ALJDEC decisions subject to certification as final

2017A-1271-CHC-ROC · Registrar of Contractors · 2017-07-10

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Charles M Mimnaugh,

COMPLAINANT,

v.

Burbank Construction Inc.,

License No. B.260016-R,

RESPONDENT.

Nos. 2017A-764-CHC-ROC

and 2017A-1271-CHC-ROC

(Consolidated)

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: June 28, 2017, at 1:00 p.m.

APPEARANCES: Charles M. Mimnaugh (“Complainant”) appeared telephonically on his own behalf; Burbank Construction Inc. (“Respondent”) appeared through Kevin Burbank, its qualifying party/officer.

ADMINISTRATIVE LAW JUDGE: Diane Mihalsky

_____________________________________________________________________

FINDINGS OF FACT

Background and Procedure

On or about November 2, 2009, the Arizona Registrar of Contractors (“the Registrar”) issued License No. B.260016-R for residential general contracting to Respondent.

Complainant is a real estate investor who lives in Mudjimba, Qid, Australia. Complainant buys distressed properties in the Phoenix area then hires contractors to renovate and real estate agents to “flip” the properties. Complainant does not travel regularly to Phoenix.

Respondent was Complainant’s general contractor in the renovation of two other properties before the complaints at issue were filed with the Registrar. Respondent completed the first two projects to Complainant’s satisfaction.

Complainant filed two complaints with the Registrar against Respondent regarding its performance of contracts to renovate two other properties in 2017. The Registrar referred the complaints to the Office of Administrative Hearings (“the OAH”), an independent state agency, for evidentiary hearings.

A consolidated evidentiary hearing was held on June 28, 2017. Complainant testified telephonically on his own behalf and presented the testimony of Barbara Adams, a consultant who helps Complainant by advising him on which renovations will make properties more valuable, and Jane Adams, a realtor who was the listing agent for both properties. Respondent presented the testimony of Kevin Burbank, its qualifying party/officer. The Registrar’s investigator assigned to the cases, Steve Klein, also testified.

Case No. 2017-764 (the Pierce St. project)

On or about February 9, 2017, Complainant filed a complaint with the Registrar against Respondent alleging that Respondent had abandoned the contract and performed poor work in renovating a house at 1319 E. Pierce St., Phoenix, Arizona 85006. According to the complaint, Complainant had paid Respondent $39,653.00 on a contract amount of $52,369.90. Complainant asked the Registrar to award $125.00/week to compensate him for Respondent’s alleged delay in completing the project and $33,770.00 to compensate him for lost opportunity.

Complainant provided an Independent Contractor Agreement to Investigator Klein that was undated and not signed by either party that provided Respondent would rehabilitate the Pierce St. property “as quoted in Exhibit A” for a contract price of $52,869.90, that Complainant would pay Respondent 50% on its commencement of work, 25% midway to completion, and 25% “at completion,” that Respondent would begin work on or about May 12, 2016, that Respondent would complete the work “no later than Sept 15, 2016,” and that Respondent would pay a penalty of “$125 for late performance for each week that the Work remains incomplete.”

Respondent provided Exhibit A for the project on Pierce Street, which showed a list of 21 repairs that Respondent would perform for a total cost of $52,369.90.

Both parties submitted a signed but undated Disclaimer clause to Investigator Klein that provided in relevant part as follows:

Renovation . . . is to breathe new life into the old. While careful inspections and bid estimates are accurate for the repairs required, then opening up the walls and floors there are often conditions that become exposed that must be added to the renovation budget usually for safety or to meet new codes. They are unexpected and so it is best for an owner to prepare a contingency budget, expect that there will be contingency items and additional funds that will be needed in the amount as high as 20 percent of the total project renovation budget. This is not because we have under bid the project but the nature of the work, breathing life into the old, with old being the key word. Old means out dated, worn out and out of current code and safety standards. The very nature of buying low more times than not means there is a distress situation or a neglected property. That is why the homes are bought at a very low price. There are not records or seller history to warn us of what might be hidden. They have been neglected or the owners did not have the budget to care for the property.

Schedules & Time Lines

Starts, timeliness and durations are always subject to city, zoning, permits, Project specifications and production delivery’s [sic] and approvals for all parts of each project.

