ALJDEC decisions subject to certification as final

2016A-4484-ROC · Registrar of Contractors · 2019-04-23

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 17, 2019, at 9:00 a.m. APPEARANCES: Roger Marce appeared on his own and his wife, Victoria Marce’s, behalf (“Complainants”); Brandenburg Pool Repair & Remodeling Inc. DBA: Brandenburg Outdoor (“Respondent”) failed to appear; the Arizona Registrar of Contractors (“the Registrar”) was represented by Thomas Raine, Esq., Assistant Attorney General. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Procedure 1. On or about January 30, 2019, the Registrar issued a Notice and Order of Denial of Recovery Fund Claim from the Residential Contractors’ Recovery Fund (“the Fund”), notifying the parties that “[a]fter a review of the claim and all supporting documentation, the Fund determined that Complainants are denied payment from the Fund” because they had not incurred any actual damages. 2. After Complainants requested a hearing on their claimed damages to support a payout from the Fund, the Registrar referred Complainants’ claim to the Office of Administrative Hearings (“OAH”), an independent state agency, for an evidentiary hearing. 3. A hearing on the merits of was held on April 17, 2019, before OAH. The Registrar presented the testimony of Marlee McCormick, a Legal Assistant in the Registrar’s Legal Department/Fund who had analyzed Complainants’ claim, and submitted sixteen exhibits. Complainant Roger Marce testified on his own and his wife’s behalf and submitted twenty- six exhibits. 4. Respondent did not request to appear telephonically and did not request that the hearing be continued. Respondent did not appear, through an authorized officer, employee, or attorney. Background: The Underlying Workmanship Complaint 5. On or about May 7, 2003, the Registrar issued License No. ROC 185012, Class B-5 for residential general swimming pool contracting to Respondent. On or about August 18, 2009, the Registrar issued License No. ROC 257591, Class A-9 for commercial general swimming pool contracting to Respondent. On or about August 26, 2014, the Registrar issued License No. ROC 294284, Class CR-21 for dual specialty hardscaping and irrigation systems contracting. Respondent’s qualifying party, officer, and the only person listed on the licenses is David Frank Brandenburg. 6. On or about November 8, 2016, Complainants filed a complaint with the Registrar against Respondent alleging that it had abandoned its contract to remodel the pool and perform substantial landscaping at Complainants’ residence at 3124 E. Marlette Ave., Phoenix, Arizona 85016. According to the complaint, Complainants had paid Respondent $107,912.84 of the $125,005.14 contract amount.[1] At the Registrar’s request, Complainants later provided additional documentation and information on change orders and the specific work that the contract required that Respondent had failed to complete.[2] 7. The Registrar assigned the complaint to its Investigator Russell Reed for investigation. Investigator Reed performed a jobsite inspection on November 30, 2016, which Respondent did not attend.[3] On December 1, 2016, Investigator Reed, on behalf of the Registrar, issued a directive that required Respondent to “[c]omplete project as per contract” on or before December 19, 2016.[4] 8. After Respondent failed to comply with the directive, on December 28, 2016, the Registrar issued a citation against Respondent’s licenses,[5] charging cause to suspend or revoke the licenses under A.R.S. § 32- 1154(A)(1),[6] A.R.S. § 32-1154(A)(3),[7] namely A.A.C. R4-9-108,[8] and A.R.S. § 32-1154(A)(22).[9] 9. On January 20, 2017, the Registrar issued a Final Administrative Decision and Order, finding that by failing to file a written answer to the Citation, Respondent had admitted the statutory violations charged in the Citation under A.R.S. § 32-1155(A). As a result, the Registrar revoked Respondent’s licenses.[10] Complainants’ Claim to the Fund 10. On or about July 6, 2018, Complainants submitted a claim to the Fund to recover the damages that were caused by Respondent’s abandonment of the contract, requesting a payout in the amount of $25,039.79.[11] Complainants acknowledged on the claim that they still owed Respondent $17,092.30 under the contract. 11. Complainants attached to their claim contracts with contractors who had finished the project and receipts for various materials that they had purchased for the project. 12. Ms. McCormick analyzed the claim. Ms. McCormick prepared a spreadsheet that summarized her analysis[12] and provided the bases of the Registrar’s Notice and Order of Denial of Recovery Fund Claim. Ms. McCormick testified that she added the amounts on the contract and change order[13] and the amounts of the checks that Complainants had written to Respondent[14] to confirm that the amount of the contract was $125,005.14 and that Complainants had paid Respondent $107,912.84. Ms. McCormick testified that, under controlling case law, the $17,092.30 unpaid balance needed to be subtracted from any payout that Complainants would otherwise be eligible to recover from the Fund to put Complainants in the position that they would have occupied if Respondent had fully performed the contract. 13. Ms. McCormick testified that Complainants also recovered $4,250.00 from Respondent’s bond. This amount would also have to be deducted from Complainants’ payout to prevent them from reaping a windfall. 14. Ms. McCormick approved the following amounts that Complainants included in their claim to the Fund: (1) A total of $9,962.50 to CDC Pools, Inc. for repair and completion of the pool; (2) $5,073.65 to Superior Stone and Cabinets for granite materials; (3) $977.18 to Arizona Fireplaces for materials; (4) A total of $47.08 to Floor and Décor for barbeque supplies; and (4) $190.48 to Lighting Unlimited for lightbulbs.[15] 15. Ms. McCormick disallowed the following amounts that Complainants included in their claim to the Fund: (1) A total of $27,812.65 to Creative Visions Landscape & Design, LLC (“Creative”) or to Creative’s owner, Tim Nelson, to repair and complete landscaping; (2) A total of $819.42 to Kenny Hayes, an unlicensed handyman, for painting and miscellaneous work; (3) $105.00 to an unidentified day laborer; (4) $44.48 to Home Depot for temporary ground covers; and (4) A total of $857.40 to CubeSmart for storage of Complainant’s patio furniture while repairs were being completed.[16] 16. Ms. McCormick calculated Complainant’s damages as the total of the approved costs of repair, $16,250.89, less the amount that Complaints owed on the contract, $17,092.30, and the amount of that they had recovered from Respondent’s bond, $4,250.00, to calculate the amount that Complainants were entitled to recover from the Fund as negative $5,091.41.[17] Although Ms. McCormick acknowledged that Complainants had not reaped any financial benefit from their complaint against Respondent, she testified that they were still not entitled to a payout in any amount from the Fund. 17. Mr. Marce testified that Complainants did not deal with David Brandenburg, the qualifying party and only person listed on Respondent’s license, but instead dealt with several of Respondent’s employees. They later learned that Mr. Brandenburg had a terminal illness and was using the money from Complainants’ job to take an expensive trip that was on his “bucket list.” Mr. March testified that after Mr. Brandenburg died, his sister acted like she was going to take over the business, but that she was only winding it down. 18. Mr. Marce testified that, after Respondent abandoned the project, it left debris in the common area and Complainants’ HOA began pressuring them to clean up the common area and complete the project.[18] 19. Ms. McCormick testified that she considered the items required by the contract and the directive when she calculated Complainant’s payout from the Fund. She disallowed the cost of $44.48 for temporary groundcovers from Home Depot because it groundcovers were not included on the contract or directive. 20. Ms. McCormick testified that she disallowed the cost of the unidentified laborer because Complainants did not provide a scope of work, the name of the laborer, or proof of payment. 21. Mr. Marce testified that Complainants purchased the temporary groundcovers and hired the day laborer to clean up the jobsite in response to the threatened complaint from their HOA. 22. Mr. Marce testified that Complainants hired Kenny Hayes to perform painting because they had not yet decided on a contractor, but needed to keep the project moving to appease the HOA. 23. Ms. McCormick testified that she disallowed Creative’s charges because she did a mega search of the Registrar’s database and did not find a license for Tim Nelson or Creative. 24. Ms. McCormick testified that she did find ten complaints for unlicensed contracting against Mr. Nelson. Ms. McCormick acknowledged that this information would not have been available to Complainants on the Registrar’s public website. 25. Creative’s December 15, 2016 contract with Complainants did not show a license number. Mr. Marce testified that because Creative was Respondent’s subcontractor, Complainants hired Creative to repair and finish the landscaping after Respondent abandoned the project because Respondent’s employees recommended Creative. 26. Mr. Marce testified that Tim Nelson and his wife, Jennifer Nelson, told Complainants that Creative was affiliated with or working under the contractor’s licenses of Turf Equipment Source LLC (“Turf Equipment”), License No. ROC 255142, Class CR-21 for dual specialty hardscaping and irrigation systems, or The Home Ranger LLC, DBA The Commercial Ranger (“The Commercial Ranger”), License No. ROC 283763, Class CR-21 for dual specialty hardscaping and irrigation systems. 27. According to the Registrar’s public record, Andrew Britt Adema is the qualifying party on Turf Equipment’s and The Commercial Ranger’s licenses. John Knoll Jensen is listed as a member on both licenses. 28. Ms. McCormick acknowledged that the Registrar would not have disallowed payments made to Creative if it had been working for Respondent or another licensed contractor. Ms. McCormick also acknowledged that she did not have any knowledge about Mr. and Mrs. Nelson’s relationship with Andrew Adema, Turf Equipment, or The Commercial Ranger. 29. Complainants submitted an e-mail from Jennifer Nelson dated July 11, 2018, apparently responding to Mr. Marce’s request for a license number to put on the paperwork for Complainants’ claim to the Fund. Mrs. Nelson provided License Nos. 255142 and 283763. Mrs. Nelson advised Complainants that Andrew Adema’s name should be on the paperwork.[19] Mr. March testified that Mrs. Nelson told him that Mr. Adema was a family connection, that Mrs. Nelson had been at Mr. Adema’s house several times, and that Mr. and Mrs. Nelson were active in Mr. Adema’s businesses and that he let Creative use Turf Equipment’s and The Commercial Ranger’s contractor’s licenses. 30. Ms. McCormick acknowledged that she had no way of knowing whether the statements in Mrs. Nelson’s email were true. 31. Ms. McCormick testified that the report of the investigation in one of the unlicensed complaints referenced a call to John Jensen and that Mr. Jensen had disavowed any connection to Mr. Nelson or to Creative. 32. Ms. McCormick testified that she disallowed CubeSmart’s charges because storage was not on the contract or the directive. 33. Mr. Marce testified that Complainants’ patio furniture is large and could not be left out because it would impede completion the project. After Respondent abandoned the project, Complainants were forced to continue paying for storage of their furniture until the project was completed. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[20] Complainants bear the burden to establish the amount of the payout that they are entitled to receive from the Fund by a preponderance of the evidence.[21] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[22] 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.”[23] A.R.S. § 32-1131(3)(a) defines an “injured person” who is entitled to a payout from the Fund as follows: “Person injured":

(a) Means any owner of residential real property that is either noncommercial historic property as defined in section 42-12101 or classified as class three property under section 42-12003. The property must also be actually occupied or intended to be occupied by the owner as a residence including community property, tenants in common or joint tenants who are damaged by the failure of a residential contractor or a dual licensed contractor to adequately build or improve a residential structure or appurtenance on that real property.

Under this statute, to be eligible for a Fund payout, at the time the contract was made or the injury accrued, the claimant must own the residential property, the property must be classified a Class 3 property, and the claimant must have occupied, or intended to occupy the property as a residence.[24] The fourth criteria is that the residential contractor’s license must have been in good standing when the contract was executed. The Registrar found that Complainants were persons who have been injured by Respondent’s statutory violations because they meet all four criteria. A.R.S. § 32-1132(A) provides in relevant part as follows: The residential contractors' recovery fund is established, to be administered by the registrar, from which any person injured by an act, representation, transaction or conduct of a residential contractor licensed pursuant to this chapter that is in violation of this chapter or the rules adopted pursuant to this chapter may be awarded in the county where the violation occurred an amount of not more than thirty thousand dollars for damages sustained by the act, representation, transaction or conduct. An award from the fund is limited to the actual damages suffered by the claimant as a direct result of the contractor's violation but shall not exceed an amount necessary to complete or repair a residential structure or appurtenance within residential property lines. . . .

(Emphasis added.) For the purposes of A.R.S. § 32-1132(A), “actual damages” are the actual cost that the injured person spent to correct the contractor’s defective work and to complete the project, minus any portion of the contract price still unpaid to the contractor and any amounts recovered from other sources.[25] Although the $105.00 that Complainants allegedly paid to the unidentified unlicensed handyman to clean up the jobsite might have been compensable, because they did not identify the handyman or provide proof of payment, this alleged expenditure cannot be included in a payout from the Fund. The legislature has not authorized the Registrar or the Fund to award common-law damages.[26] “‘Consequential damages are such as are not produced without the concurrence of some other event attributable to the same origin or cause; such damage, loss, or injury as does not flow directly and immediately from the action of the party, but only from the consequences or results of such act.’”[27] Many tort damages that would be available on a civil malpractice or personal injury action, such as pain and suffering, lost wages, the costs of alternative housing or necessary storage, and other consequential damages, are not compensable in a payout from the Fund. The measure of damages under A.R.S. § 32-1132(A) is only the cost to repair and/or to complete the project to comply with the Registrar’s and industry standards, not the cost of special measures that may be necessary to put a particular claimant in the position that he would have occupied if the Respondent had timely completed the project. Respondent did not contract and the directive did not require Respondent to provide temporary ground covers. Although Complainants spent $44.48 for temporary groundcovers from Home Depot to cover construction debris, they did this to appease their HOA. Because Complainants did not purchase the ground covers to repair or complete the job, this amount is not compensable under A.R.S. § 32-1132(A). Respondent did not contract and the directive did not require Respondent to pay CubeSmart’s storage charges. The additional storage charges that Complainants were forced to pay after Respondent abandoned the job were due to the fact they happened to own large patio furniture that they planned to reuse. Therefore, the additional charges for CubeSmart to store Complainants’ patio furniture cannot be included in the costs to repair or complete the job for purposes of calculating the proper payout from the Fund, although they would probably be included in a civil judgment against Respondent. A.R.S. § 32-1132(A) also provides in relevant part that “[a]ctual damages shall not be established by bids supplied by or the value of work performed by a person or entity that is not licensed pursuant to this chapter and that is required to be licensed pursuant to this chapter.” (Emphasis added.) Complainants paid unlicensed handyman Kenny Hayes $819.42 for painting and other miscellaneous work. Complainants also acknowledged that Creative was unlicensed when it submitted the bid and/or performed the work that they included in their claim to the Fund. The total amount of Creative’s bid or work was $27,812.65. A.R.S. § 32-1151 prohibits a person from engaging in contracting unless he or she has a contractor’s license. A.R.S. § 32-1121(A) provides exceptions to the licensure requirement. A.R.S. § 32-1121(A)(14) sets forth the so-called handyman’s exception, which includes among the persons who do not need to be licensed the following, in relevant part: 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. This exemption does not apply: . . . .

(b) In any case in which the work or construction is only a part of a larger or major operation, whether undertaken by the same or a different contractor, or in which a division of the operation is made in contracts of amounts less than one thousand dollars . . . . for the purpose of evasion of this chapter or otherwise.

(Emphasis added.) Kenny Hayes performed painting as part of a larger project of remodeling Complainants’ pool and performing substantial landscaping. Because Mr. Hayes’ work was part of a much larger project, he needed a license to perform the work. Because Mr. Hayes was not licensed, they monies that Complainants paid to him cannot be included in a payout from the Fund. Complainants acknowledge that Creative needed a license to perform substantial landscaping and that it did not have a license under its own, Mr. Nelson’s, or Mrs. Nelson’s name. Complainants argue that they should be allowed to recover the costs of Creative’s work because Mr. and Mrs. Nelson said that Creative was working under Turf Equipment’s or The Commercial Ranger’s license. As noted above, Complainants bear the burden to establish that their claimed damages are compensable; it is not up to the Registrar to provide proof that Creative was not working under Turf Equipment’s or The Commercial Ranger’s license. Moreover, where a person claims that he reasonably believed that that a someone was acting under the authority of a purported principal, the person claiming the reasonable belief must show that the purported principal did something to support that belief, to wit: “The ostensible agent is one where the principal has intentionally or inadvertently induced third persons to believe that such a person was its agent although no actual or express authority was conferred on him as an agent.”[28]

Complainants did not submit any evidence that Mr. Adema or anyone else associated with Turf Equipment or The Commercial Ranger did anything to make Complainants believe that Creative was authorized to work under Turf Equipment’s or The Commercial Ranger’s license. Even if Complainants had submitted such evidence, A.R.S. § 32-1154(A) includes among the grounds to suspend or revoke a contractor’s license the following: 9. Aiding or abetting a licensed or unlicensed person to evade this chapter, knowingly or recklessly combining or conspiring with a licensed or unlicensed person, allowing one's license to be used by a licensed or unlicensed person or acting as agent, partner, associate or otherwise of a licensed or unlicensed person with intent to evade this chapter. . . . .

13. Knowingly entering into a contract with a contractor for work to be performed for which a license is required with a person that is not duly licensed in the required classification.

14. Acting in the capacity of a contractor under any license issued under this chapter in a name other than as set forth on the license.

If Turf Equipment or The Commercial Ranger had allowed Creative to use their licenses, had subcontracted to Creative work on Complainants’ project,[29] or had allowed Creative to perform work under its own name pursuant to a valid employment relationship, they would have furnished case to suspend or revoke Turf Equipment’s and The Home Ranger’s contractor’s licenses under the statutory provisions quoted above. Because Creative is unlicensed, any arrangement that Complainants could claim to allow the Registrar to make a payout from the Fund based on Creative’s bid would violate the Registrar’s statutes and be an anathema to the Registrar’s regulatory scheme. Complainants did not establish that they are entitled to receive the value of Creative’s work in a payout from the Fund. The Registrar owes a fiduciary duty to Fund to preserve its assets for the benefit of all potential claimants.[30] For the public policy and other reasons set forth above, Complainants did not establish that they are entitled to recover any more than the negative $5,091.41 that the Registrar calculated as their payout from the Fund. RECOMMENDED ORDER In view of the foregoing, it is recommended that on the effective date of the final order in this matter, the Registrar’s denial of Complainants Roger and Victoria Marce’s claim to the Fund shall be affirmed and Complainants’ appeal of the Registrar’s denial 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, April 23, 2019.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director Registrar of Contractors ----------------------- [1] See the Registrar’s Exhibit 2. [2] See the Registrar’s Exhibits 3 and 4. [3] See the Registrar’s Exhibit 5. [4] See the Registrar’s Exhibit 6. [5] See the Registrar’s Exhibit 7. [6] A.R.S. § 32-1154(A)(1) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[a]bandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.” [7] A.R.S. § 32-1154(A)(3) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[v]iolation of any rule adopted by the registrar.” [8] A.A.C. R4-9-108 requires that “[a]ll work shall be performed in a professional and workmanlike manner” and that “[a]ll work shall be performed in accordance with any applicable building codes and professional industry standards.” [9] A.R.S. § 32-1154(A)(22) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[f]ailure 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.” [10] See the Registrar’s Exhibit 8. [11] See the Registrar’s Exhibit 9. [12] See the Registrar’s Exhibit 16. [13] See the Registrar’s Exhibit 11. [14] See the Registrar’s Exhibit 16. [15] See the Registrar’s Exhibit 16 at 306. [16] See id. [17] See the Registrar’s Exhibit 16 at 306. [18] See Complainant’s Exhibits 24 and 25. [19] See Complainant’s Exhibit 26. [20] See 32-1101 et seq. [21] See A.A.C. R2-19-119(A) and (B)(1); see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [22] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [23] Black’s Law Dictionary at page 1220 (8th ed. 1999). [24] See McMurren v. J.M.C. Builder, Inc., 204 Ariz. 345 (App. 2003). [25] See Ramsey v. Arizona Registrar of Contractors, 241 Ariz. 102, 106, 384 P.3d 316, 320 (App. 2016). [26] See J.W. Hancock Enterprises, Inc. v. Arizona State Registrar of Contractors, 142 Ariz. 400, 406, 690 P.2d 119, 125 (App. 1984). [27] State v. Morris, 173 Ariz. 14, 17, 839 P.2d 434, 437 (App. 1992) (quoting 25 C.J.S., Damages, § 2 at 617). [28] Gulf Insurance Co. v. Grisham, 126 Ariz. 123, 126, 613 P.2d 283, 286 (1980) (quoting Canyon State Canners v. Hooks, 74 Ariz. 70, 74, 243 P.2d 1023, 1025 (1952)) (emphasis added). [29] The Registrar’s statutes require that contractors complete their work through employees for whom the contractors pay social security taxes and provide workers’ compensation and unemployment insurance, see A.R.S. § 32- 1154(A)(4), or through duly licensed subcontractors, see A.R.S. § 32- 1154(A)(9) and (13). [30] See A.R.S. § 32-1134; cf. Laws 1985, Ch. 334, § 1 (“The goals and objectives of the registrar of contractors are to protect the public health, safety and welfare by licensing, bonding and regulating contractors engaged in residential construction . . . .”); Burrows v. Taylor, 129 Ariz. 212, 214, 630 P.2d 35, 37 (App. 1981) (“[T]he Registrar is charged with the overall responsibility of protecting the welfare of the public dealing with persons engaged in the building contracting vocations and afford the public protection against incompetent, inexperienced, unlawful and fraudulent acts of building contractors.”).

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