ALJDEC decisions subject to certification as final

2014A-114-ROC · Registrar of Contractors · 2014-04-09

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: March 6, 2014

APPEARANCES: Mega Air, Inc. appeared through attorney Michael Thal, accompanied by corporate Vice President Henry Robert Garcia and President/proposed Qualifying Party Mario Luna; the State of Arizona, Registrar of Contractors, was represented by Assistant Attorney General Michael Raine and ROC Chief of Licensing Lawrence Matthews.

WITNESSES: For Applicant: Peter D. Garcia Sr., Direct Air, Inc. Mario Luna, Pres/proposed Qualifying Party Henry Robert Garcia, Vice President

For the ROC: Lawrence Matthews, Chief of ROC Licensing

ADMINISTRATIVE LAW JUDGE: Eric A. Bryant _____________________________________________________________________

Mega Air, Inc. (“Applicant”) appeals the Arizona Registrar of Contractors’ (“ROC” or “Registrar”) denial of an application for a specialty (air conditioning) dual contracting license. The ROC based the denial upon finding that Applicant’s corporate principals lack good character and reputation due to having aided or abetted unlicensed contracting. The ROC also found that Applicant’s proposed Qualifying Party does not have the requisite experience required by statute. Applicant requested a hearing to show otherwise. ROC’s Motion to Amend Denial Letter The ROC notified Applicant of its decision to deny the application for licensure by letter dated December 16, 2013 (hereinafter “denial letter”). During the opening portion of the hearing, the ROC moved to amend the denial letter to add another reason for denial based on an allegation that both principals of Applicant committed unlicensed contracting. Applicant objected. The Administrative Law Judge has read the denial letter carefully and finds that it does not state or imply an allegation of unlicensed contracting. Thus, the denial letter does not give Applicant notice that there is an allegation of unlicensed contracting against its principals. The denial letter acts as notice of an appealable agency action as defined in the Uniform Administrative Appeals Act, Arizona Revised Statutes, Title 41, Chapter 6, Article 10. As such, the ROC is required, in the denial letter, to cite the statutes that are alleged to have been violated and to state particular facts that describe and support the allegations.[1] With regard to an allegation of unlicensed contracting by the principals themselves (in contrast to the allegation of aiding or abetting others who performed unlicensed contracting), no such citation or description appears in the denial letter. It appears that it was first alleged at the hearing. Therefore, the ROC did not give Applicant the required statutory notice or the required due process notice and the motion to amend is denied.[2]

This tribunal entered marked Exhibits 1, 2, 4, 5, 6, and 7 from the ROC, and Applicant’s Exhibits A6, A9, A10, A11, A24, and A25. The parties presented evidence and testimony from the witnesses listed above. Based on the entire record, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law, and Recommend Order finding that Applicant has shown that its principals did not aid or abet unlicensed contracting and that Applicant’s proposed Qualifying Party has the experience required by statute. FINDINGS OF FACT 1. On June 4, 2013, Applicant applied for a Class K39 specialty dual contracting license with the ROC.[3] On December 16, 2013, the ROC issued a denial letter for the following reasons: 1. Mario Luna and Henry Robert Garcia aided and abetted Bulldog Mechanical, Revoked License No. #222120, an unlicensed contractor by using invoices with Bulldog Mechanical listed as the contractor performing contracted work in contravention of A.R.S. § 32-1154.A.10.

2. Mario Luna and Henry Robert Garcia, on behalf of Mega Air, Inc., have failed to establish good character and reputation as required by A.R.S. § 32-1122.D.

2. Mario Luna has failed to establish relevant experience necessary to obtain Pending License No. 286662 in his application in contravention of A.R.S. § 32-1122.F.1.

The specific facts upon which the ROC relies for the denial are explained in the next pages of the application denial letter. Work Experience of Mario Luna 2. To put the specific issues in context, a brief overview of Mario Luna’s experience is helpful. He began as a sheet metal worker in the metal shop of Direct Air, Inc. in 2003. From there, he worked his way up from duct fabrication to duct installer to service and repair of mechanical units. From 2003 to 2010 he worked for three licensed air conditioning contractors, performing all aspects of the trade. Since then, he has worked on his own as an unlicensed, exempt “handyman” servicing and repairing air conditioning units. 3. Mario Luna (“Luna”) submitted four Work Experience Record forms, each of which were verified and notarized, to document his experience.[4] The first is a record documenting his self-employment in air conditioning service and repair from 2011 to August 2013, the time at which he submitted the form. He claimed this experience as two and a half years of full time work and verified this work experience himself. 4. The denial letter states that Luna’s self-employment Work Experience Record has “less credibility because Mario Luna receives a direct benefit from this application.” It is not clear, but this seems to be a rejection of the entire two and a half years claimed as self- employment by Luna because he verified it himself. It is noted that the Work Experience Record form acknowledges self-employment as a job category but does not prohibit self-verification. 5. The Administrative Law Judge does not find the self-employment Work Experience Record to lack credibility merely because Luna verified it himself. On it’s face, and without any other evidence, the record has prima facie credibility. 5. The second Work Experience Record form spans the time during September 2007 to September 2010, a period of 3 years of part-time work (20 hours per week average) for Bull Dog Mechanical (“Bull Dog”). Bull Dog is a sole proprietorship of Peter David Garcia, Jr., who is Henry Robert Garcia’s brother. Bull Dog obtained a residential air conditioning license from the ROC in July 2006.[5] The license was suspended for non-renewal in August 2010, and then received multiple disciplinary actions. Bull Dog’s license was provisionally suspended in September 2010 until it complied with an ROC order. There is no indication that the order has ever been complied with. Then, Bull Dog Mechanical’s license was revoked several times in 2010 and 2011 for failing to pay civil penalties. In addition, a payout from the Residential Contractors’ Recovery Fund was made against the license in 2013. 6. The denial letter found the Bull Dog Work Experience Record form to be “not credible because Mario Luna could not have gained the requisite experience while working for a contractor whose license was suspended, then revoked and has a Residential Contractors’ Recovery Fund payout.” This appears to be rejecting the verified form because the contractor for whom Luna worked received discipline and eventually revocation of the license. 7. The evidence shows that the disciplinary actions against Bull Dog took place after the time claimed by Luna for experience. There is no documentation in the record showing that Luna was in any way related to any poor workmanship that might have occurred. In addition, the record shows that Mario Luna was employed by Bull Dog and was not a principal or Qualifying Party for the business, nor is there evidence that he had any managerial authority for Bull Dog. Thus, even had Luna knew about any licensing or workmanship issues and had he wanted to correct them, he did not have authority to do so on his own. He did not have responsibility for Bull Dog’s licensure status. 8. The evidence does not show that Luna had anything to do with the reasons for the discipline of Bull Dog’s license. It does not show that Bull Dog did not provide Luna with “practical . . . trade experience”[6] during the time that he worked for Bull Dog. Instead, it shows that Luna worked as a tradesman for a licensed contractor that was licensed to do the type of work for which Applicant wishes to be licensed and was doing that work on a half-time basis for three years with Bull Dog. Those facts were verified, under penalty of perjury, by the office manager for Bull Dog. That verification was not challenged by the ROC. This is enough evidence to make a prima facie showing of three years’ experience for Luna. A showing that the ROC did not rebut. 9. The third Work Experience Record form asserts that Luna worked August 2008 to August 2010, a period of 2 years of full-time work (40 hours per week average) for Hacienda Mechanical Services (“Hacienda”). Hacienda is a sole proprietorship of Jimmy Hammack, who obtained a commercial license for air conditioning work in 1995 and a residential license for that type of work in 2006. The Work Experience Record form asserts that Luna got his experience under both licenses, as it asserts that he performed “residential and light commercial” work. The commercial license was suspended for non-renewal in August 2009 and expired in August 2010. The residential license was suspended for non-renewal in February 2008 and expired in March 2009. It also was revoked in March 2009. 10. The license histories of both licenses held by Hacienda shows that Hacienda is asserting that Luna obtained experience with Hacienda while its licenses were suspended/revoked/expired during 2009 and 2010. This negates any usefulness of the Hacienda verification. While Luna may have been receiving actual experience during the time, accepting such experience as valid would encourage unlicensed contracting and be against public policy. The claimed years of experience with Hacienda are unsupported by valid evidence.[7] 11. The fourth and final Work Experience Record form comes from Direct Air, Inc., a licensed residential air conditioning contractor that is owned and operated by Henry Robert Garcia’s father, Peter David Garcia, Sr.[8] Direct Air obtained a license in 1999. The license was revoked in August 2007. The verified experience form from Direct Air asserts that Luna worked for Direct Air from December 2003 to August 2007, a period of over three and a half years. The form states that Luna worked an average of 30 hours per week and that he performed sheet metal fabrication, duct installation, and limited service and repair. Peter David Garcia Sr. testified in support of the form and credibly explained the substance of it, including an error that he made when filling out the form with regard to the number of people supervised by Luna. Based on the testimony of both Peter David Garcia Sr. and Luna, it is clear that the first portion of his time there, the first year, he was fabricating sheet metal. This is not the type of work that counts for contracting experience, so one year of the three and a half should not count. Thus, only two and a half years of this experience is of the kind that is relevant to licensure. 12. The denial letter rejects this experience due to Direct Air’s license history: “Mario Luna could not have gained the requisite experience while working for a contractor whose license was suspended, then revoked.” This statement is not accurate, as it implies that Luna was working for Direct Air when its license was suspended and then revoked. This is not the case. Luna worked for Direct Air before the license was suspended then revoked, while the license was active and in good standing. The denial letter also rejects Luna’s experience with Direct Air due to the statement on the form about the number of persons supervised. However, that statement was established to be an error made by Peter David Garcia Sr., the verifier and the one who filled out the form, and it is no longer a valid basis for rejection. 13. The record at hearing supports a finding that Luna received two and a half years of relevant experience with Direct Air. 14. The record also contains sixteen verified Project Information forms.[9] Many of these forms are incomplete in that they do not show dates, show incomplete dates, and do not show what entity Luna was working for at the time of the project. It appears that they are all from projects during the self-employment period, since the dates that are provided are mostly from 2013, with a few from 2012. However, several of them show amounts that exceed the handyman exemption amount. It is possible that these jobs were performed under the auspices of Bull Dog, since Luna was working for Bull Dog during this time,[10] but it is unclear. The cloud over these Project Information forms is too great to give them any weight. Therefore, they are not considered reliable. Since they appear to be confirmation of Luna’s self-employment experience, that experience is unsupported with reliable evidence and should not be considered. 15. The Administrative Law Judge finds that the experience offered by Luna that relates to self-employment from 2011 to 2013 and to Hacienda from 2008 to 2010 has not been shown with sufficient weight to be qualifying experience. Only the experience with Bull Dog and Direct Air is qualifying experience. 16. Taking the evidence of Luna’s experience as a whole, as documented by the valid and reliable Work Experience Record forms, the evidence supports a finding that Luna has received experience in the type of work for which he is applying as Qualifying Party, for at least the required four years. Alleged Aiding and Abetting 17. Exhibit 7 contains invoices from Bull Dog in which either Luna by himself or both Luna and Henry Robert Garcia were the technicians and performed air conditioning work on behalf of Bull Dog. These invoices are dated from September 2012, July 2013, and August 2013, and are for work performed for Peak Investment Properties, who own apartment complexes. As noted above, Bull Dog’s license was suspended beginning August 2010 and was then revoked as early as October 2010. This means that the work evidenced by the invoices in Exhibit 7 was done by Applicant’s principals while Bull Dog’s license was revoked. 18. Luna testified at hearing that he was unaware that Bull Dog’s license was not current when he performed the work in Exhibit 7. He testified that he did not know Bull Dog’s license status until he received the denial letter. The evidence shows that the owner of Bull Dog, Peter David Garcia Jr. is not close to his brother Henry Robert Garcia or his father Peter David Garcia Sr., or Luna. Still, it is difficult to believe that Luna did not know about Bull Dog’s license suspension or revocation over a period of three years (2010–2013). However, Luna was a part-time employee during that time. Luna credibly testified that he continued to get paid somewhat regularly for the work and he did not have much contact with Peter David Garcia Jr. Also, Luna was cross-examined about his statement that he was unaware of Bull Dog’s license status and this did not diminish the credibility of his testimony.[11] 19. Weighing the evidence carefully, the evidence supports a finding that Luna and Henry Robert Garcia were not aware that Bull Dog’s license was suspended or revoked when they worked for Bull Dog from late 2010 to 2013. CONCLUSIONS OF LAW 1. Applicant must show that it meets qualifications for licensure.[12] One of those qualifications is that persons named on a license be persons of good character and reputation.[13] By statute, lack of good character and reputation may be established by showing (1) that a person has engaged in contracting without a license, or (2) that a person has committed any act that, if committed by a licensee, would be grounds for disciplinary action against a licensee, or (3) that a person has been named on a contractor’s license that was suspended or revoked in another state.[14] Another qualification is that an applicant must have a Qualifying Party that meets statutory requirements, one of which is a minimum of four years “practical or management trade experience . . . dealing specifically with the type of construction, or its equivalent, for which the applicant is applying. . . .”[15] For the reasons stated below, Applicant has shown that he does not lack good character and reputation and that Applicant’s proposed Qualifying Party has the required experience. Good Character and Reputation 2. A.R.S. § 32-1122(D) requires each person on a license to be of “good character and reputation.” It then states that lack of such good character and reputation may be established by a showing that a person has acted within one of the three categories of prohibited actions stated above. Because there is no one other than the applicant and the ROC involved in an application for a contractor’s license, the plain meaning of the statute is that, if there is any lack of good character to be shown, the ROC must establish lack of good character and reputation by putting forth evidence that the person has committed at least one action within one of the three statutory categories. While the ultimate burden of showing qualification for licensure remains on an applicant,[16] the ROC must go forward with any evidence concerning lack of good character and reputation.[17] 3. Here, the ROC proceeded to show lack of good character under the second category of the three: that Applicant’s principals had committed an act that would be grounds for discipline if committed by a licensed contractor, namely aiding or abetting unlicensed contracting. A.R.S. § 32- 1154(A) lists the acts that are grounds for discipline. One of them is aiding or abetting unlicensed contracting. The denial letter stated that Applicant’s principals aided or abetted unlicensed contracting by Bull Dog. 4. Contractors are prohibited from: Aiding or abetting a licensed or unlicensed person to evade this chapter, knowingly or recklessly combining or conspiring with a licensed or unlicensed person, allowing one's license to be used by a licensed or unlicensed person or acting as agent, partner, associate or otherwise of a licensed or unlicensed person with intent to evade this chapter.[18]

Applicant argues, and the Administrative Law Judge agrees, that this provision requires that the person accused of aiding or abetting an unlicensed contractor do so with intent or knowledge that he is doing so. This provision cannot reasonably be read to allow discipline for a contractor who unknowingly aids unlicensed contracting. Such a reading would be unnatural. And it would be inconsistent with other types of prohibited aiding or abetting conduct, such as aiding or abetting the tortuous conduct of another.[19] Thus, in order to find that Applicant aid or abetted Bull Dog, the evidence must show that Luna or Henry Robert Garcia knew that Bull Dog was an unlicensed contractor. 5. As found above, the greater weight of the evidence does not show that Applicant’s principals knew that Bull Dog was unlicensed when they performed the work documented in Exhibit 7. Work Experience 6. Another qualification for licensure is that Applicant’s Qualifying Party must have the statutorily required experience. The Qualifying Party must have had “a minimum of four years' practical or management trade experience, at least two of which must have been within the last ten years, dealing specifically with the type of construction, or its equivalent, for which the applicant is applying for a license.”[20] This provision looks only at the amount of experience and whether it is “trade experience,” either practical trade experience or management trade experience. It does not look at issues of good character and reputation, as that licensure requirement is addressed by A.R.S. § 32-1122(D). In addition, the provision does not require that the experience be full time experience. Clearly it implies that the experience be substantial, meaningful experience. But one might be able to obtain such experience in a part-time job, depending on the circumstances of the job. Some types of construction work have seasonal highs and lows and may not always lend themselves to standard forty-hour work weeks. Thus, the Administrative Law Judge finds no statutory requirement that the experience be full-time. 7. At hearing, the ROC took the position that Luna did not have the required experience because the contractor’s he has worked for while acquiring that experience had their licenses revoked AFTER Luna worked for them. The ROC concluded that, because of those subsequent revocations, the experience that Luna received from those contractors was of poor quality. However, this does not automatically follow. There are many reasons that contractors’ licenses are revoked, not all of them having to do with workmanship. Furthermore, with regard to practical trade experience, as opposed to management trade experience, only workmanship is relevant. The statute, A.R.S. § 32-1122(F)(1), distinguishes between practical trade experience (workmanship) and management experience (business), and allows for either type of experience. Luna is claiming practical trade experience for his qualifications. That means that the management (or mismanagement) of the contractors for which he worked is not relevant to the quality of his practical trade experience with them. 8. Also, if the ROC rejected Luna’s verified work experience because it found the verifiers to lack credibility due to the revocations and other disciplinary actions that occurred after he worked for them, this is a non- sequitur. Credibility concerns character for honesty and truthfulness. It also may concern whether the person whose credibility is at issue is biased or prejudiced in some way. The mere fact of disciplinary actions of a license that occurred after the claimed experience period does not show dishonesty, lack of truthfulness, or any other issue with credibility. Without knowing the reasons for the disciplinary actions, one cannot make any conclusion with regard to credibility. 9. Thus, as found above, the evidence shows that Luna has the minimum required experience to be Applicant’s Qualifying Party. 10. The Administrative Law Judge concludes that the reasons for denial stated in the denial letter are not supported by the evidence. Applicant has shown that its principals did not aid or abet Bull Dog in its practice of unlicensed contracting and that Luna has the required four years of work experience in the air conditioning field. RECOMMENDED ORDER IT IS RECOMMENDED that the Registrar of Contractors find that the persons on Pending License No. K-39.285622-D of Mega Air, Inc. have good character and reputation. IT IS FURTHER RECOMMENDED that the Registrar of Contractors find that Mario Luna has the statutorily required work experience to act as Applicant’s Qualifying Party.

