ALJDEC decisions subject to certification as final

2015A-3851-ROC · Registrar of Contractors · 2016-12-28

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Santa Fe Ranch Property Owners Association, Inc.,

COMPLAINANT

-v-

2 Arrows Construction, LLC,

License Nos. 275082 and 275083,

RESPONDENT

No. 2015A-3851-ROC

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: June 27, August 18 and 30, and October 13, 2016

APPEARANCES: Stephen L. Weber, Esq. for Complainant; Michael W. Thal, Esq. and Brittany M. Neel, Esq. for Respondent

ADMINISTRATIVE LAW JUDGE: Thomas Shedden

_____________________________________________________________________

FINDINGS OF FACT

On March 25, 2016, the Registrar of Contractors (“ROC”) issued a Notice of Hearing setting the above-captioned matter for hearing on May 16, 2016, at the Office of Administrative Hearings.

The matter was continued and the hearing was conducted on June 27, August 18 and 30, and October 13, 2016.

Respondent 2 Arrows Construction, LLC (“2 Arrows”), holds license numbers 275082 and 275083 issued by ROC. Rudy Koivisto is 2 Arrows’ qualifying party.

The Notice of Hearing shows that the hearing was set to consider the charges made in the Citation and Complaint.

Through the Citation, ROC alleges that 2 Arrows may have violated Ariz. Rev. Stat. sections 32-1154(A)(2), (A)(3), (A)(12)(32-1158(B)), and (A)(22). The Citation shows that if the Administrative Law Judge finds that any of these subsections has been violated, ROC may suspend or revoke 2 Arrows’ licenses.

Complainant is the Santa Fe Ranch Property Owners Association. Santa Fe Ranch is located in Mohave County.

At issue in this matter is construction work on a one-mile stretch of dirt road that was overlaid with a two-inch layer of reclaimed or milled asphalt and treated with a product called Soil Sement. The work at issue was completed by 2 Arrows and by Midwest Industrial Supply Inc. and its subcontractor Earthcare Consultants.

2 Arrows was responsible for earthwork, including compacting the subgrade, and placing and compacting the asphalt millings. Midwest was responsible for application of the Soil Sement. The Association provided the asphalt millings that were used.

The project evolved over time with the Association originally proposing an eight-inch asphalt overlay that would be covered with a chip seal, which was described in engineering documents prepared by Ray Stadler, P.E. After receiving bids for this configuration, the Association decided that it was too costly and pursued other options.

Steven Buck of Buck Reynolds Corporation was the Association’s property manager at most times pertinent to this matter. Mr. Buck negotiated and signed the various agreements on behalf of the Association.

Mr. Buck was called as a witness, but his testimony is not reliable as he professed to be unable to recall details of the negotiations and course of dealings among the parties (for example, that 2 Arrows originally bid on the eight-inch configuration).

Throughout the time the key agreements were being negotiated, the Association was representing that the project was a temporary dust control measure, which information is included in the contracts at issue and numerous other documents that the parties exchanged. At the hearing, the Association took the position that the project was not really a dust control project and that that characterization was one that the Association presented to Mohave County to gain advantage as it worked with the County.

While the Association was considering its options, it requested that Mr. Koivisto gather information for its benefit. Mr. Koivisto, who is a member of the Association agreed to do so. Mr. Koivisto provided information to the Association at several Board meetings, which included information on Midwest’s products.

At the hearing, Board members Greg Bigall and Karen Funderburg testified that the Association had relied completely on Mr. Koivisto when it entered into its contracts with Midwest. This position is not supported by a plain reading of the Association’s contracts with Midwest and was contradicted by Mr. Bigalll’s own testimony that the Association had relied upon Mr. Buck’s input regarding the structure of the contracts with 2 Arrows and Midwest.

Exhibit A is a three-party contract dated May 29, 2013 that incorporates a contract/proposal between the Association and 2 Arrows dated November 26, 2012 and revised March 2, 2013, a contract between the Association and Midwest dated May 19, 2014, and other documentation.

The three-party contract shows that Midwest was to make two applications of Soil Sement, and that any subsequent maintenance applications would be applied as required, but the agreement related to those subsequent applications was not part of the three-party contract.

The three-party contract shows that Mr. Koivisto was to approve all payments to Midwest based upon his satisfaction with the product performing as represented. The Association never asked Mr. Koivisto to review and approve Midwest’s invoices, and Mr. Koivisto testified that this provision was not practicable because the payments were due long before any conclusion about the performance of the product could be made.

Exhibit 10 is the revised contract between 2 Arrows and the Association showing that 2 Arrows: would conduct roadway earthwork including preparing the subgrade to MAG standard specification 301 and the applicable soils report; would place the Association supplied asphalt and compact it to two-inches in conformance with MAG Standard specification 310 for untreated base; and would provide a traffic control plan and the barriers required to route traffic around and through the work zones.

The contract between 2 Arrows and the Association shows that the application of emulsified asphalt and or chip seal, Soiltac, or Midwest Industrial’s Road Pro NT will be a separate contract and not part of this proposal. It also shows that the two-inch depth of asphalt is in lieu of the originally planned eight-inch depth.

The contract between Midwest and the Association shows that Midwest was to install (or apply to the millings) 3,175 gallons of Soil Sement in an initial application, to provide a maintenance application of 1,270 gallons one to two weeks later, and to provide additional maintenance applications as required.

The agreement between the Association and Midwest originally called for application of Midwest’s product Road Pro NT, which was recommended by Midwest’s Tim Solberg. In a letter from Midwest to the Association dated May 16, 2014, Midwest advised that Soil Sement should be used, rather than the Road Pro NT. Midwest informed the Association that the Road Pro NT would not provide in-depth particle coverage, whereas the Soil Sement would achieve the needed penetration of the millings, and would provide a dust free resilient surface for surface stability and traffic.

The two inches of asphalt millings were initially placed in April 2014, but because the Association decided to switch from Road Pro NT to Soil Sement, the millings were not treated with Soil Sement until June 3 and 4, 2014.

Between April and June, traffic was allowed on the road. Ms. Funderburg testified as to her understanding that Mr. Koivisto said the traffic would help compact the millings. Mr. Koivisto testified that she misunderstood and what he was saying was that the traffic would help by knocking the emulsion off the millings.

On June 3 and 4, 2014, 2 Arrows “bladed” the millings, rolling them to one side and back as Midwest applied the Soil Sement; 2 Arrows then compacted the millings using at 40-ton double drum roller and a 9-wheel roller. This procedure is consistent with the opinion of the Association’s expert witness Monte Wilson, P.E., who testified that the Soil Sement had to be mixed with the millings to perform properly.

About 300 feet of the roadway known as the reverse curve was not treated with Soil Sement in June because that section of the road was going to be reconfigured.

While the first application of Soil Sement was being applied in June 2014, people were driving around the barricades that had been erected and driving on the milled asphalt before the Soil Sement had cured.

2 Arrows, Midwest, and Earthcare all take the position that traffic on the roadway before the Soil Sement cured is one cause of any poor performance of the roadway. Mr. Wilson’s testimony supports this conclusion.

A second coat of Soil Sement was applied by Midwest on July 21, 2014. Again, drivers were ignoring traffic control devices and driving on the road as the application occurred.

In an email to 2 Arrows dated September 15, 2014, Earthcare’s Marty Koether informed Mr. Koivisto that based on their conversations and his last trip to the road, it was time for a maintenance coat of Soil Sement. Mr. Koether noted that although there were concerns about loose aggregate, the road bed was hard and removal of any loose aggregate would reveal this, and that the additional Soil Sement treatments would seal the surface to stop additional aggregate from coming loose.

Mr. Koether also informed 2 Arrows that as a show of good faith, Earthcare was going to double the application rate at no charge to the Association, which he said would produce a road surface that should last many years if the Association kept doing maintenance as required.

These additional coats of Soil Sement were scheduled to be applied in October 2014, but the Association did not approve the expenditure because its Board was of the opinion that the road required repair before any additional maintenance was done.

In an email to the Board and Mr. Buck dated October 27, 2014, Earthcare’s Mr. Koether wrote that repairs would be done before the additional coats of Soil Sement were applied, but that the longer the Association waited to have these additional coats applied, the worse the road would become. Mr. Koether also wrote that the road is not a paved highway and will not perform like a paved highway, yet people or driving on it like it is an interstate; wash boarding is increased or exacerbated by acceleration or braking, which displaces gravel, and can only be avoided by lower speeds; Earthcare maintains miles of roads stabilized with Soil Sement, mostly at 25 to 35 mph; and speed is going to be an issue going forward if the speed limit is not reduced.

On January 3 and 4, 2015, Earthcare applied the third and fourth coats of Soil Sement.

On September 9, 2015, the Association filed with ROC its complaints against 2 Arrows (Exhibit 35) and Midwest (Exhibit 36). The allegations are essentially identical, with the primary allegation being that the road was not performing as expected and that it had begun to deteriorate by October 2014. Through the complaints, the Association alleged that the millings and the subgrade had not been properly compacted, that the Soil Sement had not fully penetrated the two inches of asphalt millings, and that material such as tires, rocks, and reflectors were in the asphalt.

2 Arrows filed with ROC its answer on September 23, 2015, Earthcare filed an answer on September 24, 2015, and Midwest filed an answer on October 13, 2015 in which it incorporated Earthcare’s answer. All three responses noted that the project was one for dust control and indicated that the road was performing that function.

In its answer, 2 Arrows noted that issues related to the application or performance of Soil Sement were outside the scope of its contract and that issues related to the deterioration of the road were related to Midwest’s contract.

In its answer, 2 Arrows took the position that great care was taken to compact material to specification and all testing confirmed that the compaction did meet and exceed requirements. 2 Arrows also took the position that it had met its contractual obligations.

Regarding any debris in the millings, in its answer 2 Arrows referred to its contract under which the Association provided the millings. 2 Arrows acknowledged that there were small pieces of shredded rubber and broken pieces of road reflectors in that material and that 2 Arrows had agreed to screen the material at no extra charge.

In its answer, Midwest noted that the design of the roadway (two inches of milled asphalt) was more appropriate for a driveway than a public road and it asserted that the Association was now asking for something other than a dust control project.

Earthcare, in its answer, noted that residents had driven on the road before the first coat of Soil Sement had cured and that they did so again while the second coat was being applied. Earthcare included with its answer correspondence showing that as of October 2014, it was of the opinion that the road was performing well.

In response to the Association’s complaint that the road had further deteriorated between March and September 2015, Earthcare noted that the Association had rejected its offer to provide two coats of Soil Sement in October, that Earthcare had informed the Association that these coats should be done immediately to arrest deterioration, and that Earthcare had received no requests for additional coats since the January 2015 applications.

ROC dismissed the complaint against Midwest because the Association had not allowed Midwest/Earthcare to perform the required maintenance coats of Soil Sement.

Correspondence between ROC’s Cliff Corlett and members of ROC’s investigative staff show that ROC considered dismissing the complaint against 2 Arrows because the information it had showed that the compaction was appropriately completed and because there was information to show that the road had been subject to abnormal use or abuse. In one email, Mr. Corlett wrote that the road is what you would expect for a reclaimed asphalt road; it is not a smooth hot asphalt application but more of a rough lumpy rural road that has some potholes and unraveling and some wash boarding.

On January 7, 2016, Mr. Corlett issued ROC’s Directive, in which ROC directed 2 Arrows to determine the cause of these problems and remedy by appropriate means.

Deviation from plans or specifications in any material respect that

is prejudicial to another

2 Arrows agreed to perform roadway earthwork including preparing the subgrade to MAG standard specification 301 and the applicable soils report, that it would place the Association supplied asphalt and compact it to two-inches in conformance with MAG Standard specification 310 for untreated base, and that it would provide a traffic control plan and the barriers required to route traffic around and through the work zones.

Testing done when 2 Arrows completed its work shows that the subgrade was properly compacted as required by the contract specifications. At the hearing, the Association acknowledged that the subgrade was appropriately compacted.

Under MAG Standard specification 310 for untreated base, 2 Arrows was required to compact the asphalt millings to a density of 95%. Testing completed during August and October 2016, shows that the roadway meets this requirement. The Association did not show that 2 Arrows failed to properly compact the asphalt millings.

As applicable here, MAG Standard specification 310 for untreated base requires that the compacted thickness of the asphalt not vary by more than 1⁄2 inch. Mr. Koivisto acknowledged that at the transitions and curves the compacted asphalt was up to five inches in thickness. He also testified however that this was required at the transitions and that the additional thickness at the curves represented good construction practice because the curves experience more wear and tear.

The Association failed to show that the deviation in thickness was a material one that was prejudicial to the Association.

2 Arrows contract called for it to add water to the millings to obtain a saturated material, with the amount of water required to be determined in the field. 2 Arrows did not add water to the millings because the Soil Sement had sufficient water to saturate the millings.

The Association failed to show that the 2 Arrows’s decision not to add additional water to the millings was a material deviation that was prejudicial to the Association.

Mr. Wilson testified as to his opinion that the road was not constructed with the required “crown,” but he had not measured the crown. Mr. Koivisto measured the roadway and confirmed that it had the required crown of about 2%.

The Association asserts that the Soil Sement did not fully penetrate the asphalt millings. Even if this is true, the documentation shows that Midwest had represented to the Association that the Soil Sement was preferable to Road Pro NT in part because it would provide the required penetration and coverage. As such, the Association’s position that any failure to penetrate was the fault of 2 Arrows must be rejected.

Violation of workmanship standards

ROC has no workmanship standard applicable to the placement and compaction of asphalt millings. The Associations alleges that 2 Arrows’s work violated a general performance based standard. In support of its allegation, the Association relies on the testimony of Mr. Wilson and the fact that Board members observed the road to experience potholes and other deficiencies.

The Association has not proven this allegation for several reasons. As an initial matter, as set out above, the contracts and other documents show that the Association represented that the project was a temporary dust control measure. The evidence at hearing supports a finding that the road was meeting that performance criterion.

The evidence of record also shows that the road was subject to abnormal use and neglect in that residents drove on the road before the Soil Sement had cured and because the Association did not have all the maintenance applications of Soil Sement applied as required. In addition, the evidence shows that the road is being driven on in speeds in excess of those recommended by Midwest/Earthcare.

Failure to take corrective action without valid justification within a reasonable period of time after receiving a written Directive from the registrar

2 Arrows was justified in not taking corrective action after it received ROC’s Directive because the evidence does not support a finding that it committed any workmanship violations.

Failure to include the minimum elements of a contract

At the hearing, 2 Arrows acknowledged that it had not fully complied with the requirements of Ariz. Rev. Stat. section 32-1158.

CONCLUSIONS OF LAW

Unless otherwise provided by law, a party asserting a claim, right, or entitlement bears the burden of proof; a party asserting an affirmative defense has the burden of establishing the affirmative defense. The standard of proof on all issues in this matter is that of a preponderance of the evidence. Ariz. Admin. Code § R2-19-119.

“At a hearing on an agency action to suspend, revoke, terminate or modify on its own initiative material conditions of a license or permit, the agency has the burden of persuasion.” Ariz. Rev. Stat. § 41-1092.07(G)(2).

“At a hearing on an agency's imposition of fees or penalties or any agency compliance order, the agency has the burden of persuasion.” Ariz. Rev. Stat. § 41-1092.07(G)(3).

A preponderance of the evidence is:

The 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.

Black’s Law Dictionary 1373 (10th ed. 2014).

Statutes should be interpreted to provide a fair and sensible result. Gutierrez v. Industrial Commission of Arizona, 226 Ariz. 395, 249 P.3d 1095 (2011)(citation omitted); State v. McFall, 103 Ariz. 234, 238, 439 P.2d 805, 809 (1968) ("Courts will not place an absurd and unreasonable construction on statutes.").

“Statutes shall be liberally construed to effect their objects and to promote justice.” Ariz. Rev. Stat. § 1-211(B).

The purpose of the Registrar’s licensing statutes is to protect the public from unscrupulous, unqualified, and financially irresponsible contractors. See Aesthetic Property Maintenance v. Capital Indem. Corp., 183 Ariz. 74, 900 P. 2d 1210 (1995).

Ariz. Rev. Stat. section 32-1154(A) provides that

The holder of a license or any person listed on a license pursuant to this chapter shall not commit any of the following acts or omissions:

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2. Departure from or disregard of plans or specifications or any building codes of the state or any political subdivision of the state in any material respect that is prejudicial to another without consent of the owner or the owner's duly authorized representative and without the consent of the person entitled to have the particular construction project or operation completed in accordance with such plans and specifications and code.

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3. Violation of any rule adopted by the registrar.

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12. Failure in any material respect to comply with this chapter.

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22. Failure to take appropriate corrective action to comply with this chapter or with rules adopted pursuant to this chapter without valid justification within a reasonable period of time after receiving a written directive from the registrar. The written directive shall set forth the time within which the contractor is to complete the remedial action. The time permitted for compliance shall not be less than fifteen days from the date of issuance of the directive. A license shall not be revoked or suspended nor shall any other penalty be imposed for a violation of this paragraph until after a hearing has been held. (Underscore added.)

Ariz. Admin. Code section R49108(A) provides that “A contractor shall perform all work in a professional manner.”

Ariz. Rev. Stat. section 32-1158 sets out the minimum elements of a contract.

The preponderance of the evidence does not show that 2 Arrows has violated Ariz. Rev. Stat. section 32-1154(A)(2) in that it has not been proven that it departed from the plans or specifications in any material respect that is prejudicial to another.

The preponderance of the evidence does not show that 2 Arrows has violated Ariz. Rev. Stat. section 32-1154(A)(3) in that the evidence of record does not show that it committed any workmanship violations. In addition, the work at issue has been subject to neglect and abnormal use, which precludes issuance of a Citation for that work. See Ariz. Rev. Stat. § 32-1155.

The preponderance of the evidence does not show that 2 Arrows has violated Ariz. Rev. Stat. section 32-1154(A)(22) in that the evidence of record shows that 2 Arrows was justified in not complying with ROC’s Directive.

The preponderance of the evidence shows that 2 Arrows has violated Ariz. Rev. Stat. sections 32-1154(A)(12)(32-1158(B)) in that it acknowledges that its contract did not fully comply with the applicable statute.

Based on the facts and circumstances of this matter, the Citation and complaint on which it is based should be dismissed.

RECOMMENDED ORDER

IT IS ORDERED that on the effective date of the final Order in this matter Complaint No. 2015-3851 is dismissed.

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 is forty days after the date of that certification.

Done this day, December 28, 2016.

/s/ Thomas Shedden

Thomas Shedden

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors