ALJDEC decisions subject to certification as final

2017A-4300-CHC-ROC · Registrar of Contractors · 2018-01-30

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Christophe Poinot,

COMPLAINANT,

v.

Bjelde Construction LLC ,

License No. KB-1.260364-D,

RESPONDENT.

No. 2017A-4300-CHC-ROC

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: January 9, 2018, at 8:30 a.m. and January 18, 2018, at 8:30 a.m.

APPEARANCES: Christophe Poinot (“Complainant”) was represented by Robert Hosea Willis, Esq., Burdman Willis PLLC; Bjelde Construction LLC (“Respondent”) was represented by Robert S. Porter, Esq., Porter Law Firm.

ADMINISTRATIVE LAW JUDGE: Diane Mihalsky

_____________________________________________________________________

FINDINGS OF FACT

Background and Procedure

According to the Arizona Registrar of Contractors’ (“the Registrar’s”) public website, on December 31, 2009, the Registrar issued License No. KB-1.260364-D for dual building contracting to Respondent.

On August 22, 2017, Complainant filed a complaint with the Registrar, alleging that Respondent had abandoned its contract to remodel Complainant’s house at 4646 East Glenrosa Avenue, Phoenix, Arizona 85018. According to the complaint, Respondent had started the project on December 19, 2016, and had stopped work on the project on June 29, 2017.

According to the complaint, Complainant had paid Respondent $218,000, even though the contract was only for $168,985, Respondent had not issued any written change orders to change scope of work or contract amount, the electrical contractor had demanded $35,000 to complete the electrical, and Respondent stated that it would take another $110,000 to complete the project.

The complaint was assigned to the Registrar’s Investigator Matt Gunstra for investigation. On September 28, 2017, Investigator Gunstra performed a jobsite inspection. On October 2, 2017, Investigator Gunstra on behalf of the Registrar issued a Directive that required Respondent to “complete the project per original contract agreement, properly executed change orders, and/or verbal agreements” on or before October 18, 2017, at 5:00 p.m.

On November 3, 2017, the Registrar issued a Citation against Respondent’s contractor’s license, charging cause to suspend or revoke the license under A.R.S. §§ 32-1154(A)(1) and 32-1154(A)(22). The Citation did not charge a violation of A.R.S. §§ 32-1154(A)(12) or 32-1158(B).

Respondent’s attorney filed a timely written answer to the Citation, denying any statutory violation because Complainant and his representatives had orally agreed to increase the scope of work and contract price, but Complainant was unable to obtain financing to complete the project. The written answer alleged further that when Respondent attempted to comply with the Directive, Complainant refused to allow Respondent entry or to sign any change order or to select stain color.

The Registrar referred the matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing.

A hearing was held on January 9, 2018, and January 18, 2018. Complainant submitted 16 exhibits, testified on his own behalf, and, on rebuttal, presented the testimony of Kim Kunasek and Rizal Oei, the principals of Oei Design, whom Complainant had hired to prepare options for the remodel and who referred Complainant to Respondent. Respondent submitted nine exhibits and presented the testimony of four witnesses: (1) Lyle Nils Bjelde, Respondent’s managing member and qualifying party; (2) Mark Weber, Respondent’s project manager on the project between January and March 2017, who continued to work on the project until May 2017; (3) Rob Irwin, a journeyman electrician employed by Rogoz Electrical, who worked on the project; and (4) Wilfred Godinez, Respondent’s project manager on the project between March and June 2017. Investigator Gunstra also testified.

Additional Hearing Evidence

Complainant is a U.S. citizen who emigrated from France. The property on East Glenrosa is a modest approximately 1,400 square foot residence that was built in the early 1950’s. Since the house was built, prior owners have made various changes and additions, including an Arizona room/family room on the back of the residence.

Complainant hired Oei Design to prepare design options to remodel the house. Oei Design prepared five options to remodel the residence by turning the Arizona room/ family room into a master suite and relocating the kitchen and dining room. None of the options involved increasing the size of the house or changing the two bedrooms and living room.

Oei Design’s principals have worked with Respondent in the past. Oei Design referred Complainant to several contractors, including Respondent. Complainant testified that he chose Oei Design’s option 5 and obtained bids from contractors based on that option. Complainant chose Respondent to perform the remodeling project. Later, when the walls to the Arizona room/family room turned out to be unstable, Complainant chose option 1.

On or about November 4, 2016, Complainant paid $1,450.00 to LNB Enterprises, a drafting firm associated with Respondent, to prepare plans to submit to the City of Phoenix to obtain a permit.

On or about November 16, 2016, Complainant signed Respondent’s proposal to complete the remodeling project. The contract included cost breakdowns for 37 specific construction costs. The contract also included the following terms:

b. All amenities to be chosen by [Complainant] and [Respondent].

c. [Complainant] and [Respondent] shall work together to create lists of amenities and all interior/exterior finishes.

. . . .

Draws will need to be discussed and agreed upon prior to demolition.

All changes and/or extras shall be discussed, written up on an extra work order, and paid for prior to work performed.

The contract included the additional term:

Allowances may or may not be a part of this contract. Allowances function such that the stated dollar amount is the amount factored into the contract. If [Complainant] does not utilize the full amount of the allowance, the difference will be refunded to [Complainant] along with applicable taxes and markup. If the Buyer utilizes more than the allowance amount, the overage will be billed to the Buyer along with applicable taxes and markup.

The contract did not refer specifically to the cost for labor time or materials, explain any additional costs for Respondent’s supervision, or explain the bases for the stated allowances.

The contract included an estimated project cost of $168,985 based on the allowances, which totaled $133,585.00, including $9,000.00 for supervision. The last page of the contract explained the contract price as follows: (1) $133,585.00 in “hard costs” for the allowances; (2) $20,037.75 for overhead; and (3) $15,362.28 for profits. The contract did not contain any formula for calculating supervision, overhead, and profits and did not contain any amounts for taxes.

Although the contract required Complainant to pay Respondent a $20,000.00 retainer, it did not include a draw schedule. No agreed draw schedule was submitted at the hearing. On November 16, 2016, Complainant issued a $20,000.00 check to Respondent for the retainer.

Complainant lived in the two bedrooms and living room, the portion of the house that would not be substantially remodeled, during demolition and construction of the kitchen, dining room, and master suite.

On December 14, 2016, Complainant issued a check in the amount of $47,315.80. Complainant testified that the payment was for Respondent to start the job.

Respondent performed demolition in December 2016, and January 2017.

On or about February 7, 2017, the City of Phoenix issued a permit for the remodeling project. Respondent started construction shortly thereafter.

Originally, the air conditioner and possibly other appliances were gas. On March 20, 2017, Complainant wrote a check to Southwest Gas in the amount of $1,762.42 to move the gas meter. Complainant eventually decided to abandon the gas service and the meter was capped. There are currently no gas appliances in the house.

On March 23, 2017, Complainant issued a check in the amount of $25,000 to Respondent. Complainant testified that the check was for half the $50,000 that Respondent had requested, but that he did not recall the reason for the request.

On March 29, 2017, Complainant issued a check in the amount of $75,000 to Respondent. The record does not reveal why Complainant made this payment. Complainant testified that although Respondent never said that the job would exceed the contract price of $168,985, after he paid the $75,000, he had paid Respondent just under the contract amount and the project was still not substantially complete.

On May 3, 2017, Respondent provided a spreadsheet to Complainant that showed the actual cost of construction was $236,278.42, or approximately $50,000 over the contract price. On May 8, 2017, Complainant issued a check in the amount of $25,000.00 to Respondent. On June 2, 2017, Complainant issued another check in the amount of $25,000 to Respondent.

