ALJDEC decisions subject to certification as final

2015A-3154-ROC · Registrar of Contractors · 2016-03-08

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: March 1, 2016, at 1:00 p.m. APPEARANCES: The Arizona Registrar of Contractors (“the Registrar”) was represented by Thomas C. Raine, Esq., Assistant Attorney General; Bryan Dean Clark (“Respondent”) appeared telephonically on his own behalf. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure On or about July 21, 2015, David Berry (“Mr. Berry”) filed a complaint with the Registrar that Respondent had contracted to move dirt with a tractor to the foundation of Mr. Berry’s house at 4643 E. County 15th St., that Respondent had damaged the irrigation system, and that although the three- day job turned into a nine-day job, Respondent had failed to completely shore up the foundation.[1] According to Mr. Berry’s complaint, the contract amount was $3,500.00, but he had paid Respondent $6,000.00. The complaint was assigned to the Registrar’s Investigator, Daniel Rhodes (“Investigator Rhodes”), for investigation. Mr. Berry stated in an attachment to the complaint that Respondent had filed a complaint against Mr. Berry for unpaid wages with the Industrial Commission of Arizona (“ICA”) and that Mr. Berry had retained attorney Gerald Hunt (“Attorney Hunt”) to defend against Respondent’s claim. On or about August 11, 2015, Investigator Rhodes issued a Cease & Desist Order and a civil citation for violating of A.R.S. § 32-1151, based on Respondent’s activities at Mr. Berry’s project, and assessed a civil penalty in the amount of $1,500.00 for his violation of A.R.S. § 32-1151. The Registrar served the Cease & Desist Order, civil citation, and notice of assessment of civil penalty on Respondent by certified mail.[2] Respondent requested a formal hearing, arguing that he was exempt from the Registrar’s licensing requirements because he was Mr. Berry’s employee and because he did not meet the legal requirements for being an independent contractor.[3] The Registrar referred the matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. A hearing was held on March 1, 2015. The Registrar submitted eight exhibits and presented Investigator Rhodes’ testimony. Respondent testified on his own behalf and presented the testimony of Paul Nohrenberg (“Mr. Nohrenberg”), who had also worked on Mr. Berry’s project. Additional Hearing Evidence Investigator Rhodes prepared a written report of his investigation.[4] His testimony was consistent with his report. Investigator Rhodes contacted Attorney Hunt, who provided a copy of Respondent’s January 14, 2015 complaint to the ICA’s Labor Department. The complaint included charts that showed that Mr. Berry had paid Respondent $6,405.00 of the total of $9,353.61 that was still allegedly owed for equipment rental, other employees’ wages, and diesel fuel, as well as a chart that showed that Mr. Berry allegedly owed Respondent $2,948.61 for 84.2 hours of work at $35.00/hour, less $448.61, for total unpaid wages of $2,500.00.[5] Respondent attached a Declaration to his claim to the ICA that stated, uner penalty of perjury, that he had entered into an oral contract with Mr. Berry “to provide excavation services, and to redistribute dirt on his property, while removing certain scrubs and trees” and that at all times, Mr. Berry knew that Respondent was not a licensed contractor.[6] Respondent also stated in his claim to the ICA that Mr. Berry had authorized him to hire two helpers at $10.00/hour and his claim included a spreadsheet that showed that “Jake” had earned $745.00 and “Paul” had earned $205.00 for the job. The spreadsheet also showed that Respondent had charged Mr. Berry $700.00 for diesel fuel. Respondent also attached to his claim to the ICA a Rental Agreement for a Kubota Tractor between himself and Phillip Clark (“Mr. Clark”), in which Mr. Clark agreed to rent the tractor that he had originally purchased from Respondent back to Respondent, at a rental price of $300/week.[7] Respondent’s claim to the ICA alleged that he was exempt from the Registrar’s licensure requirements under A.R.S. § 32-1121(A)(10) and (A)(16). Investigator Rhodes opined that Respondent had misinterpreted the exemptions and that at least some of the work that he described in his claim to the ICA required an R-2 license for excavating, grading, and oil surfacing. Investigator Rhodes’ report quoted the description of the scope of work for an R-2 license: This classification allows the licensee to apply oil surfacing or other similar products and place shoring, casing, geotextiles or lines as required for the licensee to move, alter, or repair earthen materials by: 1. Digging 2. Trenching 3. Grading 4. Horizontal boring 5. Compacting 6. Filling[8]

Investigator Rhodes testified that he met Mr. Berry at his home on July 31, 2015. Mr. Berry said that Respondent was a friend who had worked at the Yuma Proving Ground who knew how to operate and had access to earth- moving equipment. Mr. Berry stated that Respondent quoted a price of $3,500.00 to remove sand that had blown against the perimeter fence and to backfill gravel to cover the footings on his house. Mr. Berry stated that he entered into an oral contract with Respondent, that Respondent’s price for the work later grew to over $6,000.00 and that Respondent came to work on the project without Mr. Berry’s consent, when Mr. Berry was in the hospital. The Registrar submitted the ICA’s March 5, 2015 Notice of Wage Claim Dismissal in which the ICA notified Respondent that it had dismissed Respondent’s wage claim against Mr. Berry because the ICA had determined that Respondent was an independent contractor, not an employee as defined by A.R.S. § 23-350.[9] Investigator Rhodes testified that Respondent had no prior violations of Arizona contracting laws and that the Registrar’s policy is to assess a $1,500.00 civil penalty for a first violation of A.R.S. § 32-1151. Investigator Rhodes testified that based on his familiarity with the Registrar’s license exemptions, Respondent was not exempt from being required to be licensed under A.R.S. § 32-1121(A)(10) because Mr. Berry’s property was a single-family residence, not a condominium or other multi- family structure.[10] Investigator Rhodes testified that the substantial work that Respondent performed at Mr. Berry’s property was not exempt under A.R.S. § 32- 1121(A)(16)[11] because his work was not limited to lawn, garden, shrub, or tree maintenance, but included earth-moving work for which a contractor’s license was required. Investigator Rhodes testified that, in addition, the price and scope of the work is considered in the aggregate. Investigator Rhodes explained that if any part of a project requires a license, a contractor must be licensed to legally perform the project. With respect to Respondent’s main defense, that he was Mr. Berry’s employee, Investigator Rhodes testified that the exemption under A.R.S. § 32-1121(A)(11)[12] did not apply because the Registrar, like the ICA, had determined that Respondent acted as an independent contractor, not Mr. Berry’s employee. Investigator Rhodes pointed out that Mr. Berry retained Respondent only for the job of shoring up the foundation, removing wind- blown sand from the perimeter walls, and clearing the lot. Investigator Rhodes noted that Mr. Berry did not withhold any deductions from Respondent’s pay and did not pay unemployment or workers’ compensation insurance for him. Investigator Rhodes pointed out that Mr. Berry agreed to pay Respondent $3,500.00 for the job, not an hourly wage, and that Respondent continued to work on the job without Mr. Berry’s consent when he was hospitalized. Respondent testified that Mr. Berry told Respondent and his two helpers what work to perform, had ordered and paid for two large 40-yard dumpsters for the yard-clearing project, had ordered gravel to back-fill against the foundation, and had agreed to reimburse Respondent for the costs of the tractor and the diesel fuel used in the project. Respondent testified that he worked under Mr. Berry’s direction and control. Respondent testified that, originally, the job was only supposed to cost $700.00, but that Mr. Berry kept expanding the scope of the job. Respondent testified that initially, Mr. Berry instructed him to move the sand from the perimeter fence to the area around the foundation of the house, but Respondent said that was not the way it should be done and advised Mr. Berry to order gravel to put around the foundation of the house. Respondent testified that although he reduced his hourly rate from $35.00 to $30.00/hour after Mr. Berry expanded the scope of the project, Mr. Berry still owed Respondent $2,600.00 for the job, and that he ended up making only $15.00/hour for the job. Respondent testified that Mr. Berry paid his two helpers directly in cash. Respondent testified that because Mr. Berry did not know his neighbor, Mr. Clark, Respondent acted as a go-between to arrange for the rental of the Kubota tractor that he previously had sold to Mr. Clark to use on the job. Mr. Nohrenberg testified that Mr. Berry approached him and hired him to work on the project with Respondent. Mr. Nohrenberg testified that what Respondent said was true: Mr. Berry paid Mr. Nohrenberg $10/hour and kept expanding the scope of the project. Respondent testified that under the Internal Revenue Service’s (“IRS’s”) 20-part test, he was Mr. Berry’s employee, not an independent contractor.[13] On February 28, 2016, Respondent filed a Motion to Dismiss the Hearing under the Supremacy Clause of the United States Constitution because on January 24, 2016, he had filed with the IRS an SS-8 petition to determine Respondent’s worker status for purposes of payment of both federal and state income and/or employment taxes. CONCLUSIONS OF LAW On February 29, 2016, the Administrative Law Judge issued an order denying Respondent’s February 28, 2016 Motion to Dismiss, for the following reasons: The Registrar and the Office of Administrative Hearings (“OAH”) are executive department agencies who are charged with enforcing statutes that the Legislature has duly enacted. Under well- established common-law authorities, principles of judicial review and separation of powers prevent an administrative agency from declaring that a statute violates the United States or the Arizona Constitutions.[14] The Registrar and OAH lack jurisdiction to determine the constitutionality or validity of Arizona’s contracting statutes in light of Respondent’s having filed an SS-8 petition to the federal IRS. Respondent has preserved this argument, however, and may challenge the constitutional and procedural validity of the Registrar’s enforcement of contracting statutes against him in a judicial forum.

(Footnote in original.) Unless and until the IRS determines that pursuant to Respondent’s SS-8 petition, Respondent was Mr. Berry’s employee, and a judicial forum determines that Respondent’s filing of the SS-8 petition and/or the IRS’s determination that Respondent was Mr. Berry’s employee, not an independent contractor, prevent the Registrar from enforcing Arizona’s contracting statutes against Respondent under the Supremacy Clause of the U.S. Constitution, this matter remains within the Registrar’s jurisdiction.[15] The Registrar bears the burden of proof to establish Respondent’s statutory violations by a preponderance of the evidence.[16] Respondent bears the burden to establish affirmative defenses 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.

The Registrar established that Respondent’s excavation, back-filling, and earth-moving work was contracting under the Registrar’s regulations and as defined by applicable statute.[20] A.R.S. § 32-1121(A)(14) sets forth the so-called “handyman’s exemption” to licensure requirements and provides in relevant part as follows: 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. . . .

Because the amount of Respondent’s contract with Mr. Berry exceeded $999.99 and the work was not casual or minor in nature, the handyman exemption does not prevent Respondent from being liable for unlicensed contracting in violation of A.R.S. § 32-1151. Respondent’s testimony and the attachments to and his personal declaration in the Unpaid Wage Claim that he submitted to the ICA establish that any gardening or yard maintenance that he performed at Mr. Berry’s property was incidental to Respondent’s performance of excavation, back-filling, and earth-moving work. Respondent did not establish that his work at Mr. Berry’s project was exempt from the Registrar’s licensing requirements under A.R.S. § 32-1121(A)(16). If every property owner who tells a contractor what work he wants to have performed thereby becomes the contractor’s employer for purposes of A.R.S. § 32-1121(A)(11), the exemption would swallow the general requirement of licensure and no contractor would ever need to be licensed. Respondent advised Mr. Berry to purchase gravel to backfill the foundation, arranged and paid directly for the rental of the Kubota tractor from Mr. Clark, and claimed the cost of Paul and Jake’s hours, the Kubota tractor rental, and diesel fuel in his Unpaid Wage Claim to the ICA. Respondent acknowledged that Mr. Berry hired him solely to excavate and perform incidental yard maintenance on the project, not to perform general employment for an indefinite or long-term duration. A property owner’s provision of some materials for a job does not, without more, turn him into the contractor’s employer under the Registrar’s statutes. Respondent did not present any evidence that he filled out a W-4 form before his alleged employment or that Mr. Berry withheld social security or income taxes from his pay or paid workers’ compensation or unemployment insurance based on Respondent’s alleged employment status. Therefore, Respondent did not establish that his work at Mr. Berry’s project was exempt from the Registrar’s licensing requirements under A.R.S. § 32-1121(A)(11). 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. . . .

Because the Registrar established that Respondent performed contracting work at Mr. Berry’s property and Respondent did not establish that any exemption applied, the Registrar established that Respondent engaged in unlicensed contracting in violation of A.R.S. § 32-1151. The Registrar also established that under the facts and circumstances of this case, a civil penalty in the amount of $1,500.00 is appropriate. RECOMMENDED ORDER Based on the foregoing, it is recommended that the Registrar affirm the finding that Respondent Bryan Dean Clark violated A.R.S. § 32-1151 and affirm the imposition of a civil penalty in the amount of $1,500.00 for the unlicensed contracting violation. The $1,500.00 civil penalty shall be paid in certified funds to the Registrar on or before 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, March 8, 2016.

/s/ Diane Mihalsky Administrative Law Judge

Copy mailed/e-mailed/faxed March 8, 2016 to:

Jeffrey Fleetham, Director Registrar of Contractors c/o Legal Department 1700 W. Washington Street, Suite 105 Phoenix, AZ 85007

By ----------------------- [1] See the Registrar’s Exhibit 2. [2] See the Registrar’s Exhibit 1. [3] See the Registrar’s Exhibit 4. [4] See the Registrar’s Exhibit 3. [5] See the Registrar’s Exhibit 5. [6] See the Registrar’s Exhibit 5. [7] See the Registrar’s Exhibit 5. Mr. Clark is a ne杩扨牯漠⁦牍ighbor of Mr. Berry’s and is not related to Respondent. [8] See the Registrar’s Exhibit 3 at 3-4; see also A.A.C. R4-9-103. [9] See the Registrar’s Exhibit 6. The Registrar also submitted Investigator Rhodes’ supplemental report of the Registrar’s receipt of the notice from Attorney Hunt. See the Registrar’s Exhibit 7. [10] A.R.S. § 32-1121(A)(10) provides as follows: This chapter shall not be construed to apply to: . . . . 10. Employees of the owners of condominiums, townhouses, cooperative units or apartment complexes of four units or less or the owners' management agent or employees of the management agent repairing or maintaining structures owned by them. [11] A.R.S. § 32-1121(A)(16) provides as follows: This chapter shall not be construed to apply to: . . . . 16. A person who functions as a gardener by performing lawn, garden, shrub and tree maintenance. [12] A.R.S. § 32-1121(A)(11) provides as follows: This chapter shall not be construed to apply to: . . . . 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. [13] See the Registrar’s Exhibit 8 (Respondent’s June 20, 2016 Points and Authorities in Support of Dismissal Motion), Appendix D. [14] See, e.g., Ariz. Corp. Comm’n v. Tucson Gas, Elec. Light & Power Co., Ariz. 12, 14, 189 P.2d 907, 908 (1948); Estate of Bohn v. Waddell, 174 Ariz. 239, 249, 848 P.2d 324, 334 (App. 1993); Pena v. Indus. Comm’n, 140 Ariz. 510, 515, 683 P.2d 309, 314 (App. 1984); Manning v. Reilly, 2 Ariz. App. 310, 312, 408 P.2d 414, 416 (1965). [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. R2-19-119(B)(2). [18] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [19] Black’s Law Dictionary at page 1220 (8th ed. 1999). [20] A.R.S. § 32-1101(3) defines “contractor” in relevant part 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. (Emphasis added.) A.R.S. § 32-1102(3) provides that contracting business includes “[g]eneral engineering contracting, which is engaging in the contracting business other than residential contracting in connection with fixed works requiring specialized engineering knowledge and skills and includes irrigation, drainage, water power, water supply, flood control, inland waterways, harbors, railroads, highways, tunnels, airport runways, sewerage, bridges, earth moving projects, paving and transmission lines.” (Emphasis added.)

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