ALJDEC decisions subject to certification as final

2012A-1804-ROC-rf · Registrar of Contractors · 2014-02-25

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

RECOVERY FUND PAYOUT HEARING: February 11, 2014, at 1:00 p.m. APPEARANCES: Complainant Richard Lee Johnston appeared on behalf of himself and Complainant Patsy R. Johnston; Respondent Cascade Custom Pools and Spas Inc. failed to appear; the Arizona Registrar of Contractors was represented by Seth T. Hargraves, 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. B-5.250894-R to Cascade Custom Pools and Spas Inc. (“Respondent”). Respondent’s current address of record is 10645 N. Oracle Rd., Suite 121 Pmb 253, Oro Valley, Arizona 85737-9387. 2. Richard Lee Johnston and Patsy R. Johnston (“Complainants”) submitted a claim to the Registrar’s Residential Contractors’ Recovery Fund (“the Fund”). On or about August 19, 2013, the Registrar issued a Notice of Claim for Administrative Payout that informed the parties that the Fund had determined that Complainants should be awarded a payment from the Fund in the amount of $22,149.73, which amount was calculated based on the low bid from a licensed contractor in the amount of $24,278.56 to repair Respondent’s deficient work, less the unpaid balance due for the original project of $2,128.83 under Respondent’s contract.[1] 3. Complainants requested a hearing on the Registrar’s calculation of the payout because it did not include water to fill the pool, filters, or the loss of the lifetime warranty on the pool. The Registrar referred the matter to the Office of Administrative Hearings (“the OAH”), an independent agency, for an evidentiary hearing. 4. On January 8, 2014, the Registrar issued a Notice of Recovery Fund Eligibility/ Payout Hearing setting a hearing on February 11, 2014, at 1:00 p.m. The Registrar sent a copy of the Notice of Recovery Fund Eligibility/Payout Hearing to Respondent at its address of record. 5. A Recovery Fund Payout Hearing was held on February 11, 2014. Mr. Johnston appeared and testified on Complainants’ behalf. The Registrar submitted thirteen exhibits and presented the testimony of Eric Ulinger, the Fund’s Supervisor. 6. Respondent did not request to appear telephonically and did not request that the hearing be continued. Although the hearing did not conclude for over two hours, Respondent did not appear through an officer, authorized employee, or attorney. Consequently, Respondent did not present any evidence. Hearing Evidence 7. On or about April 6, 2012, Complainant Mr. Johnston filed a Complaint with the Registrar against Respondent regarding its contract to remove and replace tile and Pebble Tec in the pool at Complainants’ residence at 9735 Trailsend Place, Hereford, Arizona 85615. 8. According to the Complaint, the date of the contract was July 18, 2011. The project was an “Allstate Insurance claim (from fire damage).” Although Complainants paid Respondent $14,371.17 of the contract price of $16,500.00, Respondent had not completed the repairs.[2] 9. The Registrar assigned Mr. Johnston’s Complaint to Inspector Mike Nieves for investigation. On April 17, 2012, Inspector Nieves performed a jobsite inspection[3] and issued a Corrective Work Order to Respondent, requiring it within fifteen calendar days to complete application of the Pebble Tec, install filters, and fill the pool pursuant to its contract with Complainants.[4] 10. Respondent did not comply with the Corrective Work Order and the Registrar issued a Citation and Complaint against its license. On October 30, 2012, after Respondent failed to file a timely written answer to the Citation and Complaint, the Registrar issued a Decision and Order that, pursuant to A.R.S. § 32-1155(B), deemed Respondent’s failure to file an answer an admission of the charges and, based on the admission, revoked Respondent’s license on the effective date of the Decision and Order if Respondent did not comply with the Corrective Work Order and pay a civil penalty.[5] 11. After Respondent did not comply with the Corrective Work Order or pay the civil penalty, the Registrar revoked its license. 12. On February 1, 2013, Complainants filed a claim to the Fund in the amount of $87,895.44. Complainants attached to their claim bids from Valley Oasis Pools & Spas (“Valley Oasis”) and Patio Pools & Spas (“Patio”) to construct new pools.[6] Patio’s bid explained that it had originally constructed the pool and that its lifetime structural warranty was now void “due to swimming pool being left empty of water for prolonged period.”[7] 13. On or about February 6, 2013, Mr. Ulinger on behalf of the Fund requested that Complainants provide additional documentation to support their claim, including a copy of their contract with Respondent.[8] 14. On or about February 27, 2013, Complainants provided a copy of Respondent’s contract that included the following scope of work: (1) Remove existing tile and replace with new standard tile; (2) Sikaflex between new tile line and deck; (3) Chip out pebble and replace with standard Pebble Tec; (4) Replace both filter cartridges; and (5) Drain and fill pool.[9] 15. On April 17, 2013, Mr. Ulinger requested that on or before May 3, 2013, Complainants provide bids “to complete the project as originally contracted.”[10] Mr. Ulinger stated in relevant part as follows: Having reviewed the pictures recently taken of your project, as well as, communications with [Patio], the Fund has determined that bids are needed to complete the project as originally contracted. As such, please provide two additional bids to complete the re-plastering of the pool per the terms set forth in the original contract. . . .[11]

16. On July 1, 2013, after Complainants failed to timely provide the bids to complete the Respondent’s contract in response to Mr. Ulinger’s April 17, 2013 letter, Mr. Ulinger requested that on or before August 7, 2013, Complainants provide bids to complete the scope of Respondent’s contract.[12] 17. In response to the Registrar’s July 1, 2013 letter, on August 5, 2013, Complainants provided two bids to complete repairs to the pool: (a) An itemized bid from Valley Oasis to perform certain work dated July 27, 2013, including (i) To install new Pebble Tec for $12,883.35, (ii) To remove tile, to install new 6” waterline tile, to saw cut out approximately 18’ of flagstone coping and install new flagstone decking with rounded edges for $6,977.07, (iii) The option of either demolishing the existing waterfall feature and installing tile where the waterfall formerly met the pool waterline for $696.39 and installing flagstone with rounded edges for a bond beam where the waterfall was currently located for $763.00, or Installing a new natural rock waterfall for $2,958.75. Valley Oasis provided a two-year warranty on its workmanship and a five-year warranty on the Pebble Tec. Valley Oasis included the disclaimer, however, that “[d]ue to the amount of time the pool has set empty, Valley Oasis will not warranty the structure of the pool.”[13] b) An itemized bid from Patio to perform certain work dated July 16, 2013, including i) To install new Pebble Tec for $16,669.35, ii) To remove old tile and flagstone and install new waterline tile and flagstone with rounded edges along the pool perimeter for $8,935.17, iii) The option of either demolishing the existing waterfall feature and installing tile where the waterfall formerly met the pool waterline and installing flagstone with rounded edges for a bond beam where the waterfall was currently located for $1,569.23, or Installing a new waterfall for $3,870.75. Patio provided a two-year warranty on its workmanship and a five- year warranty on the Pebble Tec. Patio included the disclaimer, however, that “life time structural Warranty is void due to swimming pool being left empty of water for prolonged period.”[14] 18. Mr. Ulinger testified that the Registrar’s Notice of Claim for Administrative Payout was based on the amount of all of the items in Valley Oasis’s July 27, 2013 bid, including the total of the two options for removing or replacing the waterfall, less the unpaid balance on Respondent’s contract of $2,128.83. 19. Mr. Ulinger testified that the total of $4,418.14 for the two options to either remove or replace the waterfall was a mistake and should not have been included in the Fund’s calculation of the payout because Respondent’s contract did not include either removing or replacing the waterfall. 20. Mr. Johnston testified that the Registrar’s processing of Complainants’ claim to the Fund was spiteful. Even the maximum of $30,000.00 that is available from the Fund[15] will not compensate Complainants for the damages that they have suffered due to Respondent’s abandonment of the project. 21. Mr. Ulinger testified that Valley Oasis’s estimate of $6,977.07 to replace waterline tile and to install new flagstone decking with rounded edges was too high because the existing flagstone at Complainants’ pool did not have rounded edges. Mr. Ulinger testified that because this portion of Valley Oasis’s bid was not fully itemized, the Registrar was willing to include it in the payout to Complainants. 22. Mr. Johnston testified that the flagstone at his pool had rounded edges. 23. On or about September 9, 2013, Complainants claimed an additional $3,800.00 to haul water to refill the pool and $716.32 for pool filters.[16] 24. Mr. Ulinger contacted Liberty Utilities and confirmed that water service was available at Complainants’ address and that it was not necessary to truck in water to fill the pool.[17] Mr. Ulinger testified that most homeowners fill pools by leaving a hose running. 25. Mr. Johnston denied that he ever said that his property did not have available water service. Mr. Johnston testified that when the pool was first constructed, he used water from Liberty Utilities to fill the pool. He later drilled a well because his water bills were so high. Mr. Johnston testified that he now pays only the minimum charge of $15.00 per month to maintain the water account at Liberty Utilities for emergencies, but that all of the water for his residence comes from the well. Mr. Johnston stated that he feared that filling the pool would reduce the water level in the well and require him to dig deeper to get water for his household. 26. Mr. Ulinger acknowledged that $716.32 should be added to Complainants’ payout to replace the filters at the pool. 27. Mr. Johnston testified that no one would provide a warranty that the pool would not leak when it is filled due to the long time that it had sat empty without water. In addition, because the pool equipment has not been running, it is possible that the solar heating system, pump, and other components would need to be repaired or replaced. 28. The Registrar’s attorney argued that homeowners have a duty to mitigate their damages, rather than allowing their damages to mount through their inaction over time, and that Complainants should have performed the repairs that were necessary to fill the pool to avoid further damages and then sought reimbursement from the Fund for the repairs. 29. Mr. Johnston testified that he receives disability and that although his wife works and receives a small salary, Complainants could not afford to repair the pool without a payout from the Fund. 30. Mr. Johnston testified that as a result of Respondent’s incomplete work, he has lost the lifetime warranty that Patio originally provided for the pool, and that his compensable damages should include the loss of the lifetime warranty. Mr. Johnston argued that he will need to build a new pool to get back to the position that he would have occupied if Respondent had timely performed its contract. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[18] The Notice of Recovery Fund Eligibility/Payout Hearing that the Registrar mailed to Respondent at its address of record was reasonable. Respondent is deemed to have received notice of the Recovery Fund Payout Hearing.[19] 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.[20] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[21] 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.”[22] Complainants are “persons injured” who are potentially eligible to recover a payout from the Fund.[23] The Registrar has a fiduciary duty to preserve the Fund’s assets and to ensure that no payouts are made except as authorized by statute.[24] 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. . . .” The value of the loss of a lifetime warranty is not included among the measure of damages that the Registrar may include in a payout from the Fund.[25] Under the Registrar’s statutes, any warranty that Patio may have provided for the pool would have been voided by another contractor performing repairs to the pool.[26] Under the Registrar’s statutes, any contractor who repaired the initial fire damage or who completed Respondent’s repairs is only required to provide a two-year warranty for its work.[27] The legislature has not authorized the Fund to include in a payout a homeowner’s consequential damages.[28] “‘Consequential damages are such as are not produced without the concurrence of some other event attributable to the same origin or cause; such damage, loss, or injury as does not flow directly and immediately from the action of the party, but only from the consequences or results of such act.’”[29] Any additional damage to the pool that resulted from it sitting empty for the nearly three years is consequential and is not a direct result of Respondent’s abandonment of the job. If an offer is not accepted, the offeror may modify the offer.