PDF copy: ALJDEC decisions subject to certification as final

2017A-3715-CHC-ROC · Registrar of Contractors · 2017-12-06

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Bio-Medical Application of Arizona L.L.C. No. 2017A-3715-CHC-ROC COMPLAINANT -v- ADMINISTRATIVE LAW JUDGE DECISION Marathon Resources, Inc. License No. 106921 RESPONDENT

HEARING: November 13, 2017, at 8:30 AM APPEARANCES: Ed Stout (“Mr. Stout”, representative for Complainant Bio Medical Applications of Arizona, LLC (“BAA”)); Rick Erickson (“Mr. Erickson”, Attorney1 for Complainant); Russell Plato (“Mr. Plato”, Attorney2 for Complainant); Dave McKean (“Mr. McKean” observer for Complainant); Kevin Marinan (“Mr. Marinan” qualify party/officer for Respondent); and Ivy Kushner (“Mr. Kushner”, Attorney for Respondent). ADMINISTRATIVE LAW JUDGE: Linda Marie Brown _____________________________________________________________________ The question presented in this matter is whether Respondent Marathon Resources Inc. is subject to discipline for acts or omissions in violation of A.R.S. § 32-1154(A)(1)1. Complainant’s Exhibits labeled C1 through C9 were admitted with objection from Respondent in regards to C5, C6, and C7; and Respondent’s Exhibits labeled R1 through R8. 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 1. Marathon Resources, Inc. (“Marathon” or “Respondent”) is the holder of a Class B-1 License No. 106921 issued by the Registrar of Contractors (“ROC”). Kevin John Marinan is the qualifying party/officer of Marathon.

A.R.S. 32-1154(A)(1) “Abandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.”

Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826 2. According to the public website of the Registrar of Contractors, License No. B-1.106921 for general commercial contracting was issued to Respondent on April 21, 1995. Respondent’s license is current. Its address of record is 1362 East Erie Street, Gilbert, Arizona 85295-5523. 3. On or about July 20, 2017, Complainant, Bio Medical Application of Arizona LLC (“BAA”) filed a complaint with the Registrar against Respondent’s license based on its alleged abandonment of its contract for comprehensive general construction services for the expansion of North Scottsdale JV #6251-3. Complainant alleged that he paid Respondent $925,604.94 of the $1,260.005.00 contract price and that Respondent failed to perform for non-payment to its subcontractors. When Respondent failed to pay its subcontractors, they stopped working and liened the project causing abandonment of the project to be performed. 4. The Registrar assigned the complaint to its Investigator Matt Gunstra for investigation. On July 25, 2017, Investigator Gunstra sent a letter to Complainant and Respondent at its address of record to notify them that he had scheduled a jobsite inspection, and later sent a reschedule letter that the jobsite inspection would take place on August 21, 2017.2 1. Complainant’s Project Manager, Ed Stout, and Respondent’s qualifying party/officer were both present at the jobsite inspection. Investigator Gunstra noted that the job was 100% complete at this point so there was no work to inspect.3 2. During the August 21, 2017 investigation, Investigator Gunstra noted the following relevant facts, (1) commercial medical property; (2) Complainant received numerous liens from Respondent’s subcontractors during the project; (3) Complainant paid all of the subcontractors directly and all liens have been removed . . . Respondent has not re-paid Complainant in any way; (4) Respondent has been paid in full for all work it performed, no more no less; (5) Respondent stopped work for 5 months during the dispute over subcontractor non-payment (approx. January 2016); (6) Respondent was notified of termination and Complainant completed project under separate

2 See the Registrar’s electronic record at Rcc012 Formal Inspection Jobsite1.rtf, and Rcc063 Re-schedule of Jobsite Inspection1.rtf. See the Registrar’s electronic record at Rcc100 Jobsite Inspection Notes1.rtf. contractor. . .; (7) Respondent never refused to continue the project and feels they were wrongfully terminated; and (8) no-pay complaints against Respondent were closed by the ROC.4 3. Investigator Gunstra referred the complaint to the Registrar’s Legal Department with the recommendation that Respondent be charged with abandonment. 4. On August 30, 2017, the Registrar issued a Citation, charging cause to discipline Respondent’s license under A.R.S. § 32-1154(A)(1). The Registrar sent the Citation to Respondent by certified and regular mail at its address of record. 5. Respondent filed a Written Answer to the Citation and Complaint arguing that Respondent was at all material times ready, willing and able to continue with the work and was wrongfully denied the opportunity to do so by Complainant. Further, asserting that it will demonstrate that the interruption in the progress of the work was at the direction of the Complainant.5 6. 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. 7. A hearing was held on November 13, 2017. Both Parties were represented by counsel. Both Complainant and Respondent submitted exhibits as listed on the Exhibit List.6 8. Complainant argued that Respondent’s license should be either revoked or suspended for failure to perform under the terms and conditions of its contract; specifically payment to subcontractors to continue working the project to completion. 9. Complainant asserted that several liens were placed on the project as a direct result of Respondent’s failure to pay its sub-contractors upon receipt of payments from the Complainant. 10. Complainant provided evidence of Payments made to Respondent totaling $925,604.94, as follows:

4 See ProLaw (09/15/2017 REQHRG: Rcc100 Jobsite Inspection Notes1.rtf). See ProLaw (09/15/2017 REQHRG: Lg Citation1.pdf). See ProLaw (11/13/2017 HEARING: Exhibit List). Date Amount 09/16/2015 $ 52,942.19 10/14/2015 $261,532.22 12/15/2015 $400,103.61 02/24/2016 $211,026.92 11. Complainant also provided a summary of subcontractor payments made by BAA over Respondent’s objection depicting amounts paid to subcontractor claimants totaling $294,122.00.7 The $294,122.00 amount is in addition to the $925,604.94 funds already disbursed to Respondent. 12. Respondent restated that the contract list the Owner as BAA c/o Fresenius Medical Care N/A, and that Respondent and FMC have successfully worked together for the last 10 years on approximately 120 kidney dialysis project. 13. Respondent defended against Complainant’s allegations of abandonment by asserting that FMC opted to withhold the disbursement of funds to Marathon due to a question regarding a $5,000.000 charge with the subcontractor Builder Services Group Inc., dba Gale Contractor Services.8 14. Respondent also argued that it was Complainant who was non-responsive to its many attempts to communicate to address the continuation of work. 15. Respondent was asked if any demand was made to BAA or FMC to communicate to which he replied that on September 9, 2016, a letter was sent from his attorney to Complainant in hopes of motivating a response. 16. Complainant testified they started receiving notice of subcontractor liens on the project, and that lien notices were inconsistent with the terms of the AIA A101-2007 Standard Form of Agreement between the parties and the General Conditions of the Contract for Construction.9 17. AIA Document A101 Standard Form of Agreement between Owner and Contractor provides that “the contract may be terminated by the Owner or the Contractor as provided in Article 14 of AIA Document A201-2007”.10 See Complainant Exhibit C-7 Liens and Settlement Agreements. See Respondent’s Pre-Hearing Brief, p. 2, ln. 6-12. See Complainant Exhibits C-3 and C-4. See Complainant’s Exhibit C-3, p. 5, Section 7.1 Termination or Suspension. 18. Section 9.6.2 of the AIA Document A201-2007 General Conditions of the Contract for Contractors, is explicit in that a “Contractor shall pay each Subcontractor no later than seven days after receipt of payment from the Owner the amount to which the Subcontractor is entitled, reflecting percentages actually retained from payments to the Contractor on account of the Subcontractor portion of the Work. The Contractor shall, by appropriate agreement with each Subcontractor, require each Subcontractor to make payments to Sub-subcontractors in a similar manner.” 11 19. Section 14.2.1 that “Owner may terminate the Contract if the Contractor (2) fails to make payments to Subcontractors for materials or labor in accordance with the respective agreements between the Contractor and the Subcontractors.”12 20. On September 22, 2016, in accordance with section 15.2.2 of the AIA A101-2007 Standard Form Agreement, Project Manager Ed Stout asserted a claim to terminate Respondent for cause on the project to the Initial Decision Maker.13 21. The cause to terminate was supported by a claim letter dated September 13, 2016, to Mark Pagone citing section 14.2.1 (2) of the A201-2007 General Conditions document that the Owner may terminate Contractor for sufficient cause when Contractor fails to supply enough workers or materials, fails to pay subcontractors as contractually or legally required . . ..14 22. Pursuant to A.A.C. R4-9-117, administrative notice is taken of Respondent’s license history at the Registrar’s public website. Respondent has held its license for ten (10) years with only one incident in 2006 which was closed, and four (4) cases filed in 2016. Of the four (4) cases filed in 2016, two (2) have been closed, and one (1) suspension from 07/16/2016 to 08/16/2016 until compliance, and lastly this matter before the tribunal. ///// ///// ///// ///// See Complainant’s Exhibits C-4, p. 32, Section 9.6 Progress Payments See Complainant’s Exhibits C-4, p. 46, Termination by the Owner for Cause. See Complainant’s Exhibit C-8. See Respondent’s Exhibit R-8. CONCLUSIONS OF LAW 1. Complainant bears the burden of proof to establish cause to suspend or revoke Respondent’s license by a preponderance of the evidence.15 “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”16 2. Complainant established that Respondent abandoned performance of its contract with Complainant without legal excuse. Respondent testified that it was ready, willing and able to continue to work but provided no evidence that its subcontractors were willing to perform upon non-payment. Additionally, Respondent argued that FMC opted to withhold the disbursement of funds regarding a $5,000.00,17 but failed to provide any evidence other than testimony on when this withholding of funds occurred in light of the fact that Complainant had already made payments to Respondent totaling $925,604.94 on the project. 3. Respondent argued that its HVAC subcontractor removed its materials from the jobsite on December 30, 2015, because of belated payments and FMC’s direct communication with subcontractors yet Complainant provided evidence that payments were made to Respondent on September 16, 2015 in the amount of $52,942.19, October 14, 2015 in the amount of $261,532.22, December 15, 2015 in the amount of $400,103.61; and lastly on February 24, 2016 in the amount of $211,026.9218,19. 4. This Tribunal finds Respondent’s argument least persuasive as to why the HVAC subcontractor and multiple subcontractors would express an unwillingness to return to the jobsite due to the delay in payment when Complainant provided evidence that it paid nearly 74 percent of the contract price to Respondent and the these funds were received by Respondent. 5. 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

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). MORRIS K. UDALL, ARIZONA LAW OF EVIDENCE § 5 (1960). See Respondent’s Pre-Hearing Memorandum, p. 2, para. 6-11. See Complainant’s Hearing Brief, p. 4, para. 4-7. See Complainant’s Exhibit 5. refusal.” In this instance, Respondent abandoned its contract when it failed to pay its subcontractors upon receipt of payment from the Complainant. Complainant provided overwhelming evidence that several liens for non-payment were filed on the project, which is noncompliant with Section 9.6.2 of the AIA Document A201-2007 General Conditions of the Contract for Construction, and that which Respondent agreed to perform. Respondent, by its actions and failure to perform under the terms of the contract abandoned the project, and further provided grounds for termination by the owner for cause as set forth under section 14.2.1 (2).20 6. This Tribunal finds Complainant performed its obligations under the contract and timely made payments to Respondent, and Respondent failed to make payment to its subcontractors. Therefore, Complainant established cause to suspend or revoke Respondent’s license under A.R.S. § 32-1154(A)(1).21 7. Additionally, this Tribunal finds restitution22 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 or pay its subcontractors sums received under the terms of its contract. RECOMMENDED ORDER Based on the foregoing, it is recommended that Marathon Resources, Inc. license number 106921 be suspended for ten (10) days, and be ordered to pay restitution to Complainant in the amount of $294,122.00. Thereafter, the suspension shall remain in effect until the Registrar of Contractors receives and accepts written proof that Marathon Resources has paid $294,122.00 to Bio-Medical Applications of Arizona, L.L.C.. 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 forty days from the date of that certification.

20 See Complainant’s Exhibit 4. 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.” A.R.S. § 32-1156.01 Restitution. After a hearing pursuant to this article, an administrative law judge may recommend that a licensee provide restitution to any person who is injured or whose property is damaged by an action of the licensee. Done this day, December 6, 2017.

/s/ Linda Marie Brown Administrative Law Judge

Transmitted electronically to: Jeffrey Fleetham, Director Registrar of Contractors