ALJDEC decisions subject to certification as final

2011A-4220-ROC · Registrar of Contractors · 2011-12-05

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: October 6, 2011, at 1:00 p.m.; the record was held open until November 17, 2011, to allow the parties to submit legal memoranda in support of their positions. APPEARANCES: The Arizona Registrar of Contractors was represented by Elizabeth A. Campbell, Esq., Assistant Attorney General; Respondent Delmastro Eells Construction, L.L.C. was represented by William A. Kozub, Esq., Berens, Kozub, Kloberdanz & Blonstein, P.L.C. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT On or about March 23, 2010, the Arizona Registrar of Contractors (“the Registrar”) received a license application from Delmastro Eells Construction, L.L.C. The persons listed on the license application were Jeffrey Kenyon Eells as qualifying party and The Delmastro Eells Companies, Inc. as owner. The license application disclosed that Mr. Eells was listed on a license in Nevada that had been issued to Delmastro & Eells, Inc. According to the records of the Arizona Corporation Commission (“A.C.C.”), The Delmastro Eells Companies, Inc. was incorporated on August 26, 2008. Currently, A.C.C.’s records list Mr. Eells as president, treasurer, and director, and Robert K. Delmastro as vice-president, secretary, and director of The Delmastro Eells Companies, Inc. On or about May 4, 2010, the Registrar issued License No. ROC264437, Class B-1 for commercial general contracting (“the Arizona license”) to Delmastro Eells Construction, L.L.C. (“Respondent”). Subsequently, the Registrar received a June 22, 2011 default order from the Nevada State Contractors Board (“the Nevada Board”) in Investigative Case Nos. 30022892, 33023058, and 30023549 (“the default order”). Mr. Eells was listed as Delmastro & Eells, Inc.’s president and qualified individual and Mr. Delmastro was listed as Delmastro & Eells, Inc.’s vice-president on the Nevada license. The Nevada Board’s default order determined that cause existed to discipline Delmastro & Eells, Inc., Nevada License No. 51099 (“the Nevada license”) for the following reasons: 1. Delmastro & Eells, Inc. failed to pay $5,083.50 to its subcontractor, T & R Wallcovering, Inc., for supplying and installing wallpaper at Delmastro & Eells, Inc.’s GSA Social Security Administration project; 2. Delmastro & Eells, Inc. failed to pay three of its subcontractors on a tenant improvement for Tenaya Creek Brewery, specifically, $3,000.00 to Hardy Painting & Drywall, $12,500.00 to Gallagher Plumbing, and $3,207.00 to Sunrise Air Systems, even though Tenaya Creek Brewery paid $173,913.00 to Delmastro & Eells, Inc.; and 3. Delmastro & Eells, Inc. failed to pay its subcontractor, Elite Fire Protection, Inc., $240.00 on the Tenaya Creek Brewery project and $1,150.00 on the GSA Social Security Administration project. The Nevada Board’s default order concluded that Delmastro & Eells, Inc. violated applicable Nevada statutes by failing to demonstrate financial responsibility and as a result of the violation, revoked its Nevada license. The Nevada Board also required Delmastro & Eells, Inc. to pay a total of $1,750.00 in fines, the Nevada Board’s investigative fees and costs in the amount of $1,928.00, and to pay restitution to the complaining parties. After the Registrar received the Nevada Board’s default order, it opened an investigation into Respondent’s possible statutory violations. On or about July 27, 2011, the Registrar issued a Citation and Complaint in Case No. 2011-4220 against Respondent, alleging the facts in the Nevada Board’s default order and charging a violation of A.R.S. § 32-1154(A)(21) based on having Mr. Eells listed on both Respondent’s Arizona license and Delmastro & Eells, Inc.’s revoked Nevada license. Respondent filed a timely written answer to the Registrar’s Citation and Complaint, denying that it had committed any “actionable violation” of A.R.S. § 32-1154(A)(21) because it had removed Mr. Eells as qualifying party from its Arizona license. The Registrar referred the matter to the Office of Administrative Hearings (“the OAH”), an independent state agency, for an evidentiary hearing. A hearing was held in the OAH on October 6, 2011. The Registrar presented the testimony of Donald Herman, an investigator in the Registrar’s Lake Havasu City, Arizona office, and submitted four exhibits. Respondent presented the testimony of Mr. Delmastro. At the hearing, the Registrar’s attorney noted that since Mr. Delmastro was an officer in Delmastro Eells Companies, Inc., Respondent’s owner, he was also a “person” as defined by A.R.S. § 32-1101(5)[1] who was listed both on Respondent’s Arizona license and Delmastro & Eells, Inc.’s revoked Nevada license. Therefore, the Registrar’s attorney argued that Mr. Delmastro’s position in Delmastro Eells Companies, Inc. also provided cause for the Registrar to discipline Respondent’s license under A.R.S. § 32- 1154(A)(21). Mr. Delmastro testified that he only became aware of the Nevada Board’s default order after he moved back to Arizona from California, where he had been working on construction of a hospital under a California license. Mr. Delmastro testified that a Las Vegas developer had “stiffed” Delmastro & Eells, Inc. more than $1 million and that he had paid all subcontractors’ legitimate charges for its Nevada projects, but had not paid subcontractors whose bills he disputed. Mr. Delmastro testified that although other members could force a member out of a limited liability company, the rules for corporations were different and that Mr. Eells was not willing to resign from The Delmastro Eells Companies, Inc. According to the Registrar’s record, Mr. Eells’ inactivation date as qualifying party was August 17, 2011, and Mark Alan Clouse, Respondent’s employee, became its qualifying party on November 14, 2011. This appears to be the only complaint pending against Respondent. Because the parties did not agree about the application of A.R.S. § 32- 1154(A)(21) to undisputed facts, the Administrative Law Judge left the record open to allow the parties to submit legal memoranda on two arguments: (1) Whether Respondent’s removal of Mr. Eells from Respondent’s Arizona license prevented the Registrar from unconditionally revoking that license; and (2) Whether Respondent received the requisite notice of its potential violation of A.R.S. § 32-1154(A)(21) based on Mr. Delmastro’s positions as vice-president, secretary, and director of Respondent’s owner, The Delmastro Eells Companies, Inc., and as vice-president on Delmastro & Eells, Inc.’s revoked Nevada license. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[2] The Registrar bears the burden of proof to establish Respondent’s statutory violations by a preponderance of the evidence.[3] Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.[4] The proponent of an argument bears the burden to establish its legal merits.[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] / / / / / / / / Whether Mr. Eells’ Removal from the Position of Qualifying Party Prevents the Registrar from Revoking Respondent’s License under A.R.S. § 32-1154(A)(21) A.R.S. § 32-1154 is entitled, “Grounds for suspension or revocation of license.” A.R.S. § 32-1154(A) provides in relevant part as follows: The holder of a license or any person listed on a license pursuant to this chapter shall not commit any of the following acts or omissions: . . . .

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

A.R.S. § 32-1154(B) authorizes the Registrar to impose the following range of discipline on licensees for proven violations of A.R.S. § 32-1154(A): [To] temporarily suspend, with or without imposition of specific conditions in addition to increased surety bond or cash deposit requirements, or permanently revoke any or all licenses issued under this chapter . . . .

The legislature enacted A.R.S. § 32-1154(A)(21) to protect the public in Arizona by preventing persons who have had licenses suspended or revoked in Arizona or another state from “license-hopping” by starting a new company with a new license.[7] Respondent does not argue that Mr. Eells was not Respondent’s qualifying party and Delmastro & Eells, Inc.’s qualified individual when the Nevada Board revoked its Nevada license. Allowing Respondent to avoid any penalty whatsoever merely by removing Mr. Eells as qualifying party would render A.R.S. § 32-1154(A)(21) meaningless and render futile most attempts by the Registrar to enforce the statute, a result that the legislature is presumed not to have intended.[8] Therefore, Mr. Eells’ positions as Delmastro & Eells, Inc.’s qualified individual and as Respondent’s qualifying party when the Nevada Board revoked Delmastro & Eells, Inc.’s Nevada license furnishes cause to discipline Respondent’s license under A.R.S. § 32-1154(A)(21). At most, the removal of Mr. Eells as qualifying party from Respondent’s license may be considered as a factor in mitigation of the penalty that the Registrar imposes for Respondent’s proven violation of A.R.S. § 32-1154(A)(21). Mr. Delmastro attempted to discount the Nevada Board’s decision revoking Delmastro & Eells, Inc.’s Nevada license by asserting at the hearing that he had paid all monies that were legitimately due to subcontractors in Nevada. Under well-established authorities, however, a default judgment "is conclusive and res judicata on all issues which were or could have been litigated and is not subject to collateral impeachment at a subsequent time."[9] Whether the Registrar’s Citation and Complaint Provided Adequate Notice to Mr. Delmastro that his Role as Vice-President and Director of Respondent’s Corporate Owner Provided Cause to Discipline Respondent’s License A.R.S. § 41-1092.05(D)(4) required the Registrar to provide “[a] short and plain statement of the matters asserted” to Respondent at least 30 days before the hearing. “Procedural due process requires notice and an opportunity to be heard in a meaningful manner and at a meaningful time.”[10] As applied to a professional license in Arizona, “due process requires notice of the nature of the wrong charged and the particular instances of its perpetration.”[11] The Registrar’s Citation and Complaint did not provide notice to Respondent that Mr. Delmastro’s positions on Delmastro & Eells, Inc.’s revoked Nevada license and as an officer of Respondent’s corporate owner, The Delmastro Eells Companies, Inc., constituted an additional violation of A.R.S. § 32-1154(A)(21). Therefore, A.R.S. § 41-1092.05(D)(4) and due process considerations prevent the Registrar from amending the Citation and Complaint at hearing to allege additional factual grounds to support a violation of A.R.S. § 32-1154(A)(21).[12] RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the Registrar’s final order, License No. B-1.264437-C previously issued to Respondent Delmastro Eells Construction, L.L.C. be revoked. It is further recommended that if on or before the effective date of the order, Respondent presents written proof that is satisfactory to the Registrar that it has paid the following amounts to the following persons: (1) The debts that the Nevada Board determined were owed to subcontractors or property owners, consisting of $5,083.50 to T & R Wallcovering, Inc., a total of $1,390.00 to Elite Fire Protection, and a total of $18,707.00 to Tenaya Creek Brewery;[13] (2) A total of $1,750.00 in fines to the Nevada Board; and (3) $1,928.00 for investigative fees and costs to the Nevada Board, then the Registrar shall not revoke Respondent’s license but, instead, close the complaint in Case No. 2011-4220. 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, December 5, 2011.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] A.R.S. § 32-1101(5) provides as follows: “‘Person’ means an applicant, an individual, a member of a limited liability company, a qualifying party, any partner of a partnership or limited liability partnership or any officer, director, qualifying party, trustee of a trust, beneficiary of a trust or owner of at least twenty-five per cent of the stock or beneficial interest of a corporation.” [2] See 32-1101 et seq. [3] 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). [4] See A.A.C. R2-19-119(B)(2). [5] See A.A.C. R2-19-119(B)(3). [6] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [7] See Better Homes Constr., Inc. v. Goldwater, 203 Ariz. 295, 300 ¶ 19, P.3d 1139, 1144 (App. 2002) [8] See, e.g., Old Republic Nat’l Title Ins. Co. v. New Falls Corp., 224 Ariz. 526, 530 ¶ 18, 233 P.3d 639, 643 (App. 2010). [9] Dairyland Ins. Co. v. Richards, 108 Ariz. 89, 91, 492 P.2d 1196, 1198 (1972). [10] Webb v. Arizona Board of Medical Examiners, 202 Ariz. 555, 558, ¶ 9, 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)). [11] Comeau, 202 Ariz. at 108 ¶ 28, 993 P.2d at 1072 (citing Medical Licensing Bd. of Ind. v. Ward, 449 N.E.2d 1129, 1145 (Ind. App. 1983)). [12] None of the authorities that the Registrar’s attorney cited for the proposition that a party must establish specific prejudice for a due process violation involved lack of notice to a regulated party of the facts underlying a charged violation. See County of La Paz v. Yakima Compost Co., Inc., 224 Ariz. 590, 598 ¶ 12, 233 P.3d 1169, 1177 (App. 2010) (Alleged due process violation consisted of trial court’s application of the holding of a recent court decision “‘at the last moment’ without notice to either party and when the County had insufficient time to contest the ruling before having to file its notice of appeal.”); Brown v. Arizona Dep’t of Real Estate, 181 Ariz. 320, 324, 890 P.2d 615, 619 (App. 1995) (Alleged due process violation consisted of agency’s one year and 90-day delay in rendering decision after hearing); Borchers v. Board of Pardons & Paroles, 174 Ariz. 463, 467, 851 P.2d 88, 92 (App. 1992) (Alleged due process violation consisted of agency’s delay in informing prisoner of the reasons it denied him parole). [13] This amount represents the total amounts that Delmastro & Eells failed to pay subcontractors on Tenaya Creek Brewery’s tenant improvement project as follows: (1) $3,000.00 to Hardy Painting & Drywall; (2) $12,500.00 to Gallagher Plumbing; and (3) $3,207.00 to Sunrise Air Systems.

-----------------------

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