ALJDEC decisions subject to certification as final

2017A-3320-CHC-ROC-RHG · Registrar of Contractors · 2021-10-18

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Knox Associates, Inc.,

dba The Knox Company,

COMPLAINANT.

v.

Blue Mountain Construction Inc.,

License No. ROC 303849,

RESPONDENT.

No. 2017A-3320-CHC-ROC-RHG

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: July 10, 2020, January 21, 2021, and June 28, 2021.

APPEARANCES: David Seldon, Esq. and Daniel Marks, Esq. appeared on behalf of The Knox Company (“Complainant”) with Linda Hawks, Lyle Schepple, Lawrence Field, Michael Godbehere, and Stephanie Coulter as witnesses. Rick Erickson, Esq. appeared on behalf of Blue Mountain Construction Inc. (“Respondent”) with Dawn Martinez and Brian Mercer as witnesses. Steve Klein testified on behalf of the Arizona Registrar of Contractors (“Registrar”).

ADMINISTRATIVE LAW JUDGE: Jenna Clark.

_____________________________________________________________________

Having heard the evidence and testimony and having considered the record in this matter, the undersigned Administrative Law Judge hereby makes the following Findings of Fact and Conclusions of Law and issues the following Recommended Order to the Director of the Registrar.

FINDINGS OF FACT

Background and Procedure

Pursuant to Ariz. Admin. Code R4-9-117, Administrative Notice is taken of Respondent’s license history. On April 12, 2016, the Registrar issued License No. 303849 for B-1 Commercial Contracting to Respondent. Brian Carl Mercer was listed as the Qualifying Party/Officer on the license, along with Darlene Lynn Mercer who was also listed as an Officer on the license. The address of record for the license was listed as 20960 Lakeridge Drive, Perris, California 92507-9566. Respondent had a $5,000.00 surety bond listed for the license issued by RLI Insurance Company, effective January 22, 2016. The Registrar’s public website does not reflect a disciplinary history for the license, save one open complaint which is Complainant’s.

On June 27, 2017, the Registrar received Complaint 2017-3320 filed by Complainant alleging nonpayment, poor workmanship, and abandonment on a commercial project. Attached to the complaint was a 23-page letter dated June 26, 2017, detailing Complainant’s grievance. Also attached were Exhibits A-C and 1-24; including a related Superior Court complaint, declarations, invoices, spreadsheets, and government records.

The Registrar later received additional documents from Complainant purporting to support additional complaint items.

On or about July 03, 2017, the Registrar issued a Jobsite Inspection Notification letter to the parties, advising that an onsite review would be conducted at the project site by an investigator on July 24, 2017, at 9:30 a.m.

On July 24, 2017, Registrar Investigator Steve Klein (“Investigator Klein”) inspected the work that had been done on the projects to date and took 6 photographs of the project. When he was finished, Investigator Klein drafted Jobsite Inspection Notes whereby he substantiated 3 of Complainant’s 7 allegations against Respondent.

On or about August 11, 2017, the Registrar received a 23 item addendum complaint from Complainant.

On or about August 18, 2017, Investigator Klein conducted an addendum complaint jobsite inspection at the project site, whereby he substantiated 18 addendum complaint items. When he was finished, Investigator Klein updated his Jobsite Inspection Notes to include the substantiated addendum items. Ultimately, Investigator Klein substantiated 21 of Complainant’s 30 complaint items. Specifically, Investigator Klein found that complaint items 1, 3-4, and 11-29 were in need of completion by Respondent. No workmanship issues were found.

Because another unassociated contractor who had obtained the requisite building permits from the local authority, was completing the underlying project(s) Respondent had been hired to perform, Investigator Klein did not address the contract allegations between the parties.

On September 07, 2017, the Registrar issued a Warning Letter to Respondent for an alleged violation of Ariz. Rev. Stat. § 32-1158(A) for Respondent’s failure to include all nine (9) required minimum elements in its contracts.

On September 07, 2017, Investigator Klein issued a second Warning Letter to Respondent for alleged aiding and abetting, a violation of Ariz. Rev. Stat. § 32-1154(A)(9).

No Written Directive from the Registrar (“Directive”) was issued in the matter because there was nothing to remediate, as Respondent had started work on the project before a building permit was issued for the project. Instead, on September 07, 2017, Investigator Klein escalated Complaint 2020-3320 to the Registrar’s legal department with a Citation Recommendation. Investigator Klein recommended Respondent be charged with a violation of Ariz. Rev. Stat. § 32-1154(A)(2) because no approved plans were in place, and there was no documentation available to compare and contrast against the existing work, or lack thereof. Additionally, Investigator Klein recommended Respondent be charged with a violation of Ariz. Rev. Stat. § 32-1154(A)(1) as no documentation had been provided to establish the nature of the parties’ professional dissolution.

On September 11, 2017, the Registrar issued a Citation to Respondent for alleged violations of Ariz. Rev. Stat. §§ 32-1154(A)(1), 32-1154(A)(2), and 32-1154(A)(3); Ariz. Admin. Code R4-9-108. Respondent was given until September 27, 2017, to respond with its Answer or face discipline pursuant to Ariz. Rev. Stat. §§ 32-1154 and 32-1155.

On September 26, 2017, the Registrar received Respondent’s Answer. Respondent alleged that the Registrar had already dismissed two prior related complaints brought by Complainant against Respondent (2017-2118 and 2017-3321), and opined the current complaint should be dismissed by the Registrar as well. Respondent argued that Complainant had terminated it from employment prior to raising any workmanship concerns, and therefore robbed it of any opportunity to perform remediations. Respondent also denied deviating from plans, as Complainant directed and approved work knowing no plans, drawings, or specifications had been completed by Complainant’s design team. Respondent further argued that because another contractor had made modifications to its work, it was impossible for the Registrar to soundly determine that Respondent had violated minimum construction standards on the project.

On April 30, 2020, the Registrar referred this matter to the Office of Administrative Hearings (“OAH”), an independent state agency, for an evidentiary hearing on November 20, 2020. Per the April 30, 2021, Notice of Rehearing the issues to be determined are whether the Registrar has cause to discipline Respondent’s license based on the following charges:

Charge 1: A.R.S. § 32-1154(A)(1)

Charge 2: A.R.S. § 32-1154(A)(2)

Charge 3: A.R.S. § 32-1154(A)(3); A.A.C. R4-9-108

Hearing Evidence

Complainant called Linda Hawks – Human Resources Director, Lyle Schepple –Treasurer & Trustee, Lawrence Field – Certified Public Accountant, Michael Godbehere – Gcon Inc. Chief Executive Officer, Stephanie Coulter – Paralegal, and Investigator Klein as witnesses, and submitted Exhibits 1-7, 8a-d, 9-10, 13, 18-25, 29a, 32-34, 41-42, 47, 51, 55, 61-62, 67, 69, 73, and 84 into the record. Respondent called Dawn Martinez – Office Manager and Brian Mercer as witnesses, and submitted Exhibits 2, 4, 9, 13, 15, and 29 into the record. The Registrar’s agency file and Notice of Rehearing were admitted into the record as their own exhibits. The substantive evidence of record is as follows:

a. Complainant, through its subsidiary Deer Valley Project; a limited liability company, owns commercial property located at 1601 W. Deer Valley Rd. Phoenix, AZ 85027. Complainant’s manufacturing office and facility is located at this address. Complainant’s owner, Joni Trempala, also owns property in California. After having Brian Mercer’s company, Respondent, perform residential and commercial construction services for her in California, Ms. Trempala and Mr. Mercer agreed that Respondent would perform additional commercial construction services for the Deer Valley Project in Arizona. Specifically, Respondent would perform demo and remodel construction services on Complainant’s 90,000 square foot commercial space.

Wes Balmer & Associates served as Complainant’s architect and design team on the project.

Three agreements were executed for the project: a construction contract, a construction management contract, and a consulting contract.

Invoices Respondent tendered to Complainant for services and/or materials rendered, were sent to Mr. Schepple’s attention.

b. On or about October 13, 2015, Ms. Trempala hired Mr. Mercer as Complainant’s Facilities Engineer at a rate of $55,000.00 annually.

i. Mr. Mercer did not relinquish his position with Respondent.

On March 10, 2016, Ms. Trempala promoted Mr. Mercer to Director of Operations at a rate of $165,000.00 annually

On or about August 16, 2016, Ms. Trempala promoted Mr. Mercer to Vice President at a rate of $400,000.00 annually.

On unknown dates during Mr. Mercer’s employment with Complainant, he and Ms. Trempala had a brief consensual sexual relationship. During that time and after Mr. Mercer ended the affair, Ms. Trempala would leave little “love notes” and greeting cards for Mr. Mercer containing innuendos and expressing her love and appreciation for him. Some notes would also denote after-hours private meeting reminders.

On October 03, 2016, Mr. Schepple emailed Mr. Mercer regarding account reconciliation concerns and insurance invoices he had received.

Shortly thereafter, Mr. Schepple booked a flight from California to Arizona to depart on October 19, 2016, so that he could meet with Mr. Mercer in person.

On October 19, 2016, prior to Mr. Schepple’s arrival, Complainant discovered that Mr. Mercer had packed up most of his belongings early that morning and left the project site.

Respondent’s unlicensed subcontractor, Deep Green Landscape, turned in Respondent’s keys and access badges to Complainant’s Human Resources Department.

On October 19, 2016, Mr. Schepple received correspondence from Mr. Mercer that provided, in pertinent part, as follows:

It has been evident to me in the past few weeks that my services were no longer needed by Knox or Joni Trempala. This email serves as notice on my construction contract. I fully intend on making myself available to you during this transition period as there are open items on all three projects we were involved with.

During the weeks prior to October 19, 2016, Mr. Mercer believed that he was going to be terminated from employment by Complainant, based on his interpretations of Ms. Trempala’s and Ms. Hawk’s behavior towards him. However, he had not been formally disciplined or threatened with termination prior to that time.

At no time prior to leaving did Mr. Mercer file a sexual harassment complaint against Ms. Trempala with Ms. Hawks.

Later that same day, Complainant completed termination paperwork for Mr. Mercer that indicated his separation was due to resignation. However, by that same date, Ms. Hawks also issued a Termination of Employment Relationship & All Contractual Relationships letter to Mr. Mercer and Respondent. Ms. Trempala also issued a Written Notice of Termination of Current Construction Agreement(s) letter and a Written Notice of Termination of Current Consultant Agreement dated October 7, 2015 letter to Mr. Mercer and Respondent. Mr. Schepple also tendered a Written Notice of Termination of Current Construction Management Agreement(s) letter, a Written Notice of Termination of Construction Contract letter, and a Written Termination Notice Effective October 19, 2016 to Mr. Mercer and Respondent that day.

After Complainant and Respondent parted ways, Mr. Field was hired to conduct an audit of all invoices Respondent issued to Complainant, against all relevant time sheets and pay stubs. Ultimately, Mr. Field determined that Respondent had overbilled Complainant by approximately $533,000.00.

Meanwhile, Ms. Martinez, who is also Mr. Mercer’s sister-in-law, issued the last of Respondent’s invoices to Complainant totaling just over $180,000.00.

On January 31, 2017, Complainant filed a criminal complaint against Respondent with the Phoenix Police Department (2017-1566453).

On March 10, 2017, Complainant filed a civil complaint against Respondent in Maricopa County Superior Court (CV2017-001835).

On December 17, 2017, Complainant filed a criminal complaint against Respondent with the Phoenix Police Department.

On unknown dates Complainant also submitted complaints against Respondent with the California Department of Tax & Fee Administration (509445) and the Contractors State Licensing Board (SF-2017-2008).

Closing Arguments

In closing, Respondent argued that an Order should be issued in its favor for four reasons: (1) Respondent was terminated from employment prior to October 19, 2016, nullifying Complainant’s abandonment argument, (2) even if the Tribunal were to find that Respondent abandoned the Deer Valley Project, the sexual harassment Ms. Trempala subjected Mr. Mercer to establishes a valid legal excuse or justification, exempting Respondent from any liability, (3) Respondent is further excused from any abandonment claim because Complainant owed Respondent $183,000.00 on October 19, 2017, which remained outstanding as of the date of the hearing, and (4) any work Respondent performed on the underlying project was at the express direction of Ms. Trempala.

In closing, Complainant argued that an Order should be issued in its favor because it sustained its burden of proof in the matter. Specifically, Complainant opined that it established a violation of Ariz. Rev. Stat. § 32-1154(A)(1) because the record reflects that Mr. Mercer turned in his keys, left the project site, and submitted his written resignation from California. Moreover, Complainant argued that Respondent’s excuses were invalid because all of its payments to Respondent were current, save the last invoice for $34,526.96, and Mr. Mercer’s allegations of sexual harassment were false at worst and unreported at best. Complainant opined that the real reason Respondent abandoned the project was because Mr. Mercer knew his overbilling scheme was going to be brought to light, so he quit rather than face the consequences of his actions. Complainant also opined that it established a violation of Ariz. Rev. Stat. § 32-1154(A)(2) because the record reflects that not only did Respondent perform commercial construction on the project without any approved plans or permits for the project, it also charged over $1,000,000.00 during its 18 months of work, during which it employed the use of unlicensed subcontractors.

CONCLUSIONS OF LAW

The Registrar has jurisdiction over this matter pursuant to Ariz. Rev. Stat. §§ 32-1101 et seq. and 32-1154(A). The matter was properly brought before OAH pursuant to Ariz. Rev. Stat. §§ 41-1092 et seq.

The purpose of the Registrar’s licensing statutes is to protect the public from unscrupulous, unqualified, and financially irresponsible contractors.

The Registrar may resolve contractual disputes if such resolution in ancillary to its regulatory mission and may penalize a contractor’s license by ordering payment of restitution if a proven statutory violation was not remedied by corrective action.

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.”

Ariz. Rev. Stat. § 32-1154(A)(1) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[a]ndonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.”

Ariz. Rev. Stat. § 32-1154(A)(2) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, “[d]eparture from or disregard of plans or specifications or any building code standards without consent of the owner.”

There is not a question of whether Complainant and Respondent had a contractual agreement regarding the Deer Valley Project. Indeed, Mr. Mercer signed three separate agreements on Respondent’s behalf for the job.

From here, it must be determined whether Respondent failed to adhere to plans, specifications, or building codes. The credible evidence of record establishes that Respondent knowingly performed contracting on the project without having ensured a permit was in place before its construction on the Deer Valley Project began. Respondent’s arguments that Complainant advised it to begin construction without providing plans or specifications, while credible, is no excuse for Respondent to perform work without either in place. A violation of Ariz. Rev. Stat. § 32-1154(A)(2) has been established by a preponderance of the evidence.

It must also be determined whether Respondent abandoned the project. The credible evidence of record establishes that Mr. Mercer and his crew walked-off the job on October 19, 2017, and left the State of Arizona. To that end, he provided Complainant with written correspondence of his “notice” and intent to terminate Respondent’s construction contract. While Mr. Mercer did not speak to his remaining two contract agreements with Complainant, he evinced his intent not to return to Complainant’s employ in any capacity, but would make himself available for consultation on the outstanding projects Respondent had been working on. A violation of Ariz. Rev. Stat. § 32-1154(A)(1) has been established by a preponderance of the evidence.

Therefore, the only issue(s) in dispute is whether Respondent raised a sufficient justification or excuse for failing to complete the Deer Valley Project per contract, or ensure a valid building permit had been issued prior to commencing work on the project. This is an affirmative defense that Respondent bears the burden to establish. Here, none of Respondent’s arguments are persuasive enough to overcome Complainant’s evidence. Mr. Mercer quit prior to Complainant issuing its letters of termination. While Mr. Mercer’s claim of alleged sexual harassment is partially supported by the record, evidence also establishes that their relationship was consensual and ended amicably. Nothing in the record suggests that Mr. Mercer was subjected to implicit or explicit advancements or remarks from Ms. Trempala, after their relationship ended, that rendered Mr. Mercer’s work environment so intolerable that he felt he had no other choice but to resign. Regarding Respondent’s assertion that Mr. Mercer quit because Respondent was owed monies, nothing in the record establishes Respondent’s reasonable attempts to recoup said monies, or set up a payment plan with Complainant, prior to Mr. Mercer admittedly walking-off the job October 19, 2017.

Because Complainant established violations of Ariz. Rev. Stat. §§ 32-1154(A)(1) and 32-1154(A)(2), Complainant has also established cause for the Registrar to discipline Respondent’s contractor’s license.

RECOMMENDED ORDER

Based on the foregoing,

IT IS RECOMMENDED that five days after the effective date of the Final Order in this matter, Respondent Blue Mountain Construction Inc., ROC License No. 303849, be suspended for fourteen (14) days based on its violations of Ariz. Rev. Stat. §§ 32-1154(A)(1) and 32-1154(A)(2).

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 40 days from the date of that certification.

Done this day, October 18, 2021.

Office of Administrative Hearings

/s/ Jenna Clark

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors