ALJDEC decisions subject to certification as final

2017A-5607-RFA-ROC · Registrar of Contractors · 2018-10-22

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: October 11, 2018, at 8:30 a.m. APPEARANCES: Franklin Holzer appeared on his own and his wife Myra Holzer’s (“Complainants’”) behalf; Bathroom Transformations LLC (“Respondent”) failed to appear; the Arizona Registrar of Contractors (“the Registrar”) was represented by John Tellier, Esq., Assistant Attorney General. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT 1. On July 17, 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 Complainants are denied payment from the Fund” because they had not incurred any actual damages.[1] 2. After Complainants requested a hearing on their claimed damages to support a payout from the Fund, the Registrar referred Complainants’ claim to the Office of Administrative Hearings (“OAH”), an independent state agency, for an evidentiary hearing. 3. Before the hearing, Respondent’s attorney filed a Notice of No Objection to Recovery Fund Payout, also indicating that it did not intend to appear at the scheduled administrative hearing. 4. A hearing on the merits of was held on October 11, 2018, before the OAH. The Registrar presented the testimony of Marlee McCormick, a Legal Assistant in the Registrar’s Legal Department/Fund who had analyzed Complainants’ claim, and submitted eleven exhibits. Complainant Dr. Holzer testified on his own and his wife’s behalf and submitted one exhibit. Background: The Underlying Workmanship Complaint 5. On or about October 15, 2010, the Registrar issued License No. ROC205455 for general residential contracting to Respondent 6. On or about November 7, 2017, Complainant filed a complaint with the Registrar against Respondent alleging that it had abandoned its contract to install a walk-in bathtub and Complainants’ residence at 5631 East Sharon Drive, Scottsdale, Arizona 85254, after Complainants paid $2,976.00.[2] 7. On May 11, 2018, the Registrar issued a Final Administrative Decision and Order, finding that under A.R.S. § 32-1155(A), by failing to file a written answer to the Citation, Respondent had admitted the violations of A.R.S. § 32-1154(A)(1) and A.R.S. § 32-1154(A)(3), namely A.A.C. R4- 9-108, charged in the Citation. As a result, the Registrar revoked Respondent’s license.[3] Complainants’ Claim to the Fund 8. On or about May 29, 2018, Complainants submitted a claim to the Fund to recover the damages that were allegedly caused by Respondent’s abandonment of the contract, requesting a payout in the amount of $5,952.55.[4] 9. Complainants submitted certain documents with their claim to the Fund and the Registrar obtained other documents from the Maricopa County Recorder’s Office. 10. Ms. McCormick reviewed the claim. Ms. McCormick determined that Complainants had owned the property at 5631 East Sharon Drive, Scottsdale, Arizona 85254 since January 2009[5] and that the property was Class 3 because it was Complainants’ primary residence.[6] 11. Ms. McCormick determined that Respondent had contracted to perform certain work in Complainants’ bathroom for $5,952.55, but that Complainants’ son and daughter-in-law, Jonathan and Yvonne Holzer, had signed the contract.[7] 12. Ms. McCormick also determined that Jonathan Holzer, issued a check dated September 30, 2017, made payable to Respondent drawn on his personal account in the amount of $2,976.00. Jonathan Holzer’s printed address on the check to Respondent was 8000 West Drive, Apt. 828, North Bay Village, Florida 33141-5795.[8] 13. Ms. McCormick also determined that the estimate from Details Remodeling LLC, License No. ROC290351 for completing the job that Complainants submitted with their claim to the Fund were addressed to Jon Holzer and Yvonne Marchand.[9] 14. Ms. McCormick also determined that Jonathan Holzer had made two payments in November 2017, to Details Remodeling LLC to perform the bathroom remodeling on his personal account with the address in Florida.[10] 15. The Registrar submitted an email from Jonathan Holzer dated July 13, 2018, to the Registrar’s Fund employee “looking for an estimated time- frame regarding the approval and issuance of my reimbursement check.”[11] 16. Dr. Holzer testified that he and his wife were both 80 years old. In 2016, his son Jonathan began urging Dr. Holzer and his wife to make alterations to make their bathrooms safer. Dr. Holzer told his son that the cost of bathroom renovations was an expense that he could not afford because he did not have the cash on hand to make a lump-sum payment to a contractor. 