ALJDEC decisions subject to certification as final

2014A-4785-ROC · Registrar of Contractors · 2015-02-13

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: February 13, 2015, at 8:00 a.m. APPEARANCES: Applicant Covenant Air, LLC (“Covenant”) appeared through Esteban Escobar (“Mr. Escobar”), its qualifying party and member; the Arizona Registrar of Contractors (“the Registrar”) was represented by Seth T. Hargraves, Esq., Assistant Attorney General. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT On or about January 24, 2014, Mr. Escobar filed with the Registrar an application for a K-39 (now CR39) contractor’s license for dual air conditioning and refrigeration on behalf of Covenant. Mr. Escobar was listed on the application as qualifying party and member.[1] On or about October 21, 2014, the Registrar sent a letter to Mr. Escobar’s attention at Covenant informing him that the Registrar denied Covenant’s license application because Mr. Escobar had failed to establish his good character under A.R.S. § 32-1122(D). The Registrar’s letter explained that Mr. Escobar had been found to be civilly liable for fraud, embezzlement, and fraudulent conversion in the United States Bankruptcy Court for the District of Arizona Case No. 10-bk-20329-JMM. Mr. Escobar requested a hearing on the Registrar’s denial of Covenant’s license application. The Registrar referred the matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. A hearing was held on February 13, 2015. Mr. Escobar appeared on behalf of Covenant and the Registrar appeared through its attorney. Although Covenant bore the burden of proof to establish that it was qualified to be issued a license, the parties agreed that the Registrar would present its case-in-chief first to expedite the hearing. The Registrar submitted five exhibits and presented the testimony of Paul Terek, its Assistant Chief of Licensing, including the following: 1. The July 14, 2005 civil Complaint in Yuma County Superior Court Case No. S1400CV0200500661, Demco v. Esteban Escobar et al., which asserted claims for breach of contract, fraud, embezzlement, and account stated based on Mr. Escobar’s actions while Demco employed him;[2] 2. The Yuma County Superior court’s December 10, 2007 order in Yuma County Superior Court Case No. S1400CV0200500661 granting Demco’s motion for summary judgment on all claims based on Mr. and Mrs. Escobar’s failure to file a response to the motion and awarding Demco $48,975.12 in damages, with interest at the rate of 10% per annum until paid;[3] 3. Demco’s July 25, 2010 claim against Mr. and Mrs. Escobar in their Chapter 7 bankruptcy petition in federal District of Arizona Case No. 10- bk-20329-JMM that alleged that under applicable provisions of the Bankruptcy Code, the Yuma County Superior Court’s judgment in Case No. S1400CV0200500661 was not dischargeable in their bankruptcy because it established that Mr. and Mrs. Escobar had committed fraud while acting in a fiduciary capacity, embezzlement, larceny and an act of fraud;[4] and 4. The federal bankruptcy court’s December 21, 2010 order in Case No. 10-bk- 20329-JMM granting Demco’s motion for summary judgment in the amount of $48,975.12, plus interest at the rate of 10% per annum, accruing as of December 10, 2007, plus Demco’s taxable costs. Mr. Terek testified that in the time since Covenant filed the application, the Registrar had not received any information from Mr. Escobar that the judgments against him in Yuma County Superior Court Case No. S1400CV0200500661 and District of Arizona Case No. 10-bk-20329-JMM had been satisfied, set aside, or vacated. Mr. Escobar acknowledged the judgments that had been entered against him and did not claim that he had satisfied the judgments or had them set aside or vacated. Instead, Mr. Escobar attempted to present evidence to dispute the facts underlying the judgments and to establish that Demco’s owner, Michael Ray Keck, was a bad actor who had a poor character and that the judgments were unjust and not based upon the true facts. Mr. Escobar testified that the attorney that he hired to defend himself and his wife in Yuma County Superior Court Case No. S1400CV0200500661 had abandoned him, that he could not afford to hire another attorney, and that the superior court judge told him that he would lose if he was not represented by an attorney. The Administrative Law Judge sustained the Registrar’s objections to Covenant’s evidence. The Administrative Law Judge also denied Mr. Escobar’s motion to continue the hearing to allow him to retain an attorney to set aside or attack the judgments after the Registrar’s attorney objected. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[5] Covenant bears the burden of proof to establish that it is qualified to receive a CR39 contractor’s license a preponderance of the evidence.[6] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[7] “‘Under the doctrine of res judicata, a judgment on the merits in a prior suit involving the same parties or their privies bars a second suit based on the same cause of action.’”[8] The issue of whether Mr. Escobar’s company should be granted a contractor’s license is different from the issues that the bankruptcy court and superior court decided. However, the Arizona Court of Appeals has held in relevant part as follows: The doctrine of “collateral estoppel” is a doctrine of issue preclusion. It bars a party from relitigating an issue identical to one he has previously litigated to a determination on the merits in another action. The elements necessary to invoke collateral estoppel are: the issue is actually litigated in the previous proceeding, there is a full and fair opportunity to litigate the issue, resolution of such issue is essential to the decision, there is a valid and final decision on the merits, and there is a common identity of the parties.[9]

A default judgment "is conclusive . . . on all issues which were or could have been litigated and is not subject to collateral impeachment at a subsequent time."[10] Therefore, valid judgments cannot be collaterally attacked in a subsequent proceeding in a different forum. Under the doctrine of collateral estoppel, the judgments in Yuma County Superior Court Case No. S1400CV0200500661 and federal District Court Case No. 10-bd-20329-JMM conclusively establish that Mr. Escobar defrauded, embezzled money from, and breached his fiduciary duty to his former employer, Demco. This history supports the Registrar’s determination that Mr. Escobar lacks the good character required by A.R.S. § 32-1122(D) to be licensed as a contractor.[11] Based on that determination, the Registrar properly denied Covenant’s license application. RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the Registrar’s final order, the Registrar affirm the decision to deny Covenant Air, LLC’s application for a CR39 license. 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, February 13, 2015.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director Registrar of Contractors ----------------------- [1] See the Registrar’s Exhibit 1. [2] See the Registrar’s Exhibit 3, Attachment A, at 9-18. [3] See the Registrar’s Exhibit 3, Attachment B at 20-21. [4] See the Registrar’s Exhibit 3 at 1-7. [5] See 32-1101 et seq. [6] See A.R.S. § 41-1092.07(G)(1); A.A.C. R2-19-119(A) and (B)(1); see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [7] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [8] Hawkins v. State of Arizona, Department of Economic Security, 183 Ariz. 100, 103, 900 P.2d 1236, 1239 (App. 1995) (quoting Gilbert v. Board of Medical Examiners, 155 Ariz. 169, 174, 745 P.2d 617, 622 (App. 1987); emphasis added). [9] Gilbert, 155 Ariz. at 169, 745 P.2d at 622 (quoted in Hawkins, 183 Ariz. at 103, 900 P.2d at 1239). [10] Dairyland Ins. Co. v. Richards, 108 Ariz. 89, 91, 492 P.2d 1196, 1198 (1972). [11] A.R.S. § 32-1122(D) provides as follows: 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.

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