[30] The fiduciary duty that the Registrar owes to the Fund requires it to correct the error in calculation of the payout in the August 19, 2013 Notice of Claim for Administrative Payout. RECOMMENDED ORDER Based on the foregoing, it is recommended that, on the effective date of the final Order, the Registrar order the Fund to pay Complainants Richard Lee Johnston and Patsy R. Johnston the sum of $18,447.91.[31] It is further recommended that such payment be made when the monies are available to the 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, February 25, 2014.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] See the Registrar’s Exhibit 11. [2] See the Registrar’s Exhibit 1. [3] See the Registrar’s Exhibit 2. [4] See the Registrar’s Exhibit 3. [5] See the Registrar’s Exhibit 4. [6] See the Registrar’s Exhibit 5. [7] Id. at 17. [8] See the Registrar’s Exhibit 6. [9] See the Registrar’s Exhibit 7. [10] See the Registrar’s Exhibit 8. [11] Id. [12] The Registrar’s Exhibit 9. [13] The Registrar’s Exhibit 10 at 3. [14] Id. at 5. [15] A.R.S. § 32-1132(A) limits payouts from the Fund to “an amount of not more than thirty thousand dollars.” [16] See the Registrar’s Exhibit 12. [17] See the Registrar’s Exhibit 13. [18] See A.R.S. §§ 32-1131 to 32-1140. [19] See A.R.S. § 41-1092.04; A.R.S. § 41-1092.05(D). [20] 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). [21] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [22] Black’s Law Dictionary at 1220 (8th ed. 1999). [23] A.R.S. § 32-1131(3) defines “person injured” in relevant part as follows: [A]ny owner of residential real property which is classified as class three property under section 42-12003 and which is actually occupied or intended to be occupied by the owner as a residence including community property, tenants in common or joint tenants who are damaged by the failure of a residential contractor or a dual licensed contractor to adequately build or improve a residential structure or appurtenance on that real property. . . . [24] A.R.S. § 32-1134(A) requires the Registrar to take the following actions to preserve the Fund and to ensure that payouts for damages that are authorized by law are made from the Fund: 1. Establish assessments and maintain the fund balance at a level sufficient to pay operating costs and anticipated claims using the cash basis of accounting. 2. Cause an examination of the fund to be made every three years by an independent certified public accountant. 3. File with the department of insurance an annual statement of the condition of the fund. 4. Employ accountants and attorneys from monies in the fund, but not to exceed ten thousand dollars in any fiscal year, that are necessary for the performance of the duties prescribed in this section. 5. Employ or contract with individuals and procure equipment and operational support, to be paid from or purchased with monies in the fund, but not to exceed in any fiscal year fourteen per cent of the total amount deposited in the fund in the prior fiscal year as may be necessary to monitor, process or oppose claims filed by injured persons which may result in collection from the recovery fund. [25] Apparently, the pool lost Patio’s lifetime warranty when it was damaged by the fire because Complainants hired Respondent instead of requiring Patio to repair the Pebble Tec and tile under its warranty. [26] See A.R.S. § 32-1155(C)(2) (“The registrar shall not issue a citation for failure to perform work in a professional and workmanlike manner or in accordance with any applicable building codes and professional industry standards if . . . [t]he contractor's work has been subject to . . . modification . . .”). [27] See A.R.S. § 32-1155(A). [28] See J.W. Hancock Enterprises, Inc. v. Arizona State Registrar of Contractors, 142 Ariz. 400, 406, 690 P.2d 119, 125 (App. 1984). [29] State v. Morris, 173 Ariz. 14, 17, 839 P.2d 434, 437 (App. 1992) (quoting 25 C.J.S., Damages, § 2 at 617). [30] See, e.g., Hargrave v. Dwight B. Heard Investment Company, 56 Ariz. 77, 80, 105 P.2d 520 (1940). [31] The calculation of the amount of the payout follows: $12,883.35 (Valley Oasis’s July 27, 2013 bid to repair the Pebble Tec) + $6,977.07 (Valley Oasis’s July 27, 2013 bid to remove and replace tile and flagstone) + $716.32 (cost of new filters) - $2,128.83 (unpaid amount under Respondent’s contract) = $18,447.91.

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

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