ALJDEC decisions subject to certification as final

2015A-4957-ROC · Registrar of Contractors · 2016-08-15

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: May 31, 2016 and August 10, 2016 APPEARANCES: Matthew B. Meaker, Esq. represented So Cal Excavating LLC at the initial hearing, but filed a motion to withdraw as counsel before the further hearing. At the further hearing, Kevin Olive, member of So Cal Excavating LLC, appeared on behalf of Complainant. DSW Corporation was represented by Thomas Swift, Esq. ADMINISTRATIVE LAW JUDGE: Suzanne Marwil _____________________________________________________________________ FINDINGS OF FACT 1. DSW Corporation (Respondent) is the holder of License No. 073208 issued by the Registrar of Contractors (Registrar). 2. On December 1, 2015, So Cal Excavating LLC (Complainant) filed a Complaint against Respondent with the Registrar alleging that Respondent had only paid $224,280.00 of $323,450.00 owed to Complainant under the parties’ subcontract dated May 27, 2015. Complainant’s former counsel clarified at hearing that Complainant sought a total of $63,370.00 from Respondent, consisting of $31,500.00 stemming from a September 30, 2015 Payment Application, $28,420.00 of retainage,[1] and $3,450.00 in change orders. See Exhibit D. 3. On March 4, 2016, Respondent responded to the Complaint denying that it owed Complainant any money. Respondent maintained that Complainant was properly terminated from the jobsite in question because it failed to pay its suppliers. Respondent also indicated that after Complainant was terminated, “[t]he cost to complete and to correct work under the contract exceeded the balance remaining to be paid” to Complainant. Respondent alleged it had overpaid Complainant by approximately $96,446.46. It later argued that the overpayment was approximately $76,000.00. See Exhibit M. 4. The parties were unable to resolve their differences, and Complainant requested an administrative hearing. The Registrar then issued a formal Citation charging Respondent with a possible violation of A.R.S. § 32-1154(A)(10). 5. At hearing, the parties agreed that they had entered into a subcontract dated May 27, 2015 that called for Complainant to install grading and paving, sewer lines, and drainage lines, as well as provide water and fire protection for Respondent, the general contractor, on a commercial development project known as Gold Drive.[2] See Exhibit 1 or A. The subcontract was amended such that Complainant also provided dust control. 6. It is undisputed that Complainant began the project well and that Compass Bank, the lender for the Gold Drive project, did a walkthrough and approved Complainant’s payment applications through August 31, 2015. 7. In September 2015, the president of Respondent, John Makarchuk, became concerned that Complainant was not paying its suppliers. Respondent therefore asked Complainant’s office manager, Jackie Olive, for proof of lien waivers and she provided them. See Exhibit C. Because some of the amounts on the lien waivers seemed “off,” Respondent’s office manager decided to call RDO Equipment and check on the amounts. Respondent learned that the amount on the lien waiver was in fact incorrect and “appears to have been altered.” Exhibit F. See also Exhibit H. Jackie Olive denied altering any lien waivers and Complainant maintained that it did pay suppliers according to a billing cycle. 8. Because Respondent wanted the job done, it permitted Complainant to continue to work, despite its reservations about the nonpayment of Complainant’s suppliers. Respondent believed that it could ensure Complainant’s suppliers were paid. 9. Both parties agreed that problems arose. Kevin Olive, a member of Complainant, said that the crux of the problem was that Complainant ran into hard digging that required the purchase of a hammer and that Respondent became upset when Complainant did not use the hammer and improperly terminated Complainant. Makarchuk denied that the hammer was ever an issue and indicated that the hammer issue was resolved between the owner of the Gold Drive project and Complainant with Respondent simply delivering a check to Complainant for the cost of the hammer. 10. The parties agree that on October 7, 2015, Kevin Olive sent Makarchuk an email threatening to stop Complainant’s work if it did not obtain some change orders. See Exhibit 16. 11. Makarchuk also testified that around that time Respondent learned that Complainant owed Jensen Precast, the supplier of the project’s manholes, $5,100.00. Complainant denied that Jensen Precast was even on the project and said another supplier, OldCastle Precast, provided the project’s manholes. 12. Respondent terminated Complainant on October 9, 2016. See Exhibit K. 13. Kevin Olive testified and agreed that at the time Respondent was terminated it had not finished all the work contained in the payment application dated September 30, 2015 contained in Exhibit D. He further agreed that Complainant received a credit of approximately $20,000.00 after RDO removed its equipment and backflows from the Gold Drive project. See also Exhibit 20 (Jackie Olive acknowledged returning the blackflows to Complainant’s supplier). Kevin Olive maintained that Complainant was still owed the full amount of the September 30, 2015 payment application plus retainage from the project and the cost of change orders. Kevin Olive indicated that Complainant had lost considerable money on the project, but did not provide any details. 14. Makarchuk testified that after Complainant was off the job, testing was done on the water lines and that many of the lines had to be replaced at considerable expense. 15. Respondent offered testimony from and submitted a report from an engineer on the Gold Project Duran Thompson, opining that Complainant had completed far less work than it applied for and had been paid for at the time of termination. See Exhibit L. Respondent also offered invoices showing its costs to repair and complete the work done by Complainant and claimed that it was actually owed money by Complainant under the terms of the subcontract. See Exhibit M. 16. Complainant stood by the value of is work and suggested that Compass Bank would never have released prior payments to it if its work lacked value. CONCLUSIONS OF LAW 1. The burden of proof at an administrative hearing falls to the party asserting a claim, right, or entitlement and the standard of proof on all issues in these matters is by a preponderance of the evidence. See A.A.C. R2-19-119. 2. A preponderance of the evidence is “such proof as convinces the trier of fact that the contention is more probably true than not.” Morris K. Udall, Arizona Law of Evidence § 5 (1960). 3. A.R.S. § 32-1154(A)(10) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, [f]ailure by a licensee . . . to pay monies in excess of seven hundred fifty dollars when due for materials or services rendered in connection with the licensee’s operations as a contractor when the licensee has the capacity to pay or, if the licensee lacks the capacity to pay, when the licensee has received sufficient monies as payment for the particular construction work project or operation for which the services or materials were rendered or purchased.

4. It is important to remember that this case is not one about wrongful termination or whether Complainant failed to pay its suppliers via fraud or other means. The Tribunal hence does not decide those issues. Instead, after review of all the relevant evidence, the Tribunal concludes that Complainant has failed to meet its burden of proof that it performed work of value to Respondent in September 2015. While Complainant presented evidence that it performed work, Respondent submitted evidence that this lacked value and/or had to be repaired by Respondent. In addition, the parties agreed that Complainant had already recouped some of the monies in question when it returned equipment and backflows. Complainant is not entitled to a double recovery of these amounts from Respondent. More fundamentally, because it remains unclear whether Respondent owes Complainant any money, Complainant has not established more probably than not that a violation of A.R.S. § 32-1154(A)(10) has occurred. RECOMMENDed order Based on the foregoing, it is recommended that the Registrar dismiss Complainant’s complaint. In the event of certification of this Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order will be 40 days from the date of the certification.

Done this day, August 15, 2016.

/s/ Suzanne Marwil Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director Registrar of Contractors

----------------------- [1] Retainage is defined as ten percent of the total dollar amount completed to date. See Exhibit D. [2] To be more precise, Complainant argued that as a legal matter its subcontract was entered into with So Cal Excavating when it was a sole proprietor because Complainant was not licensed with the ROC until September 11, 2015, after the subcontract was signed. The Tribunal fines it unnecessary to consider this argument because, as set forth more fully below, this matter can be decided by applying the applicable burden of proof.

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