ALJDEC decisions subject to certification as final

2012A-2813-ROC · Registrar of Contractors · 2013-03-29

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING DATES: February 5, 2013, at 8:00 a.m. and March 12, 2013, at 8:00 a.m. APPEARANCES: Complainant Travis Vanderloop was represented by Richard C. Gramlich, Esq., Carmichael & Powell, PC; Respondent C and C Restoration LLC DBA: Sonoran Peak Construction and Roofing was represented by Joshua W. Carden, Esq., Davis Miles McGuire Gardner. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure The Arizona Registrar of Contractors (“the Registrar”) issued License No. KB-2.174122-D for dual residential and small commercial contracting to C and C Restoration LLC DBA: Sonoran Peak Construction and Roofing (“Respondent”). Respondent’s address of record is the home address of its member, Barry Mark Cohen, 5749 East Tierra Buena Lane, Scottsdale, Arizona 85254-6207. The Registrar received a Complaint from Travis Vanderloop (“Complainant”) against Respondent regarding its alleged failure to pay him $27,321.94 in sales commissions. After Respondent failed to resolve Complainant’s Complaint, the Registrar issued a Citation and Complaint charging Respondent with possible violations of A.R.S. § 32-1154(A)(7), A.R.S. § 32-1154(A)(10), and A.R.S. § 32-1154(A)(11). Respondent filed a timely written answer to the Citation and Complaint denying any statutory violations and affirmatively alleging that Complainant’s contract was with Sonoran Peak Construction & Roofing, LLC (“Sonoran Peak LLC”), a Texas limited liability company, not Respondent. The Registrar referred the matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. A hearing was held on February 5, 2013, and March 12, 2013. Complainant submitted seventeen exhibits and testified on his own behalf. Respondent submitted five exhibits and presented the testimony of two witnesses: (1) Steven Cron, a salesman who worked with Complainant selling roof repair jobs to homeowners and their insurers in the Phoenix metropolitan area; and (2) Mr. Cohen. Hearing Evidence Respondent was first licensed in 2002. Mr. Cohen testified that Respondent does business under the name, “Sonoran Peak Construction + Roofing,” but because the Registrar does not allow the use of mathematical symbols, the “+” was replaced with “and” on the Registrar’s records. Mr. Cohen testified that in the fall of 2010, due to the recession, Respondent had no employees and that he was Respondent’s owner, superintendent, and foreman.[1] On October 5, 2010, a severe hailstorm hit the Phoenix area, damaging many roofs. After a work slowdown due to the recession, the aftermath of the storm offered contractors an opportunity for substantial work, especially because most of the damaged residences were insured against storm damage. After the storm, Mr. Cohen testified that Respondent’s telephone was “ringing off the hook.” Mr. Cohen testified that he asked one of his suppliers whether the supplier knew someone who could help Respondent with sales. Mr. Cohen testified that Perry Hollingsworth later contacted him and offered to have Mr. Hollingsworth’s company, Better Roofing Company (“Better Roofing”), help Respondent with sales. The Registrar has not issued a license to Mr. Hollingsworth or to Better Roofing to allow them to perform any kind of contracting activities in Arizona.[2] On or about October 13, 2010, Mr. Cohen on behalf of Respondent and Mr. Hollingsworth’s wife or partner, Amra Domzaet, on behalf of Better Roofing signed a Time Limited Management Agreement (“the Management Agreement”), that included the following provisions: 1. The term of the Management Agreement would be twelve months, or until October 12, 2011; 2. Better Roofing would provide consulting, management, and financial services to Respondent, including “[p]roviding facilities, office equipment, [and] telephone services . . . for [Better Roofing’s] operation of ‘Better Roofing’ repair contracts” and “contracting sales professionals for Better Roofing operations”; 3. As consideration for the services that Better Roofing performed under Respondent’s name pursuant to the Management Agreement, Better Roofing would retain all gross revenue generated by roofing repair contracts that it managed during the term of the Management Agreement, less Respondent’s fees; 4. Respondent would receive a fee of $5.00 per square (100 square feet) for all the roofs that it repaired or installed, excluding tile, for which it would receive a fee of $25.00 per square or $1.00 per repaired tile, whichever was greater; 5. Respondent had the right to inspect any roofing work that Better Roofing managed for quality control; 6. After the term of the Management Agreement expired, Respondent would be responsible for performing warranty work and agreed to hold Better Roofing harmless from any liability resulting from Respondent’s performance of warranty work; and 7. Respondent would provide Better Roofing with copies of all licenses, company logos, and promotional materials, and would list with the Better Business Bureau (“BBB”) Better Roofing’s local address as an additional address for Respondent.[3] On or about June 7, 2011, Mr. Hollingsworth on behalf of Better Roofing and Mr. Cohen on behalf of Respondent entered into a Contract Amendment to extend the Management Agreement through February 29, 2012. Mr. Cohen testified that after he signed the Management Agreement, he started working 100 to 120 hours per week. Mr. Cohen testified that Better Roofing sold between 1,200 and 1,500 roofing jobs that Respondent performed and that Respondent was paid between $200,000.00 and $250,000.00 for the jobs. Mr. Cohen testified that he personally supervised or inspected at least 500 roofs, or approximately one-third of the roofs that Better Roofing sold. Mr. Cohen denied that he or Respondent had any ownership interest in Better Roofing or Sonoran Peak LLC. Mr. Cohen testified that he did not understand that the Management Agreement required Better Roofing to perform contracting work in Arizona. Mr. Cohen testified that, instead, Better Roofing was responsible for hiring licensed adjusters to bid jobs using the insurance industry’s software, Exactimate, and that Respondent was responsible for performing the roof repairs. Complainant was living in Arlington, Texas when he received an e-mail from an adjusting firm that was connected with Mr. Hollingsworth about an opportunity to work in Arizona selling roof repair jobs for a local company. Thereafter, Complainant traveled to Arizona and started selling roof repair jobs. On or about March 28, 2011, Complainant signed an Independent Contractor Sales Agreement (“the Sales Agreement”) with Sonoran Peak LLC with an address on 2822 West Northern Avenue in Phoenix, Arizona 85051, under which Complainant agreed to sell home improvements for Sonoran Peak LLC for a 10% commission. The commission would be payable when the amounts were collected from consumers.[4] Complainant testified that Ms. Domzaet signed the Sales Agreement as owner/operator of Sonoran Peak LLC. Complainant acknowledged that he did not have any agreement with Mr. Cohen, but testified that he thought that Mr. Hollingsworth and Ms. Domzaet were Respondent’s agents. Complainant testified that he knew that Mr. Cohen worked at a different address and that Mr. Cohen did not go to the office on West Northern Avenue every day. Mr. Cron testified that he was living in Denver when Johnny Crun of Catstaff Group contacted him about selling roofs in Phoenix. Mr. Cron testified that he went to Phoenix and met with Mr. Crun, Mr. Hollingsworth, and Mr. Hollingsworth’s right-hand man, Derek Olsen. Mr. Cron testified that he signed a series of contracts and that the first contract he signed was with Better Roofing. Mr. Cron testified that the first contract that he signed provided for a 7% commission. Mr. Cron testified that when he arrived in Arizona, Complainant was already working as a commissioned salesperson. Mr. Cron testified that he first heard of Sonoran Peak LLC when he came to Phoenix, that he understood that it was the same company as Better Roofing, and that it was controlled by Mr. Hollingsworth and Mr. Olsen. Mr. Cron testified that he did not meet Mr. Cohen until four months after he started selling roofs for Better Roofing. Mr. Cron testified that his job was to sell roofs, not to build them. Mr. Cron testified that Mr. Hollingsworth, Mr. Olsen, and two sales managers oversaw the commissioned salespersons’ activities and provided the forms that they were to use in their sales. On or about April 1, 2011, Mr. Olsen sent an e-mail to Complainant stating that he would receive certain bonuses after reaching sales benchmarks and that “Salesmen who reach $1,000,000 will get an additional bonus of $18,000 (with the previously paid $2,000 + $6,000 + $10,000 + $14,000 + the new $18,000 would = $50,000 paid storm to date, which will make them (in essence) 15% salesmen once they reach the $1,000,000 benchmark.”[5] Mr. Olsen’s e-mail did not mention any company name. Complainant testified that there were approximately 120 commissioned salespersons in offices at 2822 West Northern Avenue and 2830 West Northern Avenue. When Complainant started working as a commissioned salesperson, he was given a book of promotional literature and a business card that showed Respondent’s license number and logo, with the name “Sonoran Peak Construction + Roofing,” and the address, 2830 West Northern Avenue.[6] Complainant acknowledged that he did not know who leased the office space on Northern Avenue. Mr. Cohen denied that Respondent leased the office space on Northern Avenue. The back of the business card showed the name, Sun Devil Heating and Cooling, also with the 2830 West Northern Avenue address, and the license number, ROC#237768.[7] Complainant explained that although he mainly sold roofs, because the hail had damaged many air conditioning units as well, he also sold air conditioning unit repairs or replacements. Complainant submitted additional promotional materials that he was given to sell roof repairs, including a flyer that showed Respondent’s logo with the name, “Sonoran Peak Construction + Roofing,” informed consumers that the company had 17 years’ experience, and provided as the address for the “Storm Damage Office” as 2822 West Northern Avenue.[8] Complainant submitted the form contract that he was given to fill out for the consumers to whom he sold roofing repairs. The form contract showed Respondent’s logo with the name, “Sonoran Peak Construction + Roofing,” Respondent’s license number, and the address, 2822 West Northern Avenue.[9] The form Certificate of Completion that allowed Complainant to claim his commission and the form, “Homeowner Notice – What to Expect” showed the same information.[10] Mr. Cron testified that the form contract was revised several times and that the first contract that he used had the name Better Roofing on it. Mr. Cron testified that although he knew that Better Roofing was not licensed in Arizona, he did not know that he could not solicit roofing sales in Arizona for an unlicensed entity. Complainant submitted a copy of a consumer’s check dated February 2, 2011, that was made payable to “Sonoran Peak” for roofing repairs.[11] Complainant submitted a copy of a commission check dated November 17, 2010, that was made payable to Complainant and that was drawn on the account of “Sonoran Peak Construction & Roofing, LLC” at 2822 West Northern Avenue’s account at Bank of America. Mr. Cohen testified that when Better Roofing paid Respondent pursuant to the Management Agreement, the check was drawn on Sonoran Peak LLC’s account and signed by Mr. Olsen. Mr. Cohen testified that he did not remember whether he was upset that Better Roofing had opened a bank account under a business name that was similar to Respondent’s. Mr. Cohen testified that Respondent never had a bank account at Bank of America. Mr. Cohen testified that Respondent performed the contracting work required by the Management Agreement and that to his knowledge, neither Better Roofing nor Sonoran Peak LLC performed any construction work in Arizona. Complainant submitted the W-9 form that he received from “Sonoran Peak Construction & Roofing” at 2822 West Northern Avenue that showed the Employer Identification Number (“EIN”), 3817146.[12] The 1099 form that Complainant received for his commissions showed the same information.[13] Respondent submitted its Transaction, Use, and Severance Tax Return for the period ending January 31, 2013, that showed the EIN, [number redacted].[14] Complainant submitted the printout for “Sonoran Peak Construction and Roofing” at the BBB that showed Respondent’s full name, Respondent’s address of record with the Registrar, Mr. Cohen as principal, and the additional location of 2822 West Northern Avenue.[15] Mr. Cohen testified that on November 2, 2011, he met with Mr. Hollingsworth and Mr. Olsen in a Thai restaurant. Mr. Cohen testified that because work from the hailstorm was slowing down, Mr. Hollingsworth and Mr. Olsen wanted to wind down Better Roofing’s obligations under the Management Agreement by November 18, 2011, because it was no longer profitable to sell roof repair jobs for Respondent. Complainant testified that he received the promised bonus on his sales up to $800,000.00, but that he had not received his bonus for sales for $1 million. Complainant testified that he had not received payment for the last dozen or so jobs that he sold for Sonoran Peak LLC. Mr. Cron testified that at some point, Better Roofing ceased its relationship with Mr. Cohen and Respondent. Mr. Cron testified that he has not been paid for any of his sales over the amount of $600,000.00, including the bonus for sales over $1 million. Mr. Cron testified that Mr. Hollingsworth and/or Mr. Olsen owe him over $32,000.00, but that Respondent does not owe him anything. Mr. Cron testified that he began working for Respondent in November 2011, after Mr. Hollingsworth died. He receives a better commission on his sales for Respondent than the commission he received for his sales for Better Roofing. Mr. Cohen testified that although Respondent completed all the roofing jobs that Better Roofing sold pursuant to the Management Agreement, Better Roofing still owed Respondent more than $100,000.00 for its construction work. Mr. Cohen testified that Respondent was still performing warranty work for jobs that Better Roofing had sold and that in the rainy weather just before the hearing, Respondent had performed warranty work on 26 properties. After Complainant was not paid the full amount of the commissions that he was owed, he sent numerous letters to Mr. Hollingsworth at various addresses, including Respondent’s address of record on Tierra Buena Lane and addresses in Dayton, Ohio and Kansas City, Missouri.[16] Complainant acknowledged that none of the letters showed Respondent’s or any other company’s name. Complainant submitted a summary of his total roofing sales, including the sales for which he had not received a commission. Complainant claimed total sales in the amount of $1,301,988.45, for an unpaid commission balance of $39,249.00, including the promised bonus for sales over $1 million.[17] Respondent pointed out that Complainant’s claimed sales included sales that were originated by Complainant’s mother, sister, and another salesperson. Without those disputed sales, Complainant’s total sales were only $916,929.20. Complainant stated that he collected amounts due under the contracts after Respondent’s mother and sister and another salesman left the commissioned sales force. Administrative notice is taken of Respondent’s prior License record as reflected on the Registrar’s public website. Such prior License record reflects that as of March 25, 2013, Respondent’s license was current. One complaint was pending against the license and two complaints had been closed as resolved/settled/withdrawn. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[18] Complainant bears the burden of proof to establish Respondent’s statutory violations by a preponderance of the evidence.[19] Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.[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.R.S. § 32-1101(A)(3) defines a “contractor” in relevant part as follows: "Contractor" is synonymous with the term "builder" and means any person, firm, partnership, corporation, association or other organization, or a combination of any of them, that, for compensation, undertakes to or offers to undertake to, purports to have the capacity to undertake to, submits a bid or responds to a request for qualification or a request for proposals for construction services to, does himself or by or through others, or directly or indirectly supervises others to:

(a) Construct, alter, [or] repair . . . any building . . . or to do any part thereof . . . .

(Emphasis added.) By signing the Management Agreement, Mr. Cohen authorized Better Roofing, an unlicensed entity, to solicit customers and enter contracts on Respondent’s behalf, to provide Better Roofing with copies of Respondent’s license, company logo, and promotional materials, and to list Better Roofing’s address as an additional address for Respondent on the BBB’s website. Mr. Cohen also agreed that Better Roofing would receive the proceeds from the roofing contracts that Respondent performed pursuant to the Management Agreement. Mr. Cohen later learned that Mr. Hollingsworth had opened a bank account in a name that was similar to Respondent’s name to cash consumers’ checks and to pay Better Roofing’s expenses, including sales commissions and Respondent’s fee. By making these agreements, Mr. Cohen agreed to combine Respondent and Better Roofing for the purpose of performing contracting as defined by A.R.S. § 32- 1101(A)(3). “‘Knowingly’ imports only a knowledge that the facts exist which bring the act or omission within the provisions of the statute using such word. It does not require any knowledge of the unlawfulness of the act or omission.”[22] Therefore, Complainant established that Respondent violated A.R.S. § 32-1154(A)(10)[23] by knowingly or recklessly aiding and abetting Mr. Hollingsworth and Better Roofing to evade the requirements of Arizona’s contracting statutes. Complainant did not establish that Mr. Cohen or anyone employed by Respondent induced him to come to Arizona to sell roofs for Mr. Hollingsworth’s company, controlled his commissioned sales activities, or did anything to lead him to believe that Mr. Hollingsworth was Respondent’s agent in dealing with the commissioned salespersons. It appears that Complainant, like Mr. Hollingsworth, was a storm chaser who came to Arizona to profit from the October 5, 2010 hailstorm, rather than a person who had relied upon Respondent’s status as a licensed contractor to enter into a transaction that involved contracting.[24] The mere fact that Respondent also may have benefited financially from Complainant’s sales of roofs for Mr. Hollingsworth and his company does not establish that Respondent is responsible for paying Complainant’s unpaid commissions. Because Complainant did not establish that Mr. Hollingsworth or his associates were Respondent’s actual or apparent agents, Complainant did not establish that Respondent violated A.R.S. § 32-1154(A)(11)[25] by failing to pay him the remaining commissions that were owed under his Sales Agreement with Mr. Hollingsworth and his company, whatever its name was.[26] Complainant did not submit any evidence to establish that Mr. Cohen or Respondent committed fraud in violation of A.R.S. § 32-1154(A)(7).[27] RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the final Order in this matter, Respondent C and C Restoration LLC DBA: Sonoran Peak Construction and Roofing’s License No. KB-2.174122-D shall be suspended for three business days. It is further recommended that, in addition to any license suspension that may result from this matter, Respondent’s Class KB-2 license be placed on disciplinary probation for a period of 30 days, commencing on the effective date of the order or the date that Respondent’s license is reinstated after the three-day suspension, whichever date 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 forty days from the date of that certification. Done this day, March 29, 2013.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] According to the Registrar’s public website, Jerry Edmund Cunningham is Respondent’s qualifying party and member. Mr. Cunningham was not mentioned at and did not participate in the hearing. [2] The record does reflect whether Better Roofing possessed a contractor’s license in Texas or in any state other than Arizona. [3] See Respondent’s Exhibit D. [4] See Complainant’s Exhibit 1. [5] Complainant’s Exhibit 2. [6] See Complainant’s Exhibit 4. [7] According to the Registrar’s public website, Sun Devil Heating and Cooling Inc. holds License No. K-39. 237768-D. [8] See Complainant’s Exhibit 5. [9] See Complainant’s Exhibit 7. [10] See Complainant’s Exhibit 8. [11] See Complainant’s Exhibit 18. [12] See Complainant’s Exhibit 10. [13] See Complainant’s Exhibit 11. [14] See Respondent’s Exhibit C. [15] See Complainant’s Exhibit 17. [16] See Complainant’s Exhibit 15; Respondent’s Exhibit A. [17] At the second hearing date, the amounts were modified to exclude sales made for Sun Devil Heating and Cooling. [18] See A.R.S. §§ 32-1151 to 32-1169. [19] 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). [20] See A.A.C. R2-19-119(B)(2). [21] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [22] A.R.S. § 1-215. [23] 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.” [24] “The purpose of the [Registrar] is to protect the public health, safety and welfare by licensing, bonding and regulating contractors engaged in residential construction . . . .” Laws 1994, Ch. 7, § 3; see also Laws 2004, Ch. 16, § 3. [25] 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.” [26] Because the commission check and the consumer’s check that Complainant submitted were both dated before the March 28, 2011 Sales Agreement with Sonoran Peak LLC’s name on it, it appears that Complainant, like Mr. Cron, may have earlier agreements with Mr. Hollingsworth and entities other than Sonoran Peak LLC. [27] 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.”

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