ALJDEC decisions subject to certification as final

2013A-4952-ROC-rf · Registrar of Contractors · 2016-07-28

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: July 1, 2016, at 8:00 a.m. and July 20, 2016, at 10:00 a.m. APPEARANCES: Rhonda Bannard (“Complainant”) appeared on her own behalf; International Custom Homes LLC DBA: Exotic Flooring (“Respondent”) was represented by Joshua C. Black, Esq., Lorona Mead PLC; 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 October 9, 2001, the Registrar issued License No. CR- 8.169011-D to Respondent. 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 $17,210.00 in the form of a payment issued by the Fund.”[1] 3. Both Complainant and Respondent requested a hearing on the amount of the proposed payout.[2] 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 and 20, 2016. Complainant submitted eleven exhibits and presented the testimony of four witnesses: (1) Bobby G. Cason of RGV Renovations (“RGV”), which had submitted the low bid for repairs; (2) Stephen Parsons, a landscape architect who had been involved in the project as Complainant’s friend; (3) Scott Gibson of Momentum Woodworks, which had fabricated and installed Complainant’s kitchen cabinets, and (4) herself. Respondent submitted five exhibits and presented the testimony of Hossein Darmani (“Mr. Darmani”), its qualifying party/member. The Registrar submitted twelve exhibits and presented the testimony of Doug Ulmer, its Recovery Fund Reviewer. The Underlying Workmanship Complaints 6. Respondent installed the bamboo floor in a substantial remodeling project in Complainant’s residence at 1924 E. Lamar Road, Phoenix, Arizona 85016. 7. The general contractor for the remodeling project was Full Scale LLC (“Full Scale”), License No. KB-1.240021-D. On or about December 14, 2012, Complainant filed a complaint with the Registrar against Full Scale. The Registrar on its own motion prosecuted a complaint against Full Scale, which was designated for hearing as OAH Case No. 2014A-1332-ROC, based in part on Complainant’s complaint. The hearing in the Registrar’s own-motion complaint in OAH Case No. 2014A-1332- ROC, the Registrar’s Case No. 2014-1332, resulted in the Registrar revoking Full Scale’s license. 8. On or about October 16, 2013, Complainant filed a complaint with the Registrar against Respondent, alleging complaints about the bamboo flooring, the carpeting in the master bedroom, and the floor tile in the master bathroom.[3] 9. The Registrar’s assigned investigator performed a jobsite inspection. On December 10, 2013, the Registrar issued a directive in Complainant’s complaint against Respondent, directing Respondent to correct by appropriate means the carpet, the tile, and the bamboo flooring.[4] 10. On or about March 26, 2015, the assigned Registrar’s investigator performed a compliance inspection. Mr. Darmani told the investigator that Respondent had not installed the carpet in the master bedroom and Complainant stated that she was not sure who had installed the carpet. The investigator reported that Complainant verified that Respondent corrected the tile in the master bathroom. The investigator noted that the bamboo floor had not been corrected.[5] 11. On June 19, 2015, the Registrar issued a Citation[6] against Respondent, charging cause to discipline its license under A.R.S. § 32-1154(A)(3),[7] namely A.A.C. R4-9-108,[8] and 32- 1154(A)(22).[9] 12. On October 5, 2015, an evidentiary hearing was held in OAH on Complainant’s workmanship complaint against Respondent. Complainant acknowledged that she did not know who installed the carpet and that Respondent had resolved her complaint about the tile floor.[10] 13. Mr. Darmani denied having installed the carpet.[11] 14. The assigned Administrative Law Judge (“ALJ”) found that Complainant did not establish that Respondent was responsible for the carpet or that any deficiencies still existed in the tile floor.[12] The ALJ concluded that Complainant “credibly testified that she did not deny access to Respondent” and, therefore, concluded that Complainant established that Respondent had violated the charged statutes with respect to the bamboo floor.[13] On or about November 12, 2015, the Registrar substantially accepted the ALJ’s decision and suspended Respondent’s license for five days, effective December 22, 2015.[14] Complainant’s Claims to the Fund 15. Complainant filed a claim to the Fund to recover a payout against Full Scale. A hearing was held on that claim in OAH Case No. 2012A-6027-ROC-rf on July 1, 2016, at 10:00 a.m. As of the date of this recommended decision, OAH has not received the Registrar’s final decision in Complainant’s claim against Full Scale. 16. On or about March 30, 2016, Complainant filed a claim to the Fund to recover a payout for the bamboo floor that Respondent had installed, as well as the tile floor and carpet.[15] Complainant submitted to the Fund a copy of her February 15, 2012 contract with Full Scale, in which it contracted to perform certain work for the sum of $67,584.00 and her payments to Full Scale.[16] 17. Complainant also submitted three bids from appropriately licensed contractors to repair the bamboo floor, the tile floor, and the carpet at her house. The low bid was from RGV in the total amount of $17,710.00, to perform the following scope of work: Bamboo Flooring $15,435.00

1) Remove existing 2) Remove kitchen cabinets as needed 3) Re-install bamboo flooring with specs provided 4) Remove, replace, and re-install baseboards as needed 5) Paint as needed all areas impacted by removal of bamboo flooring

Bathroom Tile $625.00

1) Clean or replace tile in bathroom as needed due to damage or stain 2) Paint as needed all areas impacted by removal of tile

Bedroom Carpet $1650.00

1) Remove Approx. 350SF of carpet and 2) Replace with carpet matching existing as close as possible 3) Paint as needed all areas impacted by removal of carpet[17]

Complainant also provided bids for essentially the same scope of work from Rubik Custom Construction in the amount of $24,845.57 and from Kirk Development Company in the amount of $26,832.00.[18] 18. Complainant also submitted a bid from Momentum Woodworks (“Momentum”) in the amount of $1,150.00 to “Remove Existing Cabinetry Panels for Flooring to be removed” and to “Re- Install Cabinetry panels after flooring is repaired.”[19] Additional Hearing Evidence 19. Claims Reviewer Mr. Ulmer testified that because he determined that Complainant did not owe any money on her contract with Full Scale, he calculated the payout based solely on the cost to repair Respondent’s deficient workmanship. 20. Mr. Ulmer testified that because the Registrar has a fiduciary duty to preserve the Fund’s assets, it has adopted a policy of making payouts in the amount of the lowest bid that is submitted for repairs. The Registrar relies on the expertise of the contractor who submitted the bid that all necessary repairs can be performed for the amount of the bid. 21. Mr. Ulmer testified that before a payout from the Fund can be made, the claimant must obtain a finding that the contractor violated A.R.S. § 32-1154(A) with respect to each item of workmanship for which she seeks a payout. Because the Registrar did not find Respondent to be responsible for the bedroom carpet in the underlying workmanship complaint, he did not include in the payout the amount in RGV’s bid to repair the carpet. 22. Mr. Ulmer testified that because the Registrar did not find that Respondent’s workmanship on the bathroom tile was deficient in the workmanship complaint, he also should not have included the $625.00 in RGV’s bid to repair the tile. That amount should be deducted from the proposed payout. 23. Mr. Ulmer testified that he did include the $1,150.00 from Momentum in the payout. If the work described in its bid was the same as RGV’s bid to remove cabinets as needed or to remove and reinstall baseboards, it should also be deducted from the payout. 24. Mr. Cason testified that due to increases in the costs of labor and materials, he has raised his fees 8-10% since he submitted RGV’s bid. In addition, costs could increase if he encountered something unforeseen on the job. 25. Complainant pointed out that all of the bids that she submitted had expired and testified 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. 26. Complainant submitted a statement of qualifications and an email from her expert, Bill Green, of Associated Cost Economists, LLC. 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. Complainant also submitted a VAMC Cost Guide that showed a 5% escalation rate for construction costs in 2016.[20] 27. 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.[21] 28. 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.[22] 29. Mr. Parsons testified that as a registered landscape architect, he was able to get an exceptionally low price for the bamboo floor. Mr. Parsons testified that low price is no longer available to him. 30. Complainant submitted an email from Bob Susee, the Chief Operations Officer for Pacific Northwest Regional Council of Carpenters, stating that industry standards required that flooring and cabinets should be mounted on the subfloor.[23] 31. Mr. Darmani testified that Respondent installed the bamboo flooring on the subfloor and that the bamboo floor only ran under the appliances on the peninsula where it could be seen through a grill. 32. Mr. Darmani testified that he performed a water test on the subfloor before Respondent installed the bamboo floor. Mr. Darmani opined that the only reason that the floor was failing was because gaps in the exterior doors allowed water to come into the kitchen. 33. Mr. Darmani testified that he attempted to comply with the Registrar’s Directive in the underlying workmanship complaint by sending letters to Complainant to arrange repairs,[24] but that Complainant refused to allow access to repairs to be made. 34. Mr. Gibson testified that the peninsula was installed on top of the bamboo floor because the countertop came down to the floor on the side of the peninsula and the countertop needed to be exactly 34-1/2” from the finished floor. Mr. Gibson testified that Momentum’s bid anticipated that the floor would be saw-cut at the base of the cabinets to leave the bamboo floor below the peninsula. Mr. Gibson testified that the toe-kick skin needed to be removed to allow the saw- cutting and replaced after the new bamboo floor was installed. CONCLUSIONS OF LAW 1. This matter lies within the Registrar’s jurisdiction to resolve.[25] 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.[26] Respondent bears the burden to establish that Complainant should recover a lesser amount by the same evidentiary standard.[27] 3. “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[28] 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.”[29] 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.[30] 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.”[31] 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.”[32] 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.[33] 6. The Registrar concluded in the underlying workmanship complaint that Respondent was not responsible for the carpet, that Respondent had repaired the tile to bring it into compliance with the Registrar’s standards, that deficiencies in the bamboo floor were the result of Respondent’s workmanship, and that Complainant had allowed Respondent reasonable access for repairs to be performed. Neither of the parties appealed these conclusions. They cannot challenge the result of the workmanship complaint in a hearing on the amount of the Fund payout.[34] 7. Complainant established that Momentum’s bid of $1,150.00 was not duplicative of any portion of RGV’s low bid. RECOMMENDED ORDER Based on the foregoing, it is ordered that the Fund make a payout in the amount of $16,585.00[35] to Complainant Rhonda Bannard in Case No. 2013- 4952. It is further ordered that $16,585.00 be charged to Respondent International Custom Homes LLC’s License CR-8.169011-D under A.R.S. § 32- 1139(B).[36] 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 28, 2016.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director Registrar of Contractors ----------------------- [1] The Registrar’s Exhibit 11. [2] See the Registrar’s Exhibit 12. [3] See the Registrar’s Exhibit 1 at 2. [4] See the Registrar’s Exhibit 2. [5] See the Registrar’s Exhibit 3. [6] See the Registrar’s Exhibit 4. [7] 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.” [8] 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.” [9] A.R.S. § 32-1154(A)(22) 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.” [10] See the Registrar’s Exhibit 5 Findings of Fact at ¶¶ 10, 11. [11] See id. at ¶ 26. [12] See id. at Conclusions of Law ¶ 5. [13] See id. at ¶ 6. [14] See id. at 25-26. [15] See the Registrar’s Exhibit 6. [16] See the Registrar’s Exhibit 7 at 34. [17] The Registrar’s Exhibit 8 at 49. [18] See id. at 51, 52. [19] The Registrar’s Exhibit 9. [20] See Complainant’s Exhibit C-10. [21] See Complainant’s Exhibit C-9. [22] See Complainant’s Exhibit C-11. [23] See Complainant’s Exhibit C-8. [24] See Respondent’s Exhibit I-4, I-5. [25] See A.R.S. §§ 32-1131 to 32-1134. [26] 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). [27] See A.A.C. R2-19-119(B)(2). [28] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [29] Black’s Law Dictionary at page 1182 (6th ed. 1990). [30] See A.R.S. §§ 32-1134 and 32-1134.01. [31] A.R.S. § 32-1134(A)(5). [32] Westburne Supply, Inc. v. Diversified Design and Construction, Inc., 170 Ariz. 598, 600, 826 P.2d 1224, 1226 (App. 1992). [33] See A.R.S. §§ 12-341, -341.01(A), -347; E-Z Livin’ Mobile Homes, 27 Ariz. App. at 15, 550 P.2d 658. [34] See Hawkins v. State of Arizona, Department of Economic Security, 183 Ariz. 100, 103, 900 P.2d 1236, 1239 (App. 1995) (quoting Gilbert v. Board of Medical Examiners, 155 Ariz. 169, 174, 745 P.2d 617, 622 (App. 1987); emphasis added). [35] $15,435.00 (RGV’s low bid to repair the bamboo floor) + $1,150.00 (Momentum’s bid to remove and replace the toe-kick skin) = $16,585.00. [36] 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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