Respondent submitted a Contractor Contract/Invoice for the Pierce St. project dated May 3, 2016, that referred to the work description in Exhibit A, as well as a $500.00 deposit for electric service provided by APS, bringing the total contract price to $52,869.90, and the following payment schedule:

1st draw 50% deposit to start 26,434.95

2nd draw 25% when exterior siding is complete 13,217.47

3rd draw 25% plus any adds to project 13,217.47

On or about March 1, 2017, Complainant sent a letter to the Registrar stating in relevant part as follows:

[T]he scheduled completion date for this rehab was September 15 2016. It is now five months past that completion date. As I am in Australia it is not possible for me to visit the property for an inspection so I contacted another builder to provide an inspection on my behalf (Jim Geschwentner, Westin Company in Phoenix, AZ General Residential Contractor license (065444)).

I have enclosed the results of his inspection on the original contract “exhibit A” which list items to be completed. Twenty three (23) items are either not completed or not started five months after the contract finish-by date. As the contract does not specify when items are to be completed or how payments are to be justified it is not possible to state which items have been claimed and should be finished, but about 88% of the contract amount has been paid. Given the time over run it is reasonable to think all items should be finished. It is for this reason that I consider the contract abandoned and I have lost all trust in this builder.

Complainant attached to the letter Mr. Geschwentner’s notes on Exhibit A that showed items that allegedly were not completed and his price to repair or complete the items.

On or about March 13, 2017, Investigator Klein performed a jobsite inspection, which Mr. Burbank attended on Respondent’s behalf and Ms. Barbara Adams attended on Complainant’s behalf. Investigator Klein’s jobsite inspection notes state as follows:

The job has not been abandoned, Respondent is on site and willing to complete the job, however he wants more money before coming back to complete the work. It appears the complainant has made the scheduled payments per the contract.

The Respondent states there have been a lot of verbal agreements with extra expenses due to running into problems throughout the project.

Investigator Klein testified consistently with his jobsite inspection notes.

On March 14, 2017, Investigator Klein on behalf of the Registrar issued a directive to Respondent to “complete project per original contract agreement, properly executed change orders, verbal agreements, local building codes and manufacturers installation instructions” on or before 5:00 p.m. on March 30, 2017.

After Respondent did not perform corrective work to comply with the March 14, 2017 directive, Investigator Klein referred to complaint to the Registrar’s Legal Department. On April 14, 2017, the Registrar issued a Citation against Respondent’s license, charging cause to revoke or suspend its license in Case No. 2017-764 under A.R.S. §§ 32-1154(A)(8) and 32-1154(A)(22). The Citation did not charge that Respondent had abandoned the project on Pierce St. in violation of A.R.S. § 32-1154(A)(1). Complainant did not request that the Citation be amended to charge such a violation.

Mr. Burbank on Respondent’s behalf filed a timely written answer to the Citation, denying any statutory violation because Complainant “refused to fund the remainder of the contract and had made it clear . . . he did not want [Respondent] back on [the] project. [Complainant] did not even turn on power or water so any said work could be done.”

Mr. Burbank testified that Respondent cannot afford to finance an investor’s work rehabilitating distressed properties. The final payment was due when Respondent substantially completed the work, not when Complainant accepted the work. Mr. Burbank testified that, otherwise, investors could draw out projects by refusing to fund them.

Mr. Burbank testified that Respondent continued to work on the Pierce St. project though January 2017, when he fell due to soft, moist soil, injured his knee, and as a result of the injury, was off work for several months.

Mr. Burbank testified that because, Complainant hired someone else to repair and complete the Pierce St. project, Respondent never had an opportunity to do so. Mr. Burbank testified that Respondent wanted to complete the job.

Mr. Burbank testified that after the March 14, 2017 directive was issued, Complainant failed to provide reasonable access to the Pierce St. project because the key was removed from the lockbox.

Mr. Burbank testified that because the power and water were turned off at the Pierce St. project, Respondent could not comply with the March 14, 2017 directive.

Mr. Burbank testified that both the Pierce St. and the Carol St. projects were complicated by communication problems with Complainant due to the distance and time difference between Phoenix and Australia. As a result, Respondent had to communicate with Complainant through Ms. Barbara Adams.

Ms. Barbara Adams testified that she did not know whether the power and water had been turned on at the Pierce St. project and did not know whether Respondent was provided a key in the lockbox. After the directive was issued, the lockbox was removed, but Ms. Barbara Adams did not know when.

Mr. Gershwentner testified that the Pierce St. project was only 60% done and that Respondent’s workmanship on the project was generally poor. Respondent had installed windows without exterior drywall.

Mr. Gershwentner acknowledged that there were several ways to install windows in historic houses and that Respondent could have finished the window installation with a window treatment wrap and casement detail, which would have been performed at the end of the job.

Mr. Burbank testified that the City of Phoenix required Complainant to tear off 6 or 7 feet from the back of the Pierce St. house because it was partially built in an easement. In addition, Respondent was required to install a new water main. Mr. Burbank testified that the cost of substantial work that the City required was not on the contract.

Case No. 2017-1271 (the Carol St. Project)

On or about March 7, 2017, Complainant filed a complaint with the Registrar against Respondent alleging that Respondent had abandoned the contract and performed poor work in renovating a house at 313 E. Carol St., Phoenix, Arizona 85020. According to the complaint, Complainant had paid Respondent $39,992.84 on a contract amount of $36,600.00. Complainant stated that Respondent had asked for a final payment on October 17, 2016, and that Complainant had paid the final invoice, but that Respondent had failed to complete work, including installing a water heater, and that Complainant had to hire a new builder to repair and complete Respondent’s scope of work. Complainant requested that Respondent be required to pay him $18,000.00 plus interest to complete its original scope of work.

Complainant attached to the complaint Respondent’s Contractor Contract/ Invoice dated May 30, 2016, to perform certain work, including constructing a 16’ x 24’ addition and installing a new 200 amp electric panel. Complainant also attached Respondent’s Contractor Invoice to relocate the gas meter and relocate a gas supply line and extension inside the house.

On or about March 21, 2017, Investigator Klein performed a jobsite inspection of the house on E. Carol St., which Mr. Burbank attended on Respondent’s behalf and Ms. Barbara Adams and Mr. Geschwentner attended on Complainant’s behalf. Investigator Klein’s jobsite inspection notes stated that another contractor had repaired some of Complainant’s complaint items, including installing a moisture barrier, repairing the subfloor/underlayment, repairing drywall, painting, and cleaning the jobsite. Investigator Klein testified consistently with his jobsite inspection notes.

On March 31, 2017, Investigator Klein on behalf of the Registrar issued a directive to Respondent requiring it to perform certain repairs on or before April 17, 2017, on the Carol St. project, in relevant part as follows:

Complaint Item 1: Abandonment

Respondent shall complete project per original contract agreement, properly executed change orders, verbal agreements, local building codes and manufacturers installation instructions.

Complaint Item 4: Quoted and was paid for a new 200 Amp electrical panel, but has left the old 100 Amp in place.

Respondent shall complete project per original contract agreement, properly executed change orders, verbal agreements, local building codes and manufacturers installation instructions.

Complaint Item 5: Check gas fittings are to standard and have been inspected and approved.

Respondent shall complete project per original contract agreement, properly executed change orders, verbal agreements, local building codes and manufacturers installation instructions.

Complaint Item 6: The shower fixtures leak‘s

The shower head is leaking at the time of inspection.

Complaint Item 7: Didn’t install water heater in the hallway closet though the plumbing is there . . . (left water heater outside from where it was stolen)

Respondent shall complete project per original contract agreement, properly executed change orders, verbal agreements, local building codes and manufacturers installation instructions.

Complaint Item 8: No venting into the attic space which needs at least 2 gable vents, one on each end of the house & no attic access in ceiling.

Respondent agreed to add vents at the eve blocks.

After Respondent did not perform corrective work to comply with the March 31, 2017 directive, Investigator Klein referred to complaint to the Registrar’s Legal Department. On April 21, 2017, the Registrar issued a Citation against Respondent’s license in case no. 2017-1271, charging cause to revoke or suspend the license under A.R.S. § 32-1154(A)(3), namely A.A.C. R4-9-108, and A.R.S. § 32-1154(A)(22). The Citation in Case No. 2017-1271 did not charge that Respondent had abandoned the project on Carol St. in violation of A.R.S. § 32-1154(A)(1). Complainant did not request that the Citation be amended to charge such a violation.

Ms. Barbara Adams testified that the plans for the Carol St. project showed a new hot water heater and that Respondent had installed plumbing for a new hot water heater.

Mr. Burbank testified that at the Carol St. project, when Respondent dug the footers for the addition, Southwest Gas required that the main gas line and gas meter be relocated. Respondent issued a change order and Complainant paid additional monies to relocate the gas line and meter. Mr. Burbank testified that Complainant agreed to upgrade the water heater and dryer to gas because that would make the house more marketable and, because a 200 amp electrical panel would no longer be required, to eliminate upgrading the 100 amp panel to 200 amp.

Mr. Burbank testified that Complainant failed to secure the new electric hot water heater and it was stolen in November 2015, before the parties’ January 21, 2016 contract in which Respondent undertook to renovate the house on Carol St.

Mr. Burbank testified that he went by the Carol St. project twice after the March 31, 2017 directive was issued, but that there was no key in the lockbox.

Mr. Gershwentner testified that Respondent’s workmanship on the Carol St. Project was poor. Although the contract required Respondent to install a new 200 amp electric panel, the old 100 amp panel was still on the house.

Mr. Gershwentner testified that he repaired the shower leak at the Carol St. project. Mr. Burbank testified that the leak had never been brought to his attention.

Mr. Gershwentner testified that there were still open permits on the Carol St. project, that no certificate of occupancy had been issued, and that the City of Phoenix’s records still showed a 300-400 square foot structure, not the 800-900 square foot structure that resulted from the addition.

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.”

Mr. Burbank credibly testified that the City of Phoenix required more work, including installation of a new water main and tearing down of the back 6 or 7 feet off the back of the house because it was in an easement. In addition, Complainant submitted Respondent submitted an invoice for $500.00 for a deposit for electric service, which was not included on the contract. Mr. Burbank credibly testified and both parties acknowledged by signing the Disclaimer clause that renovation of distressed properties frequently involves unforeseen repairs and expenses. Complainant did not establish the amount of the contract, with the changes, or that he had paid all amounts due to Respondent under the modified agreement and that Respondent refused to complete the project for the new amount. Therefore, Complainant did not establish cause to suspend or revoke Respondent’s contractor’s license under A.R.S. § 32-1154(A)(8).

Construction is not a perfect art and, generally, contractors must be afforded an opportunity to correct their workmanship before their licenses may be suspended or revoked. Complainant lives in Australia and he did not establish that he had first-hand knowledge of conditions at the two jobsites. Ms. Barbara Adams also lacked first-hand knowledge about whether Respondent was allowed reasonable access to comply with the March 14, 2017 directive in case no. 2017-764 and the March 31, 2017 directive in case no. 2017-1271.

Mr. Burbank credibly testified that Complainant did not provide keys in lockboxes, power, or water that would allow Respondent to comply with the directives on the Pierce St. project or the Carol St. project. Complainant acknowledged that he hired Mr. Gershwentner to repair and complete both projects. Therefore, Respondent established that Complainant did not provide reasonable access for it to comply with the two directives in these consolidated matters. Complainant did not establish cause to suspend or revoke Respondent’s license under A.R.S. § 32-1154(A)(22) in case no. 2017-764 or A.R.S. § 32-1154(A)(3), namely A.A.C. R4-9-108, and A.R.S. § 32-1154(A)(22) in case no. 2017-1271.

Complainant requested that the Registrar require Respondent to pay $125.00/week for damages caused by its alleged delay in finishing the projects, as well as a sum of money that would allow Complainant to pay Mr. Gershwentner or another contractor to repair and complete the projects. The legislature has not empowered either the Office of Administrative Hearings or the Registrar to adjudicate or award money damages. Complainant may file suite in a court of competent jurisdiction to resolve his claim against Respondent for civil damages.

RECOMMENDED ORDER

Based on the foregoing, it is recommended that on the effective date of the final order in this matter, Complainant Charles M. Mimnaugh’s complaints in case nos. 2017-764 and 2017-1274 against Respondent Burbank Construction Inc.’s License No. B.260016-R 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, July 10, 2017.

/s/ Diane Mihalsky

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors