ALJDEC decisions subject to certification as final

2017A-3532-CHC-ROC · Registrar of Contractors · 2018-03-05

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Rylivia LLC,

COMPLAINANT,

v.

Studio Y Design and Development LLC,

License No: 301042, 302121

RESPONDENT.

No. 2017A-3532-CHC-ROC

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: November 21, 2017, at 8:30 a.m.

APPEARANCES: Lori Timpe-Long (“Ms. Timpe-Long” representative for Rylivia, LLC “Complainant); Mark Bainbridge (“Mr. Bainbridge” attorney for Complainant); Bryan Celius (“Mr. Celius” representative1 for Studio Y Design and Development LLC “Respondent”); Chris Butcher (“Mr. Butcher” representative2 for Respondent); Matthew Pierce (“Mr. Pierce” attorney for Respondent); Mike Crow (“Investigator Crow” Assistant Chief Investigator for the Arizona Registrar of Contractors “ROC” or “Registrar”); Damon Knowles (“Mr. Knowles” observer); Matthew Mahalak (“Mr. Mahalak” observer); and Chris Illgen (“Mr. Illgen” observer).

FURTHERANCE HEARING: February 13, 2018, at 8:30 a.m.

APPEARANCES: Mark Bainbridge (“Mr. Bainbridge” attorney for Complainant); Bryan Celius (“Mr. Celius” representative1 for Respondent); and Chris Butcher (“Mr. Butcher” representative2 for Respondent).

TELEPHONIC APPEARANCES: Lori Timpe-Long (“Ms. Timpe-Long”

ADMINISTRATIVE LAW JUDGE: Linda Marie Brown

The question presented in this matter is whether Respondent, Studio Y Design and Development LLC is subject to discipline for acts or omissions in violation of A.R.S. § 32-1154(A)(1) abandonment; A.A.C. R4-9-108 Workmanship Standards, and thereby of A.R.S. § 32-1154(A)(3), and A.R.S. § 32-1154(A)(22) failure to take appropriate corrective action. Complainant’s Exhibits labeled C1 through C19 were admitted; and Respondent’s Exhibits labeled R1 through R5 were also admitted. Respondent’s exhibit R6 was not admitted. Based upon testimony and evidence of record, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law, and Recommended Order.

FINDINGS OF FACT

According to the Arizona Registrar of Contractors (“Registrar”), Studio Y Designs and Development LLC (“Respondent”) is the holder of a Class B General Residential Contractor License No. B.301042-R issued by the Registrar. Joseph Edward Lesniak is listed as the qualifying party and New Life Enterprises LLC is a member. Its address of record is 1928 East Highland Avenue, Suite 410, Phoenix, Arizona 85016-4626. The Registrar’s public website reflects Respondent’s license is suspended, non-renewal as of November 1, 2017.

Respondent is also the holder of a Class KB-1 Dual Building Contractor License No. KB-1.302121-R. Christopher James Butcher is the qualifying party and New Life Enterprises LLC is a member. Its address of record is 1928 East Highland Avenue, Suite 410, Phoenix, Arizona 85016-4626. License No. KB-1.30212-R is listed as suspended, non-renewal as of January 1, 2018.

According to the Arizona Corporation Commission, Bryan Celius is listed as the manager-member and statutory agent for New Life Enterprises LLC, File No. L-12487172, with a domestic address and statutory agent information of 8001 N 5th Ave., Phoenix, AZ 85021.

On or about July 12, 2017, Rylivia LLC (Lori Marie Timpe-Long) (“Complainant”) filed its complaint with the Registrar against Respondent’s licenses alleging, among other things, abandonment. Complainant alleged that it paid Respondent $484,000.00 of the $505,480.00 contract price and Respondent failed to perform.

Complainant entered into an AIA Document A101-2007 contract on or about April 18, 2016, with Respondent. The owner is listed as Rylivia LLC located at 12141 Christy Lane, Rossmoor, California 90720, and Contractor as Studio Y Design & Development LLC for the following project San Miguel Ave House, 17932 W. San Miguel Ave, Litchfield Park, Arizona 85340. New 4,385 sf single family residence with Ramada, fire pit, attached casita, 3-car garage, covered entry and rear patio. The substantial completion date was to be October 24, 2016.

The Architect listed is Studio Y Design & Development LLC, located at 1928 E. Highland Ave., Bldg. F-10, Ste 410, Phoenix, AZ 85340. The Contract sum shall be $395,000.00 (not including the price of the land purchase).

Complainant asserts in its complaint that work started on May 10, 2016, and stopped on April 25, 2017.

