ALJDEC decisions subject to certification as final

2013A-4626-ROC · Registrar of Contractors · 2014-06-12

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: May 28, 2014, at 8:00 a.m. APPEARANCES: The Arizona Registrar of Contractors (hereinafter “the Registrar”) was represented by Assistant Attorney General John Tellier. Daniel Louis Klabunde (hereinafter “Mr. Klabunde” or “Respondent”) was represented by his attorney, Mark Andrew Hansen, Esq., Schern Richardson, PLC. ADMINISTRATIVE LAW JUDGE: M. Douglas _____________________________________________________________________

Mr. Klabunde appealed a Civil Citation issued by the Registrar for operating unlawfully as an unlicensed contractor. The Citation imposed a civil penalty of $27,500.00. Evidence and testimony were presented and the following Findings of Fact, Conclusions of Law, and Recommend Order are made, finding a violation and recommending imposition of a $27,500.00 civil penalty. FINDINGS OF FACT Background 1. Mr. Klabunde is not a licensed contractor. 2. Daniel Louis LLC is not a licensed contractor. 3. In 2013, the Registrar received eleven complaints against Mr. Klabunde from eleven different homeowners. All eleven complaints alleged abandonment. The only complaint that involved performance of any construction work was the Schneider complaint, where approximately one quarter of the agreed-upon construction work was completed.[1] 4. Arizona contracting law allows an exemption from licensure, with certain limitations, for a “handyman.”[2] 5. The construction work that Mr. Klabunde contracted to perform at all of the complaining homeowners’ residences does not fit within the handyman exemption because a permit was required for the electrical and plumbing work and the dollar amount of the construction work at issue was in excess of the dollar amount allowed in the handyman exemption.[3] 6. On or about January 26, 2013, Mr. Klabunde contracted with Dan and Jennifer Kath to install cabinets at the Kath’s residence at 11071 E. Evans Rd., Scottsdale, Arizona, for $16,000.00. After investigating the complaint, the Registrar assessed a civil penalty of $2,500.00 against Mr. Klabunde for this violation of A.R.S. § 32-1151.[4] 7. On or about February 7, 2013, Mr. Klabunde contracted with Joseph and Linda Schneider to install cabinets at the Schneiders’ residence located at 8433 E. La Junta Rd, Scottsdale, Arizona, for $38,000.00. After investigating the complaint, the Registrar assessed a civil penalty of $2,500.00 against Mr. Klabunde for this violation of A.R.S. § 32-1151.[5] 8. On or about March 26, 2013, Mr. Klabunde contracted with Arthur and Kathryn Carrillo to install cabinets at the Carrillo residence at 1011 N. Fir St., Chandler, Arizona, for $20,000.00. After investigating the complaint, the Registrar assessed a civil penalty of $2,500.00 against Mr. Klabunde for this violation of A.R.S. § 32-1151.[6] 9. On or about March 28, 2013, Mr. Klabunde contracted with Afeworki and Kiolisty Kidane to install cabinets that the Kidanes’ residence at 3695 S. Marion Way, Chandler, Arizona, for $32,630.00. After investigating the complaint, the Registrar assessed a civil penalty of $2,500.00 against Mr. Klabunde for this violation of A.R.S. § 32- 1151.[7] 10. On or about April 16, 2013, Mr. Klabunde contracted with Biagio and Josie Oliverio to install cabinets at the Oliverios’ residence at 17236 E Rosita Drive, Fountain Hills, Arizona, for $11,900.00. After investigating the complaint, the Registrar assessed a civil penalty of $2,500.00 against Mr. Klabunde for this violation of A.R.S. § 32- 1151.[8] 11. On or about April 23, 2013, Mr. Klabunde contracted with Arturo and Joan Chavarria to install cabinets at the Chavarrias’ residence at 3826 S. Emery Circle, Mesa, Arizona, for $4,300.00. After investigating the complaint, the Registrar assessed a civil penalty of $2,500.00 against Mr. Klabunde for this violation of A.R.S. § 32- 1151.[9] 12. On or about May 7, 2013, Mr. Klabunde contracted with Paul and Paula Burch to install cabinets at the Burchs’ residence at 2579 E. Desert Bloom Place, Chandler, Arizona, for $3,000.00. After investigating the complaint, the Registrar assessed a civil penalty of $2,500.00 against Mr. Klabunde for this violation of A.R.S. § 32-1151.[10] 13. On or about May 16, 2013, Mr. Klabunde contracted with Patrick and Kiane McHugh to install cabinets at the McHughs’ residence at 2245 E. Waltann Lane, Phoenix, Arizona, for $4,600.00. After investigating the complaint, the Registrar assessed a civil penalty of $2,500.00 against Mr. Klabunde for this violation of A.R.S. § 32-1151.[11] 14. On or about May 20, 2013, Mr. Klabunde contracted with Joe and Julie Verdugo to install cabinets at the Verdugo residence at 13649 N. 58th Street, Scottsdale, Arizona, for $16,500.00. After investigating the complaint, the Registrar assessed a civil penalty of $2,500.00 against Mr. Klabunde for this violation of A.R.S. § 32-1151.[12] 15. On or about May 22, 2013, Mr. Klabunde contracted with Stephanie Heron- Weeber and Dean Friedt to install cabinets at their residence at 15041 N. 54th Way, Scottsdale, Arizona, for $8,464.00. After investigating the complaint, the Registrar assessed a civil penalty of $2,500.00 against Mr. Klabunde for this violation of A.R.S. § 32-1151.[13] 16. On or about May 23, 2013, Mr. Klabunde contracted with Brad Bayse to install cabinets in Brad Bayse’s residence at 8424 N. 7th Ave., Phoenix, Arizona, for $8,443.00. After investigating the complaint, the Registrar assessed a civil penalty of $2,500.00 against Mr. Klabunde for this violation of A.R.S. § 32-1151.[14] 17. After investigating the eleven complaints, the Registrar issued a Cease & Desist Order and a Civil Citation for the unlicensed activity, imposing total civil penalties of $27,500.00.[15] Mr. Klabunde requested a hearing. Testimony of Registrar Investigator Alex J. Figueroa 4. Registrar Investigator Alex J. Figueroa (hereinafter “Investigator Figueroa”) testified that he had performed the investigation in this matter. Investigator Figueroa stated that he prepared the Cease and Desist Order and Civil Citation issued to Mr. Klabunde. 5. Investigator Figueroa testified that he authored the Master Case Report.[16] Investigator Figueroa stated that Mr. Klabunde dba Daniel Louis LLC is not a licensed contractor. 6. Investigator Figueroa testified that he recorded his interview with Mr. Klabunde.[17] Investigator Figueroa stated that Mr. Klabunde made several admissions during the interview. Investigator Figueroa testified that Mr. Klabunde acknowledged that he was not a licensed contractor during the interview. 7. Investigator Figueroa stated that Mr. Klabunde acknowledged that he hired and paid the installers directly for the partially completed construction project at the Schneider residence. 8. Investigator Figueroa testified that Mr. Klabunde nonetheless maintained that all work that was to be performed under the contracts was to be performed by licensed contractors and that Mr. Klabunde was only a manufacturer of cabinets who was not required to be a licensed contractor. 9. Investigator Figueroa testified that he checked the license status of the licensed contractors named in the contracts with the 11 different homeowners. Investigator Figueroa stated that the Kidane and Schnieder contracts indicate that the construction work in the contracts would be performed by Natural Stone LLC (C-48.268737-R). Investigator Figueroa stated that Natural Stone LLC’s contractor’s license had been suspended for non-renewal by the Registrar on January 1, 2013, and that Natural Stone LLC could not have legally performed any construction work on the Kidane and Schnieder residences with a suspended license.[18] 10. Investigator Figueroa testified that he obtained a sworn statement from John Highfill of Natural Stone LLC. In the sworn statement John Highfill stated that he “was not aware of these agreements and Natural Stone Design, LLC never agreed to perform work under them.”[19] 11. Investigator Figueroa testified that the contracts for the Carillo, Kidane, Oliverio, Burch, McHugh, Heron-Weeber/Friedt, Verdugo and Bayse contracts all provide that cabinets would be installed by McMenemy Custom Cabinets or McMenemy Cabinetry. Investigator Figueroa stated that he had obtained a sworn declaration from the owner and qualifying party for McMenemy Custom Cabinetry and Woodworking, Shane McMenemy. In the sworn statement, Mr. McMenemy stated that he “was not aware of any of these agreements and never agreed to perform installation work under them.”[20] 12. Bujors Granite is shown as the granite installer for McHugh construction project. Investigator Figueroa testified that the Class C- (178356) License of Bujors Granite had been suspended from January 5, 2013, through August 15, 2013, for lack of bond and that Bujors Granite could not have legally performed construction work with a suspended license. 13. Investigator Figueroa testified that Mr. Klabunde had previously been a licensed contractor with the State of Arizona. Investigator Figueroa stated that over two hundred (200) consumer complaints had been filed against Mr. Klabunde’s previous contractors’ licenses and that the Residential Contractors’ Recovery Fund (hereinafter “the Fund”) had paid out approximately $224,276.00 for damages caused by Mr. Klabunde’s contracting activities under his previous contractor’s licenses.[21] 14. Investigator Figueroa testified that Mr. Klabunde advertised that Mr. Klabunde dba 1/2 Price Cabinets was licensed, bonded and insured.[22] Investigator Figueroa testified that Mr. Klabunde dba 1/2 Price Cabinets was not a licensed contractor. 15. Investigator Figueroa testified that all of the contracts involved in the eleven complaints involved labor and installation. Investigator Figueroa reviewed each of the eleven complaints and testified that many of the contracts included electrical work and plumbing work that would have been beyond the contractor’s licenses of Natural Stone LLC and McMenemy Custom Cabinetry. 16. Mr. Klabunde paid Dodge General Construction (KB-1.233476-ROC) directly for demolition work and a portion of the cabinet work for the Schneider contract. Investigator Figueroa testified that the Schneider contract involved electrical and plumbing work that Dodge General Construction would not have been licensed to perform.[23] Investigator Figueroa stated that demolition work was performed at the Schneider residence but that the construction project for cabinetry was not completed. Investigator Figueroa testified that the homeowners contracted directly with Dodge General Construction at an additional cost to finish the construction project. 17. Investigator Figueroa opined that Mr. Klabunde was contracting without a contractor’s license in each of the eleven complaints. 18. Investigator Figueroa testified that or about August 21, 2013, Mr. Klabunde pled guilty to the crime of contracting without a license in Case No. JC2013427795 001 in the Arcadia Biltmore Justice Court. Investigator Figueora stated that Mr. Klabunde had been sentenced to pay a fine of $1,000.00, a probation assessment of $20.00, and restitution in the amount of $1,500.00, for a total Sentence/Judgment of $2,520.00.[24] 19. Investigator Figueroa testified that on or about February 3, 2014, Mr. Klabunde had pled guilty to crime of contracting without a license in Mesa Municipal Court in Docket No. [number redacted] DR No. 2013-2448 and been sentenced to serve 180 days in jail, to pay a fine of $2,000.00, and to pay restitution in the sum of $6,758.14. 20. Investigator Figueroa testified that the Registrar issued a Cease & Desist Order and a Civil Citation to Mr. Klabunde for the unlicensed activity. Investigator Figueroa stated that the Registrar imposed a total civil penalty of $27,500.00.[25] 21. Investigator Figueroa acknowledged that the Schneider complaint was the only complaint in which construction work had actually been performed. 22. Investigator Figueroa acknowledged that he had checked for prior unlicensed complaints against Mr. Klabunde. Investigator Figueroa testified that Case No. U09-0223 was received on September 25, 2008, and closed on October 2, 2008, for lack of jurisdiction. Investigator Figueroa stated that he did not know why “specifically” the unlicensed complaint was closed. 23. Investigator Figueroa testified that Mr. Klabunde and Mr. Klabunde’s wife were both signatories on the checking account for Daniel Louis LLC. Investigator Figueroa acknowledged that all checks went through Daniel Louis LLC’s checking account. 24. Investigator Figueroa acknowledged that he had no information that Mr. Klabunde was depositing business checks made out to Daniel Louis LLC directly into his own personal banking account. 25. Investigator Figueroa testified that Mr. Klabunde was including the cost of installation in his contracts and was contracting without a license. 26. Investigator Figueroa’s testimony is found to be credible. Testimony of Daniel Louis Klabunde 27. Mr. Klabunde testified that he was a member of Daniel Louis LLC. Mr. Klabunde stated that Daniel Louis LLC was formed in April, 2008.[26] Mr. Klabunde testified that Daniel Louis LLC was dissolved on August 21, 2013. 28. Mr. Klabunde testified that Daniel Louis LLC was a retailer that supplied cabinets and countertops that would then been installed by licensed contractors. Mr. Klabunde stated that Daniel Louis LLC provided a show room with cabinet displays and door samples. Mr. Klabunde stated that he was a retailer and that he performed no construction work. Mr. Klabunde acknowledged that he and his wife were the sole owners of Daniel Louis LLC. 29. Mr. Klabunde testified that the Registrar of Contractors had questioned him about Daniel Louis LLC’s advertisement that did not contain a contractor’s license number in 2008. Mr. Klabunde stated that he explained that Daniel Louis LLC was just a retailer. Mr. Klabunde testified that the previous unlicensed complaint case (U09-0223) had then been closed. 30. Mr. Klabunde testified that he operated Daniel Louis LLC as a retail outlet and that a contractor’s license was not required for a retail outlet. Mr. Klabunde stated that he hired licensed contractors to perform all construction work. Mr. Klabunde testified that ½ Price Cabinets was a “dba” of Daniel Louis LLC. 31. Mr. Klabunde testified that he entered into construction contracts directly with the homeowner. Mr. Klabunde stated that he would go to the homeowners’ residence and take measurements, provide samples, and provide price information. Mr. Klabunde testified that he always informed the homeowners that he was not a licensed contractor. 32. Mr. Klabunde testified that the all of the construction work that was performed at the Schneider residence was performed by a properly licensed contractor, Dodge General Construction.[27] Mr. Klabunde stated that he was sure that Dodge General Construction would have retained properly licensed contractors to perform the electrical and plumbing work that was performed at the Schneider residence. 33. Mr. Klabunde testified that “things starting going south” for Daniel Louis LLC in May 2013. Mr. Klabunde stated that he put large sums of his own money into Daniel Louis LLC to try and keep the business going. Mr. Klabunde testified that Daniel Louis LLC was totally broke when it closed its doors in 2013. 34. Mr. Klabunde testified that he felt “very, very bad” for the customers that lost money. 35. Mr. Klabunde testified that he would place a contractor’s name in a contract with a homeowner and then, once the project was ready to proceed, he would contract with the licensed contractor to perform the agreed-upon work. Mr. Klabunde acknowledged that the licensed contractors set forth in the various construction contracts where no work was performed would not have been aware of the contracts because Daniel Louis LLC would not have contacted the licensed contractor until the cabinets were actually ordered from China. Mr. Klabunde testified that after he ordered the cabinets, he would then enter into a contract with the licensed contractor for the installation of the cabinets. 36. Mr. Klabunde acknowledged that there was never a construction contract between the licensed contractors and the homeowners. 37. Mr. Klabunde acknowledged that he had pled guilty to two counts of contracting without a license. Mr. Klabunde asserted that he had pled guilty to the two counts of contracting without a license in an effort to resolve the criminal charges filed by the prosecutors’ offices. 38. Mr. Klabunde acknowledged that Daniel Louis LLC was not licensed, bonded, or insured. Mr. Klabunde stated that the advertisement that represented that Daniel Louis LLC was licensed, bonded, and insured was a mistake. Mr. Klabunde acknowledged that the “turnaround time of three to five days” promised in the advertisement was not correct.[28] Arizona Statutes cited during Hearing 1. A.R.S. § 32-1101(3) provides as follows: "Contractor" is synonymous with the term "builder" and means any person, firm, partnership, corporation, association or other organization, or a combination of any of them, that, for compensation, undertakes to or offers to undertake to, purports to have the capacity to undertake to, submits a bid or responds to a request for qualification or a request for proposals for construction services to, does himself or by or through others, or directly or indirectly supervises others to: (a) Construct, alter, repair, add to, subtract from, improve, move, wreck or demolish any building, highway, road, railroad, excavation or other structure, project, development or improvement, or to do any part thereof, including the erection of scaffolding or any other structure or work in connection with the construction. (b) Connect such structure or improvements to utility service lines and metering devices and the sewer line. (c) Provide mechanical or structural service for any such structure or improvements.

2. A.R.S. § 32-1121(A)(4) provides as follows: A. This chapter shall not be construed to apply to: . . . . 4. Any materialman, manufacturer or retailer who furnishes finished products, materials or articles of merchandise and who does not install or attach such items or installs or attaches such items if the total value of the sales contract or transaction involving such items and the cost of the installation or attachment of such items to a structure does not exceed one thousand dollars, including labor, materials and all other items, but excluding any electrical fixture or appliance that was designed by the manufacturer, that is unaltered, unchanged or unmodified by any person, that can be plugged into a common household electrical outlet utilizing a two pronged or three pronged electrical connector and that does not use any other form of energy, including natural gas, propane or other petroleum or gaseous fuel, to operate or is attached by a nail, screw or other fastening device to the frame or foundation of any residential structure. The materialman, manufacturer or retailer shall inform the purchaser that the installation may also be performed by a licensed contractor whose name and address the purchaser may request.

3. A.R.S. § 32-1151 provides as follows: It is unlawful for any person, firm, partnership, corporation, association or other organization, or a combination of any of them, to engage in the business of, submit a bid or respond to a request for qualification or a request for proposals for construction services as, act or offer to act in the capacity of or purport to have the capacity of a contractor without having a contractor's license in good standing in the name of the person, firm, partnership, corporation, association or other organization as provided in this chapter, unless the person, firm, partnership, corporation, association or other organization is exempt as provided in this chapter. Evidence of securing a permit from a governmental agency or the employment of a person on a construction project shall be accepted in any court as prima facie evidence of existence of a contract.

4. A.R.S. § 32-1165 provides as follows: Except as authorized by section 32-1121, subsection A, paragraph 14, subdivision (c), it is a class 1 misdemeanor for any person to advertise that he is able to perform any service or contract for compensation subject to regulation by the registrar under the terms of this chapter unless a license under the terms of this chapter is first obtained regardless of whether his operations as a contractor are otherwise exempt.

5. A.R.S. § 32-1166 provides as follows: A. In addition to all other remedies, when it appears to the registrar, either upon complaint or otherwise, that any person, firm, partnership, corporation, association or other organization, or a combination of any of them, has engaged in or is engaging in any act of contracting, practice or transaction which constitutes a violation of this chapter, or any rule or order of the registrar, the registrar may serve upon such person, firm, partnership, corporation, association or other organization not currently licensed under this chapter, by certified mail or by personal service, a cease and desist order requiring the person, firm, partnership, corporation, association or other organization to cease and desist immediately, upon receipt of the notice, from engaging in such act, practice or transaction. In conjunction with the cease and desist order, the registrar may issue a citation for a violation. Each citation shall be in writing and shall clearly describe the violation for which the citation was issued. Each citation shall contain an order to cease and desist and an assessment of a civil penalty in an amount of at least two hundred dollars for each violation but not more than two thousand five hundred dollars for the multiple violations committed on the same day. If after the issuance of a citation by the registrar, the person or organization receiving the citation fails to cease and desist in the violation or violations described in the citation, the registrar may assess an additional civil penalty of up to two thousand five hundred dollars for each day the violation or violations continue. The registrar shall adopt rules covering the assessment of a civil penalty that give due consideration to the gravity of the violation and any history of previous violations. The penalties authorized under this section are separate from, and in addition to, all other remedies either civil or criminal.

B. Each violation of this chapter or a rule or order of the registrar by a person who is required to be licensed by this chapter and who does not possess the required license shall constitute a separate offense, and the registrar may impose a civil penalty of not to exceed two thousand five hundred dollars for each violation except that for multiple violations committed on the same day the civil penalty shall not exceed two thousand five hundred dollars for all such violations. Monies collected from civil penalties shall be deposited in the state general fund.

C. The registrar of contractors may issue citations containing orders to cease and desist and of civil penalties against persons who have never been licensed under this chapter who are acting in the capacity of or engaging in the business of a contractor in this state.

CONCLUSIONS OF LAW 1. Arizona contracting law prohibits a person from acting as a contractor without a license.[29] The law allows an exemption from licensure, with certain limitations, for a “handyman.” An unlicensed handyman can perform construction work, with certain exclusions, such as that the work does not require a permit, as long as the aggregate price for the job does not exceed $1,000.00.[30] The Registrar can order a person who performs contracting without a license and who is not exempt from licensure to cease and desist such activity and may impose a civil penalty of at least $200.00 and up to $2,500.00 for each violation, but not more than $2,500.00 per day.[31] 2. The case of Butch Randolph & Associates, Inc. v. International Fidelity Ins. Co. is distinguishable from this case because the plaintiff subcontractor in that case only contracted to supply barbeque grills and ramadas, not to be paid under the contract to contract with a licensed contractor to install them. See 212 Ariz. 550, 551 ¶3, 136 P.3d 232, 233 (App. 2006). If Mr. Klabunde had only contracted to provide cabinets, not to contract with other allegedly licensed contractors to install them, he would not have committed unlicensed contracting under the statutes and case law. 3. The evidence established eleven violations of Arizona contracting laws. Thus, a civil penalty is warranted for each violation. The evidence established that Mr. Klabunde operated as a contractor without a license by agreeing to perform construction work exceeding $1,000.00 for each of the eleven homeowner complaints at issue. Mr. Klabunde abandoned the construction projects and failed to deliver the construction materials that the homeowners paid for. This Tribunal concludes that a civil penalty of $27,500.00 is warranted in this case. RECOMMENDED ORDER Based upon the foregoing, it is recommended that the Registrar affirm the finding that Mr. Klabunde violated A.R.S. § 32-1151 and affirm the decision to assess a civil penalty in the amount of $27,500.00, to be paid in certified funds to the Registrar on or before the effective date of the Registrar’s final Order in this matter. 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 shall be forty (40) days from the date of certification. Done this day, June 12, 2014.

/s/ M. Douglas Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors

----------------------- [1] See Exhibit 15 (Schneider Complaint with attachments). [2] See A.R.S. § 32-1121(A)(14). [3] See A.R.S. § 32-1121(A)(14). [4] See Exhibit 22 (Kath Complaint with attachements). [5] See Exhibit 15 (Schneider Complaint with attachments). [6] See Exhibit 14 (Carrillo Complaint with attachments). [7] See Exhibit 12 (Kidane Complaint with attachments). [8] See Exhibit 10 (Oliverio Complaint with attachments). [9] See Exhibit 8 (Chavarria Complaint with attachments). [10] See Exhibit 23 (Burch Complaint with attachments). [11] See Exhibit 24 (McHugh Complaint with attachments). [12] See Exhibit 20 (Verdugo Complaint with attachments). [13] See Exhibit 21 (Heron-Weeber Complaint with attachments). [14] See Exhibit 19 (Bayse Complaint with attachments). [15] See Exhibit 1 Cease and Desist Order. [16] See Exhibit 2 (Master Case Report). [17] See Exhibit 27 (DVD-R recording of interview with Mr. Klabunde). [18] See Exhibit 17 (4/16/14 License printout for Natural Stone Design LLC from Registrar’s public website). [19] See Exhibit 18 (Sworn Declaration of John Highfill). [20] See Exhibit 9 (Sworn Declaration of Shane McMenemy). [21] See Exhibits 2, 3, 4 and 5. [22] See Exhibit 6 (Advertisement). [23] See Exhibit 16 (License printout from the Registrar’s public website for Dodge General Construction). [24] See Exhibit 25 (Case JC2013427795 001 Arcadia Biltmore Justice Court). [25] See Exhibit 1 (Cease and Desist Order and Civil Citation). [26] See Exhibit R-3 (Corporation commission printout for Daniel Louis LLC). [27] See Exhibit 16 (Registrar of Contractors public website license printout for Dodge General Construction). [28] See Exhibit 6 (Advertisement). [29] A.R.S. § 32-1164(A)(2). [30] A.R.S. § 32-1121(A)(14). [31] A.R.S. § 32-1166(A).

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