is using such compliant forms in its contracting business. It is further recommended that if on or before the effective date of the Registrar’s order, Respondent submits written proof that is satisfactory to the Registrar that it has modified its proposal and contract forms to comply with the requirements of A.R.S. § 32-1158(B) and that it is using such compliant forms in its contracting business, the Registrar not suspend Respondent’s license and, instead, close Complainant Cheryl Smith’s complaint in Case No. 2011-3241. 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, January 24, 2012.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] The total number of directives was 120, one more than the total number of complaint items, because Complainant’s complaint number 66 was compound.

[2] The total number of directives was 55, one more than the total number of complaints on the addenda because Complainant’s complaint number 16 was compound. [3] See A.R.S. § 32-1101 et seq. [4] See A.R.S. § 41-1092.07(G)(2); A.A.C. R2-19-119(A) and (B)(1); see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [5] See A.A.C. R2-19-119(B)(2). [6] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [7] See J.W. Hancock Enterprises, Inc. v. Arizona State Registrar of Contractors, 142 Ariz. 400, 406, 690 P.2d 119, 125 (Ct. App. 1984). [8] 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.” The specific statute charged, A.R.S. § 32-1158(B), provides that any contract in an amount of more than one thousand dollars entered into between a contractor and the owner of a property to be improved after December 31, 2007, must be in writing and include certain minimum terms, including the contractor’s business address, the estimated date of completion, the dollar amount of any advance deposit or progress payments to be paid, and notice of the property owner’s right to file a complaint to the Registrar within the applicable time period set forth in A.R.S. § 32-1155(A), along with the Registrar’s telephone number and website address.

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