ALJDEC decisions subject to certification as final

2012A-5124-ROC · Registrar of Contractors · 2013-08-20

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: July 31, 2013, at 8:00 a.m. APPEARANCES: Complainant Rembrandt Construction Inc. appeared through Jason Cleckner, its Production Manager; Respondent J P Osborn Construction Managers Inc. appeared through James Paul Osborn, its Qualifying Party and President. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky ____________________________________________________________________

FINDINGS OF FACT Background and Procedure 1. The Arizona Registrar of Contractors (“the Registrar”) issued License No. BE.128864-C to J P Osborn Construction Managers Inc. (“Respondent”). 2. The Registrar issued License No. B-2.196977-C to Rembrandt Countertops Inc. (“Complainant”). Complainant fabricates countertops for other contractors to install, as well as installing countertops that it has fabricated. 3. On or about October 17, 2012, Complainant filed a Complaint with the Registrar against Respondent alleging that it owed Complainant a total of $26,971.50 plus $6,500.00 for countertops that Complainant had fabricated pursuant to its contract with Respondent. 4. After Respondent did not resolve Complainant’s Complaint, the Registrar issued a Citation and Complaint against Respondent charging a violation of A.R.S. § 32-1154(A)(11). 5. Respondent’s President and Qualifying Party, James Paul Osborn, on its behalf filed a timely written answer to the Citation and Complaint denying any statutory violation. Mr. Osborn affirmatively alleged that Complainant’s failure to fabricate the countertops on time and according to specifications had resulted in Respondent incurring substantial additional costs and the general contractor on the project, Kitchell Contractors Inc. (“Kitchell”), assessing substantial backcharges against Respondent. 6. The Registrar referred the matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. 7. A hearing was held on July 31, 2013. Complainant submitted fourteen exhibits and presented the testimony of three witnesses: (1) Milton Lemberg, Complainant’s Secretary/Treasurer (“Mr. M. Lemberg”); (2) Howard Lemberg, Complainant’s President and Qualifying Party (“Mr. H. Lemberg”); and (3) Jason Cleckner, Complainant’s Production Manager. Mr. Osborn testified and submitted fourteen exhibits on Respondent’s behalf. Hearing Evidence 8. Respondent contracted with Kitchell to perform certain interior finishing work in the public areas of a casino on the Habematolel Pomo Indian Reservation in Upper Lake, California, which is in a remote area of northern California (“the casino project”). 9. Respondent’s contract with Kitchell provided that “[t]he Prime Contract is incorporated into this Subcontract Agreement with the same force and effect as if it was set forth in full. Subcontractor agrees to be bound to Kitchell in the same manner and to the same extent as Kitchell is bound to the Owner under the Prime Contract.”[2] 10. The record does not reflect whether Respondent’s initial contract with Kitchell had a completion deadline or a “time is of the essence” clause. The parties agree that because the tribe planned to open the casino in the summer of 2012, Kitchell, its subcontractors, and its subcontractors’ subcontractors and suppliers were expected to expedite their performance of their various contractual obligations on the casino project. 11. Respondent subcontracted to The Great Organization (“TGO”) millwork on the casino project. Shane Dunn and Vern Monk of TGO referred Respondent to Complainant for fabrication of the countertops. 12. In approximately February 2012, Mr. Osborn on behalf of Respondent and Mr. H. Lemberg on behalf of Complainant verbally agreed that Complainant would fabricate countertops for the casino project and that Complainant would work with TGO to determine the sizes of the countertops. The parties never reduced the terms of their verbal agreement to a written subcontract. 13. Mr. Osborn testified that in February 2012, Mr. H. Lemberg and Mr. Cleckner attended a meeting at Respondent’s office during which they verbally agreed that Complainant would be bound by the terms of Respondent’s written contract with Kitchell. 14. Mr. H. Lemberg and Mr. Cleckner denied ever attending such a meeting or agreeing to be bound by any terms that were not set forth in Complainant’s purchase orders and invoices. Mr. H. Lemberg and Mr. Cleckner denied that Complainant ever agreed to complete the casino project by a date certain. 15. On or about February 4, 2012, Complainant submitted an estimate to Respondent detailing various items to be included on the project for a total price of $76,440.58. Mr. Osborn gave Complainant a verbal authorization to start the project. 16. On or about March 29, 2012, Kitchell issued an expedited construction schedule that provided that “time is of the essence” and required its subcontractors to expedite construction on the casino project.[3] 17. The countertops for the casino project required four slabs of recycled glass stone that were to be manufactured by Green Field Products (“Green Field”). Although usually Complainant requires a 50% down payment before it orders materials, because the time to complete the project was short and Green Field required eight weeks to manufacture the slabs, on April 12, 2012, Complainant ordered the material from Green Field for the countertops. 18. Green Field broke two of the slabs during the manufacturing process. Due to the delay, Complainant with Respondent’s approval cancelled the order for the two slabs. Respondent also approved the 50% restocking fee that Green Field charged to cancel the extra two slabs, which had been manufactured a second time but not shipped.[4] 19. In the meantime, Respondent gave Complainant TGO’s shop drawings for the millwork for the casino project. Complainant used TGO’s drawings to generate Computer-Aided Design (CAD) drawings. Complainant provided the CAD drawings to Mr. Osborn and, on behalf of Respondent, he approved them. 20. As a result of the delay due to Green Field, Complainant completed the casino project in two phases. Complainant made the first shipment to the casino project through a professional mover. Respondent does not allege any problems with the countertops that Complainant fabricated that were included in the first shipment. 21. Mr. Osborn picked up the second shipment himself in a rented truck. Complainant provided a wooden “A-frame” for the countertops and Mr. Osborn used his own straps to secure the countertops to the A-frame. 22. Three countertops that Mr. Osborn was transporting broke en route to the casino project. Complainant’s witnesses alleged that the breakage was due to Mr. Osborn’s failure to properly secure the countertops, the stiff suspension of the rented truck, and/or Mr. Osborn’s driving. Mr. Osborn alleged that the countertops broke due to the wooden A- frame coming apart. 23. Mr. H. Lemberg testified that once a product is delivered to a customer, Complainant is no longer responsible for the product. 24. As soon as Mr. Osborn informed Complainant that the countertops had broken, it used the remaining materials it had to fabricate an additional three countertops. Within fourteen hours, Mr. M. Lemberg and Mr. H. Lemberg loaded the three countertops into their own vehicle and drove to Palm Desert, California, where they met Mr. Osborn and transferred the countertops into his vehicle. 25. On or about May 15, 2012, Complainant issued Sales Order No. 10481, showing the Green Field restocking fee and shipping for the three countertops that Mr. Osborn picked up. 26. Respondent paid Complainant a deposit of $45,000.00 on May 15, 2012. 27. After Respondent’s subcontractor in California began installing the countertops, Mr. Osborn testified that he discovered that a piece was missing. 28. Mr. Cleckner testified that the piece was on the CAD drawings that Respondent had approved and that he had checked the remaining material and found that everything was accounted for. Complainant’s witnesses argued that Respondent must have lost the piece after picking up the second shipment. 29. Nonetheless, within eight hours of being informed by Mr. Osborn that a piece was missing, Complainant used its remaining material to fabricate another piece and shipped it to the casino project. The piece was broken in transport. 30. Complainant seamed together its remaining material to fabricate a third piece. Mr. H. Lemberg made the 30-hour round trip to personally deliver the piece to Respondent at the casino project. 31. The total amount shown as due on Invoice No. 10481 was $71,971.50. Although shipping and crating were not included on the sales order, Invoice No. 10481 included a $3,500.00 charge for “[c]rating and ready for shipping on customer provided truck”[5] and another $5,691.50 charge for “Trade (Sales),” with the following description: Part two of project was picked up by Jim Osborn. A piece of wood came [off of] skid. Rembrandt wanted to fix it Jim Osborn [said] “no, I am in a hurry”. Three pieces of stone were broken during transportation, according to Jim Osborn. At Rembrandt we remade the three tops, 2A, 2B, 2C. Rembrandt made them in 6 hours and proceeded to drive them to Palm springs. $1244 labor plus shipping of $575. During installation Jim Osborn claims he was shorted a piece of stone. Rembrandt can prove all pieces were made. New piece was made 2H, $350 and shipped to Running Creek. The piece arrived in 48 hours from time of learning 2H was missing. 2H arrived broken. The shipper charged $1072.50 and at the current time Rambrandt has not been reimbursed. 2H was made again $450, Rembrandt ran short of material we seamed it together and Howard Lemberg drove straight thru to Running Creek $2000.00 for shipping.

With Respondent’s $45,000.00 payment, the balance shown as due on Invoice No. 10481 was $26,971.50. 32. By July 2012, the casino was open. Respondent requested that Complainant fabricate countertops to replace the two countertops in the cash cage and player’s club at the casino project that had been cancelled due to the unavailability of the Green Field slabs. Respondent sent drawings that had been made onsite by the California subcontractor who was installing the countertops, the proprietor of Victor’s Granite & Tile (“Victor”). Complainant created CAD drawings based on Victor’s drawings and e-mailed them to Respondent for its approval. On July 12, 2012, Mr. Osborn responded to Complainant’s e- mail, “Good on this one.”[6] 33. Mr. Cleckner testified that Respondent provided only three sheets of Victor’s field drawings that did not include a drop-down counter to accommodate handicapped patrons and that the CAD drawings that Mr. Osborn approved did not include a drop-down countertop to accommodate handicapped patrons. 34. Mr. Osborn submitted a fourth drawing that showed a drop-down counter to accommodate handicapped patrons. Mr. Osborn testified that Respondent had provided this sheet to Complainant. 35. Complainant submitted Invoice No. 12147 dated July 12, 2012, in the amount of $6,500.00 for the additional countertops. 36. Mr. Osborn testified that the dimensions of some of the countertops did not match the dimensions of the millwork. Respondent submitted its check dated June 9, 2012, made payable to Victor, in the amount of $1,500.00. Mr. Osborn testified that the payment for Victor’s modification of the millwork to match Complainant’s countertops. 37. Mr. Cleckner testified that Complainant fabricated the countertops using a computer assisted program exactly to the dimensions of the CAD drawings that Mr. Osborn had approved. 38. Respondent submitted a copy of two Kitchell’s backcharges to Respondent on the casino job. The first one was in the amount of $2,435.00 for “supervision by Kitchell . . . from 7/6/12 – 7/7/12 during completion of countertop work at the Player’s Club and Cash Cage.”[7] The second backcharge was for various work in the total amount of $28,926.00, but none of the backcharges related to countertops.[8] Mr. Osborn testified that he was unable to complete Kitchell’s punch list for other work because he made the business decision to focus on the countertops due to Kitchell’s extreme dissatisfaction about the continuing problems with the countertops. Mr. Osborn testified that subcontractors cannot dispute Kitchell’s backcharges. 39. Respondent submitted an accounting that alleged that certain charges on Complainant’s invoices were excessive and purported to show backcharges for the $1,500.00 check to Victor, the truck rental, Mr. Osborn’s travel time, and Kitchell’s $2,435.00 backcharge to Respondent for supervision.[9] According to the accounting, Respondent did not owe Complainant anything for the job and, in fact, Complainant owed Respondent $29.50 of the $45,000.00 deposit. 40. Administrative notice is taken of Respondent’s prior record for License No. BE.128864-C as reflected on the Registrar’s public website on August 19, 2013. Such prior License record reflects that Respondent’s license is current, one complaint was closed as resolved/settled/withdrawn, and one complaint is open. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[10] Complainant bears the burden of proof to establish Respondent’s statutory violation by a preponderance of the evidence.[11] Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.[12] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[13] Complainant established that the all of the charges on Invoice Nos. 10481 and 12147 were within the parties’ verbal agreement and that Complainant fully performed the scope of work in the agreement, with the exception of the $5,691.50 charge for “Trade (Sales)” and the $3,500.00 charge for crating and shipping the three countertops that subsequently broke in transit. Although the mishaps that occurred during Complainant’s fabrication of countertops for the casino project were not solely Complainant’s fault, there is no evidence that Respondent ever agreed to bear the sole risk of mishaps that occurred during Complainant’s performance of its verbal subcontract with Respondent. Kitchell was concerned about the timeliness of its subcontractors’ construction of the casino project before Complainant ever started fabricating the countertops pursuant to its verbal contract with Respondent. Respondent did not establish that Complainant ever agreed that its verbal contract would include the terms of Kitchell’s contract with Respondent or that Complainant failed to fabricate the countertops according to the specifications that TGO provided and the CAD drawings that Mr. Osborn approved. Respondent did not establish that Complainant is responsible for any of Kitchell’s backcharges to Respondent. Therefore, Complainant established that Respondent failed to pay Complainant $24,280.00[14] for countertops that it fabricated for Respondent to use in its contracting business on the casino project, in violation of A.R.S. § 32-1154(A)(11).[15] RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the final Order in this matter, License No. BE.128864-C of Respondent J P Osborn Construction Managers Inc. shall be suspended until Respondent pays Complainant Rembrandt Countertops Inc. the sum of $24,280.00. 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 $24,280.00 to Complainant in certified funds, Respondent’s license shall not be suspended but, instead, Complainant’s Complaint in Case No. 2012-5124 shall be closed. 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, August 20, 2013.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] On or about July 11, 2013, Rembrandt Construction Inc. changed its name on record with the Registrar to Rembrandt Countertops Inc. The Administrative Law Judge has amended the caption to reflect Complainant’s current name of record.

[2] Respondent’s Exhibit M. [3] See Respondent’s Exhibit K. [4] Green Field charged Complainant a total of $17,100.00 for the slabs, including the restocking fee. See Complainant’s Exhibit 18. [5] Complainant’s Exhibit 6. [6] Complainant’s Exhibit 11. [7] Respondent’s Exhibit K. [8] See Respondent’s Exhibit l. [9] See Respondent’s Exhibit H. [10] See A.R.S. §§ 32-1151 to 32-1169. [11] 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). [12] See A.A.C. R2-19-119(B)(2). [13] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [14] ($26,971.50 – $5,691.50 - $3,500.00) + $6,500.00 = $24,280.00. [15] 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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