ALJDEC decisions subject to certification as final

2014A-1165-ROC · Registrar of Contractors · 2014-10-27

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING DATES: July 19, 2014, at 8:00 a.m.; October 6, 2014, at 10:00 a.m.; October 7, 2014, at 8:00 a.m.; and October 8, 2014, at 10:00 a.m. APPEARANCES: The Arizona Registrar of Contractors was represented by Seth T. Hargraves, Esq., Assistant Attorney General; Respondent Eric Stanley Cederquist appeared on his own behalf; Respondent Sharon O’Connor appeared on her own behalf. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedural History The Morris Residence On December 20, 2013, the Flagstaff office of the Arizona Registrar of Contractors (“Registrar”) received a complaint from Mark Morris against Eric Cederquist regarding his construction of the Morris residence located at 5971 N. Luminary Way, Lakeside, Arizona.[1] Although Mr. Morris’s complaint included various workmanship deficiencies, his primary complaint was that Mr. Cederquist had overcharged him for the project. The complaint stated that the contract amount was $149,750.00, but that Mr. Morris had paid Mr. Cederquist $159,222.54, resulting in an overcharge of $8,127.71 after legitimate additional expenses were deducted. Mr. Morris acknowledged that Mr. Cederquist was not a licensed contractor. The Registrar designated Mr. Morris’s complaint against Mr. Cederquist as Case No. 2014-5944. The Registrar’s Investigator Joseph Lewis Shikany checked the Registrar’s records and determined that Mr. Cederquist did not currently possess a valid contractor’s license. Case No. 2014-1158 against Mr. Cederquist Investigator Shikany opened an investigation into Mr. Cederquist’s possibly unlicensed contracting activities in the construction of the Morris residence, designated as Case No. 2014-1158. Investigator Shikany obtained and reviewed documents, interviewed Mr. Morris, Keith Robinson, Sr., and Mr. Cederquist, and summarized the results of his investigation in an investigative report.[2] Mr. Robinson is an officer and the owner of Veteran Group Corporation, License No. B.274004-R for residential general construction (“Veteran Group”), the purported licensed contractor on the Morris project. As a result of investigation, Investigator Shikany issued a Cease & Desist Order to Mr. Cederquist to immediately cease and desist all unlicensed contracting activity at the Morris residence and imposed a $2,500.00 civil penalty against Mr. Cederquist for unlicensed contracting in violation of A.R.S. § 32-1151.[3] Mr. Cederquist subsequently requested a hearing in Case No. 2014-1158. Case No. 2014-1165 against Sharon O’Connor Sharon O’Connor is Mr. Cederquist’s wife. During Investigator Shikany’s investigation in Case No. 2014-1158, Mr. Morris located four checks that had been issued to Ms. O’Connor and payroll statements that indicated that she had performed electrical work. After verifying that Ms. O’Connor is not a licensed contractor, Investigator Shikany opened an investigation into Ms. O’Connor’s possibly unlicensed contracting activities in the construction of the Morris residence, designated as Case No. 2014-1165. Investigator Shikany interviewed Ms. O’Connor and summarized the results of his investigation in an investigative report.[4] As a result of his investigation, Investigator Shikany issued a Cease & Desist Order to Ms. O’Connor to immediately cease and desist all unlicensed contracting activity at the Morris residence and imposed a $2,500.00 civil penalty against Ms. O’Connor for unlicensed contracting in violation of A.R.S. § 32-1151.[5] Ms. O’Connor subsequently requested a hearing in Case No. 2014-1165. The Harris Residence At some point, the Registrar received a complaint from Theodore T. Harris, Jr. and Jessica M. Harris against Mr. Cederquist regarding his construction of their residence located at 5975 N. Luminary Way, Lakeside, Arizona. The Harris complaint alleged that Mr. Cederquist had performed substandard workmanship, had committed financial irregularities, and “[was] acting as Licensed contractor in full under the guise of a ‘project manager.’” The Harris complaint further informed the Registrar that “[w]e are no longer retaining [Mr. Cederquist’s] services as ‘project manager’ and we are directly working with Steve Johnson, of STJ Construction, Inc to remedy these issues.”[6] Stephen Tracy Johnson is the qualifying party and an officer of S T J Construction Inc. dba Precision Custom Builders, License No. KB-2.231699-D (“STJ”). Case No. 2014-1160 against Mr. Cederquist Investigator Shikany opened an investigation into Mr. Cederquist’s possibly unlicensed contracting activities in the construction of the Harris residence, designated as Case No. 2014-1160. Investigator Shikany obtained and reviewed documents, interviewed Mr. and Mrs. Harris, Mr. Johnson, and Mr. Cederquist, and summarized the results of his investigation in an investigative report.[7] As a result of his investigation, Investigator Shikany issued a Cease & Desist Order to Mr. Cederquist to immediately cease and desist all unlicensed contracting activity at the Harris residence and imposed a $2,500.00 civil penalty against Mr. Cederquist for unlicensed contracting in violation of A.R.S. § 32-1151.[8] Mr. Cederquist subsequently requested a hearing in Case No. 2014-1160. Case No. 2014-1168 against Sharon O’Connor During Investigator Shikany’s investigation in Case No. 2014-1160, Investigator Shikany noticed checks that had been issued to Ms. O’Connor. Mr. Harris indicated that he had taken a picture of Ms. O’Connor performing electrical wiring. Investigator Shikany opened an investigation into Ms. O’Connor’s possibly unlicensed contracting activities in the construction of the Harris residence, designated as Case No. 2014-1168. Investigator Shikany interviewed Ms. O’Connor and summarized the results of his investigation in an investigative report.[9] As a result of his investigation, Investigator Shikany issued a Cease & Desist Order to Ms. O’Connor to immediately cease and desist all unlicensed contracting activity at the Harris residence and imposed a $2,500.00 civil penalty against Ms. O’Connor for unlicensed contracting in violation of A.R.S. § 32-1151.[10] Ms. O’Connor subsequently requested a hearing in Case No. 2014-1168. The Johns’ Residence Case No. 2014-1162 against Mr. Cederquist After Investigator Shikany interviewed Mr. Johnson as part of his investigation into Mr. Cederquist’s possibly unlicensed activities in the construction of the Harris residence, Mr. Johnson disclosed that Mr. Cederquist had also drafted a contract and contracted to build a residence for John Deardorf and John Golleher (“the Johns”) at 5960 N. Luminary Way, Lakeside, Arizona. Investigator Shikany opened an investigation into Mr. Cederquist’s possibly unlicensed contracting activities in the construction of the Johns’ residence, designated as Case No. 2014-1162. Investigator Shikany reviewed the documents that Mr. Johnson provided, interviewed Mr. Cederquist, and summarized the results of his investigation in an investigative report.[11] Mr. Deardorf and Mr. Golleher declined to assist Investigator Shikany in his investigation. As a result of his investigation, Investigator Shikany issued a Cease & Desist Order to Mr. Cederquist to immediately cease and desist all unlicensed contracting activity at the Johns’ residence and imposed a $2,500.00 civil penalty against Mr. Cederquist for unlicensed contracting, in violation of A.R.S. § 32-1151.[12] Mr. Cederquist subsequently requested a hearing in Case No. 2014-1162. The Kelemecz/Staudacher Residence Case No. 2014-1163 against Mr. Cederquist Mr. Johnson also informed Investigator Shikany that Mr. Cederquist had drafted a contract and contracted to build a residence for Jeff Kelemecz and Debbie Staudacher at 5982 N. Luminary Way, Lakeside, Arizona. Investigator Shikany opened an investigation into Mr. Cederquist’s possibly unlicensed contracting activities in the construction of the Kelemecz/Staudacher residence, designated as Case No. 2014-1163. Investigator Shikany reviewed the documents that Mr. Johnson provided, interviewed Mr. Cederquist, and summarized the results of his investigation in an investigative report.[13] Mr. Kelemecz and Ms. Staudacher declined to assist Investigator Shikany in his investigation. As a result of his investigation, Investigator Shikany issued a Cease & Desist Order to Mr. Cederquist to immediately cease and desist all unlicensed contracting activity at the Kelemecz/Staudacher residence and imposed a $2,500.00 civil penalty against Mr. Cederquist for unlicensed contracting, in violation of A.R.S. § 32-1151.[14] Mr. Cederquist subsequently requested a hearing in Case No. 2014-1163. The Registrar’s Referral of the Cases to the Office of Administrative Hearings Ms. O’Connor testified that she requested that the Registrar not consolidate the cases against her with the cases against Mr. Cederquist. Nonetheless, the Registrar referred all six complaints to the Office of Administrative Hearings (“OAH”), an independent state agency, for a consolidated evidentiary hearing. After the Registrar referred the matters to OAH, neither Ms. O’Connor nor Mr. Cederquist ever requested that the Administrative Law Judge (“ALJ”) sever the matters pursuant to A.A.C. R2-19- 109(D). A hearing on the merits was begun at OAH on June 14, 2014. The Registrar presented the testimony of Mr. Morris, Mr. Johnson, and Investigator Shikany regarding his investigations of Mr. Cederquist’s and Ms. O’Connor’s unlicensed activities at the Morris residence and the Harris residence. The Registrar submitted 28 exhibits, including subparts. Mr. Cederquist and/or Ms. O’Connor cross-examined the Registrar’s witnesses and submitted four exhibits. On July 1, 2014, Ms. O’Connor moved to dismiss all cases and penalties against herself and Mr. Cederquist based on Investigator Shikany’s alleged perjury in authenticating Cease & Desist Orders and Notices of Civil Penalties against Ms. O’Connor and Mr. Cederquist for the Harris residence that had not been actually sent to their address of record. On July 9, 2014, the Registrar’s attorney filed a motion to rescind the citations against Mr. Cederquist and Ms. O’Connor involving the Harris residence in Case Nos. 2014-1160 and 2014-1168 because “[s]ubsequent to the issuance of the citations, it was discovered that an incorrect address had been included on the citation for case 2014-1168” and “[i]n an effort to correct the error, a draft amended citation was prepared and inadvertently uploaded to the ROC’s database prior to its being finalized and issued.” According to the motion to rescind, the error was only discovered after Ms. O’Connor filed the motion to dismiss. On July 10, 2014, the ALJ issued an order in Case Nos. 2014-1160 against Mr. Cederquist and 2014-1168 against Ms. O’Connor, taking the following actions: (1) Severing the matters involving the Harris residence from the matters involving the Morris residence, the Johns’ residence, and the Kelemecz/Staudacher residence; (2) Vacating the remainder of the hearing on the merits on the matters involving the Harris residence; and (3) Remanding the matters involving the Harris residence to the Registrar with the recommendation that they be dismissed. On July 10, 2014, the ALJ also issued an order in the remaining Case Nos. 2014-1158, 2014-1162, 2014-1163, and 2014-1165, denying Ms. O’Connor’s motion to dismiss those cases “[b]ecause no statute or regulation authorizes the ALJ to dismiss a matter that an agency has referred to [OAH] for an evidentiary hearing or to take any other punitive action based on the alleged misconduct of the agency’s employee . . . .” The ALJ also allowed Ms. O’Connor and Mr. Cederquist to amend their request for further hearing dates. Subsequently, the ALJ granted Ms. O’Connor’s and Mr. Cederquist’s requests for further hearing dates and continued the scheduled hearing dates in the remaining four matters involving the Morris, the Johns’, and the Kelemecz/Staudacher residences to October 2014. Further hearing dates were held on October 6, 2014, October 7, 2014, and October 8, 2014. The Registrar presented the testimony of Mr. Robinson and Investigator Shikany and submitted six additional exhibits. Ms. O’Connor testified on her own behalf, Mr. Cederquist testified on his own behalf, and Ms. O’Connor and Mr. Cederquist collectively submitted a total of 40 additional exhibits. Hearing Evidence Ms. O’Connor and Mr. Cederquist Ms. O’Connor and Mr. Cederquist have been married for 14 years. At the time of the hearing, Ms. O’Connor was 68 years old and Mr. Cederquist was years old. Mr. Cederquist formerly held License No. B.150600-R issued to Cimmaron Custom Homes, Inc. In 2003, the Registrar revoked that license. However, payouts that the Registrar made from the Residential Contractors’ Recovery Fund that were charged to Cimmaron Custom Homes, Inc.’s license have been reimbursed in full.[15] Mr. Cederquist testified that he has retired from contracting because he is 71 years old, wanted to spend his time in other activities, and felt that it would be unfair to customers for him to commit to performing extended warranty work. Mr. Cederquist also has a degree in accounting. At the time of the events that gave rise to the various citations, Mr. Cederquist and Ms. O’Connor were constructing their own residence on N. Luminary Way in Lakeside, Arizona as owner-builders. Ms. O’Connor testified that as a result of the recent recession, she and her husband went from being worth $3 million on paper to bankruptcy in 2010. Ms. O’Connor testified that another result of the recession was that most qualified tradesmen and contractors left the White Mountains, which made it hard for people like Mr. and Mrs. Morris, the Johns, and Mr. Kelemecz and Ms. Staudacher to get their residences built in Lakeside. The Morris Residence Mr. Cederquist and Ms. O’Connor met Mr. Morris and his wife, Carrie, when they were all living in the same complex of townhouses. At that time, Mr. Cederquist and Ms. O’Connor were completing construction of their residence in Lakeside. On Mother’s Day 2012, Ms. O’Connor was waiting for company to arrive when she saw Mr. and Mrs. Morris drive their car several times past her townhouse and went out to see if they were lost. During the conversation, Ms. O’Connor shared that she and her husband were only living in the townhouse until they completed construction of their residence. On the following Monday, Mrs. Morris wrote an email to Ms. O’Connor and Mr. Cederquist to inform them that “we are very interested in having you build us a home” and asked Ms. O’Connor and Mr. Cederquist to select a lot for Mr. and Mrs. Morris in the same area that Ms. O’Connor and Mr. Cederquist were constructing their residence.[16] After the Mr. and Mrs. Morris selected and purchased their lot, Mr. Cederquist provided a form contract that he had used in the past.[17] Mr. Morris’s brother-in-law, who is an attorney, reviewed Mr. Cederquist’s form contract and made only a few minor changes. On or about July 14, 2012, Mr. and Mrs. Morris as “Owner,” Mr. Cederquist as “Project Manager,” and Russell Wilson as purported vice president of on behalf of Veteran Group as the “Contractor” signed that Residential Construction Contract that Mr. Cederquist had drafted (“the Morris contract”).[18] The Morris contract included the following terms: II. SCOPE OF WORK

Contractor agrees to furnish all labor and to provide all materials, equipment and services necessary to construct . . . a residential dwelling for Owner. . . . Owner agrees to retain the services of Contractor for the purpose of constructing a residential dwelling . . . . Owner also agrees to retain the services of Project Manager as their on-site agent to oversee the work of Contractor. Owner shall pay Contractor for the performance of the Agreement the Actual Cost of the Work as defined in Section III Paragraph F. . . .

III. GENERAL CONDITIONS FOR THE AGREEMENT ABOVE . . . .

C. WORK PERFORMED BY CONTRACTOR

Contractor shall perform specific work on this project for which direct compensation shall be provided. This will include, but not be limited to, any work allowed under its license, direct supervision, mobilization, punch-out and pick-up work not provided by subcontractors, and other work as agreed to by Owner.

By separate agreement, Contractor and Project Manager shall manage the construction of Owner’s residence.

D. WORK PERFORMED BY OWNER OR OWNER’S SEPARATE SUBCONTRACTORS

Any labor or materials provided by Owner or Owner’s separate Subcontractors while Contractor is still working on this project must be supervised by Contractor.

E. CHANGE ORDERS: CONCEALED CONDITIONS, ADDITIONAL WORK, AND CHANGES IN THE WORK . . . .

3. CHANGES IN THE WORK:

During the course of the project, Owner may request changes in the Work (both additions and deletions). Contractor, at its sole discretion, may accept or reject any requested changes. The cost of changes accepted by Contractor will be mutually agreed to by Contractor and Owner, including the cost of any additional Contractor’s profit and overhead. Changes will be made only upon the written approval of Owner and Contractor. . . . .

F. PAYMENT SCHEDULE AND PAYMENT TERMS

1. ACTUAL COST OF THE WORK:

Owner agrees to pay to suppliers, materialmen, subcontractors and Contractor the Total Cost of the Work. Owner shall also pay to Contractor an amount representing state and municipal sales tax which Contractor will remit monthly to the Department of Revenue. Upon receipt of a lender draw, Project Manager shall make all disbursements and maintain necessary records of accounts for Owner. . . . .

2. PAYMENT SCHEDULE:

Work-in-progress payments are due upon completion of the Work identified and will be invoiced at the amount indicated plus applicable sales tax.

• Down Payment in the amount of $12,000.00 is due to Project Manager at the time of acceptance of this contract by Owner.

• Monthly Construction Draws will be submitted by the last day of the month for work completed that month. Project Manager will approve all requests for payment and submit a payment schedule to Owner. Owner will review, resolve any discrepancies with Project Manager and Contractor, approve and submit to lender by the 3rd day of the month following the billing period. . . . Disbursement to suppliers and subcontractors will be made by the 10th day of the month. Each monthly draw will include a proportionate amount of the Contractor Supervision and Overhead expense.

• Materials Deposit Payments: Any materials deposits . . . must be paid within 7 business days of submittal of an invoice by Contractor. . . . . . . .

Notwithstanding the preceding schedule of payments or any other provision of this Agreement, Owner shall have no obligation to make any payment other than the First Payment/Contract Deposit Payment, unless and until Project Manger [sic] has delivered to Owner paid receipts or conditional lien waivers acceptable to Owner and Owner’s lender, with respect to that portion of the Work which is the subject of the current payment from Contractor and all subcontractors, sub-subcontractors and materialmen who might otherwise be entitled to lien the Property, and unconditional lien waivers acceptable to Owner and Owner’s lender, with respect to all prior Work from Contractor and all subcontractors, sub-subcontractors and materialmen who might otherwise be entitled to lien the Property. Contractor’s applications for payment shall constitute Contractor’s certification that it has completed such (specified) Work . . . . . . . .

4. FINAL CONTRACT PAYMENT:

The final contract payment is due and payable within 7 business days of “Substantial Completion” (not Final Completion) of all Work required by the Contract Documents and Owner’s receipt of Contractor’s application for payment therefor. . . . . . . .

G. MISCELLANEOUS CONDITIONS . . . .

4. CONTROL AND DIRECTION OF EMPLOYEES AND SUBCONTRACTORS

Contractor, or his appointed Supervisor, shall be the sole supervisor of Contractor’s Employees and Subcontractors. . . . . . . .

I. LIEN RELEASES

Upon request by Owner, Contractor will provide to Owner for itself and its Subcontractors, Sub-subcontractors and their respective materialmen, appropriate conditional, unconditional, partial and/or full lien releases in connection with Contractor’s request for any partial or final payments from Owner and at any other time reasonably requested by Owner. . . . .

L. WARRANTY

Contractor provides a limited warranty on all Contractor and Subcontractor-supplied labor and materials used in this project for a period of two years commencing with the issuance of an Occupancy permit and as provided under Arizona statute. . . . .

N. ENTIRE AGREEMENT, SEVERABILITY, AND MODIFICATION

This Agreement has been executed in the State of Arizona, and the laws of the State of Arizona shall govern its construction, performance and terms. . . . This Agreement represents and contains the entire agreement between the parties. Prior discussions or verbal representations by Contractor or Owner that are not contained in this Agreement are not a part of this Agreement. . . .[19]

Veteran Group and Mr. Cederquist never entered into any separate agreement for Mr. Cederquist to work as Project Manager on the Morris project. The Morris contract does not contain any provisions for Mr. Cederquist to be compensated as Project Manager, for the Project Manager to perform any construction work on the residence, or for the Project Manager to hire subcontractors or to purchase materials for the construction of the residence. The Registrar’s Investigator Tom Sandoval conducted a jobsite inspection as a result of Mr. Morris’s workmanship complaint in Case No. 2014-5944. Mr. Robinson, Mr. Cederquist, and Investigator Shikany attended Investigator Sandoval’s inspection. Investigator Shikany did not identify himself as an employee of the Registrar. Investigator Shikany testified that he went to the jobsite inspection as an observer.[20] Mr. Robinson testified that at that time of the Morris contract, Mr. Wilson was an employee and qualifying party for Veteran Group. Mr. Robinson testified that Mr. Wilson was not Veteran Group’s vice president and was not authorized to sign contracts on its behalf. Mr. Robinson testified that Veteran Group uses a form contract that was different from the Morris contract and that he did not know anything about the Morris contract until he became involved in the Registrar’s investigation of Mr. Cederquist’s possibly unlicensed contracting activity in the construction of the Morris residence. On August 26, 2012, Mr. Robinson on Veteran Group’s behalf completed and signed a Contractor Questionnaire and Certificate of Liability Insurance and filed the documents with BBVA Compass Bank to allow Mr. and Mrs. Morris to obtain financing for the construction of their residence.[21] Mr. Robinson testified that he received $3,600.00 for completing and filing the paperwork. Mr. Robinson testified that he initially intended to build the Morris residence because Mr. Wilson suggested that Veteran Group could profit by building houses in the mountains. Mr. Robinson testified that the Morris project dragged on and that eventually, Mr. Cederquist informed him that he would build the house with Mr. Morris as an owner-builder. Mr. Robinson testified that in the initial discussions, he understood that Veteran Group would receive $4,000.00 for profit and overhead for acting as contractor in this construction of the Morris residence, but that Veteran Group never received any more payments after the initial $3,600.00 for completing the Contractor Questionnaire and Certificate of Liability Insurance. Mr. Robinson testified that when he learned that Mr. Wilson was being paid to work on the Morris residence, he removed him from Veteran Group’s payroll and eventually disassociated Mr. Wilson as Veteran Group’s qualifying party. According to the Registrar’s public website, on March 28, 2014, the Registrar suspended Veteran Group’s residential general contracting license for lack of a qualifying party. Mr. Robinson testified that Mr. Wilson was not on Veteran Group’s payroll during the construction of the Morris residence and that Veteran Group did not provide any materials, equipment, or labor and did not hire any subcontractors for the construction of the Morris residence. Mr. Robinson testified that he did not even know that a permit had been pulled for the Morris residence, but that he later learned that Mr. Cederquist had pulled the permit in Veteran Group’s name. Mr. Robinson testified that Veteran Group did not even build the roof of the Morris residence, even though its main line of work is roofing.[22] Mr. Robinson testified that Veteran Group did not remit monthly sales tax payments to the Arizona Department of Revenue or to any local taxing authority and did not pay any workers’ compensation insurance for the construction of the Morris residence. Mr. Robinson testified that when he signed the Contractor Questionnaire and Certificate of Liability Insurance, he did not intend to obligate Veteran Group to act as general contractor in the construction of the Morris residence. Mr. Robinson testified that Veteran Group did not make any payments to Mr. Cederquist or issue any interim or final billings to Mr. and Mrs. Morris. Mr. Robinson testified that for projects on which Veteran Group acts as a contractor, it gets paid by the owner and issues payments to suppliers and subcontractors and pays its own employees who worked on the project through a payroll company. Mr. Robinson testified that he never received any money from Mr. and Mrs. Morris. Mr. Morris testified that he did not contract with Veteran Group for construction of his residence and that he did not meet Mr. Robinson until 2013, after he had a falling out with Mr. Cederquist. Case No. 2014-1158 against Mr. Cederquist The Registrar submitted numerous emails between Mr. and Mrs. Morris and Mr. Cederquist or Ms. O’Connor, which contained no mention of Veteran Group.[23] The emails included the following: 1. In response to an email from Mr. and Mrs. Morris entitled, “Wish List” that specified certain features they desired in their residence, on May 17, 2012, Mr. Cederquist stated that he was “looking forward to designing and building both of you a wonderful mountain home” and that he and Ms. O’Connor would assess the lot that Mr. and Mrs. Morris had purchased to “start working on a detailed budget for you”; 2. On May 19, 2012, Ms. O’Connor sent an email to Mrs. Morris entitled, “Your House,” informing her that Ms. O’Connor and Mr. Cederquist would soon have electric service at their house and that “[Mr. Cederquist] pointed out that when we build your house, we will be able to plug our extension cords into an electric outlet at the side of our house so we will have electric power right away for our tools”; 3. On May 22, 2012, Mr. Cederquist provided a copy of the form contract to Mr. and Mrs. Morris for their approval; and 4. On May 24, 2012, Thomas and Betty Fahey sent an email of reference for Mr. Cederquist and Ms. O’Connor to Mr. and Mrs. Morris at Ms. O’Connor’s request, describing their positive experience with Mr. Cederquist and Ms. O’Connor when they performed remodeling work at Mr. and Mrs. Fahey’s townhouse in Green Valley. On May 23, 2012, Ms. O’Connor disclosed Mr. Cederquist’s license status to Mr. and Mrs. Morris, in relevant part as follows: Something I want you to understand: you don’t need a contractor’s license to build your own home, and once [Mr. Cederquist] “retired” he thought he was done building houses, so didn’t renew his contractor’s license. He built $1.5 and $2 million houses in the Phoenix area. He’s done tons of remodel work in Green Valley, where we live, and since these folks are our neighbors and keeping a license up is expensive, they didn’t mind him not having it. But once he started designing and building ours, I think the old desire came back, hence, he’s eager to build yours. He was never wild about the idea of retiring. He and Scott Simpson (who you will like) will build under Scott’s license, which gives you the protection of county inspections and recourse by the [Registrar], should you ever need it. It also means we (and any contractors we hire, like for HVAC, or plumbing, etc.) must warranty your house for a two- year period after it’s completed. . . . [24]

Investigator Shikany testified that the emails evidenced Mr. Cederquist’s intent and offer to act in the capacity of a contractor. Mr. Morris testified that on Mr. Cederquist’s advice, Mr. Morris set up a construction account at BBVA Compass bank, with himself and Mr. Cederquist as authorized signatories, and deposited lump sums into the account. The initial $12,000.00 payment was made payable to Mr. Cederquist, not to Veteran Group. Mr. Morris testified that Mr. Cederquist issued and signed all of the checks that were drawn on the account.[25] Mr. Morris testified that he did not issue any checks to Veteran Group or to Mr. Wilson. Mr. Morris testified he was not acting as an owner-builder because he had hired Mr. Cederquist to build the residence. Mr. Morris testified that Mr. Cederquist was not his employee. Mr. Morris testified that he did not sign any checks or withhold any sums for taxes or insurance. Mr. Cederquist acknowledged at the hearing that he received $16,000.00 or $17,000.00 for work that he performed on the Morris residence, including electrical work, plumbing, and rough-in. According to Investigator Shikany’s report, during his interview, Mr. Cederquist said that he received the 10% contractor’s profit shown on the cost sheet as compensation for acting as Project Manager in the construction of the Morris residence.[26] Investigator Shikany testified that the usual practice in the construction industry is that the property owner pays the general contractor, who then pays its employees, subcontractors, and materialmen and retains a portion of the payments for profit and overhead. The Registrar submitted numerous documents that were issued under Veteran Group’s name for the Morris project, including the following: 1. Invoice # 105-6 for $2,248.55 dated October 13, 2013 for the final billing, with the notation, “Make all checks payable to Eric Cederquist,” and an attachment consisting of a document entitled Financial Review that showed a total of $157,994.25 had been paid on the project; 2. A General Ledger for the period from July 1, 2012, to January 31, 2013, that showed numerous credits and debits, including checks paid to Mr. Cederquist and Ms. O’Connor; and 3. A Construction Permit Application to the Navajo County Building Department that was signed by Mr. Cederquist on July 25, 2012.[27] Mr. Robinson testified that Veterans Group had not issued any of the documents that showed its name. After the Morris residence was constructed, Mr. and Mrs. Morris attempted to refinance the construction loan. On March 12, 2013, escrow officer Gary Sneyd sent an email informing the title agency’s representative that he had been advised by Mr. and Mrs. Morris that they had acted as their own contractor and could provide proof of payment to subcontractors and suppliers, but not lien waivers.[28] The title agency’s representative declined to accept the proffered proof of payment, instead requiring lien waivers signed by the major subcontractors and suppliers to refinance the project.[29] The Registrar submitted numerous Unconditional Final Lien Waivers with Veteran Group’s name at the top for various subcontractors and materialmen, all of which were signed by Mr. Cederquist as “Project Manager.”[30] Mr. Robinson testified that Veteran Group did not issue or authorize any Unconditional Final Lien Waivers for the Morris project and that it did not use the form used for the waivers. Investigator Shikany testified that at some point, Mr. Cederquist had a falling out with Mr. and Mrs. Morris. On October 16, 2013, Mr. Wilson sent an email to Mr. Morris, informing him as follows: You hired [Mr. Cederquist] as your general contractor and he is responsible for the hiring/coordinating of all subcontractors, purchasing materials, and handling all money matters. I was hired by [Mr. Cederquist] as a subcontractor to build the house and was paid by him. I have had nothing to do with any matters pertaining to the handling of any money. . . .[31]

