ALJDEC decisions subject to certification as final

2012A-4603-ROC · Registrar of Contractors · 2013-03-04

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: February 12, 2013, at 8:15 a.m. APPEARANCES: Complainants Melinda Gosmeyer and David Gosmeyer appeared on their own behalf; Respondent Superior Custom Builders LLC appeared through Victor Padilla, its qualifying party and member. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure The Arizona Registrar of Contractors (“the Registrar”) issued License No. KB-1.265743-D for residential and small commercial contracting to Superior Custom Builders LLC (“Respondent”). David and Melinda Gosmeyer (“Complainants”) filed a Complaint with the Registrar against Respondent for its alleged failure to reimburse them for materials that they purchased for its performance of various work at their residence located at CRN 5227 House #71, Concho, Arizona. According to the Complaint, the amount of Respondent’s contract was $24,747.00 and Respondent owed Complainants $6,234.52. After Respondent failed to resolve Complainants’ Complaint to their satisfaction, they requested that the Registrar issue a citation against Respondent. The Registrar issued a Citation and Complaint against Respondent charging a possible violation of A.R.S. § 32-1154(A)(1). Respondent filed a timely written answer to the Citation and Complaint, denying any statutory violation. The Registrar referred the matter to the Office of Administrative Hearings, an independent agency, for an evidentiary hearing. A videoconference hearing was held on February 12, 2013, from the Registrar’s office in Show Low. Complainants submitted twenty exhibits and testified on their own behalf. Respondent submitted three exhibits and presented the testimony of three witnesses: (1) Victor Padilla, Respondent’s qualifying party and member; (2) Dorlene Maloy, a Housing Specialist for Economic Development of Apache County (“EDAC”), who oversaw Respondent’s performance of the parties’ contract; and (3) Bruce Ray, the Community Development Director for the Town of Eager, who also worked with the parties on the EDAC grant. Ms. Maloy and Mr. Ray testified pursuant to Respondent’s subpoenas. Additional Evidence Complainants have nine children. Mrs. Gosmeyer was pregnant with a tenth child at the time of the hearing. Complainants’ home is in the country, in a remote area of Apache County. Their home was formerly a mobile home that was manufactured in 1978. Complainants obtained the permit to start renovating the mobile home in June 2006.[1] The EDAC program is funded through the United States Department of Housing and Urban Development and provides grants to improve the homes of Apache County’s low-income residents. Before Respondent submitted a bid for the project at issue, other contractors had performed approximately $50,000.00 of work through the EDAC program on the renovation of Complainants’ home, including installation of wind turbines for power. EDAC does not require eligible property owners to pay back grant monies as long as they live in the improved homes for a certain number of years. Every year that they live in the home, a portion of the grant is forgiven. If the property owner sells the home before the grant is forgiven, he or she will be liable to the program for the part of the grant that remains outstanding. Complainants and their children performed substantial work on the renovation project. Mr. Gosmeyer considered himself to be the architect of the renovations. In February 2012, EDAC solicited bids for improvements to the project to allow Complainants to obtain a Certificate of Occupancy. Because substantial work already had been done on the renovations, the final improvements included partial plumbing, electrical, framing, window installation, and construction of a small shed. There was also some construction materials on site that EDAC required Respondent to use for its portion of the renovations. Respondent’s project manager, Robert Galdean, met with Complainants to view their home and to prepare Respondent’s bid. Complainants testified that Mr. Galdean orally agreed to follow Mr. Gosmeyer’s specifications, including screwing rather than nailing studs, putting more studs in than were used in normal construction due to the weight of the roof, and predrilling all the holes for the screws. Mr. Galdean did not testify at the hearing. Mr. Padilla denied that Mr. Galdean had made any oral agreement with Complainants. On or about March 20, 2012, Respondent submitted a bid to EDAC in the amount of $24,757.00 to perform the work necessary to obtain a Certificate of Occupancy for Complainants’ home. Because Respondent submitted the low bid, EDAC selected Respondent to perform the project. On or about June 11, 2012, Complainants signed the contract to have Respondent perform the work on its bid to allow them to obtain a Certificate of Occupancy for their home. The contract provided that Respondent agreed that Complainants would have the right to declare Respondent in default if it failed to furnish materials or perform work in accordance with the provisions of the contract. The contract also provided that Complainants would not be responsible for paying for Respondent’s work under the contract and that it would pay any indebtedness incurred for any cause in connection with its work under the contract. Mr. and Mrs. Gosmeyer testified that because Respondent was short of money, they made a verbal agreement with Respondent that Complainants would purchase materials for the project and that when EDAC paid Respondent, it would reimburse Complainants for the cost of the materials. Mr. and Mrs. Gosmeyer also testified that Respondent had verbally agreed to pay Mr. Gosmeyer and his sons for the work that they performed on the project, but Complainants did not seek reimbursement for the cost of Mr. Gosmeyer’s and his sons’ labor. Complainants submitted copies of invoices from Home Depot, Lowe’s, and other suppliers for the materials that they alleged that they had purchased on credit for Respondent’s project pursuant to their verbal agreement. Mrs. Gosmeyer testified that she deducted the cost of materials that were not used on Respondent’s portion of the project. The total of the invoices was $6,234.52. Mr. Padilla denied that Respondent had ever made a verbal agreement with Complainants to reimburse them for the costs of materials that they purchased for the project. Mr. Padilla testified that as a contractor, Respondent gets a substantial discount on materials that it purchases from Home Depot, Lowe’s, and other suppliers and argued that it would make no sense for Respondent to agree to pay Complainants a higher price for the same materials. Mr. Padilla also pointed out that many of the receipts that Complainants submitted were dated before the parties signed the contract. Mr. Padilla testified that Respondent sent out a crew that consisted of three to four laborers and a project manager. Mr. Padilla testified that when Respondent’s crew attempted to perform work on the project, their access was limited because Complainants and their children were performing other work on site. Mr. Padilla testified that after Respondent’s crew started Complainants’ project, Respondent’s project manager called him to complain that work was delayed on the project because Mr. Gosmeyer required the crew to screw every single board into the framing and had torn down walls and framing, greatly expanding the scope of the work. Mr. Padilla testified that he spoke to Complainants and explained that Mr. Gosmeyer’s requirements were expanding a baseball-sized project into a basketball-sized project, which Respondent’s bid did not include. Mr. and Mrs. Gosmeyer denied that they expanded the scope of work. Rather, they testified that the problem was that Mr. Padilla did not understand the scope of work because he had not bid the project and did not take into account Mr. Galdean’s verbal agreement with Complainants. Mr. Padilla testified that Respondent only had 30 or 40 days to complete the project because if the Certificate of Occupancy was not obtained by a certain date, EDAC would not fund the project, including the previously made improvements. Mr. Padilla testified that his crew was frustrated because they were working 10-hour to 16-hour days and getting very little done on the project due to Mr. Gosmeyer’s demands. Mr. Padilla testified that when he complained to Ms. Maloy, she told him that because the deadline was so near, Respondent needed to do what needed to be done to complete the project. Mr. Padilla testified that his original crew quit and that he was required to hire new laborers. Mr. Padilla testified that pursuant to Ms. Maloy’s instructions, he told his new crew that they needed to do whatever needed to be done to complete the project, including Mr. Gosmeyer’s direction. Mr. Padilla testified that during the summer of 2012, he and his crew worked weekends, some 16-hour days, and sometimes slept on site because their homes were 30 or 40 miles away from the project and they were working such long hours. Mr. Padilla testified that Respondent ended up installing ceilings, floor joists, and a mahogany ceiling in the living room and one bedroom to satisfy Mr. Gosmeyer’s demands. Mr. Padilla testified that this work was not included in Respondent’s bid or contract. Ms. Maloy testified that Respondent’s crew had worked extra hours to comply with EDAC’s deadlines and that Mr. Padilla had complained to her that Mr. Gosmeyer was trying to expand Respondent’s scope of work on the project. Ms. Maloy testified that her response to Mr. Padilla was that Mr. Gosmeyer could not expand the scope of work under the EDAC program. On or about June 28, 2012, Respondent’s work on the project passed the Apache County building department’s final inspection and was approved for the issuance of a Certificate of Occupancy.[2] The parties agreed that at that time, the home did not have hot running water. Subsequently, EDAC paid Respondent for its work in obtaining the Certificate of Occupancy for Complainants’ home. On or about August 15, 2012, Respondent filed a Lien and Waiver of Claim and General Contractor’s Certificate in the amount of the original bid and contract, $24,757.00. After EDAC paid Respondent, Mrs. Gosmeyer complained to Ms. Maloy that Respondent had not reimbursed Complainants for the cost of the materials that they allegedly purchased for Respondent’s work on the project. Ms. Maloy testified that she was concerned because under the contract, Respondent was responsible for furnishing the materials for the project that were not already on site. On or about August 16, 2012, the parties signed a change order for Respondent to replace the main water line, for an additional cost of $2,500.00, which brought the total contract price to $27,257.00. On or about September 3, 2012, Complainants and Ms. Maloy signed the EDAC Final Inspection and Approval for Payment, stating that Respondent had completed the rehabilitation work described in the contract and that Complainants had inspected and accepted the work. Mrs. Gosmeyer testified that she wanted to declare that Respondent was in default on the contract because it had not reimbursed Complainants for the cost of the materials that they had purchased for its work on the project. Mrs. Gosmeyer testified that she was informed that if she did not sign the Final Inspection and Approval for Payment, she and her husband would be personally liable to repay the approximately $75,000.00 in EDAC grants that had been expended on the project. Mrs. Gosmeyer testified that instead of declaring Respondent in default on the contract, she was advised that she should file a complaint to the Registrar to recover the monies that Respondent had not paid under the verbal agreement. On or about November 2, 2012, Respondent submitted an invoice in the amount of $8,500.00 to Complainants for the extra labor and materials that it allegedly had expended on renovations to their home. CONCLUSIONS OF LAW The Registrar has jurisdiction to determine whether Respondent violated the statute that was charged in the Citation and Complaint in its renovations to Complainants’ home.[3] Complainants bear the burden of proof to establish Respondent’s statutory violation by a preponderance of the evidence.[4] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[5] Complainants did not establish that Mr. Padilla or anyone else who was authorized to bind Respondent verbally agreed to reimburse them for materials that they purchased for Respondent’s work on their house. Complainants also did not establish that they purchased materials for Respondent’s scope of work, as opposed to their own projects, in the renovations of their home. Therefore, Complainants did not establish that Respondent abandoned its contract by failing to pay them anything for the materials that they allegedly purchased pursuant to the verbal agreement, in violation of A.R.S. § 32-1154(A)(1).[6] The Registrar does not have jurisdiction to determine whether Complainants owe Respondent any additional monies for its extra work on their project or whether such a claim is permitted by the parties’ contract or EDAC regulations. RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the Registrar’s Order, the Registrar dismiss Complainants David and Melinda Gosmeyer’s Complaint in Case No. 2012-4603 against Respondent Superior Custom Builders LLC’s License No. KB-1.265743-D. 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, March 4, 2013.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] See Complainants’ Exhibit C-20. [2] See Respondent’s Exhibit R-12. [3] See A.R.S. §§ 32-1151 to 32-1169. [4] See A.R.S. § 41-1092.07(G)(2); 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). [5] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [6] 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.”

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