ALJDEC decisions subject to certification as final

2016A-2176-ROC · Registrar of Contractors · 2016-10-25

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Marcel's Total Fitness & Athletics,

COMPLAINANT,

v.

RGV Renovations LLC,

License Nos. KB-2.272298-D

CR-8.289042-D,

RESPONDENT.

No. 2016A-2176-ROC

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: October 19, 2016, at 8:00 a.m.

APPEARANCES: Marcel’s Total Fitness & Athletics (“Complainant”) appeared through Cynthia J. Elias (“Ms. Elias”), one of its owners; RGV Renovations LLC (“Respondent”) was represented by Marc Windtberg, Esq., Windtberg & Zdancewicz, PLC.

ADMINISTRATIVE LAW JUDGE: Diane Mihalsky

_____________________________________________________________________

FINDINGS OF FACT

Background

On or about April 29, 2011, the Arizona Registrar of Contractors (“the Registrar”) issued License No. KB-2.272298-D for dual residential and small commercial contracting to Respondent.

On or about May 21, 2014, the Registrar issued License No. CR-8.289042-D for dual floor covering to Respondent.

Complainant operates a commercial fitness center. On or about June 22, 2016, Ms. Elias on Complainant’s behalf filed a complaint with the Registrar. Ms. Elias alleged that on November 28, 2015, Respondent had contracted to perform improvements to a building that Complainant had purchased at 7770 E. Wrightstown Road, Tucson, Arizona 85715, and after Complainant had paid Respondent $12,000.00 of the $292,748.00 contract price, Respondent had refused to provide information to Complainant’s construction lender to allow the project to proceed.

The Registrar assigned the complaint to its Investigator, Jack Grimm (“Investigator Grimm”) for investigation. After Respondent failed to resolve Complainant’s complaint, Investigator Grimm sent the complaint to the Registrar’s Legal Department. On July 29, 2016, the Registrar issued a Citation that charged cause to suspend or revoke Respondent’s license under A.R.S. § 32-1154(A)(1).

Respondent’s qualifying party and managing member, Bob Vela, filed a timely written answer to the Citation, denying any statutory violation.

The Registrar referred Complainant’s complaint to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. A telephonic evidentiary hearing was held on October 19, 2016, from the Registrar’s Tucson office. Complainant submitted fifteen exhibits and presented the testimony of two witnesses: (1) Ms. Elias; and (2) Fred Killion (“Mr. Killion”), who with Ms. Elias and another person were members of 7770 AKE, LLC, which was formed to purchase the building where Complainant would move its facility. Respondent submitted five exhibits and presented the testimony of two witnesses: (1) Bob Cason (“Mr. Cason”), Respondent’s salesman and project manager who negotiated with Ms. Elias; and (2) Robert Vela (“Mr. Vela”), Respondent’s qualifying party and member. Investigator Grimm also testified.

Hearing Evidence

Mr. Cason testified that he was friends with Ms. Elias. She told him that Complainants planned to purchase a building and to move its business into the building and that a contractor had submitted an oral bid of about $250,000 on the project. In October 2015, Mr. Cason told Ms. Elias that he thought Respondent could beat the oral bid.

On October 23, 2015, Mr. Cason and Mr. Vela conducted a walk-through of the building that Ms. Elias said that Complainant intended to purchase. Ms. Elias intended to obtain a Small Business Administration loan to purchase the building and to perform renovations.

Originally, Wells Fargo Bank (“Wells Fargo”) was going to be the lender on the project. Mr. Cason testified that he received a standard packet of information from Wells Fargo that requested financial information from Respondent. Mr. Cason testified that he told Complainant that Respondent would not provide financial information, but that it should not be required for a Small Business Administration loan of less than $350,000.00.

On October 28, 2015, Wells Fargo sent an email that it would not need financial information from the contractor for a small business loan in an amount that was less than $350,000.00.

On November 28, 2015, Mr. Cason provided to Ms. Elias Respondent’s proposal to perform interior demolition and to build out the project “as per details approved by the owner.” The parties agreed that the original contract price was $242,748.00. The contract required a 50% payment for Respondent to begin work on the project.

The contract did not require Respondent to provide financial information to or to cooperate with Complainant’s lender. Although the contract did not address plans, Mr. Cason testified that it included the cost of an architect.

At some point, the parties raised the contract price to $292,748.00 to include an additional $40,000.00 for contingencies and upgrades.

Complainant needed to be out of its current location by July 2016. Ms. Elias testified that on January 13, 2016, Wells Fargo’s loan officer contacted her and said that it would not be able to meet Complainant’s deadline and that she should try to get a loan from the Bank of Tucson.

On January 19, 2016, Ms. Elias obtained the Bank of Tucson’s Contractor’s Checklist and emailed it to Mr. Cason. The checklist required 2 years of business tax returns, 2 years of personal tax returns, a business year-to-date balance sheet with a profit and loss statement, and current personal financial statements on all the contractor’s principals/partners.

Mr. Vela testified that Respondent does not provide its financials to banks who finance its clients’ projects. Respondent has performed many large projects and has never been required to provide the financial information in the checklist. Mr. Vela testified that he instructed Mr. Cason to tell the Bank of Tucson that Respondent would not provide the financial information requested.

Mr. Cason testified that he called Ms. Elias and Keith Simmonds (“Mr. Simmonds”), the senior vice president at the Bank of Tucson who was overseeing the loan, to tell him that Respondent would not produce financial information and that it was not required for a loan in the amount of less than $350,000.00. Mr. Cason testified that, initially, Mr. Simmonds agreed.

On January 30, 2016, Ms. Elias asked Mr. Cason if Respondent could get the architect started on the plans so that permits could be obtained quickly once the Bank of Tucson provided financing for the project.

Mr. Cason testified that he advised Ms. Elias against involving the architect before financing was obtained, but that he finally agreed to help her, against his better judgment. Mr. Cason told Ms. Elias that the cost of the architect was $18,000.00 and that the architect would need two-thirds, or $12,000.00, to begin on the plans. Mr. Cason suggested that Complainant could use a credit card to make the payment, but Ms. Elias indicated that because the credit card company would charge 3% and the charge would not hit Complainant’s account for 5 to 7 days, she preferred to use cash.

On February 2, 2016, Mr. Killion issued a check to Mr. Cason in the amount of $12,000.00 for the architect. Mr. Cason testified that he cashed the check and delivered money to Respondent’s architect.

Mr. Vela testified that Respondent has in-house staff who prepare CAD drawings and are able to help the three or four architects that Respondent uses to increase their profits and help customers. Mr. Vela testified that because the architect owns his plans, Respondent will pay only a percentage of the price for plans, but not the total price until it receives assurances that it will receive the product. Mr. Vela testified that by February 2016, Respondent had incurred costs on Complainant’s project, including Mr. Cason’s time, travel costs, measurements, and CAD drawings.

On February 5, 2016, Respondent issued a draft contract that showed that Respondent had received $12,000.00 on February 4, 2016, and that the balance due was $280,748.00. The draft contract still required 50% down to begin the project.

On February 24, 2016, Mr. Cason received a voicemail from Mr. Simmonds about the project, stating in relevant part as follows:

Hey Bob, Keith Simmonds from Bank of Tucson, I’m sorry I’m calling so early it’s [a] little before seven, but I’m in the office very early . . . anyway but I’m trying to get this final approvals done for Marcel’s job and there’s a couple of questions I need to talk to you about, so if you could give me a call back at your earliest convenience . . . we can probably get all this cleared up I can finalize it this morning get this thing pushed through, to meet the deadlines, so if you could do that I would certainly appreciate it again . . . .

Mr. Cason testified that when he heard the voicemail, he thought that the Bank of Tucson was about to approve Complainant’s Small Business Administration loan. He called Mr. Simmonds back and provided the information that Mr. Simmonds requested, which did not include Respondent’s financial information.

On February 29, 2016, Ms. Elias informed Mr. Cason that the Bank of Tucson required a signed contract. On that date, the parties signed the contract originally dated November 28, 2015, in the amount of $292,748.00. Additional communications occurred between Mr. Simmonds, Ms. Elias, and Mr. Cason about financing for the project.

On March 1, 2016, Mr. Cason provided to Ms. Elias the architect’s ceiling plan and a floor plan for the project. Ms. Elias testified that she expected to see electrical, HVAC, plumbing and other plans that would allow Complainant to obtain a permit. Ms. Elias testified that she has been told that the plans that Respondent provided were worth about $400.00.

Mr. Cason testified that no permit for construction would be issued until demolition was performed. Mr. Cason testified Ms. Elias was confused about the difference between a demolition permit and a construction permit. Mr. Cason testified that at this point, Respondent was five months into the project and that he was doing all he could to move the project forward. But Respondent could not start working until Complainant obtained financing and owned the building.

Mr. Cason testified that on March 2, 2016, Ms. Elias called him and that she was upset, saying that the Bank of Tucson “was still requiring financials.” Mr. Cason testified that was the first time that he heard that the Bank of Tucson was requiring Respondent’s financial information to fund Complainant’s Small Business Administration loan.

Mr. Cason testified that he offered to provide to the Bank of Tucson Respondent’s bank statements and information from its accounts with suppliers to show that Respondent was solvent, but that Mr. Simmonds insisted that Respondent provide tax returns and financial statements of itself and its principals, which Mr. Cason had previously stated it would not provide.

On March 2, 2016, Mr. Cason sent an email to Ms. Elias, offering to release Complainant from the contract if she paid the $6,000.00 still due to the architect and $2,300.00 for the time and effort that Mr. Cason and Respondent had put into the project to date. Ms. Elias responded by requesting a letter from Respondent stating that it was terminating the contract and a detailed bill for the $2,300.00. Ms. Elias requested contact information for the architect because she preferred to work with him directly and stated that she preferred to pay $8,000.00 directly to the architect.

On March 3, 2016, Ms. Elias again requested that she be allowed to contact the architect directly and stating that there was no reason for Respondent to remain in the picture. Mr. Cason responded that he had “shut the architect down Tuesday. He will complete nothing else until this matter is settled and we are paid.”

Mr. Vela testified Respondent was willing to perform its contract with Complainant, but that the contract did not include providing financials. Mr. Vela testified that no one has ever tried to go behind Respondent’s back to hire one of its architects. Respondent does not usually share with customers its payment arrangements with architects.

On March 4, 2016, Mr. Simmonds sent a letter to the entity that had been formed to purchase the building and apply for the loan, 7770 AKE, LLC, to Ms. Elias’ attention, informing her that the Bank of Tucson could not approve the loan without Respondent’s financial information and that “[w]e recommend you obtain the required information from [Respondent] or select another contractor to avoid any delays in funding your loan.”

On March 4, 2016, Ms. Elias sent an email to Mr. Cason, to which she attached Mr. Simmonds’ March 4, 2016 letter, stating that “[o]ur agreement and many e-mails/conversation it was understood and agreed that RGV Renovations would need to be approved as our contractor by our lending institution in order to proceed.” Mr. Cason responded in relevant part as follows:

That was never the agreement. I have been very straightforward with you folks all along that the financials would not be provided for this loan. They are not needed for a construction loan of this size through the SBA. I informed you that with Wells Fargo, it was agreed they were not needed. I also informed both you and [Mr. Simmonds] at the start of this process with Bank of Tucson, again it was agreed they were not needed. . . .

Ms. Elias testified that Respondent’s architect refused to work with her directly, that Complainant had to pay another architect $18,000.00 for plans, and that Complainant had to hire another contractor. Ms. Elias testified that Respondent’s refusal to provide its financial documents to the Bank of Tucson delayed the project and cost Complainant $28,000.00.

CONCLUSIONS OF LAW

This matter lies within the Registrar’s jurisdiction.

Complainant bears the burden of proof to establish cause to discipline Respondent’s license by a preponderance of the evidence. Respondent bears the burden to establish factors in mitigation of the penalty and affirmative defenses by the same evidentiary standard.

“A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” 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.”

Respondent never agreed to or contracted to provide its financial documentation to the Bank of Tucson to help Complainant obtain financing for the project. Providing financial information or cooperating with a lender is not included within the definition of “contracting.” Complainant never paid Respondent 50% of the contract price to begin working on the project. Therefore, Complainant did not establish that Respondent abandoned the contract and cause does not exist under A.R.S. § 32-1154(A)(1) to suspend or revoke Respondent’s contractor’s license.

With respect to the $12,000.00 payment, the record does not show whether Respondent earned or Complainant received commensurate value for this expenditure. The legislature has not empowered either the Office of Administrative Hearings or the Registrar to adjudicate or award money damages. Because Respondent’s refusal to refund this money does not involve contracting as defined by statute or workmanship, the parties must resolve their dispute about the $12,000.00 payment in a court of competent civil jurisdiction.

RECOMMENDED ORDER

Based on the foregoing, it is recommended that on the effective date of the final order in this matter, Complainant Marcel’s Total Fitness & Athletics’ complaint against Respondent RGV Renovations LLC’s License Nos. KB-2.272298-D and CR-8.289042-D in Case No. 2016-2176 shall be 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 will be five days from the date of that certification.

Done this day, October 26, 2016.

/s/ Diane Mihalsky

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors