ALJDEC decisions subject to certification as final

2013A-3455-ROC · Registrar of Contractors · 2013-09-16

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: September 5, 2013, at 1:00 p.m. APPEARANCES: Mohave Integrated Systems Corporation appeared through Gerald A. Whorf, its President; the Arizona Registrar of Contractors was represented by Michael D. Raine, Esq., Assistant Attorney General. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure 1. On June 13, 2013, Gerald A. Whorf (“Mr. Whorf”) on behalf of Mohave Integrated Systems Corporation filed with the Arizona Registrar of Contractors (“the Registrar”) two Applications for Exemption from Qualifying Party Requirements for its License Nos. C-12.257226-R and L-67.257227-C.[1] 2. On June 24, 2013, the Registrar’s Chief of Licensing, Lawrence R. Mathews, sent a letter to Mohave Integrated Systems Corporation informing it that its license applications for exemption from qualifying party requirements were denied under A.R.S. § 32- 1125(C)(1) because its License Nos. C-12.257226-R and L-67.257227-C were issued on June 28, 2009, less than five years before it filed the applications. 3. Mr. Whorf on Mohave Integrated Systems Corporation’s behalf requested a hearing on the Registrar’s denial. 4. The Registrar referred the matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. 5. An evidentiary hearing was held on September 5, 2013. Mr. Whorf testified and submitted two exhibits. The Registrar presented Mr. Mathews’ testimony and submitted twelve exhibits. Hearing Evidence Mr. Whorf’s Association with Mohave Integrated Systems Corporation and Related Business Entities 6. Mr. Whorf testified that he had acquired his first license in 1981, when he was 24 years old, for electrical contracting. Mr. Whorf testified that he started the company Mohave Integrated Systems in 1988,[2] and after operating the company for four years, sold it to his two brothers, David Whorf (“David Whorf”) and Donald Whorf (“Donald Whorf”). Mr. Whorf testified that his brothers subsequently had a falling out. 7. The Registrar submitted a Cancellation Request for Mohave Integrated Systems Inc.’s License Nos. C-12.121867-R and L- 67.121868-C signed by Donald Whorf as co-owner and dated April 4, 2006.[3] On April 10, 2006, the Registrar sent a letter to Mohave Integrated Systems Inc. granting the voluntary cancellation effective April 4, 2006.[4] 8. The Registrar submitted a letter from Donald Whorf dated June 15, 2006, regarding License Nos. C-12.121867-R and L-67.121868-C, stating that the licenses should have been temporarily suspended and not cancelled because David Whorf had sold the business to Donald Whorf.[5] The Registrar also submitted a Notice of Disassociation and a Cancellation Request for Mohave Integrated Systems Inc.’s License Nos. C-12.121867-R and L-67.121868-C, both dated June 28, 2006, and signed by David Whorf.[6] 9. Mr. Whorf testified that after his brothers had a falling out, he purchased the company and, as part of the purchase agreement, Donald agreed to stay on as the qualifying party. 10. Administrative notice is taken of the Registrar’s public website. According to the website, on July 6, 2006, and June 29, 2006, respectively, the Registrar issued License Nos. C-12.221450-R and L- 67.221451-C for residential and commercial low voltage communication systems to Mohave Integrated LLC. Donald Whorf was the qualifying party and only person listed on both licenses. 11. Mr. Whorf testified that he owned Mohave Integrated LLC. Mr. Whorf submitted a copy of a letter from the federal Internal Revenue Service addressed to him as the sole member of Mohave Integrated Systems LLC dated April 23, 2013, that stated that an Employer Identification Number was assigned to him in January 2008.[7] Mr. Whorf also submitted a letter from the State of Arizona Department of Revenue dated April 13, 2013, addressed to Mohave Integrated Systems LLC regarding its Transaction Privilege Tax license number that stated that “the business was opened on 1/16/2008.”[8] 12. On or about June 26, 2009, the Registrar received Mohave Integrated Systems Corporation’s applications for a C-12 and an L- contractor’s license. Donald Whorf was listed as the qualifying party and Mr. Whorf as listed as the only officer and the owner of 100% of the corporation.[9] 13. As noted in the Registrar’s letter denying Mohave Integrated Systems Corporation’s application for exemption from qualifying party requirements, the Registrar issued License Nos. C-12.257226-R and L-67.257227-C to Mohave Integrated Systems Corporation on July 28, 2009. 14. According to the Registrar’s public website, on July 28, 2009, Mohave Integrated LLC’s License Nos. C-12.221450-R and L-67.221451- C were voluntarily cancelled. 15. Mr. Whorf testified that the only reason the application was submitted on behalf of Mohave Integrated Systems Corporation was because his accountant had advised him to change his company from a limited liability company to an S-corporation. Mr. Whorf testified that that, otherwise, Mohave Integrated Systems Corporation had the same owner, qualifying party, and employees, and performed the same work as Mohave Integrated LLC. 16. Mr. Whorf sent a letter to the Registrar with the application for exemption from qualifying party requirements that explained as follows: Sadly, my brother [Donald Whorf] passed in 2011. In late 2012 as we were working out the details of a new qualifying partner I learned of the Exemption from Qualifying Party Requirements. Realizing that I was only a month or two away from the 5 year requirement I held on. . . . Although I meet all the requirements, it appears that because I changed from an LLC to a CORP. it disqualifies me from the exemption.

I understand that there “have been” some exemptions given in cases like these. Also, I do qualify for the Exemption for Qualifying Partner except for the fact that I changed from an LLC to a Corp. on the [advice] of my accountant at the time. Same company, same owner, same scope of work performed.[10]

17. According to the Registrar’s public website, Mohave Integrated Systems Corporation’s License Nos. C-12.257226-R and L-67.257227-C were both suspended for lack of a qualifying party on October 26, 2011. 18. Mr. Whorf testified that he still holds a C-5 contractor’s license for Central Vacuum Systems and Closet Systems.[11] Mr. Whorf testified that he has 32 years of experience in Arizona, including his experience as an electrical contractor. He has never had a complaint made against any of the licenses held by companies that he controlled. Mr. Whorf testified that he contacted the company that administers the examination for qualifying party and obtained a description of the areas covered on the examination. Mr. Whorf testified that the only work that Mohave Integrated Systems Corporation performs is residential and commercial wiring and that 90% of the test covers industrial applications and other work that Mohave Integrated Systems Corporation does not perform. Mr. Whorf testified that the time and expense of taking the qualifying party examination is not justified in light of his company’s long complaint-free license history in various corporate forms. Mr. Mathews’ Testimony 19. Mr. Mathews testified that the qualifying party for a license must demonstrate his qualifications through his number of years of work experience, education, and testing of trade knowledge and business management. Mr. Mathews testified that the Registrar’s requirement of a qualifying party is to protect the public from contractors who are incompetent or dishonest. Mr. Mathews testified that A.R.S. § 32-1125(C) requires that for a contractor to obtain an exemption from the requirement of a qualifying party, it must demonstrate through its previous work and license history that the public will be protected. 20. Mr. Mathews testified that A.R.S. § 32-1125(C)(1) gave the Registrar no discretion but to deny the application for exemption from qualifying party requirements of a contractor that, like Mohave Integrated Systems Corporation, had been licensed for less than five years. 21. Mr. Mathews testified that the applications for contractor’s license that Mohave Integrated Systems Corporation filed with the Registrar on June 26, 2009, were for new licenses, not to change the name on an existing license, and that the Registrar uses a different form to change a licensee’s name. Mr. Mathews testified that the licensee is the business entity and that because a limited liability company is a different entity than a corporation, even if the owners are the same, a business entity must apply for a new license if it changes its form. CONCLUSIONS OF LAW 1. This matter lies within the Registrar’s jurisdiction.[12] 2. Mohave Integrated Systems Corporation bears the burden of proof to establish that it meets statutory qualifications for exemption from the qualifying party requirement by a preponderance of the evidence.[13] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[14] 3. The role of qualifying party is central to the Registrar’s regulation of licensed contractors in the State of Arizona.[15] A.R.S. § 32- 1125(C) provides as follows: A licensee may make written application to the registrar for exemption from a qualifying party. The applicant shall show to the satisfaction of the registrar that during the past five years:

1. The license has been in effect.

2. A transfer of ownership of fifty per cent or more of the stock, if applicable, or beneficial interest, in the licensee has not occurred.

3. No more than five valid complaints which have not been resolved by the licensee, as determined by the registrar, have been filed against the licensee.

4. “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.”[16] Although Mr. Whorf credibly testified that he owns and was intimately involved in the business activities of both Mohave Integrated Systems Corporation and its limited liability company predecessor, Mohave Integrated LLC, A.R.S. § 32-1125(C)(1) unequivocally requires that a licensee, which in this case was Mohave Integrated Systems Corporation, must have held an effective license, which in this case was License Nos. C-12.257226- R and L-67.257227-C, at least five years before it is eligible to receive an exemption from the qualifying party requirement. 5. Even if Mr. Whorf had been a person listed on Mohave Integrated LLC’s License Nos. C-12.221450-R and L-67.221451-C as required by A.R.S. § 32-1122(B)(1),[17] those licenses were issued to a corporate entity that is a different legal entity than Mohave Integrated Systems Corporation. Because the License Nos. C-12.257226-R and L-67.257227-C were issued less than five years before Mr. Whorf filed the application for exemption from qualifying party requirements on behalf of Mohave Integrated Systems Corporation, the Registrar properly denied the application. RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the Registrar’s order, the Registrar affirm the decision to deny Mohave Integrated Systems Corporation’s application for exemption from qualifying party requirements for License Nos. C-12.257226-R and L-67.257227-C. 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, September 16, 2013.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] See the Registrar’s Exhibit 3. [2] The Registrar’s public website and the record in this matter do not reflect the corporate form of the original Mohave Integrated Systems contracting business. [3] See the Registrar’s Exhibit 6. [4] See the Registrar’s Exhibit 7. Neither the record in this matter nor the Registrar’s public website indicates when these licenses were issued nor the persons listed on the licenses. [5] See the Registrar’s Exhibit 8. [6] See the Registrar’s Exhibits 9 and 10. [7] See Mohave Integrated Systems Corporation’s Exhibit A. The record in this matter does not explain the difference between the names of the limited liability companies on the Registrar’s record and on the IRS’s and the State of Arizona Department of Revenue’s records. [8] Mohave Integrated Systems Corporation’s Exhibit B. [9] See the Registrar’s Exhibits 11 and 12. [10] The Registrar’s Exhibit 1. [11] Administrative notice is taken of the Registrar’s public website. According to the website, on January 4, 2005, License No. C-5.203083-R was issued to Mohave Built in Systems LLC, with Mr. Whorf as qualifying party and member. On September 12, 2013, that license was current. [12] See A.R.S. § 32-1122. [13] See A.R.S. § 41-1092.07(G)(1); A.A.C. R2-19-119; see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [14] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [15] See A.R.S. § 32-1127, which defines the terms, “[r]esponsible managing employee and qualifying party,” in relevant part as follows: The terms "responsible managing employee" and "qualifying party" shall, for the purpose of administering this chapter, be synonymous, and shall mean an employee who is regularly employed by the licensee and is actively engaged in the classification of work for which such responsible managing employee qualifies in behalf of the licensee. While engaged as a qualifying party for a licensee, the qualifying party shall not take other employment that would conflict with his duties as qualifying party or conflict with his ability to adequately supervise the work performed by the licensee. [16] Westburne Supply, Inc. v. Diversified Design and Construction, Inc., 170 Ariz. 598, 600, 826 P.2d 1224, 1226 (App. 1992). [17] A.R.S. § 32-1122(B)(1) requires a license applicant to submit an application that includes certain information about its principals, including the following: (c) If the applicant is a partnership, the names and addresses of all partners with a designation of any limited partners. (d) If the applicant is a corporation, an association or any other organization, the names and addresses of the president, vice-president, if any, secretary and treasurer or the names and addresses of the functional equivalent of these officers, the directors and the owners of twenty-five per cent or more of the stock or beneficial interest.

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Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826