Mr. Cederquist acknowledged that he hired subcontractors to fabricate and install granite countertops, install roofing, and perform HVAC work on the Morris residence. Mr. Cederquist acknowledged that he performed electric, plumbing, and masonry work on the Morris residence. Mr. Cederquist explained that he performed this work under section D of the Morris contract as Mr. and Mrs. Morris’s employee. Mr. Cederquist acknowledged that the Morris contract did not provide any hourly wage for him as project manager or employee. Case No. 2014-1165 against Ms. O’Connor The Registrar submitted a handwritten document containing dates and hours with descriptions of construction work, such as “pulling wire,” “stuffing outlets, “hinges off masking windows,” “new hinges on, outlets,” “elect & fixtures,” and “elect and smoke,” that was signed by Ms. O’Connor.[32] The Registrar also submitted checks on Mr. and Mrs. Morris’s construction account that were made payable to Ms. O’Connor and signed by Mr. Cederquist in the amounts of $1,500.00, $350.00, $600.00, and $300.00. Two checks included the following entries in the memorandum line: “Joe & A.J. Framing Labor Cash” and “For Rich – Painting.” Ms. O’Connor acknowledged that she received a total of $900.00 for what she characterized as “inconsequential” construction work on the Morris residence, including pulling low voltage wire through the attic and installing outlet covers. Ms. O’Connor testified that she was a “go-fer” on the Morris project and that she cashed the other the checks so that Mr. Cederquist could pay the workers in cash. Investigator Shikany opined that Ms. O’Connor acted in the capacity of a contractor in the construction of the Morris residence. Mr. Cederquist’s and Ms. O’Connor’s Defenses to Case Nos. 2014-1158 and 2014-1165 involving the Morris Residence

Ms. O’Connor and Mr. Cederquist testified that Mr. and Mrs. Morris acted as an owner-builder who were not required to be licensed under A.R.S. § 32- 1121(A)(5) and that Mr. Cederquist was their employee who was not required to be licensed under A.R.S. § 32-1121(A)(11). Ms. O’Connor opined that Investigator Shikany had an erroneous mindset that electrical and plumbing work was illegal, even if it was performed by an employee of an owner-builder. Ms. O’Connor and Mr. Cederquist submitted an article from the Registrar’s website entitled, “Hiring Employees? What every contractor should know.” The article stated as follows: Contractors should be familiar with all rules and laws relevant to hiring employees and know the license status of those employees hired as “1099” workers. “1099” employees are independent contractors and must be licensed with the [Registrar].

Licensed contractors are required by law to comply with statutes and rules governing workers’ compensation and unemployment insurance. They also are required to pay income taxes, withholding taxes or any tax imposed by title 42, chapter 5, and articles 1 and 4, incurred in the operation of the licensed business. Failure of a licensed contractor to comply with these requirements or with any safety or labor laws or codes of the Federal government, state or political subdivisions of the state, may result in discipline of the contractor’s license and/or criminal charges in state and/or federal court.

Some licensed contractors have the misconception that they can hire employees and avoid the above rules and laws by carrying those personnel as “1099” employees. Unfortunately for these licensed contractors, they have now placed their contractor licenses in jeopardy for aiding and abetting unlicensed activities.[33]

The article contained a checklist to help contractors determine whether the individuals whom they hired to perform contracting work were independent contractors who were required to have their own licenses or employees for whom the contractor was required to pay taxes and workers’ compensation insurance. Ms. O’Connor and Mr. Cederquist testified that Mr. Cederquist was an employee of Mr. and Mrs. Morris under 17 of the 20 items on the checklist and she was employed by Mr. Cederquist to do things that he could not find anyone else to do. Ms. O’Connor testified that stringing low voltage wire and putting together ceiling fans from Lowe’s are work that does not require any special skills that homeowners do all the time for themselves. Ms. O’Connor denied that this work constituted electrical contracting. Ms. O’Connor submitted a letter to Mr. and Mrs. Morris from the Starlight Ridge Estates Home Owners Association, Inc. dated August 20, 2012, that stated that “[o]wner builder projects require a $2,000.00 deposit. Please have the check(s) made payable to Starlight Ridge HOA.”[34] The letter was copied to Mr. Cederquist. Mr. Cederquist testified that in the early stages of the Morris project, he was working as Mr. and Mrs. Morris’s uncompensated agent, helping them find a licensed contractor, and that after he started performing construction on the project, he thought it was prudent to be supervised by a licensed contractor because at the time, he was 70 years old. Mr. Cederquist testified that he had a hard time finding a general contractor for the Morris project. Mr. Wilson stated that he was the qualifying party for a licensed contractor and would set up a meeting with Mr. Robinson. Mr. Cederquist testified that when the Morris contract was signed, Mr. Robinson was in Louisiana repairing roofs that had been damaged by a hurricane. Mr. Cederquist testified that Mr. Wilson said that he was authorized to sign the contract on behalf of Veteran Group. Mr. Cederquist pointed out that the Morris contract clearly identified him as the Project Manager, Veteran Group as the Contractor, and Mr. and Mrs. Morris as the Owner. Mr. Cederquist testified that the Morris contract clearly showed that Mr. and Mrs. Morris hired Veteran Group to act as their general contractor. Mr. Cederquist testified that he had no knowledge about Veteran Group other than what Mr. Wilson told him. Mr. Cederquist testified that he told Mr. Robinson that Veteran Group should set up a checking account for the Morris project with Mr. Cederquist as a signatory, but that Mr. Robinson said he did not want to run any money through Veteran Group’s account in Florida. Mr. Cederquist testified that Mr. Robinson said that Mr. Wilson was Veteran Group’s 1099 employee. Mr. Cederquist testified that as a result of Veteran Group’s failure to set up an account, he had to pay retail prices for all the supplies on the Morris residence. Mr. Cederquist testified that as a result of Mr. Robinson’s failure to accept business responsibility for the Morris project, as Project Manager, he had to handle all funds for the project. Mr. Cederquist testified that he had a fiduciary responsibility to ensure that monies went to the proper recipient and to account for all funds to Mr. and Mrs. Morris. Mr. Cederquist testified that he performed work as Mr. and Mrs. Morris’s employee and that Mr. Wilson supervised his work on behalf of Veteran Group. Mr. Cederquist pointed out that Section F-1 of the Morris contract required him to make disbursements because Mr. and Mrs. Morris were four hours away from the project at their home in Tucson and it would have been difficult for them to make timely payments to subcontractors and suppliers. Mr. Cederquist testified that many of the checks that were written to him were used to obtain goods or services from others for the construction of the Morris residence. Mr. Cederquist testified that in the real economy, many tradesmen and contractors work for cash to avoid paying taxes because due to the economy, profit margins are so thin. Mr. Cederquist testified that under Section L of the Morris contract, part of what Mr. and Mrs. Morris were paying for was a licensed contractor’s warranty, which Mr. Robinson later provided. Mr. Cederquist pointed out that Mr. Robinson responded to Mr. Morris’s complaint in Case No. 2014-5944 against Mr. Cederquist by appearing at Investigator Sandoval’s jobsite inspection on January 23, 2014, and by providing liability insurance for the project. Mr. Cederquist argued that no statute provides any recourse for an owner-builder who hires his own employees. Mr. Cederquist testified that when he set up the general ledger and other books of account, Veteran Group was the general contractor and he assumed that Mr. Robinson would run the project under Veteran Group’s name. Mr. Cederquist testified that when Mr. Robinson failed to open a checking account at Veteran Group’s bank for the Morris project, Mr. Cederquist neglected to change the name on the general ledger and other books of account. Mr. Cederquist testified that when Mr. and Mrs. Morris attempted to obtain permanent financing for their residence, the escrow company would not close the construction loan without lien releases. Mr. Cederquist testified that because Mr. Robinson was “off chasing storms,” the lender could not close the loan for 150 days. Mr. Cederquist testified that he “did the expedient thing” to help Mr. and Mrs. Morris save two points on their loan and prepared the Unconditional Final Lien Waivers. Mr. Cederquist testified that under the federal Internal Revenue Service’s Publication 15-A, Employer’s Supplemental Tax Guide Example 3, he was Mr. and Mrs. Morris’s employee.[35] The Kelemecz/Staudacher Residence and the Johns’ Residence On or about January 10, 2014, Mr. Johnson provided certain documents to Mr. Shikany for the Kelemecz/Staudacher project and for the Johns’ project. The documents included an Agreement with the handwritten date of April 12, 2013, between Mr. Cederquist and Mr. Johnson on behalf of STJ, under which Mr. Cederquist would pay STJ a fee of 2% of the total cost of construction for securing the client, providing architectural design and structural engineering, and acting as a project manager. STJ agreed to employ Mr. Cederquist as project manager and to pay him compensation “equal to those amounts provided in each respective construction contract for trade work, supervision and management expenses.”[36] On January 29, 2014, Mr. Johnson told Investigator Shikany that Mr. Johnson’s relationship with Mr. Cederquist on the projects that identified STJ as the Contractor on the Residential Construction Contract, the Johns’ residence and the Kelemecz/Staudacher residence, Mr. Cederquist performed the projects under STJ’s license and Mr. Johnson stopped by occasionally to oversee his progress. Mr. Johnson testified that Mr. Cederquist paid him 2% of the draws for the projects. Mr. Johnson also told Investigator Shikany that he knew that the arrangement between Mr. Cederquist and STJ was wrong. Mr. Cederquist testified that the Kelemecz/Staudacher contract and the Johns’ contract, like the Morris contract, provided that for a fee, the owners would receive the protection of a licensed contractor’s warranty and oversight. When Investigator Shikany interviewed Mr. Cederquist, he acknowledged that his agreement with Mr. Johnson was to use STJ’s license to build residences in the Starlight Ridge Estates subdivision, where all the residences at issue are located. Case No. 2014-1163 against Mr. Cederquist (the Kelemecz/Staudacher Residence) On or about April 12, 2013, Mr. Kelemecz and Ms. Staudacher as “Owner,” Mr. Cederquist as “Project Manager,” and Mr. Johnson on behalf of STJ as “Contractor” signed a Residential Construction Contract (“the Kelemecz/Staudacher contract”).[37] The terms of the Kelemecz/Staudacher contract were identical to the terms of the Morris contract. The Kelemecz/Staudacher contract does not contain any provisions for Mr. Cederquist to be compensated as Project Manager, for the Project Manager to perform any construction work or for the Project Manager to hire subcontractors or to purchase materials for the construction of the Kelemecz/Staudacher residence. Mr. Johnson testified that he did not draft the Kelemecz/Staudacher contract and that STJ used a different contract form at the time. Mr. Johnson testified that STJ has adopted the contract form to use in its business, however, because he thinks it is a good contract. Investigator Shikany obtained checks written on Mr. Kelemecz and Ms. Staudacher’s construction account pursuant to a subpoena issued under A.R.S. § 32-1106.[38] Investigator Shikany reported that between May 3, 2013, and October 4, 2014, Mr. Cederquist drafted, signed, and endorsed 21 checks to himself and deposited $36,750.00 into his own account from the Kelemecz/Staudacher project.[39] Mr. Johnson testified that STJ did not receive profit or overhead for the Kelemecz/Staudacher project, but only received 2% of all draws. Mr. Johnson testified that STJ accepted liability for the Kelemecz/Staudacher project. Mr. Cederquist submitted a notarized letter from Mr. Kelemecz and Ms. Staudacher that stated as follows: In contracting to build our house at 5982 Luminary Way, Lakeside, AZ 85929, we signed a contract with [STJ] as the contractor and [Mr. Cederquist] as the Project Manager. [Mr. Cederquist] at no time represented himself to either of us as a licensed contractor. Therefore, we felt the complaint to be invalid and did not respond [to the Registrar’s 10-day letter].[40]

Case No. 2014-1162 against Mr. Cederquist (the Johns’ Residence) On or about November 3, 2013, Mr. Cederquist as “Project Manager” and Mr. Johnson for STJ as “Contractor” signed a Residential Construction Contract for the construction of the Johns’ residence (“the Johns’ contract”).[41] Although Mr. Deardorf and Mr. Golleher were identified on the Johns’ contract as “Owner,” they had not signed the contract that the Registrar submitted. The terms of the Johns’ contract were identical to the terms of the Kelemecz/Staudacher contract and the Morris contract. The Johns’ contract does not contain any provisions for Mr. Cederquist to be compensated as Project Manager, for the Project Manager to perform any construction work or for the Project Manager to hire subcontractors or to purchase materials for the construction of the Johns’ residence. Mr. Johnson acknowledged that STJ’s relationship with Mr. Cederquist for the Harris job was illegal, but testified that by the time of the Johns’ project, Mr. Cederquist was an employee of STJ. During Investigator Shikany’s interview, Mr. Cederquist stated that he had not received any money for the Johns’ residence, but acknowledged that he had a check for $25,000.00 for the project in his pocket, but that it was not made payable to him. Mr. Cederquist declined to show Investigator Shikany the check. Investigator Shikany testified that Mr. Johnson stated that he had been in trouble for aiding and abetting an unlicensed contractor 10 years earlier and did not want to be in the same trouble again.[42] Mr. Shikany advised Mr. Johnson not to cash the check for the Johns’ project. Mr. Johnson testified that he had done three jobs with Mr. Cederquist, but Mr. Cederquist was only on STJ’s payroll for the Johns’ project. Mr. Johnson testified that STJ paid workers’ compensation and sales tax on the Johns’ project. Mr. Cederquist submitted an Employment Contract between Mr. Johnson on behalf of STJ and Mr. Cederquist dated February 24, 2014, for “the construction of a custom home on Lot 110, Starlight Ridge Estates” under which Mr. Cederquist’s “primary responsibilities will be to provide overall supervision of the project . . ., schedule subcontractors and material deliveries, administer the construction banking account, submit draw requests to the construction lender, make prompt payment of all invoices, schedule and meet with inspectors from the construction lender, the Navajo County Building Department, and the Starlight Ridge HOA, and coordinate with the owners of the property,” but not to hire subcontractors or other employees, at a rate of $35.00/hour.[43] Mr. Cederquist also submitted two paychecks dated April 25, 2014, and June 6, 2014, drawn on STJ’s payroll account that showed that taxes were withheld.[44] Mr. Cederquist submitted a notarized letter from Mr. Deardorf and Mr. Golleher, in relevant part as follows: We . . . received a letter from [Investigator Shikany] stating that a complaint had been filed against [Mr. Cederquist]. . . . I phoned Mr. Shikany to ask some questions about this letter. . . . [Investigator Shikany] told us that if he found Mr. Cederquist on our property he could be fined large sums of money daily and that he could also issue a cease and desist order to stop the building. He went on to state we would be left with a house not finished and the bank could pursue legal action as well. I went on to explain that we knew Mr. [Cederquist] was not a licensed contractor and we knew that up front. Mr. [Cederquist] was going to be the project manager for the contraction [sic] of our home. We never offered any further information to [Investigator] Shikany, nor did we have further conversation with him. We never sent him any documents as requested.

In contracting to build our home at 5960 Luminary Way, Lakeside, AZ, we signed a contract with [STJ] with [Mr.] Johnson as the contractor. . . . Mr. Cederquist never said he was a contractor to either of us.

We found the letter from [Investigator] Shikany to be threatening and worrisome, considering this was our first venture into building a custom home. In closing, I want to say Mr. Cederquist has been forthright and honest. He explained every step along the way. We always knew he wasn’t the contractor and would not be acting as one.[45]

Ms. O’Connor’s and Mr. Cederquist’s Evidence in Mitigation of the Civil Penalties Ms. O’Connor pointed out that none of the aggravating factors listed in A.A.C. R4-9-131 justified the maximum civil penalty that the Registrar had imposed for each citation. Ms. O’Connor argued that A.A.C. R4-9-131 listed as an aggravating factor a prior violation, not a prior complaint. Neither she nor Mr. Cederquist has ever been found guilty of unlicensed contracting activities.[46] APPLICABLE LAW 1. A.R.S. § 32-1101(A)(3) defines “contractor” 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.

2. A.R.S. § 32-1101(B) further defines “contractor” to include subcontractors, as follows: "Contractor" includes subcontractors, specialty contractors, floor covering contractors, landscape contractors, other than gardeners, and consultants representing themselves as having the ability to supervise or manage a construction project for the benefit of the property owner, including the hiring and firing of specialty contractors, the scheduling of work on the project and the selection and purchasing of construction material. [Emphasis added.]

3. A.R.S. § 32-1151 prohibits engaging in contracting without a valid license, 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. § 32-1166 allows the Registrar to issue a cease and desist order and to impose a civil penalty against a person who engages in unlicensed contracting in violation of A.R.S. § 32-1151, in relevant part 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.

5. A.A.C. R4-9-131 provides as follows: In assessing a civil penalty as provided for under A.R.S. § 32- 1166(A), the Registrar shall give due consideration to whether the person cited or any individual acting on that person’s behalf has committed one or more of the following acts in determining the gravity of the cited violation:

1. Falsely represented to be a licensed contractor.

2. Failed to perform any work for which money was received.

3. Executed or used any false or misleading documents for the purpose of inducing a person to enter into a contract or to pay money for work to be performed.

4. Made false or misleading statements for the purpose of inducing a person to enter into a contract or to pay money for work to be performed.

5. Failed or neglected to apply funds which were received for the purpose of obtaining or paying for services, labor, materials, or equipment.

6. Performed work that was or had the potential to become hazardous to the health, safety, or general welfare of the public.

7. Performed work that deliberately was in violation of building codes, safety laws, labor laws, workers’ compensation laws, or unemployment insurance laws.

8. Performed work that failed to meet minimum acceptable trade or industry standards or practices or was not performed in a good and workmanlike manner.

9. Has committed any other act which would otherwise be cause for disciplinary action if the person cited had been properly licensed pursuant to A.R.S. Title 32, Chapter 10.

10. Has committed two or more prior violations.

11. Performed work that has caused loss or damage to the structure, its appurtenances, or property being worked upon or has caused loss or injury to any person.

6. A.R.S. § 32-1121 specifies persons who are not required to be licensed and provides in relevant part as follows: A. This chapter shall not be construed to apply to: . . . .

5. Owners of property who improve such property or who build or improve structures or appurtenances on such property and who do the work themselves, with their own employees or with duly licensed contractors, if the structure, group of structures or appurtenances, including the improvements thereto, are intended for occupancy solely by the owner and are not intended for occupancy by members of the public as the owner's employees or business visitors and the structures or appurtenances are not intended for sale or for rent. . . . . . . .

11. Any person who engages in the activities regulated by this chapter, as an employee of an exempt property owner or as an employee with wages as the person's sole compensation. . . . .

14. Any person other than a licensed contractor engaging in any work or operation on one undertaking or project by one or more contracts, for which the aggregate contract price, including labor, materials and all other items . . . is less than one thousand dollars. The work or operations that are exempt under this paragraph shall be of a casual or minor nature. This exemption does not apply:

(a) In any case in which the performance of the work requires a local building permit.

(b) In any case in which the work or construction is only a part of a larger or major operation, whether undertaken by the same or a different contractor, or in which a division of the operation is made in contracts of amounts less than one thousand dollars . . . .

CONCLUSIONS OF LAW These matters lie within the Registrar’s jurisdiction.[47] The Registrar bears the burden of proof to establish statutory violations and factors in aggravation of the penalties imposed.[48] Ms. O’Connor and Mr. Cederquist bear the burden to establish affirmative defenses and factors in mitigation of the penalties.[49] The standard of proof on all issues is a preponderance of the evidence.[50] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[51] 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.”[52] Case No. 2013-1158 against Mr. Cederquist Despite the terms of the Morris contract, Veteran Group did not perform any work, hire any subcontractors, purchase any materials, receive any progress payments, pay any taxes or workers’ compensation insurance premiums, or exercise any oversight over the construction of the Morris residence. In addition to Mr. Morris’s credible testimony that he did not act as owner- builder, it does not appear that Mr. and Mrs. Morris hired or paid any subcontractors or exercised any oversight or control over the overall project or over Mr. Cederquist’s contracting activities. The checklist that Mr. Cederquist and Ms. O’Connor submitted from the Registrar’s website concerns the circumstances under which a licensed contractor must hire an independently licensed subcontractor instead of using an employee for whom the contractor has paid payroll taxes and workers’ compensation insurance premiums. The checklist does not apply to whether or not Mr. Cederquist committed unlicensed contracting in the construction of any of the residences. Similarly, the escrow agent’s hearsay comment[53] about what Mr. and Mrs. Morris may have said to obtain a lower interest rate does not overcome the evidence of Mr. Cederquist’s unlicensed contracting activities in the construction of the Morris residence. The Registrar established that Mr. Cederquist undertook to and actually did act as general contractor in the construction the Morris residence for compensation by hiring and paying subcontractors and suppliers and performing work himself. Therefore, the Registrar established that Mr. Cederquist committed unlicensed contracting in violation of A.R.S. § 32- 1151. With respect to the appropriate civil penalty, the factors listed in A.A.C. R4-9-131 are not exhaustive. Mr. Cederquist as a former licensed contractor knew about the requirement of a license to perform most construction work. It appears that Mr. Cederquist carefully drafted the terms of his form contract to skirt the law. When Veteran Group did not provide the screen that Mr. Cederquist planned, he created documents, including the permit application and Unconditional Final Lien Waivers, to give the false impression that Veteran Group had been involved in the project to cover his own unlicensed contracting activity. Under the circumstances, a $2,500.00 civil penalty is not excessive or unjust. Case No. 2014-1165 against Ms. O’Connor The Registrar established that Mr. Cederquist paid Ms. O’Connor $900.00 to perform electrical, low voltage wiring, and other work on the Morris residence that A.R.S. § 32-1101(A)(3) defines as contracting. This work was part of a much larger project. Therefore, the Registrar established that Ms. O’Connor committed unlicensed contracting in violation of A.R.S. § 32-1151. With respect to the appropriate penalty, Ms. O’Connor’s May 23, 2012 email to Mr. and Mrs. Morris, quoted in Finding of Fact No. 54 above, claims some knowledge of contracting law. Ms. O’Connor is not a former licensed contractor, did not draft the contract, and did not create any documents to give a false impression that there was a licensed contractor on the project, however. Ms. O’Connor appears to have adopted her husband’s legal opinions without performing any independent research or seeking any verification. Under the circumstances, a $1,000.00 civil penalty is appropriate. Case No. 2014-1162 against Mr. Cederquist Although the Registrar established that Mr. Cederquist performed contracting activities on the Johns’ project, Mr. Cederquist established that he had a valid employment agreement with STJ at all relevant times during the Johns’ project. The Registrar did not establish that Mr. Cederquist received any compensation except from STJ as his wages for the Johns’ project. Therefore, the Registrar did not establish that Mr. Cederquist committed unlicensed contracting in violation of A.R.S. § 32-1151 on the Johns’ project. Case No. 2014-1163 against Mr. Cederquist Mr. Cederquist provided the same contract for the Kelemecz/Staudacher project that he provided for the Morris project. Although STJ was listed as the Contractor on the Kelemecz/Staudacher contract, STJ was not paid profit and overhead, did not pay taxes or workers’ compensation insurance premiums, and did not hire subcontractors or purchase material for the Kelemecz/Staudacher project. Instead, Mr. Cederquist hired subcontractors, performed work, and controlled the finances, with Mr. Johnson paying an occasional casual visit to the project. Therefore, the Registrar established that Mr. Cederquist committed unlicensed contracting in violation of A.R.S. § 32-1151 on the Kelemecz/Staudacher project. Mr. Cederquist paid himself $36,750.00 over five months for his supervision of others and his own work on the Kelemecz/Staudacher project. In light of the fact that A.R.S. § 32-1166(A) authorizes the Registrar to impose a civil penalty for each day, a civil penalty in the amount of $2,500.00 is appropriate. RECOMMENDED ORDER Case No. 2014-1158 It is recommended that the Registrar affirm the civil Citation and assess a civil penalty of $2,500.00 against Eric Stanley Cederquist to be paid 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 will be five days from the date of that certification. Case No. 2014-1165 It is recommended that the Registrar affirm the civil Citation and assess a civil penalty of $1,000.00 against Sharon O’Connor to be paid 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 will be five days from the date of that certification. Case No. 2014-1162 It is recommended that the Registrar dismiss the civil Citation and civil penalty against Eric Stanley Cederquist on 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 will be five days from the date of that certification. Case No. 2014-1163 It is recommended that the Registrar affirm the civil Citation and assess a civil penalty of $2,500.00 against Eric Stanley Cederquist to be paid 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 will be five days from the date of that certification. Done this day, October 27, 2014.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

William A. Mundell, Director Registrar of Contractors ----------------------- [1] See the Registrar’s Exhibit 1. [2] See the Registrar’s Exhibit 3. [3] See the Registrar’s Exhibit 5. [4] See the Registrar’s Exhibit 4. [5] See the Registrar’s Exhibit 6. [6] The Registrar’s Exhibit 7 at 2. The complaint form that the Registrar submitted does not show a date or a date stamp for receipt. [7] See the Registrar’s Exhibit 9. [8] See the Registrar’s Exhibit 11. [9] See the Registrar’s Exhibit 10. [10] See the Registrar’s Exhibit 12. [11] See the Registrar’s Exhibit 13. [12] See the Registrar’s Exhibit 15. [13] See the Registrar’s Exhibit 13. [14] See the Registrar’s Exhibit 15. [15] See Respondents’ Exhibit D7. [16] See Respondents’ Exhibit D4. [17] See Respondents’ Exhibit D5. [18] See the Registrar’s Exhibit 2A. [19] The Registrar’s Exhibit 2A at 1-9. [20] The record in these consolidated matters does not contain any other evidence about the outcome of Mr. Morris’s workmanship complaint against Mr. Cederquist in Case No. 2014-5944. [21] See the Registrar’s Exhibit 2B. [22] Veteran Group also holds License No. CR42.269758-D for dual roofing. Mr. Robinson’s son, Keith Alan Robinson, Jr. is the qualifying party on that license. [23] See the Registrar’s Exhibit 2F. [24] The Registrar’s Exhibit 2F. Scott Andrew Simpson is the qualifying party and owner of Design Construction and Consulting, License No. B.104007- R, which expired on November 1, 2014. Although Mr. Simpson was involved in the construction of Mr. Cederquist and Ms. O’Connor’s residence in Lakeside, he had a falling out with them and was never involved in any capacity in the construction of the Morris residence. [25] See the Registrar’s Exhibit 2C. [26] See the Registrar’s Exhibit 3 at 4. [27] See the Registrar’s Exhibit 2H. [28] See the Registrar’s Exhibit 2G at 11-12. [29] See the Registrar’s Exhibit 2G at 10. [30] See the Registrar’s Exhibit 2H. [31] The Registrar’s Exhibit 2G. [32] See the Registrar’s Exhibit 2D. [33] Ms. O’Connor’s Exhibit D51. [34] Ms. O’Connor’s Exhibit D57 at 2. [35] See Mr. Cederquist’s Exhibit D41 and D42. [36] The Registrar’s Exhibit 14 at 11; the Registrar’s Exhibit 17 at 11. Investigator Shikany testified that the date of the agreement was April 12, 2014, after construction started on the Johns’ project. The Registrar’s stamped date of receipt, January 10, 2014, and the handwritten date on the documents are not consistent with Investigator Shikany’s testimony. [37] See the Registrar’s Exhibit 17 at 1-10. [38] See the Registrar’s Exhibit 17 at 22-38. [39] See the Registrar’s Exhibit 16 at 3. [40] Mr. Cederquist’s Exhibit E-6. [41] See the Registrar’s Exhibit 14 at 1-10; the Registrar’s Exhibit 17 at 1-10. [42] A.R.S. § 32-1154(A)(9) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[a]iding or abetting a licensed or unlicensed person to evade this chapter, knowingly combining or conspiring with a licensed or unlicensed person, allowing one’s license to be used by a licensed or unlicensed person with intent to evade this chapter.” [43] Mr. Cederquist’s Exhibit E15. [44] See Mr. Cederquist’s Exhibits E12 and E13. [45] Mr. Cederquist’s Exhibits E11a-E11c. [46] Ms. O’Connor and/or Mr. Cederquist also alleged that Investigator Shikany misrepresented his professional qualifications on Linked-In, that the Registrar failed to schedule a hearing on their complaint against Mr. Simpson, that the Registrar failed to provide documents in response to their public records request, and other matters that were either not matters that the Legislature has authorized the Registrar or OAH to resolve or not matters that were relevant to the charged violations. The ALJ does not address these matters further. [47] See A.R.S. §§ 32-1104(A)(4) and 32-1164(A)(2). [48] See A.A.C. R2-19-119(B)(1). [49] See A.A.C. R2-19-119(B)(2). [50] See A.A.C. R2-19-119(A); see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [51] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [52] Black’s Law Dictionary at page 1182 (6th ed. 1990). [53] See Ariz. R. Evid. 801(c) (“‘Hearsay’ is a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted.”). Although hearsay may be admitted in an administrative hearing,[54] it should not be relied upon if it is not the kind of evidence that reasonable persons would rely upon in serious matters. See Plowman v. Arizona State Liquor Board, 152 Ariz. 331, 337, 732 P.2d 222, 228 (App. 1986) (citing Begay v. Arizona Department of Economic Security, 128 Ariz. 407, 626 P.2d 137 (App. 1981)). A reasonable person would not rely on the an escrow officer’s account of the statements that Mr. and Mrs. Morris allegedly made to refinance their residence on more favorable terms to determine whether Mr. Cederquist or Ms. O’Connor committed unlicensed contracting.

-----------------------

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