ALJDEC decisions subject to certification as final

2015A-1231-ROC · Registrar of Contractors · 2015-07-10

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: June 22, 2015, at 8:00 a.m. APPEARANCES: Terry Michael Turmes (“Respondent”) appeared on his own behalf; the Arizona Registrar of Contractors (“the Registrar”) was represented by John R. Tellier, Esq., Assistant Attorney General. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure On or about March 19, 2015, the Registrar’s Investigator Steve Willoughby received a hotline complaint against Respondent doing business as Turmes Enterprises. Specifically, Respondent had taken out two building permits for properties located at 12155 E. Ladera Court, Cornville, Arizona (“the Ladera Court project”) and 495 S. Ranchero Casero Dr., Cornville, Arizona (“the Casero Drive project”) as an owner/builder, but had listed both properties for sale less than a year after completing construction.[1] Investigator Willoughby on behalf of the Registrar opened an investigation. On or about March 23, 2015, Investigator Willoughby on behalf of the Registrar served on Respondent a Cease & Desist Order, Civil Citation for a violation of A.R.S. § 32-1151, and notice of assessment of a $2,500.00 civil penalty for the Casero Drive project in Case No. 2015-1232.[2] On or about March 26, 2015, Investigator Willoughby on behalf of the Registrar served on Respondent a Cease & Desist Order, Civil Citation for a violation of A.R.S. § 32-1151, and notice of assessment of a $2,500.00 civil penalty for the Ladera Court project in Case No. 2015-1231.[3] Respondent requested a formal hearing in both cases. The Registrar consolidated the cases and referred them to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. A hearing was held on June 22, 2015. The Registrar submitted thirteen exhibits and presented Mr. Willoughby’s testimony. Respondent submitted four exhibits, testified on his own behalf, and presented the testimony of his business partner, Michael Mathews. Hearing Evidence Respondent was the qualifying party/owner on License No. B.139841-R for residential general contracting, which was issued on November 2, 1998, and expired on October 31, 2000. Respondent was also the qualifying party and an officer on License No. B.146307-R for residential general contracting, which was issued on June 16, 1999, and expired on July 1, 2012.[4] Respondent owns several residential lots in Cornville. Respondent testified that he allowed his licenses to expire because at the time, due to the economy, he would not be building homes on his properties in Cornville. Respondent currently is retired and resides in San Felipe, Mexico. Respondent does not currently possess an active contractor’s license in Arizona. Respondent testified that with the improving economy, he was finally able to sell one of the unimproved lots in Cornville, which provided funds to build spec houses on some of his other lots. Respondent explained that he was experiencing financial hardship having to pay property taxes on the unimproved lots. Mr. Mathews testified that he is a real estate agent and Respondent’s partner in the business of selling the residences that Respondent would construct on the lots that he owned in Cornville. Ladera Court Project (Case No. 2015-1231) On or about October 23, 2013, Respondent submitted an application for a building permit for the Ladera Court Project. The property owner’s name on the permit was Turmes Enterprises LLC and the permit fees were paid with checks issued on the account of Ladera Homes LLC. Respondent checked “no” in response to the question on the permit application, “Is Project being done as Owner Builder?” and checked the following statement: I am the Owner/Developer of the property. I will follow in strict compliance with 32-1121A.6. I will contract with a licensed General Contractor pursuant to this chapter.[5]