On June 29, 2017, Respondent provided another spreadsheet to Complainant that showed the actual cost of construction was $254,654.94, and that Complainant owed an additional $35,889.14 for the project. On June 29, 2017, Respondent also issued a document entitled “Poinot Costing” that showed Complainant would have to pay $110,814.70 for Respondent to complete the job.

Complainant testified that he did not understand these documents, even though he had several meetings with Respondent to discuss them. On or about August 16, 2017, Respondent corrected the June 29, 2017 spreadsheet for a revised total of $257,731.35. Complainant refused to pay Respondent any more for the job and Respondent stopped working on the project. As noted above, Complainant filed the complaint with the Registrar on August 22, 2017.

After Investigator Gunstra issued the Directive, on October 30 and 31, 2017, Respondent brought five change orders to Complainant for his signature. Complainant testified that all the work on the change orders had already been completed, with the exception of the floor staining, which he understood was covered by the $5,000 flooring allowance, and that Respondent had never discussed and he had never agreed to additional costs for these items.

Complainant refused to sign the change orders. Respondent did not comply with the Directive. Respondent did not submit any evidence that Complainant had refused access to the house to allow Respondent to complete the project.

Complainant pointed out that Respondent’s spreadsheets did not include credits for work that Respondent did not perform, such as the metal eaves that were included as a $20,000 cost allowance that were replaced with stucco.

Mr. Bjelde testified that Respondent’s contract price was based on time and materials. Mr. Bjelde testified that Complainant requested numerous upgrades to construction and that he or his supervisors discussed Complainant’s requests and the costs of such requests with him and obtained either Complainant’s oral approval or the oral approval of Oei Design’s principals, whom Mr. Bjelde understood were authorized to approve changes on Complainant’s behalf.

Ms. Kunasek testified that she was not authorized to and did not approve changes or additional costs on Complainant’s behalf. Mr. Oei testified that he was not authorized to and did not approve changes or additional costs on Complainant’s behalf.

Complainant submitted Ms. Kunasek’s typewritten notes of her conversations and meetings with Mr. Bjelde and Complainant in November 2016, which showed many items of construction were “to be determined.” Ms. Kunasek testified that her only role on the project was as design consultant. Ms. Kunasek acknowledged that Respondent agreed to pay Oei Design a 3% referral fee.

Mr. Bjelde testified that originally, the parties had planned to keep the old 3.5 ton gas unit, but after it was determined to be undersized, Respondent installed a brand-new 5 ton unit, which cost more than $20,000.

Mr. Bjelde testified that although the window allowance was only $3,200, Complainant requested higher end windows, French doors, and barn doors, which collectively cost $21,000. Mr. Bjelde testified that Respondent had not intended to install new windows in the old part of the house, where Complainant was living and which was not part of the remodeling project. Respondent also ended up salvaging an original window that was installed in the office, increasing the cost of the windows.

Mr. Weber testified that Complainant approved the window upgrade while he was the supervisor on the job.

Ms. Kunasek testified that she thought the $3,200 allowance for the windows in the parties’ contract was unrealistic.

Mr. Bjelde testified that originally, Respondent planned only to take out and re-pour the driveway from the alley to the existing slab. Mr. Bjelde testified that Respondent ended up taking out the front driveway and the slab under the carport.

Mr. Bjelde testified that that Respondent intended to saw-cut the slab outside the kitchen and pour concrete over the existing slab, but Respondent learned during demo that there was inferior plumbing under the slab. Mr. Bjelde testified that Respondent was forced to replace the plumbing and re-pour the whole slab.

Mr. Bjelde testified that Complainant also requested an underground electric service line to the house, which the original contract did not contemplate, and that Complainant requested additional fixtures and outlets throughout the house. In addition, Respondent with Complainant’s consent took out the wall that originally had the electric service on it, increasing the cost of upgrading the service.

Mr. Bjelde testified that Complainant also requested an electric car charging outlet, which was not on the original contract.

Mr. Bjelde testified that Respondent incurred other additional costs keeping the existing gas hot water heater and electrical service functioning so that Complainant could continue to live in the house while Respondent upgraded these items.

Mr. Bjelde testified that when Respondent started working on the Arizona room/family room, the walls could not be salvaged and had to be rebuilt, at an additional cost.

Respondent submitted 19 unsigned change ordered dated April 22, 2017, May 2, 2017, or May 16, 2017 for various work. Some of the change orders showed the number of hours to perform the work, but not the hourly rate or the cost of materials. Mr. Bjelde testified that Complainant refused to sign the change orders.

Mr. Weber testified that Complainant should not have been charged $600 for altering trusses, which was shown on one of the change orders, because that was the truss manufacturer’s responsibility.

Mr. Irwin testified that he installed lighting on the deck and two switches for the lighting that were not on the plans because lack of lighting would have presented a safety issue. He later provided pricing information to Wilfred Godinez, Respondent’s project manager at the time.

Mr. Irwin testified that he also installed the circuits for the water heater, and, at Complainant’s request, reading lights on both sides of where the bed would be in the master suite, additional lights in the kitchen, and dimmers for some of the lights. Mr. Irwin testified that if he knew the price of additional work, he would state the price while Complainant was present, but if he did not know the price, he would later provide the price to Mr. Godinez. Mr. Irwin testified that Rogoz charges $100/hour for his time.

Respondent submitted its final spreadsheet, which showed two charges of $4,600.00 for the service panel and rough wiring, and that the actual cost of the service panel was $4,600, but that rough wiring cost $7,655. Respondent also submitted two change orders dated October 31, 2017 for increased electrical costs due to the car charger, additional lights, and the deck. Mr. Irwin confirmed the higher costs for changes to electrical work.

Mr. Godinez testified that Mr. Irwin provided cost information for additional lighting in the kitchen while Mr. Godinez was walking the job with Mr. Irwin and Complainant. Mr. Godinez testified that Complainant orally approved the additional cost. Mr. Godinez testified that at that time, Mr. Irwin did not have cost information for the lights on the decking.

Mr. Godinez testified that when he started acting as Respondent’s project manager, he noticed that work done on the house deviated from plans. Mr. Godinez testified that he was sure that Respondent told Complainant about additional costs. Mr. Godinez testified that any changes that Complainant requested would have shown as redlines on the plans that were on site and available to Complainant.

Mr. Godinez testified that he prepared the change orders that Respondent presented to Complainant after the Directive was issued. Mr. Godinez testified that he did not prepare the change orders while Respondent was working on the project because the contract was for time and materials and Respondent did not know the subcontractors’ prices at the time. Mr. Godinez testified that, in addition, he did not obtain a signed change order because the project protocol followed by the previous project manager was verbal change orders.

Mr. Godinez testified that he also wrote most of the change orders dated between April 22, 2017, and May 16, 2017, while Respondent was still working on the project. Mr. Godinez testified that the change orders were prepared after the work was approved and completed. Mr. Godinez testified that Complainant specifically authorized some of the work.

Mr. Godinez testified that he started writing change orders after he saw Complainant’s hesitation when he was asked to approve ballpark figures for the changes he requested. Mr. Godinez testified that Complainant later started claiming that he did not recall Mr. Godinez telling him about price increases.

Mr. Godinez acknowledged that the work described on at least five of the change orders had not been performed, but insisted that Complainant had authorized the work.

Investigator Gunstra testified that at the jobsite inspection, when he saw that the job was incomplete, he asked Respondent’s representative why Respondent had stopped work. Mr. Gunstra testified that Respondent’s representative stated that there was a financial disagreement.

Investigator Gunstra asked if the parties’ contract included a payment schedule and Respondent stated that it did not. Investigator Gunstra noted that the contract did not explain the allowances and that there were no signed change orders for the additional work. Investigator Gunstra testified that the absence of a pay schedule, the ambiguous allowances, and the lack of signed change orders indicated a possible abandonment and that he issued the Directive to allow Respondent an opportunity to complete the job. Investigator Gunstra testified the he referred the matter to the Registrar’s Legal Department after the Directive was issued, when Complainant said that Respondent had presented change orders but had not performed any work to complete the project.

Complainant estimated that the project was approximately 60% complete. Complainant acknowledged that he attempted to refinance his house to get more money for the job and that Respondent attempted to help him get financing for the project. Complainant explained that he has taken out three short-term loans to pay Respondent, but that he cannot refinance his house until the remodeling project is complete.

Pursuant to A.A.C. R4-9-117, administrative notice is taken of Respondent’s license file as shown on the Registrar’s public website on this date. Respondent’s contractor’s license is current and in good standing. No prior discipline is shown.

CONCLUSIONS OF LAW

This matter lies within the Registrar’s jurisdiction.

Complainant bears the burden of proof to establish cause to discipline Respondent’s contractor’s license by a preponderance of the evidence. Respondent bears the burden to establish 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.”

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.” (Emphasis added). Respondent did not dispute that it refused to perform additional work on the project unless Complainant agreed to pay additional monies.

Therefore, the only matter in dispute is whether Complainant’s refusal to pay Respondent additional monies constitutes a legal excuse for Respondent’s refusal to complete the project. This is an affirmative defense that Respondent bears the burden to establish.

Respondent’s contract did not include a description of the work to be performed or a payment schedule. Respondent’s contract did not say it was based on time and materials, did not explain the bases of the amount of allowances, and did not apprise Complainant of the method that Respondent would use in calculating additional costs. The record does not contain any evidence of Respondent’s actual costs for subcontractors and or materials and it appears that Respondent may be attempting to charge Complainant for excessive or duplicative claimed costs for supervision, profit, and overhead.

The Administrative Law Judge cannot discern the bases of the costs claimed in Respondent’s change orders, which Complainant declined to sign, and spreadsheets. Although it appears that Respondent performed and Complainant witnessed some substantial upgrades to such scope of work as the contract seemed to contemplate, such as the HVAC unit and the windows, Respondent acknowledged that it did not complete the project and that work still remained to be performed under its understanding of the original scope of work. Under the contract, these amounts should have been deducted from any amount owed, but Respondent’s spreadsheets do not apparently show such deductions.

On this record, the Administrative Law Judge is not able to determine whether Complainant owes Respondent money or Respondent owes Complainant money. Therefore, Respondent did not carry its burden to prove that Complainant’s refusal to pay more than the $218,000 for the original $168,985 contract legally justifies Respondent’s refusal to perform any additional work on the project. Therefore, Complainant has established cause to suspend or revoke Respondent’s contractor’s license under A.R.S. § 32-1154(A)(1).

Because Complainant established that Respondent failed to take appropriate corrective action to comply with the Directive that was issued in this case, Complainant also established cause to suspend or revoke Respondent’s contractor’s license under A.R.S. § 32-1154(A)(22).

RECOMMENDED ORDER

Based on the foregoing, it is recommended that on the effective date of the final order in this matter, Respondent Bjelde Construction LLC’s License No. KB-1.260364-D shall be suspended for five (5) business days.

It is further recommended that the Registrar require Respondent to pay the sum of $500.00 as a civil penalty pursuant to A.R.S. § 32-1154(E).

It is further recommended that if Respondent fails to pay the entire amount of the civil penalty on or before thirty days following the effective date of the Registrar’s Order, the Registrar revoke Respondent’s license, effective on such deadline date. No future license shall be issued to any entity consisting of persons associated with Respondent, as defined in A.R.S. § 32-1101(A)(5), unless Respondent tenders payment of any outstanding prior civil penalty.

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, January 30, 2018.

/s/ Diane Mihalsky

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors