ALJDEC decisions subject to certification as final
2016A-1458-ROC · Registrar of Contractors · 2017-03-16
IN THE OFFICE OF ADMINISTRATIVE HEARINGS
Assurance Builders Inc.,
COMPLAINANT,
v.
3 Strand Construction & Design,
License No: 303358
RESPONDENT.
No. 2016A-1458-ROC
ADMINISTRATIVE LAW JUDGE DECISION
HEARING: November 2, 2016 and February 27, 2017.
APPEARANCES: John Reuter, Qualifying Party of Assurance Builders, Inc.,
Complainant; Debra Reuter, [listed as Partner], Assurance Builders, Inc., Complainant, Fidelis V. Garcia, counsel for the Complainant. Arlo Huston, ROC Investigator appearing telephonically. Dean Handley, Qualifying Party, 3 Strand Construction & Design, Tim Newkirk, witness for 3 Strand Construction & Design, Benita Handley, witness for 3 Strand Construction & Design, Rick Erickson, counsel for the Respondent and Rachael Pugel, counsel for the Respondent.
ADMINISTRATIVE LAW JUDGE: Randolph D. Wolfson
_____________________________________________________________________
Evidence and testimony were presented and, based on the entire record in this matter, the following Findings of Fact, Conclusions of Law and Recommended Order are made:
FINDINGS OF FACT
Complainant Assurance Builders Inc. is a corporation which holds a current Arizona Contractor’s License number 208901 (KB-2 Dual Residence and Small Commercial) [hereinafter “Assurance”].
The Qualifying Party for Assurance is Assurance Corporate Officer John Frederick Reuter III.
Dean Mitchell Handley is a sole proprietor doing business as Respondent 3 Strand Construction & Design, [hereinafter “Strand”] and is the Qualifying Party for Strand.
Respondent Strand holds a current Arizona Contractor’s License number 303358 (KB-1 Dual Building Contractor.
The Respondent’s ROC License Number 303358 was first issued by the Arizona Registrar of Contractors [ROC] on February 20, 2016.
On April 29, 2016, Assurance filed a written Complaint with the ROC.
The written Complaint alleges Strand engaged in conduct as a contractor without a Contractor’s License issued by the ROC.
Attached to the Complaint are exhibits which display the name, logo and ROC contractor’s information for Assurance, but are – on their face – purporting to be bid proposals for the Respondent’s company, Strand.
Dean Mitchell Handley was an employee of Assurance from April 11, 2010 to January 27, 2016. [See, the Complaint].
Assurance’s Complaint states the exhibits attached to its Complaint were obtained from Mr. Handley’s Assurance office computer.
Arlo Huston, Inspector for the ROC, reviewed the Complaint and conducted his own investigation. Mr. Huston determined the operating without a license allegations may have merit and forwarded his findings onto the ROC legal department for action.
Mr. Huston testified that he did not make a recommendation to ROC legal that fraud or misrepresentation should be charged.
On June 10, 2016, the ROC issued a formal Citation to the Respondent charging as follows:
A violation of A.R.S. § 32-1154(A)(6) and a violation of A.R.S. § 32-1154(A)(19)
The Respondent timely filed its Answer to the charges and requested a hearing on the matter.
After proper notice, an Evidentiary Hearing was conducted on November 2, 2016, wherein exhibits and testimony were entered of record. Because insufficient time had been allotted by the parties, the matter was adjourned on November 2, 2016 and re-convened on February 27, 2017 to take additional testimony and evidence.
Mr. Handley has been a licensed contractor in good standing with the Registrar with several different companies since 1984.
When Mr. Handley became employed by Assurance in or about April 2010, He voluntarily cancelled his existing Arizona licenses.
In mid-2015, Handley decided to terminate his employment with the Assurance. Handley sought renewal of his former B-l license (formerly held by Handley as No. 210219,210983 and 246577) but sought licensure as a KB-l under his company’s new name - 3 Strand Construction & Design.
Mr. Handley secured a license surety bond for Strand on December 17, 2015.
Strand submitted its application for a KB-1 Dual Building Contractor’s license on December 2I, 2015.
The ROC issued License No. 303358, a KB-1 Dual Building Contractor, to the Respondent on February 20, 2016.
Mr. Handley admitted in his testimony at the hearing on November 2, 2016 that Strand had bid and undertaken three contracts for work as a contractor before Strand had formally been issued its contractor’s license.
At the time of the conduct referred to in paragraph 22 hereinabove, Strand had already made application for it KB-1 Dual Building Contractor’s License; had obtained and filed a copy of the required license bond; had submitted results from a background check to the ROC and had, in good faith, in all other respects completed and fulfilled the requirements necessary for its application for a contractor’s license.
No evidence was presented to show any of the actions referred to in paragraph 22 hereinabove resulted in a hardship, danger loss or prejudice to the public or to the Complainant.
Evidence was presented by the Complainant through testimony and exhibits which purported to demonstrate that Strand had undertaken a course of conduct misrepresenting that Strand was preparing and delivering bids using Assurances’ logo, address and ROC license number.
Testimony of Mr. Handley and of Timothy Newkirk [business consultant for Strand] clarified that Exhibits C-28 and C-35 were designed and crafted by Timothy Newkirk solely to be taken under consideration by Strand for it to build a template for later use as the company was developed. Exhibit C-32 and C-34 [hereinafter the Bid Form Template] along with corroborating testimony from Mr. Newkirk and Handley demonstrate that before the Bid Form Template could be approved for use by Strand, Mr. Newkirk was directed to remove all references to Assurance, its address, its ROC number and logo. Mr. Handley directed Mr. Newkirk to replace these items on the Bid Form Template with the Strand logo, and information.
Mr. Handley and Mr. Newkirk testified that the proposed Bid Form Template as reflected in Exhibits C-32 and C-34 were intended for view only by Mr. Handley and Mr. Newkirk.
Architect for the “Grey Residence” project has stated that at no time did Dean Handley, Tim Newkirk or the Respondent represent, nor did he believe, that Dean Handley, Tim Newkirk or the Respondent Strand were in any way associated with Assurance.
Both Mr. and Mrs. Gray, customers on the Grey Residence project, have stated that they were aware that the contracting work was being performed by Strand and not Assurance and that at no time did Dean Handley, Tim Newkirk or the Respondent Strand represent to them that they were in any way associated with Assurance.
Mr. Handley and Mr. Newkirk testified that the proposed Bid Form Template as reflected in Exhibits C-32 and C-34 have never been exposed to public view.
Assurance provided no evidence of record that Strand intended to deceive Assurance.
There is no evidence of record that Strand:
made any representation to Assurance;
that such representation was false;
that such representation was material;
that Strand knew such representation was false;
that Strand intended Assurance to act upon the representation;
that Assurance was ignorant of the falsity of such representation;
that Assurance had a right to rely on such representation;
or that Assurance was consequently and proximately injured by such representation.
There is no evidence of record that Strand has made any representation at all to Assurance.
CONCLUSIONS OF LAW
This matter lies within the ROC’s jurisdiction. See A.R.S. § 32-1101 et seq.
The Complainant bears the burden of proof to establish Respondent’s statutory violation by a preponderance of the evidence. See A.R.S. § 41-1092.07(G)(2); A.A.C R2-19-119(A) and A.A.C. R2-19-119(B)(1).
Pursuant to A.R.S. §32-1155(A)(19):
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: ...Subsequent discovery of facts that if known at the time of issuance of a license or the renewal of a license would have been grounds to deny the issuance or renewal of a license.
The evidence in this case established by a preponderance is that the Respondent Strand had bid and had undertaken three contracts for work as a contractor before Strand had formally been issued its contractor’s license. [See Finding of Facts, paragraph 22 hereinabove].
The purpose of contractor licensing statutes in Arizona are to "protect the public from unscrupulous, unqualified and financially irresponsible contractors." City of Phoenix v. Superior Court, 184 Ariz. 435,438,909 P.2d 502, 505 (Ct. App. 1996); see also Aesthetíc Prop. Maint.Inc. v. Capitol Indem. Corp., 183 Ari2.74, 77, 900 P.2d 1210, l2l3 (1995). Moreover, Arizona courts have held that "substantial compliance" with these licensing requirements satisfies the general policy and purpose of these statutes. City of Phoenix, 184 Ariz. at 438, 909 P.2d at 505 (quoting Aesthetic, 183 Ariz. at 77,900 P.2d at l2l3).
The elements of “Substantial Compliance” in the context of this case are whether:
ROC’s failure contributed to noncompliance;
The contractor was financially responsible while its license was suspended [or not yet issued];
The contractor knowingly ignored the requirement to make application for its contractor’s license;
The contractor, immediately upon learning ...apply to reactivate the license or to remedy the statutory violation"; and
The failure to comply with the statute prejudiced the party the statute seeks to protect?
Aesthetic, 183 Ariz. At 78, 900 P.2d at 1214.
In the instant case, under Aesthetic, supra at 1214, Strand was in Substantial Compliance with Arizona's contractor licensing statutes because:
Mr. Handley, the qualifying party for Strand, has been a licensed contractor in Arizona for about twenty-six years. The Respondent’s counsel is correct in his argument that this Complaint has led to the first Citation to be ever issued against any of Mr. Handley's licenses.
On December 17, 2015, Strand secured and filed with the ROC its contractor’s license bond.
At or near the point in time when Mr. Handley decided to end his employment relationship with Assurance, on December 2I, 2015, Strand submitted its application to the ROC for a KB-1 Dual Building Contractor’s license.
Mr. Hanley and Strand, did not ignore the ROC’s licensing requirements. Instead, the evidence demonstrates by a preponderance that Strand made a good faith effort to comply with the licensure laws.
Notwithstanding, due to delay on the part of the Registrar, Strand’s application for its Contractor’s License took the ROC from December 2I, 2015 until February 22, 2016 to approve and issue Strand’s Contractor’s License.
The evidence is not disputed that Strand was financially responsible and was bonded during the time discussed in Finding of Facts, paragraph 22 hereinabove.
Complainant Assurance has not offered or proven by a preponderance of the evidence that any party has been prejudiced by Strand's conduct.
Complainant Assurance has not offered or proven by a preponderance of the evidence that Strand’s conduct resulted in a hardship, danger, or loss to the public or, for that matter, to the Complainant.
It is therefore determined based upon the foregoing that Strand – notwithstanding its engaging in contracting without a license - is not under the facts presented in this case the “unscrupulous, unqualified and financially irresponsible contractor" that the licensing statutes are meant to protect against.
Because Strand is found herein to have been in Substantial Compliance with the licensure law for Arizona Contractors, Strand has satisfied the general policy and purpose of these statutes. City of Phoenix, supra at 505.
Notwithstanding Strand having admitted that it engaged in conduct constituting contracting while unlicensed on three occasions, because Strand was in Substantial Compliance with the licensure law for Arizona Contractors at the time, the civil penalties contemplated by §32-1166(A) and (B) ought not apply since Strand has satisfied the general policy and purpose of the licensure statutes.
The ROC Citation charges Strand with “The doing of a fraudulent act by the licensee as a contractor resulting in another person being substantially injured” in violation of A.R.S. § 32-1154(A)(6). The charge is unsupported by the evidence presented.
Though the ROC statutes do no provide a definition for fraud, in Arizona our courts have determined:
A showing of fraud requires (1) a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) the speaker's intent that it be acted upon by the recipient in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) the hearer's reliance on its truth; (8) the right to rely on it; (9) his consequent and proximate injury. (citation omitted). Each element must be supported by sufficient evidence. ‘Fraud may never be established by doubtful, vague, speculative, or inconclusive evidence.’ In re McDonnell's Estate, 65 Ariz. 248, 253, 179 P.2d 238, 241 (1947)”).
Echols v. Beauty Built Homes, 132 Ariz. 498, 500; 647 P.2d 629, 631 (Ariz. 1982).
There is no evidence that Strand, Mr. Hanley or Mr. Newkirk at any time made false representations as claimed by the Complainant or as asserted by the Citation. The entire fraud claim in this matter rests upon the character and use by Strand of Exhibits C-32 and C-34. These documents are found to be prototypes of a design for a template that was being formulated – in house – by business consultant Tim Newkirk for his clients, Mr. Handley and Strand. These documents were proprietary property of Strand.
Exhibits C-32 and C-34, having been surreptiously obtained by Assurance, could be misconstrued by someone, other than Assurance itself, as making false representations of fact by Strand. But, no one other than Assurance has ever seen the Bid Form Drafts represented by Exhibits C-32 and C-34.
There is no evidence of record that Strand or its agents intended that Assurance or anyone else rely upon or act upon the impression in the Bid Form drafts that Strand was acting as Assurance. Moreover, Assurance – the only “recipient” of the Draft Bid Forms - was fully aware that Strand was not the same entity as Assurance and therefore was not ignorant that Strand and Assurance were two separate entities.
Furthermore, inasmuch as Exhibits C-32 and C-34 were obtained by Assurance without the knowledge, consent or permission of Strand, Assurance has never has the right to rely on any representations made in these documents.
There is no evidence of record of any injury, consequenal or proximate, to any individual or entity resulting from the contents or use of Exhibits C-32 and C-34 by Strand.
However, the “facts” as demonstrated by the preponderance of the evidence, are that these drafts of Bid Template Forms have never seen the daylight of public distribution. The draft Bid Forms were just that – drafts. The evidence is clear by a preponderance that Strand at no time published, distributed or in any way displayed the draft Bid Forms to anyone outside of Strand. Thus, regarding Exhibits C-32 and C-34, there is no evidence that that has never been a false, material misreprestation by Strand.
Based upon the Findings of Fact in paragraphs 25 through and including 33 hereinabove, the evidence fails to demonstrate proof by a preponderance of Strand’s “doing of a fraudulent act as a contractor resulting in another person being substantially injured.” As such, the Complainant has failed to meet its burden of proof that Strand violated A.R.S. § 32-1154(A)(6).
The Complainants have not proven by a preponderance of the evidence that Respondent violated either A.R.S. § 32-1154(A)(6) or A.R.S. § 32-1154(A)(19).
The Complaint in this matter should be dismissed.
RECOMMENDED ORDER
The Complainants have not proven by a preponderance of the evidence that Respondent violated either A.R.S. § 32-1154(A)(6) or A.R.S. § 32-1154(A)(19) as charged in the Citation or as alleged in the Complaint. Now therefore,
IT IS ORDERED that that the Complaint in Case 2016A-1458-ROC and the underlying Citation in the case shall be and is hereby dismissed.
In the event of certification of the Administrative Law Judge’s Decision and Order by the Director of the Office of Administrative hearings, then the effective date of the Order shall be 40 days from the date of that certification.
Done this day, March 16, 2017.
/s/ Randolph D .Wolfson
Administrative Law Judge
Transmitted electronically to:
Jeffrey Fleetham, Director
Registrar of Contractors