Complainant later submitted to the Registrar a copy of a letter dated July 19, 2017, received from the Russell Ranch Homeowner’s Association to include the following notice of infractions against its CC&R’s and associations policies: (1) please remove debris from your lot; (2) remove torn tarps (3) repair fence which is down; (4) construction time has exceeded the (1) month allowed per section 7.34; and (5) construction permits expired as of July 9, 2017, per Maricopa County must be renewed.

The Registrar assigned the complaint to Investigator Michael Scanlon for investigation. On July 18, 2017, Investigator Scanlon sent a letter to Complainant and Respondent at its address of record to notify them that a jobsite inspection is scheduled on August 9, 2017, and later rescheduled due to a conflict in scheduling of one of the parties. The scheduled jobsite inspection was conducted on August 22, 2017.

Investigator Scanlon noted in his Jobsite Inspection Notes that Lori Timpe-Long (Complainant), Chris Illgen (Realtor) and Chris Butcher (Respondent) were present. Investigator Scanlon listed five (5) complained of issue and substantiated the following two (2) items :

Complaint Item 2: HOUSE IS NOWHERE NEAR COMPLETION

Investigator’s Observations: I observed that the house is still in the rough framing stages and no where close to being completed,

Governing Rule: Workmanship Standards 32-1154 (A)(3), namely R4-9-108, Poor work not performed in accordance with professional industry standards.

Complaint Item 5: SIGHT HAS NOT BEEN WORKED ON FOR MONTHS

Governing Rule: ARS §32-1154 (A)(1) (Abandonment)

During the jobsite inspection, Investigator Scanlon submit a photograph depicting his observation upon arrival at the jobsite.

Investigator Scanlon issued a Directive on August 23, 2017, with a completion date of September 8, 2017, for Respondent to remedy the following by appropriate means “Respondent shall complete project per original contract agreement, properly executed change orders, verbal agreements, local building codes and manufactures installation instructions.”

Respondent having failed to provide written satisfactory notice to the Registrar that the items on the Directive were remedied on September 8, 2017, the matter was referred to the Registrar’s Legal Department.

On September 11, 2017, the Registrar issued a Citation, charging cause to discipline Respondent’s license under .R.S. § 32-1154(A)(1) abandonment; A.A.C. R4-9-108 Workmanship Standards, and thereby of A.R.S. § 32-1154(A)(3), and A.R.S. § 32-1154(A)(22) failure to take appropriate corrective action. The Registrar sent the Citation to Respondent by certified and regular mail at its address of record.

Respondent filed a Written Answer to the Citation and Complaint denying each and every charge. In its defense, it asserted the parties entered into a “joint venture agreement” to develop, sell and split the profits. Additional arguments made by Respondent is no workmanship issues were identified. Respondent asserts that it offered to buyout Complainant and that this was contingent upon funding of certain Studio Y investment returns and that funding has taken much longer than either party desires. . . . Studio Y still intends to perform the buyout as soon as its investments are funded.,

The Registrar issued a Notice of Hearing referring the matter to the Office of Administrative Hearings (“OAH”), an independent agency, for an evidentiary hearing. The Registrar mailed the Notice of Hearing to Respondent at its address of record.

On November 20, 2017, Investigator Crow conducted a Prehearing Jobsite Inspection (JSI). Complainant’s Realtor, Chris Illgen allowed Investigator Crow access to the property.

Investigator Crow provided eleven (11) photos taken at this Prehearing Jobsite Inspection depicting workmanship issues such as cracks in the concrete (photo 7, 8, 9, 10), and purchased lumber left uncovered and exposed to environmental elements (photo 2, 4, 5, 6, 11). Under Compliance Findings, he noted, “INCOMPLETE. . . . Upon inspection at this JSI I found that the home was in an unfinished state and that it appeared that no work had occurred since Investigator Scanlon referred this complaint to the ROC Legal department on 09/11/2017. At this JSI Chris Illgen informed me that no work had been completed since approx. early to mid April 2017.”

A hearing was held on November 21, 2017. Both Parties were represented by counsel. Both Complainant and Respondent and the Registrar submitted exhibits as listed on the Exhibit List.

Complainant argued that Respondent’s license should be revoked or suspended for failure to perform under the terms and conditions of its contract.

Respondent argued the complaint should be dismissed because due process was violated and Respondent was not properly served.

Respondent attempted to defend against Complainant’s allegations of abandonment by asserting that the parties collaborated in a joint venture to develop, sell and split the profits.

Investigator Crow credibly testified as to the Registrar’s involvement in this matter. He provided in narrative format his findings as set forth in the complaint. Mr. Bainbridge had an opportunity to question Investigator Crow as to his compliance findings obtained at the Prehearing Jobsite Inspection. Investigator Crow stated that he was unable to perform a review of the permitting; and that because the project was left incomplete, electrical components and other materials were left exposed to environmental elements. He testified that the framing was near completion but he did not observe the interior as complete.

Respondent questioned Investigator Crow whether Respondent was provided a Notice. Investigator Crow replied that a copy was sent to counsel and that the purpose of a Prehearing Jobsite Inspection is not to gather new evidence but to inspection the condition of the jobsite.

Complainant testified that she was introduced to Bryan Celius through its accountant, Jason Conn. Complainant provided thorough testimony the processes she encountered in doing business with Respondent. Complainant testified that she remained patience with Respondent as they continued to exchange emails and texts wherein Respondent continued to make promises but those promises never happened so it was left with no alternative but to file its complaint with the Registrar.

Complainant specifically referenced Bates No. 83, 85 and 89 of Complainant’s Exhibit 12 to illustrate the communications and promises made by Respondent to Complainant that never happened.

Mr. Mahalak questioned Complainant regarding the Joint Venture Agreement. Complainant responded that the Agreement was terminated on or about October 20, 2017.

On or about April 19, 2016, Complainant signed a Vacant Land/Lot Purchase Agreement listing Rylivia LLC – Lori Timpe-Long, as buyer, and Bryan Celius/ Hannah Simon, as sellers, for Assessor Lot # 50-27-314 with a Close of Escrow date of April 26, 2016. The full purchase price was $110,000.00. Complainant provided copy of a withdrawal document denoting a wire transfer on April 22, 2016, in the amount of $110,000.00 to Merchant Name: Studio Y Design and Develo.

Additional documents entered into evidence is a copy of Permit No. B201601660 issued by Maricopa County Planning and Development Department on May 10, 2016, and reissued on September 12, 2016 for Parcel # 502-27-314 to “owner/responsible party” as Celius Bryan and Simon Hanna.

Respondent testified that it continues to work to obtain a line of credit to buyout Complainant and that he is expecting a $40 million dollar transfer from a foreign bank. Respondent did not deny it received a total of $484,000.00 to include the $110,000.00 land purchase from Complainant.

When questioned as to why work stopped, Respondent replied to keep the title clear and unencumbered with any liens until additional financing was procured.

Mr. Bainbridge questioned Respondent regarding its accounting practices as it pertains to Complainant’s Exhibit 10. The Total Balance list as $275,335.47 in spending to include $50,000.00 to Hannah Simon for Lot Purchase on April 18, 2016.

Mr. Bainbridge asked Respondent where the remaining funds are belonging to Complainant since it is undisputed that Respondent received $484,000.00 from Complainant, minus $110,000.00 for the land purchase leaving a balance of $374,000.00. Minus expenditures listed in Respondent’s accounting sheet from 11/01/2015 through 06/15/2017, totaling $275,335.47 for a remaining balance of $98,664.53.

Mr. Bainbridge also questioned Respondent as to why he is subtracting $50,000.00 payable to Hannah Simon for Lot Purchase when Complainant already paid direct to Respondent $110,000.00 for the lot purchase. Adding the $50,000.00 to the remaining balance of $98,664.53, there appears to be $148,664.53 unaccounted as due and owing to Complainant for work that was never performed and abandoned. Respondent continued to assert its intent to procure financing to buyout Complainant for $685,000.00.

The hearing was adjourned and set for furtherance hearing on February 13, 2018, beginning at 8:30 a.m. Arizona time.

On February 12, 2018, Respondent telephoned advising they were no longer represented by counsel and requested a continuance. OAH instructed Respondent to file a written request.

Respondent submitted its Request for Continuance and included a copy of its former attorneys notice to withdrawal from representation.

Complainant’s attorney filed an objection to a continuance arguing that Respondent’s contention that it was just notified when its former attorney’s email provided, it stated, “As I mentioned to you before, I will not be representing Studio Y at the ROC Hearing.” Therefore, the “before” is constructed that Respondent was on notice.

The Administrative Law Judge finding no good cause to grant a continuance and considering almost three (3) months lapsed since the initial hearing date of November 21, 2017, denied the continuance.

The furtherance hearing convened on February 13, 2018. Mr. Bainbridge restated in its opening that Respondent abandoned the contract and its license should be revoked. Respondent argued that the parties agreed to a joint venture to build, sell and split the profits, and that it still stands behind its offer to buyout Complainant for $685,000.00.

Additional testimony was obtained from Respondent regarding its accounting, and questioned as to why Hannah Simon was paid $50,000.00 from the project funds for a lot purchase when Complainant already wired under separate cover $110,000.00 to Respondent, as supported in its documentation.

Christopher Butcher provided testimony regarding the framing and additional costs incurred due to re-engineering and change orders surrounding a Glass Fiber Reinforced Concrete (GFRC) system which caused delay to resubmit to Maricopa County Planning and Development Department for approval. Mr. Butcher asserted that the project was not abandoned but delayed.

Mr. Butcher argued that Investigator Scanlon did not walk the entire premise on August 22, 2017. He also testified that he is not an employee of Respondent, but is the qualifying party for Studio Y Design and Development LLC.

Complainant pointed to Complainant’s Exhibit 3, and questioned Mr. Butcher regarding his statement about delays due to changes made for energy efficiency when the Executive Summary stated these things existed wherein it states,

“. . . Will be easy sale because of the sustainable design and unique energy efficient designed features.”

Complainant was questioned as to the purpose of Rylivia LLC, which it replied it was established as an investment entity.

In closing, Mr. Bainbridge asked the Tribunal to revoke Respondent’s license to protect the public from more harm and award the Complainant restitution.

Respondent restated that it is still willing to purchase the property for $685,000.00 and that it did not abandon the projected, and asked the Tribunal to dismiss the claim.

CONCLUSIONS OF LAW

Complainant bears the burden of proof to establish cause to suspend or revoke Respondent’s license by a preponderance of the evidence. “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”

Complainant established that Respondent abandoned performance of its contract with Complainant without legal excuse. Respondent testified that it was working to buyout Complainant and discontinued work to keep the property from becoming encumbered with liens while it sought funding. This Tribunal finds this is not a legal excuse to not to continue to complete the project as set forth under the Directive since Complainant is listed as the owner of the property and was contracted with the Respondent who is named as the contractor under the parties AIA Document A101 – 2007 agreement dated April 18, 2016, and that based on the terms of that agreement, Contractor was to substantial complete the construction project by October 24, 2016, and yet the project continued to be delayed. As of April 2017, no work was performed as substantiated by Investigator Scanlon during his jobsite inspection of August 22, 2016, and further substantiated by Investigator Crow at his Prehearing Inspection of November 20, 2017

This Tribunal finds Respondent’s argument least persuasive as to why the work was being delayed as he stated he was waiting for funds from foreign sources to buyout Complainant. Testimony demonstrated this proposal was made in April 2017, and at the date of the hearing, almost 11 months later, Respondent is still unable to purchase the property from Complainant.

A.R.S. § 32-1154(A)(1) sets forth “abandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.” In this instance, Respondent abandoned its contract when it failed to complete the project as set forth in its AIA Agreement executed on April 18, 2017.

Undisputed credible testimony established Respondent performed substandard work as both Investigator Scanlon identified workmanship issues in its jobsite inspection, and Investigator Crow further identified issues with the lumber and other components left at the jobsite as exposed to the elements of the environment, and he further observed the concrete as cracking and chipping. Thus, Complainant established Respondent’s work was not done in a professional and workmanlike manner in violation of A.A.C. R4-9-108 and thereby of A.R.S. § 32-1154(A)(3).

An A.R.S. § 32-1154(A)(22) violation is warranted given that Respondent did not complete the remedial repairs or take corrective action on all of the items specified in the Directive. Investigator Crow’s testimony established that Respondent failed to repair or remedy by completing the work as set forth in the AIA Agreement between the parties, thus resulting in additional damage to the items that Complainant already paid for to be used on the new build project, as well as leaving exposed various components to the environmental elements.

This Tribunal finds Complainant performed its obligations under the agreement and timely made payments to Respondent for the work to be performed as evidenced in payments made to Respondent totaling $484,000.000. Therefore, Complainant established cause to suspend or revoke Respondent’s license under A.R.S. §§ 32-1154(A)(3), and 32-1154(A)(22).

Additionally, this Tribunal finds an award of restitution is appropriate based on testimony and evidence that Respondent was in receipt of payments from Complainant for work to be performed, and yet Respondent failed to perform without legal excuse as set forth under A.R.S. § 32-1154(A)(1).

RECOMMENDED ORDER

Based on the foregoing, it is recommended that Studio Y Design and Development LLC, License Numbers 301042 and 302121 be revoked and it be ordered to pay restitution to Rylivia LLC in certified funds in the amount of $148,664.53.

Done this day, March 6, 2018.

/s/ Linda Marie Brown

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors