ALJDEC decisions subject to certification as final

2011A-4077-ROC · Registrar of Contractors · 2012-07-12

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: June 29, 2012, at 8:00 a.m. APPEARANCES: Complainant Cie Scott appeared on her own behalf; Respondent Applecreek General Contractors LLC was represented by Joe O’Connor, Esq., O’Connor & Durfield, PLC. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure 1. The Arizona Registrar of Contractors (“the Registrar”) issued License No. B.190705-R to Applecreek General Contractors LLC (“Respondent”). 2. On or about June 30, 2010, Cie Scott (“Complainant”) and her husband filed a complaint with the Registrar alleging Respondent’s workmanship deficiencies and use of an unlicensed subcontractor in its remodeling of a rental house located at 425 Brewer Road, Sedona, Arizona. The Registrar designated the complaint as Case No. 2010-[number redacted]. 3. The Registrar referred Case No. 2010-[number redacted] to the Office of Administrative Hearings (“the OAH”), an independent state agency, for an evidentiary hearing. Administrative Law Judge (“ALJ”) Brian Brendan Tully conducted a four-day hearing in Case No. 2010-[number redacted] between April 15, 2011, and August 9, 2011. 4. On or about July 13, 2011, Complainant filed a second seven-page complaint with the Registrar alleging that Respondent committed fraud in its work on her remodeling project at 425 Brewer Road, in violation of A.R.S. § 32-1154(A)(7). Complainant alleged that Lyle Scott Podergois, Respondent’s project manager, “agreed to never bring stress to my husband, guaranteeing the work be done well for the price agreed, but this was violated.” Complainant concluded her complaint with the following statement: Lyle Scott Podergois was . . . named on the [Registrar’s] notorious list. We have solid proof that the actions taken by Lyle Scott Podergois (now in prison for fraudulent schemes against homeowners) were not only committed with [Respondent’s qualifying party and member] Scott Rhoades but Rhoades continued this vein of extortion and harassment after Podergois returned to jail for violating parole. The crimes outlined here were convicted and sentenced as “Fraudulent schemes” in Arizona and are exactly the same actions as what took place over the past year. 15 other victims that the [Registrar] and Maricopa County vindicated by putting Podergois in jail are very upset now to know that the system failed and Podergois taught Rhoades this scheme. (A list of these victims and contact information can be provided immediately to the [Registrar] but not to [Respondent].) Arizona homeowners and commercial businesses are very upset to have dealt with the ‘shake down’ of Rhoades over the last year. . . .

Complainant also generally alleged that Respondent charged Complainant for work that it did not perform and had filed a civil lawsuit against Complainant for monies that were not due. The Registrar designated Complainant’s July 13, 2011 complaint as Case No. 2011-4077. 5. On or about September 9, 2011, ALJ Tully issued an ALJ Decision in Case No. 2010-[number redacted] that included the following Findings of Fact: 12. Since the approved plans differed from the non-approved plans, Respondent’s bid does not include any modifications to the plans by the City of Sedona. Complainants are entitled to a credit for any work deleted from the original plans in the approved plans, and Respondent is entitled to payment for any work it performed that was not included in the original plans. . . . .

17. Complainants were “hands-on” during Respondent’s performance on the project. Scott Podergois was the project manager on site during Respondent’s work.

18. Complainants made payment to Scott Podergois instead of paying Respondent. There is credible evidence that Scott Podergois did not forward the payment to Respondent.

19. Complainants also entered into at least one side contract with Scott Podergois for the purchase of a water heater. The origin of the water heater is highly questionable.

20. Scott Podergois is a convicted felon who has a history of unlicensed contracting. Scott Podergois was recently incarcerated on a probation violation.

21. Steve Willoughby, an investigator for the Registrar, testified that Scott Podergois was paid by Respondent as a form 1099 independent contractor.[1] Scott Podergois does not possess a contracting license. Therefore, Scott Podergois is determined not to have been an employee of Respondent on the subject project. . . . .

24. At the hearing, Complainants introduced new items of alleged deficient workmanship that were not included in the fifteen items listed in their Complaint or the seven items listed in their addendum to the Complaint. Those new items are determined to be outside the scope of the above-entitled case.

25. As to the charged violation of A.R.S. § 32-1154(A) (1) of abandonment, Respondent contends that A.R.S. § 32-1129.04(A) authorized it to stop work on the subject project due to nonpayment of monies due from Complainants. The parties have a bona fide monetary dispute that is pending before the Superior Court of Maricopa County, Arizona [in Maricopa County Superior Court Case No. CV 2010-054353]. The Registrar is not empowered to settle such monetary disputes. See J.W. Hancock Enterprises, Inc. v. Arizona State Registrar of Contractors, 142 Ariz. 400, 406, 690 P.2d 430, 434 (Ct. App. 1990). The parties’ monetary dispute must be resolved in their civil litigation where the interests of all parties can be fully addressed, rather than in an administrative disciplinary proceeding before the Registrar where all claims cannot be litigated or, even if proven, enforced.

6. Based on the Findings of Fact in Case No. 2010-[number redacted] quoted above, ALJ Tully stated that because a decision by the court in Maricopa County Superior Court Case No. CV 2010-054353 was necessary to determine whether Respondent legally terminated the parties’ contract, Complainant and her husband did not establish that Respondent violated the charged statutes that involved workmanship,[2] A.R.S. § 32- 1154(A)(1),[3] A.R.S. § 32-1154(A)(2),[4] A.R.S. § 32-1154(A)(3), namely A.A.C. R4-9-108,[5] and A.R.S. § 32-1154(A)(23).[6] 7. ALJ Tully further stated that Complainant and her husband had not established a right to restitution under A.R.S. § 32-1156.01 because “[t]he parties’ pending civil litigation is the proper forum for resolving the monetary dispute between the parties.”[7] 8. ALJ Tully did find that Complainant and her husband established that Respondent violated A.R.S. § 32-1154(A)(10)[8] by aiding and abetting unlicensed contractor Mr. Podergois.[9] 9. On or about September 15, 2011, the Registrar issued an Order that substantially adopted ALJ Tully’s Findings of Fact and Conclusions of Law in Case No. 2010-[number redacted]. As a result of Respondent’s proven violation of A.R.S. § 32-1154(A)(10), the Registrar’s Order revoked Respondent’s license. 10. Complainant appealed the Registrar’s Order in Case No. 2010- [number redacted] to the Maricopa County Superior Court. On or about March 21, 2012, the Honorable Crane McClennen dismissed Complainant’s appeal as untimely in Maricopa County Superior Court Case No. LC2011-000691- 001 DT.[10] 11. On or about April 16, 2012, the Registrar issued an Order Denying Motion to Dismiss/Order Setting Administrative Hearing in Case No. 2011-4077, in relevant part as follows: On or about September 12, 2011, Counsel for Respondent submitted a timely Written Answer and Motion to Dismiss to the Registrar’s August 31, 2011 Citation and Complaint providing, among other things, that a dismissal of this matter is warranted pursuant to the doctrine of Res Judicata and Collateral Estoppel.

On September 12, 2011, Complainant submitted a written Response in objection thereto providing, among other things, that while the original complaint, Case No. 2010-[number redacted], has been adjudicated, such did not involve the allegations of fraudulent conduct which were only recently discovered.

On or about September 28, 2011, Counsel for Respondent submitted a Reply in Response to the Motion to Dismiss providing, among other things, that the assigned Administrative Law Judge did not rule in favor of Complainant in Case No. 2010- [number redacted] and that Complaint has failed to state why the alleged fraudulent conduct was any different from those issues that have already been addressed.

Upon review and consideration of the foregoing Motion, Response, and Reply, as well as the entire record in this matter, and with good cause appearing, IT IS ORDERED that Respondent’s Motion to Dismiss be DENIED. The issues underlying the Citation and Complaint are best suited to be presented before an administrative tribunal. Nothing in this Order is meant to preclude the parties from presenting evidence and testimony in support of the contentions set forth in the submissions discussed above before an administrative tribunal.

12. An evidentiary hearing was held in the OAH in Case No. 2011-4077 before the undersigned ALJ on June 29, 2012. Complainant submitted twelve exhibits and testified on her own behalf. Respondent submitted six exhibits and presented the testimony of three witnesses: (1) Mr. Podergois; (2) Mr. Rhoades; and (3) Kristen Cynthia Rhoades, Respondent’s office manager and member. Hearing Evidence in Case No. 2011-4077 13. In approximately October 2010, Respondent filed suit against Complainant and her husband for more than $60,000.00 in charges for extra work that was not included in the parties’ written contract that allegedly Complainant requested or that was necessitated by conditions at the jobsite. The parties’ civil claims for non-payment and overcharges against each other in Maricopa County Superior Court Case No. CV 2010-054353 are scheduled for trial in December 2012. 14. Complainant alleged that Respondent committed three fraudulent acts that violated of A.R.S. § 32-1154(A)(7) in its construction work on the project at 425 Brewer Road: (1) Respondent hired Mr. Podergois to act as project manager without informing Complainant and her husband that Mr. Podergois was a convicted felon and was on probation; (2) Respondent charged Complainant an additional $650.00 for a hard pan dig; and (3) Respondent charged Complainant $105.00 for Mr. Podergois to meet with a solar company’s representative. 15. Respondent’s attorney moved to dismiss Complainant’s complaint because he argued that the complaint that Complainant filed with the Registrar did not sufficiently describe the three allegedly fraudulent acts on which she presented evidence at the hearing. Mr. Podergois’s Involvement in the Project 16. On or about July 20, 2009, Mr. Podergois pled guilty to numerous felony counts of contracting without a license and as a result, was sentenced to seven years’ probation and required to pay $248,000.00 in restitution to approximately fifteen property owners for the damages that they incurred due to his illegal contracting activities. 17. Mr. Podergois testified telephonically at the hearing because he was in prison. Mr. Podergois testified that his incarceration resulted from three violations of the terms of his probation, as follows: (1) He failed to inform his probation officer that he was working for Respondent; (2) He failed to make restitution payments in the required amount of $1,000.00 per month; and (3) He failed to inform his probation officer that he had contact with police after Complainant called them when he was retrieving construction materials from the project and when he arrived at the jobsite for the Registrar’s initial jobsite inspection in Case No. 2010-[number redacted]. 18. Complainant testified that she never would have agreed to have Mr. Podergois act as project manager if she had known that he was a convicted felon. 19. Mr. Podergois testified that when he first met Complainant, before the parties made the contract that led to their various disputes, he walked the project with Complainant and discussed her plans and his recommendations for construction. Mr. Podergois testified that after Complainant asked him why he was working for Respondent rather than under his own license, he informed her than he could not get a license because he had been convicted of unlicensed contracting. 20. Complainant requested that the Registrar require Respondent to pay restitution for Mr. Podergois’s involvement in her project because allegedly he had done the exact same things to her that he had done to the victims of his previous unlicensed contracting activities. Complainant did not allege that Mr. Podergois had been convicted of any crime relating to his activities on her project. The only injury that Complainant alleged was Respondent’s civil claims against her in Maricopa County Superior Court Case No. CV 2010-054353. Respondent’s $650.00 Charge for a Hard Pan Dig 21. Complainant submitted an affidavit and letter from Pat McBride, the owner of McBride Excavating Corporation, stating that his company dug an extensive footer for a retaining wall and did not encounter a hard dig situation at Complainant’s rental property at 425 Brewer Road. 22. Complainant testified that Respondent never informed her of the hard pan dig and did not request her permission for the additional charge. 23. Mr. Rhoades testified that the hard pan dig was to construct footers under an existing slab on compacted soil so that the slab could support the weight of a planned second-story addition. Mr. Rhoades testified that Respondent had to use a jack-hammer to dig the footers in the compacted soil beneath the slab. Mr. Rhoades testified that the compacted soil beneath the slab was not comparable to the native soils on the hillside where Mr. McBride constructed the retaining wall. 24. Complainant has not paid Respondent for the $650.00 charge. The $650.00 charge is among the disputed charges at issue in the parties’ civil litigation in Maricopa County Superior Court Case No. CV 2010- 054353. Respondent’s $105.00 Charge for Mr. Podergois to Meet with a Solar Company 25. Complainant planned to put solar panels on the existing roof of the rental property at 425 Brewer Road. Complainant testified that she never requested that Mr. Podergois meet with a solar contractor. Complainant pointed out that Respondent is not licensed to install solar electric panels. 26. Mrs. Rhoades testified that she received an e-mail from a solar contractor whom Complainant had solicited to submit a proposal for the solar panels, requesting that Respondent send an employee to 425 Brewer Road to allow the solar contractor to obtain necessary information for its proposal. 27. Mr. Podergois testified that he met with a solar energy contractor on Complainant’s job for an hour, including spending fifteen minutes on the roof discussing its suitability for installation of solar panels. 28. Mr. Rhoades testified that Mr. Podergois lived in Anthem, Arizona, approximately an hour away from Sedona, where Complainant’s project was located. Mr. Rhoades testified that he charged Complainant only $105.00 for three hours of Mr. Podergois’s time, which was a bargain. 29. Complainant has not paid Respondent for the $105.00 charge. The $105.00 charge is among the disputed charges at issue in the parties’ civil litigation in Maricopa County Superior Court Case No. CV 2010- 054353. CONCLUSIONS OF LAW 1. The Registrar has jurisdiction to determine whether Respondent violated A.R.S. § 32-1154(A)(7).[11] 2. Respondent must establish grounds to support its motion to dismiss.[12] 3. The Registrar’s Order in Case No. 2010-[number redacted] addressed different factual claims and different charged statutory violations than are at issue in this matter. Therefore, the Registrar’s Order in Case No. 2010-[number redacted] does not collaterally estop Complainant from asserting a claim for fraud under A.R.S. § 32-1154(A)(7) against Respondent in this matter. 4. A.R.S. § 41-1092.05(D)(3) required the Registrar to provide Respondent with “[a] short and plain statement of the matters asserted.” “Procedural due process requires notice and an opportunity to be heard in a meaningful manner and at a meaningful time.”[13] Complainant generally described Respondent’s three allegedly fraudulent acts in the complaint that she filed with the Registrar in this matter, which the Registrar forwarded to Respondent. Respondent was prepared to present evidence on these acts to defend itself at the hearing. Therefore, the notice that the Registrar provided complied with statutory and constitutional requirements. 5. Complainant bears the burden of proof to establish Respondent’s violations of A.R.S. § 32-1154(A)(7) by a preponderance of the evidence.[14] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[15] 6. A.R.S. § 32-1154(A)(7) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[t]he doing of a fraudulent act by the licensee as a contractor resulting in another person being substantially injured.” A.R.S. § 32-1154(A)(7) does not define what constitutes actionable fraud. The nine elements of common-law fraud are as follows: "'(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.'"[16]

7. Complainant did not establish that she did not know that Mr. Podergois had a criminal record or that Mr. Podergois concealed his criminal record from her. 8. The Registrar’s Order in Case No. 2010-[number redacted] specifically found that although Respondent was responsible for aiding and abetting unlicensed contractor Mr. Podergois in violation of A.R.S. § 32- 1154(A)(10), Complainant was not entitled to restitution. The Registrar in this matter cannot infer that Complainant was injured based solely on Mr. Podergois’s criminal record and continued unlicensed contracting activity on Complainant’s project. Complainant did not establish at the hearing in this matter that her alleged ignorance of Mr. Podergois’s criminal record caused her to suffer any consequent and proximate injury. Any claim that Complainant may have that relates to Respondent’s claims against her in Maricopa County Superior Court Case No. CV 2010-054353 must be resolved in that action. 9. Complainant did not establish that Respondent’s $650.00 charge for the hard pan dig and $105.00 charge for Mr. Podergois to meet with a solar contractor were fraudulent. Since Complainant has not paid either of these charges, she has not suffered any consequent and proximate injury as a result of Respondent’s alleged fraud. Complainant’s claim that she does not owe these amounts, as well as any claim for attorney’s fees or litigation expenses, must be resolved in the parties’ pending civil lawsuit in Maricopa County Superior Court Case No. CV 2010-054353. 10. Therefore, Complainant did not establish that Respondent violated A.R.S. § 32-1154(A)(7). RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the Registrar’s Order, Complainant Cie Scott’s complaints in Case No. 2011-4077 against Respondent Applecreek General Contractors LLC’s License No. B.190705-R be dismissed. 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, July 12, 2012. /s/ Diane Mihalsky Administrative Law Judge Transmitted electronically to: William A. Mundell, Director Registrar of Contractors ----------------------- [1] A form 1099 is used to notify the Internal Revenue Service (“IRS”) of monies paid to independent contractors from which no taxes have been withheld. The IRS requires businesses to submit a 1099 form for every contractor that is paid at least $600.00 for services during a year. See IRS 2011 Instructions for Form 1099-MISC. [2] See Conclusion of Law No. 4 in the ALJ Decision in Case No. 2010- [number redacted]. [3] 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.” [4] 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.” [5] 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.” [6] 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.” [7] See Conclusion of Law No. 6 in ALJ Decision in Case No. 2010-[number redacted]. [8] A.R.S. § 32-1154(A)(10) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[a]iding or abetting a licensed or unlicensed person to evade this chapter, knowingly combining or conspiring with a licensed or unlicensed person, allowing one’s license to be used by a licensed or unlicensed person with intent to evade this chapter.” [9] See Conclusion of Law No. 5 in the ALJ Decision in Case No. 2010- [number redacted]. [10] Respondent also appealed the Registrar’s Order in Case No. 2010- [number redacted] to the Maricopa County Superior Court. Respondent’s appeal was designated as Maricopa County Superior Court Case No. LC2011-000682. Respondent’s appeal was pending at the time of the hearing in this matter. [11] See A.R.S. §§ 32-1151 to 32-1169. [12] See A.A.C. R2-19-119(B)(3). [13] Webb v. Arizona Board of Medical Examiners, 202 Ariz. 555, 558 ¶ 9, 48 P.3d 505, 508 (App. 2002) (citing Comeau v. Arizona State Board of Dental Examiners, 196 Ariz. 102, 106 ¶ 18, 993 P.2d 1066, 1070 (App. 1999)). [14] See A.R.S. § 41-1092.07(G)(2); A.A.C. R2-19-119(B)(1); see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [15] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [16] Staheli v. Kauffman, 122 Ariz. 380, 383, 595 P.2d 172, 175 (1979) (quoting Carrel v. Lux, 101 Ariz. 430, 434, 420 P.2d 564, 568 (1966); Nielson v. Flashberg, 101 Ariz. 335, 338-39, 419 P.2d 514, 517-18 (1966)(footnote added)).

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