ALJDEC decisions subject to certification as final

2013A-591-ROC · Registrar of Contractors · 2014-07-10

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

RECOVERY FUND PAYOUT HEARING: June 26, 2014, at 8:00 a.m. APPEARANCES: Complainant Richard Eugene Robertson (hereinafter “Complainant” or “Mr. Robertson”) appeared on his own behalf; Respondent Presmyk and Sons Construction Inc. (hereinafter “Respondent”) failed to appear; the Arizona Registrar of Contractors (hereinafter “the Registrar”) was represented by Seth T. Hargraves, Esq., Assistant Attorney General. ADMINISTRATIVE LAW JUDGE: M. Douglas _____________________________________________________________________

FINDINGS OF FACT Background and Procedure 1. The Registrar issued License No. B.135450-R to Respondent on or about June 2, 1998. Respondent’s current address of record is 3975 W. Shea Lane, Camp Verde, Arizona 86322. 2. Mr. Robertson submitted a claim to the Registrar’s Residential Contractors’ Recovery Fund (“the Fund”). On or about April 21, 2014, the Registrar issued a Notice and Order of Denial of Recovery Fund Claim.[1] The Notice and Order of Denial of Recovery Fund Claim provided, in relevant part, as follows: …. It is an applicant’s burden to prove, by a preponderance of the evidence, that they are eligible to access the Fund and that they have sustained actual damages within the limitations of § 32- 1132(A) that are compensable from the Fund. While Mr. Robertson appears to meet all the eligibility criteria he has not provided sufficient evidence to establish that he suffered any calculable “actual damages” in a manner that are compensable from the Fund.

Given all available evidence and the Fund’s fiduciary responsibility to administer Fund monies held in trust, the failure of Complainant to provide such critical evidence renders any potential compensable “actual damages” incalculable. Base upon the foregoing, Mr. Robertson’s claim must therefore be denied.

Finally, Complainant submitted bids in support of his claim that call for a full replacement of his roof. These bids are overbroad, as the roof only requires repairs, as observed by ROC Adjuster James Barbour at the recent jobsite inspection. As such, the bids cannot be considered in the Fund’s actual damages analysis. Complainant failed to submit any bids that call for necessary repairs. Given the Fund’s fiduciary responsibilities to complete repairs at the lowest cost, the monies being held in trust for such purposes, Complainant’s failure to submit appropriate estimates of the costs of repair are fatal to his claim.

3. Complainant disagreed with the Registrar’s denial of his recovery fund claim and requested an administrative hearing. The Registrar referred the matter to the Office of Administrative Hearings (“the OAH”), an independent agency, for an evidentiary hearing. 4. On May 22, 2014, the Registrar issued a Notice of Recovery Fund Eligibility/ Payout Hearing setting a hearing on June 26, 2014, at 8:00 a.m. The Registrar sent a copy of the Notice of Recovery Fund Eligibility/Payout Hearing to Respondent at its address of record. 5. A Recovery Fund Payout Hearing was held on June 26, 2014. Complainant appeared and testified on his own behalf. The Registrar submitted eight exhibits and presented the testimony of Investigator James Barbour. 6. Respondent did not request to appear telephonically and did not request that the hearing be continued. Although the hearing did not conclude for over one and one half hours, Respondent did not appear through an officer, authorized employee, or attorney. Consequently, Respondent did not present any evidence. Hearing Evidence 7. On or about February 6, 2013, Mr. Robertson filed a Complaint with the Registrar against Respondent regarding its contract to “install new roof and gutters” at Complainant’s residence at 400 E. Townley Ave., Phoenix, Arizona 85020.[2] 8. According to the Complaint, the date of the contract was February 26, 2011. Mr. Robertson alleged that he had paid Respondent the entire contract price of $5,698.34 for the agreed-upon construction project. Complainant alleged that the new roof was leaking and that Respondent had failed to repair the roof.[3] 9. On or about May 28, 2013, the Registrar issued a Citation and Complaint against Respondent’s contractor’s license. On July 3, 2013, after Respondent failed to file a timely written answer to the Citation and Complaint, the Registrar issued a Decision and Order that, pursuant to A.R.S. § 32-1155(B), deemed Respondent’s failure to file an answer an admission of the charges and, based on the admission, revoked Respondent’s license on the effective date of the Decision and Order.[4] 10. On January 17, 2014, Mr. Robertson filed a claim to the Fund in the amount of $5,100.00. Mr. Robertson attached to his claim bids from Glendale Roofing, Durafoam Roofing LLC, and Hays Roofing Inc. for the removal and replacement of Complainant’s roof.[5] 11. On or about January 23, 2014, the Registrar issued a Document Request Letter. The January 23, 2014 Document Request Letter provided, in relevant part, as follows: Please provide the following documents by 02/06/2014 per our conversation on January 23, 2014:

1. Copies of documents that verify all payment(s) made on the contract to [Respondent], including but not limited to:

* Front and back sides of canceled checks;

* Credit card statements;

* Final HUD-1 executed settlement statement, if applicable;

* Executed lien release/waivers; and

* Bank/Lender documents showing payments/draws actually received by the contractor.

2. Copy of letter from your insurance company that explains the total amount of damages and total amount paid to you for Date of Loss 10/5/2012, claim #PP0009851122. This information is needed because [Respondent] states that they filed a supplement with your insurance company and the total amount of damages are $8,485.11 and not the contracted amount you state in the amount of $5,698.34.[6]

12. On or about March 21, 2014, the Registrar issued another Document Request Letter. The March 21, 2014 Document Request Letter provided, in relevant part, as follows: Please provide the following documents by 04/04/2014.

1. A copy of the estimate that would have been created by your insurance company (The Hartford Insurance Group) on or about February 22, 2011 reflecting the full cost of the repair or replacement in the amount of $7,764.31. Attached is a single page document that was submitted with your complaint that explains a cost breakdown of that particular estimate, but it does not provide the itemization that the Recovery Fund needs to further adjudicate your claim.[7]

TESTIMONY Testimony of Richard Eugene Robertson Richard Eugene Robertson (hereinafter “Mr. Robertson”) testified that his roof suffered hail damage in 2007 and that his insurance company agreed to replace the hail-damaged roof. Mr. Robertson stated that he contracted with Respondent for the replacement of the hail-damaged roof on his residence. Mr. Robertson opined that Respondent’s roofing work on his residence failed to comply with applicable workmanship standards. Mr. Robertson testified that his roof was replaced by a licensed contractor. Mr. Robertson stated that his roof leaks and that as a result, his home has incurred interior water damage. Mr. Robertson testified that he should be allowed to recover his damages from the Fund. Mr. Robertson testified that he had entered into an agreement with Respondent wherein Respondent would not install a new roof on a shed which would eliminate Mr. Robertson’s $1,000.00 insurance deductible. Mr. Robertson testified that Respondent agreed to use 30-year architectural shingles instead of the specified three-tab shingles. Mr. Robertson opined that Respondent installed the 30-year architectural shingles instead of three-tab shingles because 30-year architectural shingles are easier to install. Mr. Robertson asserted that the installation of 30-year architectural shingles was a “snow job” by Respondent. Mr. Robertson testified that Respondent installed plastic gutters without charge. Mr. Robertson stated that the gutter installation was very poor. Mr. Robertson testified that he and his friend worked on his roof to correct the workmanship problems on the roof. Mr. Robertson testified that Respondent removed a leaking skylight on his roof and covered the opening with plywood and architectural shingles. Mr. Robertson stated that the removal of the skylight was not an upgrade because it was easier for Respondent to install new roofing over the opening rather than to work around the skylight. Mr. Robertson testified that he had obtained three estimates for the replacement of his roof.[8] Mr. Robertson stated that his insurance company paid Respondent approximately $5,400.00. Mr. Robertson testified that he paid no additional money to Respondent. Mr. Robertson testified that he requested bids for the correction of his roof and the three licensed contractors all submitted bids for the complete replacement of his roof. Mr. Robertson stated that he was requesting payment in the sum of $5,100.00, which is the low bid from a licensed contractor for the replacement of his roof. Mr. Robertson acknowledged that Respondent paid him money to correct “horrible” metal work. Mr. Robertson stated that the corrective work was actually performed by his friend. Mr. Robertson testified that he acted as a middleman for the transaction. Mr. Robertson stated that Respondent paid him “one to two hundred dollars” and he paid the money to his friend for the corrective work. Mr. Robertson acknowledged that he had not disclosed the payment from Respondent in his Recovery Fund Claim Form. Mr. Robertson testified that Respondent also paid him money for the roof leak in his bedroom. Mr. Robertson stated that he believed that Respondent paid him a total of $300.00. Mr. Robertson acknowledged that he had failed to disclose the payments from Respondent in his Recovery Fund Claim Form. Mr. Robertson testified that he thought nothing of it when he filed the Recovery Fund Claim Form. Mr. Robertson acknowledged that the parties’ contract did not have a dollar amount on it. Mr. Robertson testified that the two canceled checks from his insurance company reflected the dollar amount for the parties’ construction agreement. Mr. Robertson stated that his insurance company’s claim representative had discussed the matter with the Registrar’s representative repeatedly. Mr. Robertson asserted that there was “no way” to satisfy the Registrar’s demands. Testimony of James Barbour James Barbour (hereinafter “Mr. Barbour”) testified that he is a Claims Adjuster for the Arizona Residential Contractors’ Recovery Fund (hereinafter “Fund”). Mr. Barbour stated that he was assigned to evaluate the Recovery Fund Claim Form submitted by Mr. Robertson. Mr. Barbour testified that information submitted in the Recovery Fund Claim Form was insufficient to support a payout from the Fund. Mr. Barbour testified that Mr. Robertson’s contract with Respondent did not have a price for the construction work on the contract. Mr. Barbour stated that Recovery Fund Claim Form submitted by Mr. Robertson provided that the contract amount was $5,698.34 and that Mr. Robertson had paid Respondent $5,572.75. Mr. Barbour testified that Mr. Robertson had provided a March 5, 2011 estimate from Mr. Robertson’s insurance company in the amount of $6,698.34 for the installation of the new roof and interior repairs. Mr. Barbour stated that on or about March 27, 2014, he received an email from Mr. Robertson’s insurance company that contained detailed estimates for the repair work on Mr. Robertson’s residence. Mr. Barbour testified that the initial insurance estimate was for the sum of $7,764.31 and that final insurance estimate was for the sum of $6,698.34. Mr. Barbour testified that Respondent’s final invoice for repairs on Mr. Robertson’s residence was for the sum of $8,485.11. Mr. Barbour testified that Mr. Robertson had not disclosed that he had received cash back from the Respondent for alleged workmanship deficiencies. Mr. Barbour reviewed the Summary for Mr. Robertson’s residence provided by Mr. Robertson’s insurance company on March 27, 2014.[9] Mr. Barbour testified that the replacement cost value for Mr. Robertson’s roof was $7,764.31, less depreciation of $2,268.08 for an actual cash value of $5,496.23, less a $1,000.00 deductible for net claim of $4,496.33. Mr. Barbour stated that the Summary provided that the net claim would be $6,764.31 if the depreciation was recovered. Mr. Barbour testified that Summary was actually prepared by Mr. Robertson’s insurance company on February 22, 2011. Mr. Barbour testified that Mr. Robertson filed a formal workmanship complaint against Respondent with the Registrar on February 6, 2013.[10] Mr. Barbour stated that a Citation and Complaint was issued as a result of the complaint.[11] Mr. Barbour testified that a Default Decision and Order was issued on July 3, 2013, revoking Respondent’s License No. B.135450-R as a result of the Citation and Complaint.[12] Mr. Barbour testified that he found that Mr. Robertson met the statutory criteria for a person injured. Mr. Barbour stated that he then attempted to determine compensable actual damages. Mr. Barbour testified that he normally starts at the contract price. Mr. Barbour testified that Mr. Robertson failed to provide sufficient information for the Fund to determine the contract price for Mr. Robertson’s roof. Mr. Barbour stated that he repeatedly attempted to obtain additional information from Mr. Robertson and Mr. Robertson’s insurance company. Mr. Barbour testified that the response from Mr. Robertson’s insurance company was “not completely helpful.”[13] Mr. Barbour testified that he issued an additional Document Request Letter on March 21, 2014.[14] Mr. Barbour stated that he specifically requested that Mr. Robertson furnish him with a copy of the February 22, 2011 estimate from Mr. Robertson’s insurance company reflecting the full cost of the repair or replacement of Mr. Robertson’s roof in the amount of $7,764.31. Mr. Barbour testified that the additional information was required to provide the itemization of Mr. Robertson’s claim that the Fund required to adjudicate Mr. Robertson’s claim for damages. Mr. Barbour testified that he received email information from Mr. Robertson’s insurance company in response to the March 211, 2014 Document Request Letter.[15] Mr. Barbour stated that the email response contained two different estimates from the insurance company. The original estimate was for $7,764.31 and the final estimate was for $6,698.34. Mr. Barbour testified that he requested further information from Mr. Robertson’s insurance company. Mr. Barbour testified that he received additional information from Mr. Robertson’s insurance company on or about April 15, 2014.[16] Mr. Barbour stated that he still lacked the information necessary to process Mr. Robertson’s claim for damages. Mr. Barbour testified that the problem with Mr. Robertson’s claim was that he could not indentify the actual contract price or scope of work on Mr. Robertson’s roof. Mr. Barbour stated that based upon the information provided by Mr. Robertson, Mr. Robertson’s claim for damages was denied because the Fund could not determine what the contracted price was or what the scope of work on Mr. Robertson’s residence was supposed to be. Mr. Barbour testified that he conducted an onsite Fund inspection at Complainant’s residence on March 20, 2014. Mr. Barbour stated that he was accompanied by Investigator Mark Alyea. Mr. Barbour testified that he observed that the new shingles on Complainant’s roof appeared to be fine. Mr. Barbour testified that he observed that 30-year architectural shingles were installed on Mr. Robertson’s roof instead of 25-year 3-tab shingles. Mr. Barbour stated that he observed that Respondent had also performed work on Mr. Robertson’s porch roof by removing a skylight from the porch roof. Mr. Barbour testified that Respondent also installed new gutters on Complainant’s residence. Mr. Barbour opined that the installation of 30- year architectural shingles, the new gutters, and the work on the skylight were all upgrades or additional work above the insurance estimate approved by Mr. Robertson’s insurance company. Mr. Barbour testified that Complainant complained of water damage caused by the allegedly leaking roof. Mr. Barbour stated that he observed what appeared to be brown spots in the ceiling of one of Complainant’s bedrooms and a storage room. Investigator Barbour testified that the brown spots appeared to be old stains from the time before the new roof was installed.

Mr. Barbour testified that the three bids that Mr. Robertson had submitted to the Fund were all for the replacement of his roof. Mr. Barbour stated that there was nothing in any of the bids indicating that Mr. Robertson’s roof could not be repaired. Mr. Barbour opined that Complainant’s roof does not require replacement and only warranted a possible repair. Mr. Barbour’s testimony is found to be credible. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[17] The Notice of Recovery Fund Eligibility/Payout Hearing that the Registrar mailed to Respondent at its address of record was reasonable. Respondent is deemed to have received notice of the Recovery Fund Payout Hearing.[18] Complainant bears the burden of proof to establish the amount, if any, that he is entitled to recover from the Fund under A.R.S. § 32-1132(A) by a preponderance of the evidence.[19] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[20] 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.”[21] There was no dispute that Complainant is a “person injured” that is potentially eligible to recover a payout from the Fund.[22] The Registrar has a fiduciary duty to preserve the Fund’s assets and to ensure that no payouts are made except as authorized by statute.[23] 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. . . .” In order to obtain an award from the Fund, an applicant must provide proof to establish by a preponderance of the evidence that he is eligible pursuant to A.R.S. § 32-1131 et seq. Further, if eligible, an applicant must establish by a preponderance of the evidence that the damages sought are within the limitations of compensability set forth in A.R.S. § 32- 1132(A).[24] Mr. Robertson’s written contract with Respondent does not contain a contract price or scope of work.[25] The contract indicates that the agreed- upon construction work was to be performed per the insurance scope for the construction project. There were many additions and subtractions of work to be performed per the insurance scope. Mr. Robertson received 30-year architectural shingles instead of the specified 3-tab shingles and new gutters, a skylight was removed and roofed over, and work on a roof on a shed was deleted in lieu of Mr. Robertson’s payment of his insurance deductible. Additionally Mr. Robertson received cash back from Respondent for alleged workmanship deficiencies, which he failed to disclose to the Registrar until he testified at hearing. Mr. Robertson failed to establish by a preponderance of the evidence the original contract price and the scope of work that was to be completed on his residence in accordance with the parties’ construction agreement. Additionally, the three bids from licensed roofing contractors that Mr. Robertson submitted to the Fund were all for the replacement of his roof. The three bids do not indicate that Mr. Robertson’s roof could not be repaired. Mr. Barbour testified that Complainant’s roof does not require replacement and that the roof only warranted a possible repair. This Tribunal concludes that Mr. Robertson failed to establish by a preponderance of the evidence that he suffered any calculable actual damages that would be compensable from the Fund. RECOMMENDED ORDER Based on the foregoing, it is recommended that the Denial of Mr. Robertson’s Recovery Fund Claim be affirmed and that Mr. Robertson’s claim for damages from the Fund be denied. . 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, July 10, 2014.

/s/ M. Douglas Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors

----------------------- [1] See the Registrar’s Exhibit 8. [2] See the Registrar’s Exhibit 2 [3] See the Registrar’s Exhibit 2. [4] See the Registrar’s Exhibit 2. [5] See the Registrar’s Exhibit 2. [6] See the Registrar’s Exhibit 3. [7] See the Registrar’s Exhibit 5. [8] See the Registrar’s Exhibit 1. [9] See the Registrar’s Exhibit 6, page 7. [10] See the Registrar’s Exhibit 2 (Complaint Form). [11] See the Registrar’s Exhibit 2 (Citation and Complaint). [12] See the Registrar’s Exhibit 2 (Default Decision and Order). [13] See Registrar’s Exhibit 4 (2/6/14 Letter from Property & Casualty Insurance Company of Hartford). [14] See Registrar’s Exhibit 5 (3/21/14 Document Request Letter). [15] See Registrar’s Exhibit 6 (Email chain starting with 3/27/14 email). [16] See Registrar’s Exhibit 7 (Email chain starting with 4/15/14 email). [17] See A.R.S. §§ 32-1131 to 32-1140. [18] See A.R.S. § 41-1092.04; A.R.S. § 41-1092.05(D). [19] 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). [20] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [21] Black’s Law Dictionary at 1220 (8th ed. 1999). [22] A.R.S. § 32-1131(3) defines “person injured” in relevant part as follows: [A]ny owner of residential real property which is classified as class three property under section 42-12003 and which is actually occupied or intended to be occupied by the owner as a residence including community property, tenants in common or joint tenants who are damaged by the failure of a residential contractor or a dual licensed contractor to adequately build or improve a residential structure or appurtenance on that real property. . . . [23] A.R.S. § 32-1134(A) requires the Registrar to take the following actions to preserve the Fund and to ensure that payouts for damages that are authorized by law are made from the Fund:

1. Establish assessments and maintain the fund balance at a level sufficient to pay operating costs and anticipated claims using the cash basis of accounting. 2. Cause an examination of the fund to be made every three years by an independent certified public accountant. 3. File with the department of insurance an annual statement of the condition of the fund. 4. Employ accountants and attorneys from monies in the fund, but not to exceed ten thousand dollars in any fiscal year, that are necessary for the performance of the duties prescribed in this section. 5. Employ or contract with individuals and procure equipment and operational support, to be paid from or purchased with monies in the fund, but not to exceed in any fiscal year fourteen per cent of the total amount deposited in the fund in the prior fiscal year as may be necessary to monitor, process or oppose claims filed by injured persons which may result in collection from the recovery fund. [24] A.R.S. § 32-1132(A) provides as follows:

The residential contractors' recovery fund is established, to be administered by the registrar, from which any person injured by an act, representation, transaction or conduct of a residential contractor licensed pursuant to this chapter that is in violation of this chapter or the rules adopted pursuant to this chapter may be awarded in the county where the violation occurred an amount of not more than thirty thousand dollars for damages sustained by the act, representation, transaction or conduct. 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. If the claimant has paid a deposit or down payment and no actual work is performed or materials are delivered, the award of actual damages shall not exceed the exact dollar amount of the deposit or down payment plus interest at the rate of ten per cent a year from the date the deposit or down payment is made or not more than thirty thousand dollars, whichever is less. Interest shall not be paid from the fund on any other awards under this chapter unless ordered by a court of competent jurisdiction. An award from the fund shall not be available to persons injured by an act, representation, transaction or conduct of a residential contractor who was not licensed pursuant to this chapter or whose license was in an inactive status, expired, cancelled, revoked, suspended or not issued at the time of the contract. No more than the maximum individual award from the fund shall be made on any individual residence or to any injured person. Notwithstanding any other provision of law, monies in the residential contractors' recovery fund shall not be directly awarded for attorney fees or costs except in contested cases appealed to the superior court.

[25] See Registrar’s Exhibit 1 (Contract/Agreement).

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