According to the records of the Arizona Corporation Commission (“ACC”), Respondent is a manager of Turmes Enterprises LLC. [6] According to the ACC’s records, Respondent and Mr. Mathews are members of Ladera Homes LLC. [7] On or about November 27, 2013, Yavapai County Development Services issued a building permit to Turmes Enterprises LLC for the Ladera Court project. [8] Respondent acknowledged that he hired and supervised licensed subcontractors to construct a new residence from the ground up on the Ladera Court project. Respondent submitted a list of the licensed subcontractors with their license numbers and telephone numbers that he used to construct the Ladera Court project.[9] Respondent testified that a Certificate of Occupancy was issued for the Ladera Court project on May 19, 2014 and that shortly thereafter, he listed the residence on the Multiple Listing Service (“MLS”). Respondent testified that after the Registrar issued the Cease & Desist Order, Civil Citation, and assessment of civil penalty in Case No. 2015- 1231, he pulled the Ladera Court project off the market. Respondent testified that because Investigator Willoughby advised Mr. Mathews that a project that was built by an unlicensed owner-builder could be sold one year after the certificate of occupancy was issued,[10] he probably would wait until these matters are resolved to again list the project on the MLS. Casero Drive Project (Case No. 2015-1232) Respondent acknowledged that he submitted an application for a permit to construct a residence at the Casero Drive project that was similar to the one he submitted for the Ladera Court project and that the permit was issued. According to the ACC’s records, Respondent and Mr. Mathews are members of Rancho Casero Homes LLC. [11] Respondent acknowledged that he hired and supervised licensed subcontractors to construct a new residence from the ground up on the Casero Drive project. Respondent submitted a list of the licensed subcontractors with their license numbers and telephone numbers that he used to construct the Casero Drive project.[12] On or about August 11, 2014, the Yavapai County Development Services Department Building Safety Unit issued a Certificate of Occupancy for the Casero Drive project.[13] On or about August 8, 2014, the Casero Drive project was listed for sale on the MLS.[14] Respondent testified that after the Registrar issued the Cease & Desist Order, Civil Citation, and assessment of civil penalty in Case No. 2015-1233, he pulled the Casero Drive project off the market. / / / / / / / / Respondent’s Defense Respondent and Mr. Mathews testified that in the past, Jack Judd, a building official in Yavapai County Development Services, conducted monthly informational meetings for members of the development and building community. Respondent and Mr. Mathews testified that approximately seven or nine years ago, Mr. Judd presented a speaker from the Registrar to discuss the owner-developer exemption to licensure requirements under A.R.S. § 32-1121(A)(6). Respondent and Mr. Mathews testified that the Registrar’s representative stated that as long as the owner-developer did not touch the house, used licensed subcontractors for all work on the house, and provided a list of the subcontractors with the sale documents, he would meet the exemption’s requirements. Mr. Mathews testified that the presentation was an “epiphany” for himself and Respondent. Respondent and Mr. Mathews testified that they thought Investigator Willoughby had given the presentation on the requirements of A.R.S. § 32- 1121(A)(6). Investigator Willoughby denied giving the presentation. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[15] The Registrar bears the burden of proof to establish Respondent’s statutory violations and factors in aggravation of the penalty by a preponderance of the evidence.[16] Respondent bears the burden to establish affirmative defenses and factors in mitigation of the penalty by the same evidentiary standard.[17] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[18] A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”[19] A.R.S. § 32-1151 prohibits contracting without a license, providing in relevant part 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.

A.R.S. § 32-1101(A)(3) defines contractor as “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 . . ., does himself or by or through others, or directly or indirectly supervises others to . . . [c]onstruct . . . any building . . . .” Respondent did not dispute that he applied for and obtained a permit for the projects and that he hired and supervised licensed subcontractors to build the residences on Ladera Court and on Casero Drive. Because A.R.S. § 32-1151 does not require any showing of intent, the Registrar established that Respondent violated the statute, unless Respondent is able to establish that an exemption applied. A.R.S. § 32-1121(A) sets forth exemptions to licensure requirements, including the following: 1. 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. In all actions brought under this chapter, except an action against an owner-occupant as defined in section 33-1002, proof of the sale or rent or the offering for sale or rent of any such structure by the owner-builder within one year after completion or issuance of a certificate of occupancy is prima facie evidence that such project was undertaken for the purpose of sale or rent. For the purposes of this paragraph, "sale" or "rent" includes any arrangement by which the owner receives compensation in money, provisions, chattels or labor from the occupancy or the transfer of the property or the structures on the property.

6. Owners of property who are acting as developers and who build structures or appurtenances to structures on their property for the purpose of sale or rent and who contract for such a project with a general contractor licensed pursuant to this chapter and owners of property who are acting as developers, who improve structures or appurtenances to structures on their property for the purpose of sale or rent and who contract for such a project with a general contractor or specialty contractors licensed pursuant to this chapter. To qualify for the exemption under this paragraph, the licensed contractors' names and license numbers shall be included in all sales documents.

(Emphasis added.) Because Respondent offered the Ladera Court project and Casero Drive project less than a year after the certificates of occupancy were issued, he cannot claim the owner-builder exemption under A.R.S. § 32- 1121(A)(5) in these matters. Because Respondent built both projects from the ground up, rather than improving existing structures, to claim the owner-developer exemption under A.R.S. § 32-1121(A)(6), the plain language of the statute requires him to use a licensed general contractor. Because Respondent did not use a licensed general contractor, he cannot claim the owner-developer exemption. Members of regulated professions are presumed to know the law and will be bound by statutes and regulations that regulate their profession: [T]here is no general due process requirement that the government give notice of the enactment of legislation, criminal or otherwise. . . . The promulgation of a law by a legislature in accordance with its constitutional obligations is deemed to constitute adequate notice to all. . . . As our supreme court has explained: "The administration of justice, the law itself as a practical system of the regulation of human conduct, requires that some fundamental assumptions should be made as postulates. The most important of all these is the assumption that all persons of sound and mature mind are presumed to know the law." Merrill v. Gordon, 15 Ariz. 521, 532, 140 P. 496, 500 (1914) (citation and internal quotation omitted); see also State v. Morse, 127 Ariz. 25, 31, 617 P.2d 1141, 1147 (1980) ("It is generally accepted that ignorance, or lack of knowledge, of the law which forbids the conduct with which one is charged is no defense.").

This concept of ignorance of the law being no excuse is codified in Arizona in A.R.S. § 13-204(B) (2001). See 1 Rudolph J. Gerber, Criminal Law of Arizona § 1-204(B) (2d ed. 1993) ("The underlying assumption of this section is that the content of the criminal law approximates the average person's actual assessment of tolerable behavior and that the citizenry knows everything needed to obey the law.").[20]

Under this well-established authority, Respondent is deemed to know the law; his claimed ignorance is no defense. For estoppel to lie against a state agency, the agency’s communication giving rise to the estoppel must be formal, in writing, and made or approved by “a person authorized to act in the area under consideration.”[21] “In general, the state may not be estopped due to the casual acts, advice, or instructions issued by nonsupervisory employees.”[22] In addition, “‘[e]stoppel may succeed against the state only when its application would promote rather than frustrate the basic intent of the statute.’”[23] The Registrar’s unnamed employee’s alleged oral statement seven to nine years ago that owner-developers may construct new buildings from the ground up if they use licensed subcontractors does not estop the Registrar from enforcing A.R.S. §§ 32-1151, 32-1121(A)(5), and 32-1121(A)(6) against Respondent. A.R.S. § 32-1166(A) authorizes the Registrar to assess a civil penalty against a person who has been found to have contracted without a license in violation of A.R.S. § 32-1151, in relevant part as follows: 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. . . .

A.A.C. R4-9-131 sets forth factors that the Registrar must consider in determining the appropriate amount of any civil penalty, in relevant part 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.

The Registrar has not established any of these factors in aggravation of the penalties. Respondent established that his violation of A.R.S. § 32- 1151 was caused by a sincere, although mistaken and possibly self-serving belief that A.R.S. § 32-1121(A)(6) provided a valid exemption. Moreover, Respondent took both properties off the market as soon as he learned that the exemption might not apply and provided the names and license numbers of the licensed subcontractors who actually performed the work to build the residences and who presumably will warranty any workmanship deficiencies. It does not appear that any member of the public was harmed or is likely to be harmed in the future by Respondent’s violation of A.R.S. § 32-1151.[24] Therefore, civil penalties in the amount of $500.00 for each job are appropriate for Respondent’s violations of A.R.S. §§ 32-1151, for total aggregate civil penalties in the amount of $1,000.00. RECOMMENDED ORDER Case No. 2015-1231 Based on the foregoing, it is recommended that the Registrar affirm the finding that Respondent Terry Michael Turmes violated A.R.S. § 32-1151 on the Ladera Court project and assess a civil penalty in the total amount of $500.00. The $500.00 civil penalty shall be paid in certified funds to the Registrar on or before thirty days after the effective date of the 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. 2015-1232 Based on the foregoing, it is recommended that the Registrar affirm the finding that Respondent Terry Michael Turmes violated A.R.S. § 32-1151 on the Casero Drive project and assess a civil penalty in the total amount of $500.00. The $500.00 civil penalty shall be paid in certified funds to the Registrar on or before thirty days after the effective date of the 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, July 10, 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 2. [3] See the Registrar’s Exhibit 5. [4] See the Registrar’s Exhibit 7. [5] See the Registrar’s Exhibit 6 at 1. [6] See the Registrar’s Exhibit 8. [7] See the Registrar’s Exhibit 3. [8] See the Registrar’s Exhibit 9. [9] See Respondent’s Exhibit A. [10] See the Registrar’s Exhibit 13 at 2; Respondent’s Exhibit C. [11] See the Registrar’s Exhibit 10. Respondent and Mr. Mathews are members of other limited liability companies. See the Registrar’s Exhibit (Bent Creek LLC). [12] See Respondent’s Exhibit B. [13] See the Registrar’s Exhibit 6 at 7. [14] See the Registrar’s Exhibit 3. [15] See A.R.S. § 32-1101 et seq. [16] See A.R.S. § 41-1092.07(G)(3); A.A.C. R2-19-119(A) and A.A.C. R2-19- 119(B)(1); see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [17] See A.A.C. R219-119(B)(2). [18] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [19] Black’s Law Dictionary at page 1220 (8th ed. 1999). [20] State v. Soltero, 205 Ariz. 378, 380 ¶¶ 7 and 8, 71 P.3d 370, 372 (App. 2003) (some citations omitted). [21] Valencia Energy Co. v. Arizona Dept. of Revenue, 191 Ariz. 565, 577 ¶ 36, 959 P.2d 1256, 1268 (1998). [22] Id. [23] See Hansson v. State Board of Dental Examiners, 195 Ariz. 66, 70 ¶ 20, 985 P.2d 551, 555 (App. 1999) (quoting Arizona Department of Revenue v. M. Greenberg Constr., 182 Ariz. 397, 405, 897 P.2d 699, 707 (App. 1995)). [24] “The purpose of the [Registrar] is to protect the public health, safety and welfare by licensing, bonding and regulating contractors engaged in residential construction . . . .” Laws 1994, Ch. 7, § 3.

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