ALJDEC decisions subject to certification as final

2016A-851-ROC · Registrar of Contractors · 2016-09-09

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: June 24, 2016, at 8:00 a.m.; August 30, 2016, at 8:00 a.m. APPEARANCES: Strayer Electric Service Corp. (“Complainant”) was represented by Thomas Moring, Esq., Jaburg & Wilk, PC; P W I Construction Inc. (“Respondent”) was represented by E. Jeffrey Walsh, Esq., Greenberg Traurig, LLP. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure On or about August 12, 2002, the Arizona Registrar of Contractors (“the Registrar”) issued License No. B-1.177184-C for commercial general contracting to Respondent. On or about March 31, 2015, the Registrar issued License No. CR11.297010-D for dual electrical to Complainant. Complainant’s qualifying party/member is Ronald James Strayer (“Mr. Strayer”). On or about March 14, 2016, Mr. Strayer on behalf of Complainant filed a complaint with the Registrar alleging that Respondent had paid Complainant only $511,279.00 on its $833,243.00 contract to install the electrical in the Ritz Carlton Host Rebrand to The Camby project at 2401 E. Camelback Rd., Phoenix, Arizona (The Camby project). Complainant explained that the complaint for non-payment was based on Pay Applications #6 and #7, two open change orders, and retention. Subtracting $511,279.00 from $833,243.00 results in an alleged unpaid amount of $321,964.00. Complainant subsequently requested a hearing on its complaint against Respondent. On March 30, 2016, the Registrar issued a Citation for Alleged Violation of A.R.S. § 32-1154(A)(10) against Respondent. Respondent filed a timely written answer to the Citation and Complaint, denying any statutory violation. The Registrar referred the matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. A hearing was held on June 24, 2016, and August 30, 2016. Complainant submitted four exhibits and presented the testimony of Wallace Tuttle (“Mr. Tuttle”), Complainant’s senior estimator. Respondent submitted 31 exhibits and presented the testimony of three witnesses: (1) Mauricio Bustos (“Mr. Bustos”), Respondent’s Construction Services Manager; (2) Dustin Messerly (“Mr. Messerly”), a journeyman electrician who was Complainant’s former jobsite superintendent on The Camby project and, at the time of the hearing, was Respondent’s employee; (3) Michael Sorenson (“Mr. Sorenson”), Respondent’s project manager on The Camby project. Additional Hearing Evidence Respondent was the general contractor for The Camby project and had a $13.6 million contract with the owner. On or about September 10, 2015, Respondent awarded Complainant the subcontract for the electrical work at The Camby project for an original price of $515,000.00.[1] The project schedule divided the work under the contract into zones and included completion dates for each zone, including December 7, 2015, as the date that the project would be turned over to the owner.[2] Complainant’s subcontract required it to submit its own lien waiver and lien waivers from its subcontractors and suppliers as a condition of receiving progress payments. Respondent’s contract with the owner required it to turn over a lien-free finished project. Mr. Bustos, Mr. Messerly, and Mr. Sorenson testified that from the beginning, Complainant failed to provide a sufficient number of journeyman electricians to complete the scope of work for such a large commercial project or to meet the deadlines in the project schedule and that Complainant delayed other trades’ work. Mr. Tuttle acknowledged that he was not onsite during Complainant’s work on The Camby project. On October 13, 2015, Respondent’s then-project manager on The Camby project sent a letter to Complainant, informing it that it was not complying with the project schedule and that it had 48 hours to bring its performance into compliance.[3] Mr. Tuttle testified that as a result of the October 13, 2015 letter, Complainant’s crew had to start working overtime. Mr. Sorenson testified that although Complainant worked faster for a short time, it quickly reverted to understaffing The Camby project with insufficient qualified personnel. Mr. Sorenson testified that Respondent did not terminate Complainant’s contract because Respondent would have had difficulty replacing Complainant at that stage of the project. On October 19, 2015, Respondent sent an email to subcontractors on The Camby project, informing them that although progress was being made, the project was still behind schedule and subcontractors would be required to work 12-hour shifts until the project was caught up.[4] On October 9, 2015, Mr. Bustos informed Complainant that it would consider paying overtime and that “we will review together all tickets signed for premium time to understand what the issues were.”[5] Mr. Bustos testified that Complainant did not submit claims for overtime until December 2015, and never provided tickets that showed hours worked by specific employees. Mr. Bustos testified that the December 7, 2015 closing date for the project was changed to a December 23, 2015 soft opening and a grand opening in January 2016. Respondent hired Turn It On Electric (“Turn It On”) and Wang Electric (“Wang”) to help it complete the project. Respondent also obtained electrical supplies from IES. On December 21, 2015, Respondent submitted Pay Application No. 6 for a net amount of $137,966.40.[6] Mr. Tuttle noted that Respondent approved a $100,000.00 payment.[7] Mr. Bustos testified that after deducting a 10% retention, Respondent paid $90,000.00. On January 31, 2016, Complainant submitted Pay Application No. 7 in the net amount of $76,955.00.[8] Respondent issued a check for Pay Application No. 7 but later stopped payment on the check.[9] Mr. Bustos testified that at the end of February 2016, he received telephone calls that Complainant had not paid Turn It On. Mr. Bustos testified that before he paid Application No. 7, he needed to determine whether Complainant had paid its subcontractors and suppliers on the job. Mr. Bustos testified that the work in Pay Application No. 6 had included Turn It On’s and Wang’s work pursuant to their subcontracts with Complainant and the supplies IES had provided. Respondent submitted an email from Chad Ridenour of Turn It On stating that it had not signed the lien releases that Complainant had submitted to obtain payment from Respondent, had not endorsed the joint checks that Respondent had issued to Complainant and Turn It On, and that the signatures on the documents must have been forged.[10] Respondent paid Turn It On $56,041.00 to release its lien on The Camby project.[11] Mr. Bustos testified that Respondent also learned that Complainant had failed to pay its supplier IES for materials provided to The Camby project. Respondent submitted joint checks made payable to Complainant and IES that had been endorsed.[12] Mr. Bustos testified that he spoke to the senior credit person at IES and was informed that it had never received most of the checks. On March 17, 2016, Respondent issued a check in the amount of $29,385.75 to IES to replace the joint checks that IES did not receive.[13] Mr. Bustos testified that Respondent also paid Respondent’s subcontractor Wang $25,104.00 to cover joints checks made payable to Complainant and Wang Electric that Wang Electric did not receive. Complainant did not offer any evidence that it paid Turn It On, IES, or Wang Electric for their work or materials provided pursuant to their contracts with Complainant on The Camby job. Complainant did not offer any evidence about who had endorsed the joint checks that Respondent made payable to Complainants and its subcontractors or suppliers. On February 26, 2016, Complainant submitted Pay Application No. 8 for $65,359.00 in retention on the adjusted contract amount of $653,593.00.[14]

On March 10, 2016, Complainant recorded a mechanic’s lien against The Camby project in the amount of $347,843.29.[15] On March 8, 2016, Respondent recorded a Statutory Discharge of Lien Bond Pursuant to A.R.S. § 33-1004.[16] Mr. Bustos testified that the cost of the bond was $9,022.00, based on a percentage of the amount of the recorded lien. Respondent submitted a Reconciliation for amounts possibly due to Complainant.[17] The adjusted contract amount agreed with the amount of Complainant’s Pay Application No. 8, $653,593.00. Respondent deducted the amounts paid to Turn It On, IES, and Wang, which left $31,783.75 due. Respondent’s reconciliation also deducted the amount paid for the bond that was required to discharge Complainant’s lien. Because the subcontract provided that in the event of litigation, the prevailing party would be entitled to its attorneys’ fees, the reconciliation also deducted the attorneys’ fees that Respondent had incurred defending the complaint that Complainant had filed with the Registrar. Mr. Bustos testified that as of the end of August 2016, Respondent had incurred $40,607.00 in fees. On March 9, 2016, Complainant submitted a Change Order Request for $91,540.54 in regular and straight time before and after the “acceleration” on December 12, 2015.[18] Mr. Bustos testified that Complainant was still working on the project in January 2016, on the original scope of work and approved change orders. There was no accelerated scope of work; instead, the work done after December 2015, was a recovery schedule due to the delays occasioned by Respondent failing to provide a sufficient number of qualified employees throughout the project. Mr. Bustos testified the scope of work remained the same. Mr. Bustos testified that Respondent had advanced unearned money to Complainant to help with its cash flow. Mr. Bustos testified that Complainant never provided tickets for the claimed hours and Respondent never approved overtime or additional hours to complete the scope of work.

On March 9, 2016, Complainant submitted a Change Order Request for $18,110.00 for a Vantage System that had been stolen from the project.[19] Mr. Bustos testified that subcontractors are provided a secure area to which only they have access and, under the subcontract, are responsible for the equipment and materials that they keep in the secure area. Mr. Sorenson testified that Complainant’s job superintendent told him that the Vantage System had been left out unsecured because he thought that the system could only be used on this job and that it would not be stolen. Mr. Bustos noted that the payments that Respondent made to IES for supplies after Complainant failed to pay IES included the cost of both the original and the replacement Vantage System. / / / / CONCLUSIONS OF LAW This dispute lies within the Registrar’s jurisdiction to resolve.[20] Complainant bears the burden of proof to establish cause to discipline Respondent’s contractor’s license by a preponderance of the evidence.[21] Respondent bears the burden of proof to establish affirmative defenses by the same evidentiary standard.[22] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[23] 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.”[24] Complainant did not establish that it is entitled to the alleged cost of the Vantage System or additional labor costs. Complainant did not dispute that someone forged signatures on joint checks and that because its subcontractors and supplier were not paid for The Camby project, Respondent had to pay monies in addition to what it had already paid Complainant for the subcontractors’ work and supplies. Complainant did not dispute that Respondent incurred the cost of a bond to release Complainant’s lien. Complainants’ only witness acknowledged that he had no direct knowledge of conditions at the jobsite or Complainant’s work on the Camby project. Respondent established through the credible testimony of witnesses with first-hand knowledge that it has been required to spend additional monies complete the project and to deliver a lien-free project to the owner. Complainant is not entitled to retention on the amounts that Respondent paid to its subcontractors and suppliers. Respondent established that Complainant did not make its complaint or file the lien in good faith. Although after other deductions, $11,708.68[25] in retention may technically be due and attorneys’ fees may not be awarded in an administrative complaint against a contractor’s license,[26] under the circumstances of this case, it would be unjust to require Respondent to pay any remaining retention as a condition avoiding having its license suspended under A.R.S. § 32-1154(A)(10), given the expenses that Complainant has unjustly caused it to incur.[27] Complainant may prosecute its claim against Respondent in a court of competent jurisdiction. RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the final order in this matter, Complainant Strayer Electric Service Corp.’s complaint in Case No. 2016-851 against Respondent P W I Construction, Inc.’s License No. B-1.177184-C 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, September 9, 2016.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director Registrar of Contractors ----------------------- [1] See Respondent’s Exhibit 1. [2] See Respondent’s Exhibit 2. [3] See Respondent’s Exhibit 4. [4] See Respondent’s Exhibit 5. [5] Respondent’s Exhibit 21. [6] See Respondent’s Exhibit 6. [7] See Complainant’s Exhibit 4. [8] See Respondent’s Exhibit 7. [9] See Respondent’s Exhibit 30. [10] See Respondent’s Exhibit 31. [11] See Respondent’s Exhibit 38. [12] See Respondent’s Exhibit 40. [13] See Respondent’s Exhibit 40 at 7. [14] See Complainant’s Exhibit 14. [15] See Respondent’s Exhibit 15. [16] See Respondent’s Exhibit 20. [17] See Respondent’s Exhibit 32. [18] See Complainant’s Exhibit 18. [19] See Complainant’s Exhibit 20. [20] See A.R.S. § 32-1101 et seq. [21] See A.R.S. § 41-1092.07(G)(2); 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] See A.A.C. R2-19-119(B)(2). [23] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [24] Black’s Law Dictionary at page 1220 (8th ed. 1999). [25] $31,783.75 - $9,022.00 = $22,761.75 - $11,053.07 (10% of $110,530.75 that Respondent paid to Turn It On, Wang, and IES) = $11,708.68. [26] See Semple v. Tri-City Drywall, Inc., 172 Ariz. 608, 611, 838 P.2d 1369, 1372 (Ct. App. 1992) (Declining to award attorney’s fees that party incurred in administrative action under A.R.S. § 12-341.01 because “[t]he common definition of ‘action’ is ‘a proceeding in a court of justice by which one demands or enforces one’s right.”). [27] 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 . . . .”

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