ALJDEC decisions subject to certification as final

2017A-5277-RFA-ROC · Registrar of Contractors · 2018-10-30

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: October 19, 2018, at 1:00 p.m. APPEARANCES: Travis Scott Ackermann (“Complainant”) appeared on his own behalf; Anything Masonry Inc. (“Respondent”) appeared through Kelly Mack Johnson, its Officer/Qualifying Party; the Arizona Registrar of Contractors (“the Registrar”) was represented by Thomas Raine, Esq., Assistant Attorney General. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT 1. On July 12, 2018, the Registrar issued a Notice and Order of Denial of Recovery Fund Claim from the Residential Contractors’ Recovery Fund (“the Fund”), notifying the parties that “[a]fter a review of the claim and all supporting documentation, the Fund determined that Complainant is denied payment from the Fund” because he had not incurred any actual damages.[1] 2. After Complainant requested a hearing on whether his claimed damages supported a payout from the Fund, the Registrar referred Complainant’s claim to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. 3. A hearing on the merits of was held on October 19, 2018. The Registrar presented the testimony of Jessica Ortiz, a Claims Reviewer in the Registrar’s Legal Department/Fund who had analyzed Complainant’s claim, and submitted two exhibits. Complainant testified on his own behalf and submitted one exhibit. Background: The Underlying Workmanship Complaint 4. On or about September 7, 2011, the Registrar issued License No. ROC273626 for specialty dual CR-31 masonry to Respondent 5. On or about October 18, 2017, Complainant filed a complaint with the Registrar against Respondent alleging poor work. The Registrar’s Investigator Stephen Lawton investigated the complaint. On January 8, 2018, the Registrar issued a citation which resulted in the suspension of Respondent’s license on May 25, 2018.[2] Complainant’s Claim to the Fund 6. On or about June 6, 2018, Complainant filed a claim with the Fund to recover the damages that were caused by Respondent’s poor work at Complainant’s residence at 9007 S. 220th Drive, Buckeye, Arizona 85326, requesting a payout in the amount of $28,319.00.[3] 7. With his claim to the Fund, Complainant submitted Respondent’s August 13, 2017 proposal to install a 60 lineal foot retaining wall and 250 lineal feet of 44” to 48” high masonry view fence for $10,350.00. The proposal was addressed to Complainant personally.[4] 8. With his claim to the Fund, Complainant also submitted a Warranty Deed that showed that he and his wife, Elizabeth Nichole Ackermann, had purchased the property on 9007 S. 220th Drive.[5] 9. With his claim to the Fund, Complainant finally submitted five checks made payable to Respondent that he had signed in the following amounts: (1) Check no. 1256, dated August 14, 2017, in the amount of $3,000.00; (2) Check no. 1259, dated August 17, 2017, in the amount of $2,000.00; (3) Check no. 1261, dated August 30, 2017, in the amount of $2,000.00; (4) Check no. 1267, dated September 11, 2017, in the amount of $1,500.00; and (5) Check no. 1270, dated September 16, 2017, in the amount of $3,650.00.[6] 10. All of the checks were drawn on the account of Ackermann Express LLC. The memo line on the August 14, 2017 check was “deposit”; the memo line on all the other checks was “Office Expenses (Business)” and “Business Fundamentals: SECURITY BRICK WORK.”[7] 11. Ms. Ortiz reviewed the claim. Ms. Ortiz testified that she confirmed with the Maricopa County Recorder and Assessor that Complainant owned the property where the work was performed and that it was classified as Class 3 property. 12. Ms. Ortiz testified that although Complainant was a “person injured,” because Complainant had not personally paid Respondent to perform the work, he did not sustain any damages. 13. Complainant submitted a printout from the Arizona Corporation Commission that showed that he was the statutory agent, organizer, managing member, and the only person associated with Ackermann Express LLC.[8] Complainant’s business is that he is a truck driver. He does not have any employees and owns only one truck. 14. Ms. Ortiz acknowledged that if Complainant had transferred money out of his business account into his personal account and had written checks to Respondent from his personal account, the Registrar would have made a payout to Complainant. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[9] Complainant bears the burden to establish that he is eligible to receive a payout from the Fund by a preponderance of the evidence.[10] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[11] 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.”[12] A.R.S. § 32-1131(3)(a) defines an “injured person” who may be entitled to a payout from the Fund as follows: “Person injured":

(a) Means any owner of residential real property that is either noncommercial historic property as defined in section 42-12101 or classified as class three property under section 42-12003. The property must also be actually occupied or intended to be occupied by the owner as a residence including community property, tenants in common or joint tenants who are damaged by the failure of a residential contractor or a dual licensed contractor to adequately build or improve a residential structure or appurtenance on that real property.

