ALJDEC decisions subject to certification as final

2013A-2042-ROC-RF · Registrar of Contractors · 2015-12-01

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: November 13, 2015 APPEARANCES: Neither Leslie R. nor Paula M. Rudnick appeared. Highland Residential Builders LLC dba Armor Foam Insulation (“Respondent”) appeared through its authorized representative, member and qualifying party, Robert Podczerwinski. The Arizona Registrar of Contractors was represented by Assistant Attorney General Thomas Raine. ADMINISTRATIVE LAW JUDGE: Suzanne Marwil _____________________________________________________________________ FINDINGS OF FACT Background and Procedure 1. The Arizona Registrar of Contractors (“the Registrar”) issued License No. 267891 to Highland Residential Builders LLC dba Armor Foam Insulation (“Respondent”). 2. On April 22, 2013, the Registrar received a Complaint against Respondent from Leslie R. and Paula M. Rudnick (“Complainants”) regarding construction of their new home located at 8029 East Granite Pass Road, Scottsdale, AZ 85266 (“the workmanship complaint”). Among other things, the workmanship complaint cited the lack of insulation of interior walls, a failure to connect the reverse osmosis system, and improper installation of the kitchen desk area. Attached to the complaint was a Final Receipt of Payment and Release signed by Respondent on January 22, 2013. Paragraph six of that agreement provided as follows: Agree and acknowledge that, notwithstanding anything to the contrary, Owner's final payment shall not be construed as or constitute a release of any potential claim of Owner with respect or a waiver of any rights, liabilities or obligations surviving the construction agreement; nor shall Owner's final payment be construed as or constitute Owner's acceptance of or approval of defective or non- complying work or non-performance of the Contract.

See Exhibit 1. 3. As a result of the complaint, the Registrar issued a Citation against Respondent charging possible violations of A.R.S. § 32-1154(A)(3), namely A.A.C. R4-9-108,[1] A.R.S. § 32-1154(A)(13) and A.R.S. § 32- 1154(A)(23).[2] 4. Respondent filed a timely answer to the Citation. Prior to an administrative hearing on the matter, Respondent entered into a Consent Order dated May 9, 2014, in which it agreed that it had violated A.R.S. § 32-1154(A)(3), namely A.A.C. R4-9-108, and A.R.S. § 32-1154(A)(13). See Exhibit 4. Pursuant to the Consent Order, the Registrar suspended Respondent’s license for one day. 5. On or about August 19, 2014, Complainants filed a claim with the Residential Contractors’ Recovery Fund (“the Fund”) to recover the cost of insulating the interior walls, connecting the reverse osmosis and properly installing the kitchen desk. The claim form indicated that the lowest bid that Complainants had received to correct these items was a $11,294.00 and that Complainants had received $5,000.00 from Respondent’s bond company. See Exhibit 5. 6. The Registrar issued a Notice of Claim for Administrative Payout, finding that Complainants’ actual damages, after deducting the $5,000.00 bond payout, were $7,805.00. Respondent requested a hearing, believing the payout was too high. The Registrar referred the matter to the Office of Administrative Hearings (“OAH”) for an evidentiary hearing. 7. Hearing was held on November 13, 2015, at 10:00 am. Hearing Evidence 8. The Corrective Work Order specified that: Contractor to correct by appropriate means: 1) The kitchen desk window is excessively out of square. 2) Ensure that all lines to all appliances are per the manufacturing specification. It is in this inspector’s opinion from the documents presented at the jobsite inspection, the gas lines connected to the Rinnai units are not the proper size. 3) Per my conversation with both parties and the cutting of a hole in a closet wall at the jobsite inspection, it is my belief that there are several interior walls throughout the house that are not insulated per the contract. After reviewing the documents regarding a settlement of this issue, I am not convinced that the settlement was for all the walls and that it was just for the living room wall. Contractor is to correct this issue. 4) In this inspector's opinion, and by any evidence presented to me at the jobsite inspection, the unused B-vent in the mechanical room in the garage is within industry standards. No action is required by the contractor. 5) Contractor to ensure that the R/O line is properly connected to the refrigerator and is in proper working order, unless there is a malfunction caused by a defect in the refrigerator. 6) The contractor is NOT required by this agency to provide a list of subcontractors to the complainant. 7) The electrical service issue was resolved prior to the jobsite inspection per the complainant. No action is required by the contractor. 8) Both windows in the master and hall baths appear to have varnish applied to them. This inspector cannot determine if it is either sufficient or applied properly. No action is required by the contractor. 9) The weather stripping of the garage service door is not properly installed. This inspector explained to both parties the 1 year obligation of the contractor for this issue. I will leave it up to the complainant whether or not they want this correction completed now or at a later date. 10) The cable/phone boxes are not installed on the outside of the house. It is in my 21 plus years of residential construction that those companies install their own boxes regardless of the size or amount of wires or where they terminate when the companies provide their service, otherwise the wires are neatly coiled and mounted to the home. HOWEVER it appears that per the walkthrough documents, I believe that the contractor's intention was to install the boxes. This contractor is to install both boxes by appropriate means. 11) Contractor to correct the excessively inconsistent door margin especially at the top of the bedroom outside door. 12) Contractor to ensure that the outside mechanical room door locks properly. 13) There are nail pops on the master bedroom east wall near the ceiling. This inspector explained to both parties the 1 year obligation of the contractor for this issue. I will leave it up to the complainant whether or not they want this correction completed now or at a later date.

9. James Barbour testified that he is a claims adjuster for the Fund. He indicated that he reviewed the Corrective Work Order that had been issued regarding the issues in constructing Complainants’ home, the Consent Order, e-mails between the parties regarding settlement of issues prior to Respondent’s Final Receipt of Payment and Release, and bids submitted by Complainants in calculating Complainants’ actual damages. Of the three bids provided, Barbour indicated that he could not use one because Milo’s Contacting was not a licensed contractor. He also disregarded the third bid because its amount, which exceeded $30,000.00, was deemed excessive. The second bid from Advanced Energy Systems, only addressed items referenced in the corrective work order and totaled $12,805.00. Barbour indicated that because that bid was within scope of the corrective work order, he utilized it in determining the amount of the Complainants’ actual damages. Barbour acknowledged that because the bid did not break out dollar amount for particular items, had the bid contained items not addressed in the corrective work order it would have had to be disregarded. 10. Barbour testified that, in his view, a spreadsheet detailing credits the Complainants were given before final payment did not address installation of some of the interior walls. Barbour noted that the spreadsheet and only references one wall and gives a credit of $800.00. That spreadsheet provides an $800 credit for “Cost to insulate the wall between the living room and Paulas [sic] office. Contract says all interior walls to be insulated with lcenene foam. Cost includes repair to drywall and repair of the paint of the wall in office”. See Exhibit 8 (emphasis added). He found it appropriate to reimburse the Complainants the amount they have to pay to insulate the interior walls, repair the kitchen desk area and connect the reverse osmosis system. 11. The Registrar took the position that because Respondent had entered into a Consent Order regarding the workmanship complaint, it conceded that the deficiencies found in the corrective work order existed and could not now challenge whether any of the items listed in the corrective work order were reimbursable as actual damages. 12. Robert Podczerwinski argued that he built Complainants’ a beautiful house at considerable expense to himself, going over allowances provided for in the contract. See Exhibit 7. He maintained that while the contract provided an allowance of only $10,400.00 to insulate the interior walls of the house, he had gone well over budget and expended $12,400.00 on this endeavor. He noted that had attempted to have Complainants sign a written change order to this effect, but that they had refused. Podczerwinski acknowledged four interior walls had not been insulated per the contract because he had gone over the allowance for insulation. He said that these four walls were not very many square feet and opined that they could be done much cheaper than the bid being used by Barbour. He also challenged the scope of repairs in the kitchen desk area as excessive. He said that he knew contractors who would do the work much more cheaply, but acknowledged that he had not brought quotes from any contractors who were ready and willing to do the work in question. He expressed extreme frustration about how his prior counsel representing him in negotiations with Complainants had allowed him to sign the Final Receipt of Payment and Release, which permitted Complainants to pursue the workmanship complaint. 13. Noreen North that she is the former wife of Podczerwinski and remains a member of Respondent. She noted that Respondent refused to connect the RO system because they were told that doing so might void the warranty on the refrigerator Complainants had insisted upon buying. She said that Respondent agreed to connect the RO system if Complainants’ would sign a waiver, but they never did. She maintained that this was an example of how unreasonable Complainants were being throughout the entire process of building the house and beyond.

CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction. A.R.S. § 32-1132(A) provides that “[a]n 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. . . .” Respondent bears the burden of proof to establish that the proposed payout from the Fund is incorrect by a preponderance of the evidence.[3] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[4] A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”[5] After review of all the evidence, the Tribunal concludes that the award provided by the Fund is an accurate reflection of Complainants’ actual damages. The award appears to properly remedy the workmanship violations for which Respondent was responsible. In the absence of contemporaneous documentary evidence that the bid utilized was excessive, the Tribunal finds that the bid was, in fact, appropriate. Regarding the issue of the installation of interior walls, the evidence was uncontroverted that the Respondent failed to insulate more than one wall in the interior of Complainants’ home. The evidence was likewise undisputed that the settlement spreadsheet addressed only one wall in some detail. The Tribunal concludes that the $800.00 credit taken before the issuance of final payment to Respondent was not intended to cover all of the interior walls. That Respondent may now feel the contract that it voluntarily entered into with Complainants was unfair or that the deal he struck to receive a final payment from Complainants was inequitable does not negate the actual damages caused by the workmanship violations that were the subject of the Consent Order he voluntarily signed. Complainants are accordingly entitled to a payout from the recovery fund in the amount of $7,805.00. RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the Registrar’s final order, Complainants receive a payout from the Residential Contractors’ Recovery Fund in the amount of $7,805.00. 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, December 1, 2015.

/s/ Suzanne Marwil Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director Registrar of Contractors ----------------------- [1] 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.” 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.” [2] A.R.S. § 32-1154(A) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, (13) “[f]ailure in any material respect to comply with this chapter” and (23) “[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.” [3] See 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). [4] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [5] Black’s Law Dictionary 1220 (8th ed. 1999).

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