ALJDEC decisions subject to certification as final

2012A-6027-ROC-rf · Registrar of Contractors · 2016-07-15

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: July 1, 2016, at 10:00 a.m. APPEARANCES: Rhonda Bannard (“Complainant”) appeared on her own behalf; Full Scale LLC (“Respondent”) appeared through Robert K. Burson, its qualifying party/member (“Mr. Burson”); the Arizona Registrar of Contractors (“the Registrar”) was represented by Thomas Raine, Esq., Assistant Attorney General. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background 1. On December 5, 2007, the Registrar issued License No. KB- 1.240021-D to Respondent. According to the Registrar’s public website, on November 11, 2014, that license was revoked. 2. On April 4, 2016, the Registrar issued a Notice of Claim for Administrative Payout, which informed the parties that Complainant had filed a claim for payment with the Residential Contractors’ Recovery Fund (“the Fund”) pursuant to A.R.S. § 32-1154(G). The Notice stated that “[a]fter review of the claim and all supporting documentation, the Fund has determined that Complainant is to be awarded $3,410.00 in the form of a payment issued by the Fund.”[1] 3. Complainant requested a hearing on the amount of the proposed payout.[2] Respondent did not file an appeal or request for hearing on the proposed payout. 4. The Registrar referred the matter to the Office of Administrative Hearings (“OAH”), an independent state agency, for an evidentiary hearing. 5. A hearing was held on July 1, 2016. Complainant testified, presented the testimony of Stephen Parsons, a landscape architect who had been involved in the project as her friend, and submitted six exhibits. Respondent presented the testimony of Mr. Burson, its qualifying party/member, and submitted one exhibit. The Registrar presented the testimony of Doug Ulmer, its Recovery Fund Reviewer, and submitted six exhibits. The Underlying Workmanship Complaint 6. On or about December 14, 2012, Complainant filed a complaint with the Registrar alleging 18 or 19 specific workmanship deficiencies in Respondent’s remodeling of several areas of Complainant’s house at 1924 E. Lamar Rd., Phoenix, Arizona 85016.[3] The Registrar designated the Complaint as Case No. 2012-6027. 7. The Registrar’s assigned Investigator performed a jobsite inspection. On January 24, 2013, the Registrar issued a Corrective Work Order in Case No. 2012-6027, directing Respondent to correct by appropriate means ten of the specified workmanship deficiencies.[4] 8. On May 13, 2014, the Registrar issued a Citation and Complaint against Respondent, charging cause to discipline its license under A.R.S. § 32-1154(A)(3),[5] namely A.A.C. R4- 9-108,[6] and 32-1154(A)(23).[7] The Registrar also charged Respondent with violating A.R.S. § 32-1154(A)(13),[8] namely A.R.S. § 32-1158. A.R.S. § 32-1154 requires contractors to reduce to writing any contracts with property owners over $1,000.00 and to include certain terms, including the following: 5. A description of the work to be performed under the contract.

6. The total dollar amount to be paid to the contractor by the owner for all work to be performed under the contract, including all applicable taxes.

7. The dollar amount of any advance deposit paid or scheduled to be paid to the contractor by the owner.

8. The dollar amount of any progress payment and the stage of construction at which the contractor will be entitled to collect progress payments during the course of construction under the contract.

The Citation and Complaint did not show a case number.[9] The Registrar apparently renumbered Case No. 2012-6027 as Case No. 2014-1332. 9. On August 14, 2014, a hearing was held in OAH in Case No. 2014A-1332-ROC, at which Respondent appeared and, according to the Administrative Law Judge Decision, admitted to having violated the charged statutes. The Administrative Law Judge recommended that Respondent’s license be revoked, but did not address any workmanship or payment issues.[10] On or about September 30, 2014, the Director of OAH certified the Administrative Law Judge Decision in Case No. 2014A-1332-ROC as final.[11] Complainant’s Claim to the Fund and the Registrar’s Analysis of the Claim 10. On March 30, 2016, Complainant filed a claim to the Fund with the Registrar. 11. Complainant submitted to the Fund a copy of her February 15, 2012 contract with Respondent, in which it contracted to perform certain work for the sum of $67,584.00.[12] Complainant did not submit any change orders or agreementsthat increased the contract price. 12. Complainant also submitted cancelled checks to substantiate her claim that she had paid $91,938.52 to Respondent on the contract price of $67,584.00.[13] The checks appear to have been dated between February 3, 2012, and September 9, 2012. No explanation appears in the record to explain why Complainant paid Respondent $24,354.52 than the contract amount. 13. Complainant also submitted three bids from appropriately licensed contractors to repair the door and perform drywall repairs at Complainant’s house: (1) A bid from RGV Renovations (“RGV”), License No. KB-2.272298-D, in the total amount of $3,410.00; (2) A bid from Kubik Custom Construction, License No. B. 273946-R in the total amount of $5,576.67; and (3) A bid from Kirk Development Company (“Kirk Development”), License No. B. 273946-R, in the total amount of $9,814.00.[14] 14. Claims Reviewer Mr. Ulmer testified that he determined that Complainant did not owe any money to Respondent under the contract. Mr. Ulmer testified that he had access to Respondent’s written answer in Case No. 2014A-1332-ROC, but that he did not specifically remember reviewing the invoices or other documents that Respondent attached to the written answer. Mr. Ulmer testified that he did not consider two checks that Complainant wrote before the date of the February 15, 2012 contract, which reduced the amount of her payments to $86,938.52. Complainant’s Evidence in Support of a Greater Payout 15. Complainant pointed out that all of the bids that she submitted had expired and that due to industry-wide cost increases, it was no longer possible to have Respondent’s deficient workmanship repaired for the amount of RGV’s bid. 16. Complainant submitted a statement of qualifications and an email from her expert, Bill Green, of Associated Cost Economists, LLC.[15] Mr. Green’s email stated that due to the time that passed since the bids were submitted, costs had increased. In addition, the description of the work was not identical on the three bids, which suggested that the higher bids included work that was not included in the low bid. Mr. Green suggested that 10-15% be added to the amount of the low bid to cover contingency/risk margin.[16] 17. Complainant submitted a VAMC Cost Guide that showed a 5% escalation rate for construction costs in 2016.[17] 18. Complainant submitted a June 27, 2016 email from Tom Sertich of Kirk Development that stated that materials costs have increased and that so far this year, many suppliers had raised prices. Kirk Development’s prices therefore were only good for 10 days.[18] 19. Complainant submitted an email from Valorie Brown-Miller of Jim Brown & Sons Roofing, stating that due to labor shortages labor costs had increased 10-15% in the last year and the cost of materials was up about 10%. Ms. Brown-Miller stated that her bids were only good for 30 days.[19] 20. Mr. Parsons explained that his involvement was the job was to recommend Respondent to Complainant. Mr. Parsons testified that as a registered landscape architect, he routinely obtains bid packages for the jobs he designs. Mr. Parsons testified that he does not usually accept the low bid because it may be an outlier that omits an important component of the job. Respondent’s Evidence of Unpaid Amounts Still Owed by Complainant 21. Respondent filed a written answer in Case No. 2014-1332. The written answer alleged that it had three contracts with Complainant in Case No. 2012-6027 were for payment on first two contracts, which were not at issue. Respondent alleged, supported by an attached spreadsheet, invoices, and emails, that although Complainant had paid Respondent $90,216.06, she still owed Respondent $4,027.94.[20] Mr. Burson testified consistently with Respondent’s written answer in Case No. 2014-1332. 22. Although the Respondent’s written answer was included in the Registrar’s electronic file for OAH Case No. 2014A-1332- ROC,[21] it was not included in the Registrar’s exhibit 1 in this matter. 23. The parties’ February 15, 2012 contract that Respondent attached to the written answer in the file in Case No. 2014A- 1332 included the contract amount of $67,854.00 and referred to plans and specifications, but Respondent did not provide the plans or specifications to the Registrar. The contract does not include a description of the scope of work. Although the invoices that Respondent attached to its written answer provide some description of the work performed and refer to change orders,[22] Respondent did not attach any signed change orders to the written answer. Respondent did attach to the written answer emails from Complainant and Mr. Parsons, acknowledging that they had requested changes to the contract that affected its amount.[23] Respondent also attached a spreadsheet that showed that Complainant had paid $86,188.52 on the invoices[24] and an account statement that the amount of the contract with change orders was $90,216.06, resulting in an outstanding balance of $4,027.94 on the invoice.[25] CONCLUSIONS OF LAW 1. This matter lies within the Registrar’s jurisdiction to resolve.[26] 2. Complainant bears the burden of proof to establish that she is entitled to recover from the Residential Contractors’ Recovery Fund a greater amount than the proposed payout by a preponderance of the evidence.[27] Because by filing the appeal, Complainant brought the amount of the appeal into issue, the Registrar may also consider Respondent’s evidence applying the same evidentiary standard to determine whether Complainant is entitled to a payout in a lesser amount.[28] 3. “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[29] A preponderance of the evidence is “evidence which is of greater weight or more convincing than evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not.”[30] 4. An award from the Fund is limited to the amount necessary to repair deficient workmanship, as established by bid provided by other appropriately licensed contractors: An award from the fund is limited to the actual damages suffered by the claimant as a direct result of the contractor’s violation but shall not exceed an amount necessary to complete or repair a residential structure or appurtenance within residential property lines. Actual damages shall not be established by bids supplied by or the value of work performed by a person or entity that is not licensed pursuant to this chapter and that is required to be licensed pursuant to this chapter. . . .

A.R.S. § 32-1132(A) (emphasis added). The legislature has imposed a fiduciary duty on the Registrar to preserve the Fund’s assets and to ensure that payouts are made only as authorized by statute.[31] As part of this duty, the Registrar has been empowered to enforce statutory limitations on recovery and, where appropriate, “to oppose claims filed by injured persons which may result in collection from the recovery fund.”[32] 5. “A cardinal rule of statutory interpretation is to give full effect to each statutory word or phrase so that no part is rendered void, superfluous, contradictory or insignificant.”[33] Plaintiff’s argument that she is entitled to more than the amount of the low bid based on a presumed omission from the bid or intervening increases in material and labor costs would eviscerate the requirement in A.R.S. § 32-1132(A) that the cost of repair shall be established by bids provided by licensed contractors. If the legislature had intended the Registrar to consider any kind of inflation, it could have so specified. The requirement that the cost of repair be established by bids, without any additions, is consistent with the statutory prohibitions on certain payouts from the Fund including prejudgment interest, attorneys’ fees, and consequential damages, all of which might be available in a common-law breach of contract action filed in a court of competent jurisdiction.[34] 6. In addition, Respondent’s evidence established that Complainant has not paid the full contract amount, considering additions and change orders. Due to Respondent’s failure to comply with the requirements of A.R.S. § 32-1158, however, the Administrative Law Judge is unable to determine based on Respondent’s written answer and the attachments thereto in Case No. 2014A-1332-ROC whether Complainant still owes Respondent $4,027.94 or a lesser amount. Although the Registrar may revisit the information provided in the written answer to recalculate the amount of Complainant’s payout from the Fund, at this time, the Administrative Law Judge is unable to fully liquidate the amount that Complainant still owes to Respondent. RECOMMENDED ORDER Based on the foregoing, it is ordered that the proposed payout in the amount of $3,410.00 to Complainant Rhonda Bannard shall be affirmed in Case No. 2012-6027. It is further ordered that $3,410.00 be charged to Respondent Full Scale LLC’s License No. KB-1.240021-D under A.R.S. § 32-1139(B).[35] 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 five days from the date of that certification. Done this day, July 15, 2016.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director Registrar of Contractors ----------------------- [1] The Registrar’s Exhibit 5. [2] See the Registrar’s Exhibit 6. [3] See the Registrar’s Exhibit 1 at 1-4. [4] See id. at 6-8. [5] A.R.S. § 32-1154(A)(3) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[v]iolation of any rule adopted by the registrar.” [6] A.A.C. R4-9-108 requires that “[a]ll work shall be performed in a professional and workmanlike manner” and that “[a]ll work shall be performed in accordance with any applicable building codes and professional industry standards.” [7] A.R.S. § 32-1154(A)(23) included among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[f]ailure to take appropriate corrective action to comply with this chapter or with rules adopted pursuant to this chapter without valid justification within a reasonable period of time after receiving a written directive from the registrar.” A.R.S. § 32-1154(A)(23) has been renumbered as A.R.S. § 32-1154(A)(22). [8] A.R.S. § 32-1154(A)(13) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[f]ailure in any material respect to comply with this chapter.” A.R.S. § 32-1154(A)(13) has been renumbered as A.R.S. § 32-1154(A)(12). [9] See the Registrar’s Exhibit 1 at 9-13. [10] See the Registrar’s Exhibit 1 at 14-16. [11] See id. at 17-18. [12] See the Registrar’s Exhibit 3 at 24-27. [13] See the Registrar’s Exhibit 3 at 1, 28-36. [14] See the Registrar’s Exhibit 4 at 37-39. [15] See Complainant’s Exhibit C-1. [16] See Complainant’s Exhibit C-2. [17] See Complainant’s Exhibit C-3. [18] See Complainant’s Exhibit C-4, C-5. [19] See Complainant’s Exhibit C-6. [20] See Respondent’s Exhibit F-1. [21] See OAH docket in Case No. 2014A-1332-ROC, Agency Record at Lg Citation1.pdf. [22] See id. at 10-16, 25-40. [23] See id. 41, 42, 45, 48, and 49. [24] See id. at 24. [25] See Exhibit C to the written answer, which is also Respondent’s Exhibit F-1 in this matter at 8. [26] See A.R.S. §§ 32-1131 to 32-1134. [27] See A.A.C. R2-19-119(B)(1) and R2-19-119(A); see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [28] See A.A.C. R2-19-119(B)(2). [29] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [30] Black’s Law Dictionary at page 1182 (6th ed. 1990). [31] See A.R.S. §§ 32-1134 and 32-1134.01. [32] A.R.S. § 32-1134(A)(5). [33] Westburne Supply, Inc. v. Diversified Design and Construction, Inc., 170 Ariz. 598, 600, 826 P.2d 1224, 1226 (App. 1992). [34] See A.R.S. §§ 12-341, -341.01(A), -347; E-Z Livin’ Mobile Homes, 27 Ariz. App. at 15, 550 P.2d 658. [35] A.R.S. § 32-1139(B) provides as follows: If any amount is paid from the fund in settlement of a claim arising from the act, representation, transaction or conduct of a residential contractor, the license of the contractor shall be automatically suspended by operation of law until the amount paid from the fund is repaid in full, plus interest at the rate of ten per cent a year. Any person who is or was, at the time of the act or omission, named on a license that has been suspended because of a payment from the recovery fund is not eligible to receive a new license or retain another existing license that also shall be suspended by operation of law, nor shall any suspended license be reactivated, until the amount paid from the fund is repaid as provided in this subsection.

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