Under this statute, to be eligible for a Fund payout, at the time the contract was made or the injury accrued, the claimant must own the residential property, the property must be classified a Class 3 property, and the claimant must have occupied, or intended to occupy the property as a residence.[13] The fourth criteria is that the residential contractor’s license must have been in good standing when the contract was executed. Complainant is potentially a person who has been injured by Respondent’s proven statutory violations because he meets all four criteria. A.R.S. § 32-1132(A) provides in relevant part as follows: The residential contractors' recovery fund is established, to be administered by the registrar, from which any person injured by an act, representation, transaction or conduct of a residential contractor licensed pursuant to this chapter that is in violation of this chapter or the rules adopted pursuant to this chapter may be awarded in the county where the violation occurred an amount of not more than thirty thousand dollars for damages sustained by the act, representation, transaction or conduct. An award from the fund is limited to the actual damages suffered by the claimant as a direct result of the contractor's violation but shall not exceed an amount necessary to complete or repair a residential structure or appurtenance within residential property lines. . . .

(Emphasis added.) For the purposes of A.R.S. § 32-1132(A), “actual damages” are the actual cost that the eligible person will have to spend to correct the contractor’s defective work and complete the project, minus any portion of the contract price still unpaid to the original contractor.[14] Although Complainant signed the contract, his business, Ackermann Express LLC, paid Respondent. In Arizona, “[p]roof of the fact of damages must be of a higher order than proof of the amount of damages.”[15] A legitimate purpose of incorporation is to avoid personal liability for business debts.[16] Generally, a corporation will be treated as a separate legal entity and will not be disregarded unless the corporation is shown to be the alter ego or business conduit and observance of the corporate form would work an injustice.[17] It appears that Complainant may have paid Respondent out of his business’s bank account because he intended to deduct the cost of the fence from his taxes as a business expense. The Registrar owes a fiduciary duty to manage the Fund for the benefit of all eligible homeowners who have suffered actual damages caused by a licensed contractor’s statutory violations.[18] Before authorizing a payout, the Registrar must have conclusive proof that the claimant not only is potentially eligible, but that the claimant has incurred actual, compensable damages. Complainant’s business’s tax liability is a matter that does not concern the Registrar. But Complainant cannot have it both ways: He cannot have sustained damages for purposes of a payout from the Fund if his corporation, which is a separate legal entity, paid Respondent. Because Complainant did not personally pay Respondent, he has not sustained any damages on account of Respondent’s statutory violations. RECOMMENDED ORDER In view of the foregoing, it is recommended that on the effective date of the final order in this matter, the Registrar’s denial of Complainant Travis Scott Ackermann’s claim to the Fund shall be affirmed and Complainant’s appeal of the Registrar’s denial 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, October 30, 2018.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director Registrar of Contractors ----------------------- [1] See the Registrar’s Exhibit 1. [2] See id. [3] See the Registrar’s Exhibit 2. [4] See id. at 4. [5] See id. at 10-13, [6] See id. at 11-15. [7] Id. at 15 and at 11-14. [8] See Complainant’s Exhibit A. [9][10][11] See 32-1101 et seq. [12] See 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). [13] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [14] Black’s Law Dictionary at page 1220 (8th ed. 1999). [15] See McMurren v. J.M.C. Builder, Inc., 204 Ariz. 345 (App. 2003). [16] See Ramsey v. Arizona Registrar of Contractors, 241 Ariz. 102, 106, 384 P.3d 316, 320 (App. 2016). [17] Coury Bros. Ranches, Inc. v. Ellsworth, 103 Ariz. 515, 521 (1968) (citations omitted). [18] See Dietel v. Day, 16 Ariz. App. 206, 208 (1972). [19] See id. [20] A.R.S. § 32-1134(A) provides in relevant part as follows: A. The registrar shall: . . . . 2. Cause an examination of the fund to be made every three years by an independent certified public accountant. 3. File with the department of insurance an annual statement of the condition of the fund. . . . . 5. Employ or contract with individuals and procure equipment and operational support, to be paid from or purchased with monies in the fund, but not to exceed in any fiscal year fourteen per cent of the total amount deposited in the fund in the prior fiscal year as may be necessary to monitor, process or oppose claims filed by injured persons which may result in collection from the recovery fund.

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Office of Administrative Hearings 1740 West Adams Street, Lower Level Phoenix, Arizona 85007 (602) 542-9826