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 5 days from the date of that certification.

Done this day, April 9, 2014.

/s/ Eric A. Bryant Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] A.R.S. § 41-1092.03(A), in relevant part, reads:

The notice [of an appealable agency action] shall:

1. Identify the statute or rule that is alleged to have been violated or on which the action is based.

2. Identify with reasonable particularity the nature of any alleged violation, including, if applicable, the conduct or activity constituting the violation. . . .

A similar provision is found at A.R.S. § 41-1076(1), which requires the denial letter to provide “[j]ustification for the denial with references to the statutes or rules on which the denial is based.” [2] This is especially significant in a case such as this one, where the evidence for an allegation of unlicensed contracting was in the possession of the ROC Licensing Department before it issued the denial letter. See Exhibits 6, A24, A25. [3] Exhibit 2. [4] Exhibit 4. [5] Notice is taken of the licensing information on the ROC’s public website on April 7, 2014. All license history information in this decision is derived from that source. [6] A.R.S. § 32-1122(F)(1). [7] Note the difference between this situation, in which work experience is being claimed for work done for an unlicensed contractor, versus the situation in which work was done under an active license that was later suspended or revoked. [8] Peter David Garcia Sr. is also the father of Peter David Garcia Jr., owner of Bull Dog. [9] Exhibit 5. [10] But Luna did not present that time period for Bull Dog as qualifying experience. [11] Neither party questioned Henry Robert Garcia about his knowledge of Bull Dog’s license status. [12] Arizona Revised Statutes (A.R.S.) § 41-1092.07(G)(1). [13] A.R.S. § 32-1122(D). [14] Id. The entire paragraph states:

To obtain or renew a license under this chapter, each person shall be of good character and reputation. Lack of good character and reputation may be established by showing that a person has engaged in contracting without a license or committed any act that, if committed or done by any licensed contractor, would be grounds for suspension or revocation of a contractor's license or by showing that the person was named on a contractor's license that was suspended or revoked in another state.

[15] A.R.S. § 32-1122(F)(1). [16] A.R.S. § 41-1092.07(G)(1). A.R.S. § 41-1065 is not applicable because A.R.S. § 41-1067 states: “This article only applies to contested cases of agencies that are exempt from article 10 of this chapter as provided in section 41-1092.02.” This case is an appealable agency action (not a contested case) and the ROC is not an exempt agency. [17] In other words, the applicant bears the burden of persuasion for showing qualifications for licensure, but the ROC bears the burden of going forward with evidence for any alleged lack of good character and reputation. [18] A.R.S. § 32-1154(A)(10).

[19] Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 485, 38 P.3d 12, 23 (2002) (citing Restatement (Second) of Torts § 876(b) (1979)); Restatement (Second) of Torts § 876(b) (1979) (requiring that aider have knowledge that the conduct being aided is tortious). [20] A.R.S. § 32-1122(F)(1).

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