ALJDEC decisions subject to certification as final

2012A-5174-ROC · Registrar of Contractors · 2013-07-05

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: June 18, 2013, at 1:00 p.m. APPEARANCES: Complainant Biltmore Shutter Inc. appeared through Dana Draper, its President; Respondent Heritage Shutters Inc. appeared through Paul Anthony Craft, its President and qualifying party. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure 1. The Arizona Registrar of Contractors (“the Registrar”) issued License No. C-30.108387-R to Heritage Shutters Inc. (“Respondent”). 2. Biltmore Shutter Inc. (“Complainant”) manufactures shutters that it sells at wholesale prices to contractors like Respondent to install for its customers. 3. On or about October 19, 2012, Complainant filed a Complaint with the Registrar against Respondent alleging that it owed Complainant a total of $13,451.55 for shutter panels that Complainant had manufactured pursuant to Respondent’s purchase orders. 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, Paul Anthony Craft (“Mr. Craft”), on its behalf filed a timely written answer to the Citation and Complaint denying any statutory violation. Mr. Craft acknowledged that Respondent had ordered the shutters and that he had signed a personal guarantee for the cost of the shutters, but affirmatively alleged that Complainant’s inventory came from China and that the shutters that Complainant sold to Respondent were substandard. 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 June 18, 2013. Complainant submitted nine exhibits and presented the testimony of four witnesses: (1) Dana Draper, Complainant’s President (“Mr. Draper”); (2) Don Knutson, Complainant’s Vice President in charge of production; (3) Rhina Parada, Complainant’s Bookkeeper; and (4) Tammy Roysdon, Complainant’s Office Manager. Mr. Craft testified and submitted one exhibit on Respondent’s behalf. Hearing Evidence 8. Complainant submitted nine Net Cost Shutter Orders (“purchase orders”) to Respondent with confirmation dates that were between December 6, 2011, and January 12, 2012.[1] All of the purchase orders were signed by Respondent’s representative.[2] 9. Mr. Draper testified that before Mr. Craft filed the written answer to the Citation and Complaint, Respondent had never expressed any concerns about the quality of the shutters that Complainant manufactured to fill Respondent’s orders. Complainant submitted the e- mails that were sent in response to Complainant’s efforts to collect Respondent’s past due account.[3] In the e-mails, Respondent’s representative did not complain about the quality of the shutters but, instead, promised to pay Respondent’s debt to Complainant.[4] 10. Mr. Knutson testified that he had a good relationship with Mr. Craft and that the two of them had played golf together. Mr. Knutson testified that Mr. Craft frequently asked Complainant to provide shutters ahead of schedule and that Complainant always accommodated Mr. Craft’s requests. 11. Ms. Parada testified that beginning in 2011, Respondent started having financial difficulties and making slow payments. Ms. Parada testified that the unpaid invoices included materials such as louvers and divider rails that Respondent used to manufacture its own shutters, as well as unpainted shutters that Complainant had manufactured pursuant to Respondent’s purchase orders. 12. Ms. Roysdon testified that one of her job responsibilities was to send a confirmation to Complainant’s contractor clients on a weekly basis. Ms. Roysdon testified that she sent lists of finished orders to Respondent. Ms. Roysdon testified that before Complainant filed the Complaint with the Registrar, Respondent never complained about the quality of Complainant’s shutters. 13. Complainant submitted invoices and statements to establish that Respondent had not paid Complainant $13,451.55 for shutters and other materials that Respondent had ordered.[5] Mr. Draper testified that this amount did not include interest or late fees. 14. Mr. Craft testified that Respondent had a 16,000 square foot, four- man trim shop that framed, painted, and installed shutters. Mr. Craft testified that when Respondent was considering downsizing its operations, Dan Draper[6] toured his shop and informed Mr. Craft that Complainant could fabricate shutters for Respondent. Mr. Craft testified that most of his dealings with Complainant were through Dan Draper. 15. Mr. Craft testified that Respondent paid Complainant $541,000.00 during the parties’ business relationship. Mr. Craft testified that beginning in 2011, he noticed that the quality of the shutters that Complainant manufactured to fill Respondent’s orders was declining. Mr. Craft testified that the shutters had the wrong profiles, were finger-jointed, and contained used materials from China. Mr. Craft testified that he took some shutters back to Complainant for repair. Mr. Craft testified that Complainant should have reduced the price of the shutters with fingerjoints because they cost less to manufacture. 16. Mr. Craft testified that Respondent did make any complaints to Complainant because Respondent had a small shop that repaired Complainant’s mistakes. Mr. Craft testified that he decided to go with another supplier, but that a contractor cannot switch suppliers overnight. Mr. Craft testified that Respondent currently does business with Arizona Shutters and Blinds and that he is satisfied with the quality of its products. 17. Respondent submitted a statement signed by two of its employees, Ray Sharpnack and Daniel Cruz, as follows: In or around January 2011 we noticed that [Complainant] started substituting wrong profiles and used parts in our shutters. We had some louvers that were already painted with staple holes in them. We saw finger joint styles in the smooth paints and changing profiles on the styles [sic].[7]

18. Mr. Knutson testified that Complainant had twice repaired shutters that it had fabricated pursuant to Respondent’s orders. Mr. Knutson testified that on one of the jobs, Dan Draper agreed that the stiles should be replaced on four panels. Mr. Knutson testified that he never saw Mr. Craft at Complainant’s shop. 19. Mr. Knutson denied that all of the shutters that Complainant manufactured for Respondent had the defects alleged in Respondent’s written answer, although he acknowledged that Complainant may have left a staple in a shutter because Respondent had requested the shutters before Complainant had a chance to perform a thorough inspection. Mr. Knutson testified that Respondent had never complained about any defects in Complainant’s shutters until after it filed the Complaint with the Registrar. 20. Mr. Knutson stated that Complainant did not utilize used parts in manufacturing its shutters. Mr. Knutson testified that 95% of Respondent’s orders were for shutters with a textured finish and that finger joints and discolored louvers would only have been issues in shutters that had a smooth finish. 21. Mr. Knutson testified that Respondent had a small shop in an old building where Respondent fabricated some of its own shutters. Mr. Knutson testified that Complainant had repaired many of the shutters that Respondent manufactured in its small shop for a minimal charge. 22. Administrative notice is taken of Respondent’s prior License record as reflected on the Registrar’s public website on July 3, 2013. Such prior License record reflects that Respondent’s License was current and that one complaint was pending against the license. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[8] Complainant bears the burden of proof to establish Respondent’s statutory violation by a preponderance of the evidence.[9] Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.[10] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[11] Respondent acknowledged that it ordered $13,451.55 worth of shutters and other materials from Complainant, that Complainant manufactured and delivered the orders, and that Respondent has not paid Complainant for the orders. Respondent’s employees’ signed statement is hearsay.[12] Although hearsay may be admitted in an administrative hearing,[13] it should not be relied upon if it is not the kind of evidence that reasonable persons would rely upon in serious matters.[14] Respondent acknowledged that it did not complain about the quality of Complainant’s shutters until the Complaint was filed with the Registrar. Complainant established that it repaired the handful of shutters that needed repair. In light of this evidence, Respondent’s employees’ hearsay statement is not the kind of evidence upon which reasonable persons would rely to bolster Mr. Craft’s testimony and offset a debt that Respondent acknowledged was otherwise due for shutters and materials that it ordered from Complainant. Therefore, Respondent did not establish that the poor quality of Complainant’s shutters justifies Respondent’s failure to pay all or any portion of its outstanding debt to Complainant. Therefore, Complainant established that Respondent violated A.R.S. § 32- 1154(A)(11) by failing to pay Complainant $13,451.55 for shutters and other materials that Complainant furnished to Respondent to use in its contracting business.[15] RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the final Order in this matter, License No. C-30.108387-R of Respondent Heritage Shutters Inc. shall be suspended until Respondent pays Complainant Biltmore Shutter Inc. the sum of $13,451.55. 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 $13,451.55 to Complainant in certified funds, Respondent’s license shall not be suspended but, instead, Complainant’s Complaint in Case No. 2012-5174 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, July 5, 2013.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] See Complainant’s Exhibit 1. [2] The purchase orders appear to have been signed by one Tim Craft. The record does not reflect Tim Craft’s role in Respondent’s contracting operations. [3] See Complainant’s Exhibits 4 and 5. [4] Tim Craft sent the e-mails in response to Complainant’s e-mails to Respondent enquiring about its overdue account. [5] See Complainant’s Exhibits 2 and 3. [6] Apparently, Dan Draper was employed by Complainant. Dan Draper did not attend the hearing. [7] Respondent’s Exhibit A. [8] See A.R.S. §§ 32-1151 to 32-1169. [9] 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). [10] See A.A.C. R2-19-119(B)(2). [11] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [12] See Ariz. R. Evid. 801(c) (“‘Hearsay’ is a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted.”). [13] See A.R.S. § 41-1092.07(F)(1). [14] See Plowman v. Arizona State Liquor Board, 152 Ariz. 331, 337, 732 P.2d 222, 228 (App. 1986) (citing Begay v. Arizona Department of Economic Security, 128 Ariz. 407, 626 P.2d 137 (App. 1981)). [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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