ALJDEC decisions subject to certification as final

2012A-2446-ROC · Registrar of Contractors · 2013-02-14

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING DATES: December 17, 2012, at 1:00 p.m.; January 10, 2013, at 3:00 p.m. (status conference); January 31, 2013, at 1:00 p.m. APPEARANCES: Complainant North Star Pipelines Inc. appeared through Mike Rowley, its owner, at all three hearing dates; Respondent D G Fenn Construction Inc. appeared at the initial December 17, 2012 hearing date through Gary Langenfeld, its vice president, but did not appear at the January 10, 2013 status conference or the January 31, 2013 further hearing. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT 1. The Arizona Registrar of Contractors (“the Registrar”) issued License No. B-1.108941-C for commercial general contracting to D G Fenn Construction Inc. (“Respondent”). 2. The Registrar issued License No. K-80.198195-D for sewers, drains, and pipe laying to North Star Pipelines Inc. (“Complainant”). On or about May 9, 2012, Complainant filed a Complaint with the Registrar that alleged that Respondent had failed to pay Complainant $10,996.40 on its subcontract to construct underground utilities at the Skyline Ridge commercial project at 1502 East Dunlap in Phoenix, on which Respondent was the general contractor. According to the Complaint, the total amount of the subcontract, with change orders, was $113,463.10 and Complainant had completed its work under the subcontract in “late 2010.” 3. After Respondent did not resolve Complainant’s Complaint, the Registrar issued a Citation and Complaint against Respondent charging a possible violation of A.R.S. § 32-1154(A)(11). 4. Respondent filed a timely written answer to the Citation and Complaint, denying any statutory violation and affirmatively alleging that the subcontract included a “pay-when-paid” provision and that it had not been paid for Complainant’s work, although it “continue[d] to work diligently with the owner to try and resolve the non payment issues.” 5. The Registrar referred the matter to the Office of Administrative Hearings (“the OAH”), an independent state agency, for an evidentiary hearing. 6. A hearing was commenced on December 17, 2012. Complainant’s representative, Mike Rowley, testified and submitted a copy of the Complaint and the documents that Complainant had attached to the Complaint, including the subcontract, change orders, and Respondent’s checks to Complainant for its work on the project. The amount that Complainant claimed was due did not include interest or finance charges. 7. Complainant also submitted e-mails and a copy of a check that showed that after Complainant had filed the Complaint for nonpayment with the Registrar, Respondent made an additional payment to Complainant in the amount of $500.00. 8. Respondent’s representative, Gary Langenfeld, did not dispute that Respondent still owed Complainant $10,496.40 under the contract. When Mr. Langenfeld asked Mr. Rowley about the “pay-when-paid” clause in the subcontract, Mr. Rowley testified that Dan Fenn, Respondent’s qualifying party and officer, and Marcella Hauser, a representative of Spiral Corporation, the owner of the project, had both told Mr. Rowley that Respondent had been paid for the project. 9. Mr. Langenfeld denied that Respondent had been paid in full for the project. Mr. Langenfeld testified that the project was defunct and that he had negotiated reduced payments with seven to ten subcontractors on the project because they knew that the project was headed toward bankruptcy. Mr. Langenfeld testified that some subcontractors who had liens against the project had negotiated directly with Spiral Corporation for a reduced payment. 10. Respondent did not submit its pay applications, Spiral Corporation’s checks to Respondent, or any other documentary evidence to establish the amount that Respondent had or had not been paid or the amount of its general contract with Spiral Corporation to construct the Skyline Ridge project. 11. Nonetheless, based on Mr. Langenfeld’s representations, Complainant agreed to accept the $5,000.00 that Mr. Langenfeld offered to pay on or before December 31, 2012, and to withdraw the Complaint if Respondent fully performed the settlement. 12. At Complainant’s request, the Administrative Law Judge (“ALJ”) informed the parties’ representatives that she would schedule a status conference to allow Complainant to prosecute its Complaint if Respondent did not fully perform the settlement agreement. 13. On December 17, 2012, the ALJ issued an order setting a status conference on January 10, 2013, at 3:00 p.m. The OAH sent the order to Mr. Langenfeld and to Mr. Fenn at their business e-mail addresses at Respondent. 14. Respondent did not request to appear telephonically at the status conference and did not request that the status conference be continued. Although the start of the duly noticed status conference was delayed fifteen minutes to allow Respondent additional travel time, Respondent did not appear, through an authorized officer, employee, or attorney, and did not contact the OAH to request that the start of the status conference be further delayed. 15. Mr. Rowley testified at the status conference that shortly before the status conference, Respondent had tendered a check made payable to Complainant in the amount of $5,000.00, but that he had not yet had time to attempt to negotiate the check. The ALJ stated that she would hold the record open to allow him to attempt to negotiate Respondent’s check. 16. On January 16, 2013, Mr. Rowley filed a motion with the OAH and requested that a further hearing on the merits be scheduled because Respondent’s check had not cleared the bank. Mr. Rowley sent a copy of the motion to Mr. Langenfeld at his e-mail address. 17. On January 16, 2013, the ALJ issued an order setting a further hearing on the merits of Complainant’s Complaint on January 30, 2013, at 1:00 p.m. The OAH sent a copy of the January 16, 2013 order to Mr. Langenfeld at his business e-mail address at Respondent. 18. Respondent did not request to appear telephonically at the further hearing and did not request that the further hearing be continued. Although the start of the duly noticed further hearing was delayed fifteen minutes to allow Respondent additional travel time, Respondent did not appear, through an authorized officer, employee, or attorney, and did not contact the OAH to request that the start of the hearing be further delayed. Consequently, Respondent did not present any additional evidence to defend its license. 19. Mr. Rowley submitted two exhibits: (1) A copy of Respondent’s check made payable to Complainant in the amount of $5,000.00 dated January 8, 2013; and (2) A e-mail string between Complainant’s employee and Respondent’s bank, stating the Respondent’s check had not cleared and that the account on which it was drawn had been closed. 20. Administrative notice is taken of Respondent’s prior License record as reflected on the Registrar’s public website on February 13, 2013. Such prior License record reflects that Respondent’s License No. B- 1.108941-C was current and that two complaints against the license had been closed as resolved/settled/withdrawn. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[1] Respondent had notice of Complainant’s pending Complaint. Its representative was personally informed that a status conference would be scheduled and if Respondent’s settlement check did not clear the bank, a further hearing on the merits would be scheduled. The December 17, 2012 order setting the status conference and the January 16, 2013 order setting the further hearing that the OAH e-mailed to Respondent’s representative were reasonable. Respondent is deemed to have received notice of the status conference and notice of the further hearing. Complainant bears the burden of proof to establish Respondent’s statutory violation by a preponderance of the evidence.[2] Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.[3] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[4] Complainant established that as of the date of the further hearing, Respondent owed Complainant $10,496.40 for its work on the Skyline Ridge project. Complainant also established that the tentative settlement does not bar Complainant’s Complaint for the full amount owed because Respondent breached the settlement agreement by failing to tender $5,000.00 to Complainant. Two days before the status conference and eight days after it promised to pay Complainant, Respondent issued a check that was drawn on an account that had been closed. Respondent did not establish the affirmative defenses alleged in its written answer and at the December 17, 2012 initial hearing date that the owner of the project has not paid Respondent for Complainant’s work. Therefore, Complainant established that Respondent violated A.R.S. § 32- 1154(A)(11) by failing to pay Complainant $10,496.40 for work that Complainant rendered pursuant to its subcontract with Respondent on the Skyline Ridge project.[5] The timing of Respondent’s issuance of the check on a closed account indicates that it knew that the check would not clear the bank. Respondent’s failures to appear at the status conference or at the further hearing indicate that it knew that, in fact, its settlement check had not cleared the bank. Respondent’s bad faith in entering into a settlement and failing to perform its promise under the settlement is considered as factors in aggravation of the recommended penalty. RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the final Order in this matter, License No. B-1.108941-C previously issued to Respondent D G Fenn Construction Inc. shall be revoked. It is further recommended that if on or before the effective date of the Order, the Registrar receives from Respondent written proof that is satisfactory to the Registrar that Respondent has paid $10,496.40 to Complainant in certified funds, Respondent’s license shall not be revoked but, instead, the Complaint in Case No. 2012-2446 shall be closed. It is further recommended that, in addition to any license revocation that may result from this matter, Respondent’s License No. B-1.108941-C shall be placed on disciplinary probation for a period of 30 days, commencing on the effective date of the Order or the date on which Respondent files notice of compliance to the Registrar, whichever is later. 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 14, 2013.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] See A.R.S. §§ 32-1151 to 32-1169. [2] 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). [3] See A.A.C. R2-19-119(B)(2). [4] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [5] A.R.S. § 32-1154(A)(11) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[f]ailure by a licensee . . . to pay monies in excess of seven hundred fifty dollars when due for materials or services rendered in connection with the licensee’s operations as a contractor when the licensee has the capacity to pay or, if the licensee lacks the capacity to pay, when the licensee has received sufficient monies as payment for the particular construction work project or operation for which the services or materials were rendered or purchased.”

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