17. Dr. Holzer testified that in 2017, he wife underwent a total knee replacement and had to stay with his son and daughter-in-law for part of her convalescence because they had a bathroom that was more accessible. 18. Dr. Holzer testified that his son and daughter-in-law are in construction and that they suggested that they would pay for a bathroom renovation that would allow Dr. Holzer’s wife to come home. Dr. Holzer testified that Jonathan and Yvonne agreed that Dr. Holzer could reimburse the cost of the renovation when his cash flow improved. 19. Dr. Holzer explained that he and his wife have a reverse mortgage and live on Social Security. Dr. Holzer testified that he has started a medical consulting business that currently provides one day’s work a week. Dr. Holzer expects the medical consulting business to pick up and when it does, he will begin paying his son and daughter-in-law back for the bathroom renovation. Instead of owing his son and daughter-in- law $5,904.44 for the walk-in bathtub, however, because Respondent took money then abandoned the project, Dr. Holzer owes $8,881.44 ($5,905.44 + $2,976.00). 20. Dr. Holzer acknowledged that there was no written contract between him and his son in which he promised to repay any money or containing terms of payment. Dr. Holzer acknowledged that he had not yet repaid any monies for the bathroom remodel to his son and daughter-in-law. Dr. Holzer testified that upon his and his wife’s deaths, Jonathan and his wife will inherit the property. 21. Dr. Holzer testified that he had a moral obligation to repay the money because he was the father and that he fully intended to repay his son and daughter-in-law. Dr. Holzer testified that if the Registrar issues a check for a payout from the Fund to him and his wife, he will endorse it over to his son and daughter-in-law. 22. Dr. Holzer acknowledged that when his children went to college, he paid for their tuition, books, and living expenses and that when they were starting out in their careers, he provided money to help them get established. Dr. Holzer testified that he never expected his children to repay him for these expenditures because that is what fathers are supposed to do. / / / / CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction.[12] Complainants bear the burden to establish that they are eligible to receive a payout from the Fund by a preponderance of the evidence.[13] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[14] 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.”[15] A.R.S. § 32-1131(3)(a) defines an “injured person” who is 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.[16] The fourth criteria is that the residential contractor’s license must have been in good standing when the contract was executed. Complainants are potentially persons who have been injured by Respondent’s statutory violations because they meet all four criteria. Jonathan Holzer is not an injured person as defined by A.R.S. § 32-1131(3) because he did not own the property and did not occupy or intend to occupy the property as his primary residence at the times the contract was made or when Respondent abandoned the contract. 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 spent to correct the contractor’s defective work and complete the project, minus any portion of the contract price still unpaid to the original contractor.[17] In the case of abandonment, “[i]f the claimant has paid a deposit or down payment and no actual work is performed or materials are delivered, the award of actual damages shall not exceed the exact dollar amount of the deposit or down payment plus interest at the rate of ten per cent a year from the date the deposit or down payment is made or not more than thirty thousand dollars, whichever is less.”[18] Complainants did not sign the contract, did not pay the deposit to Respondent, and did not pay another contractor to complete the job that Respondent abandoned. Instead, Complainants’ son Jonathan and his wife did all these things. Dr. Holzer testified that although he feels that he has a moral obligation to repay his son, he acknowledged that he has not signed any written agreement to make repayment, has not agreed to any terms, and has not actually paid anything to Jonathan. In Arizona, “[p]roof of the fact of damages must be of a higher order than proof of the amount of damages.”[19] The absence of a writing means that Jonathan cannot legally enforce Complainants’ moral obligation, which means that Dr. Holzer’s claimed moral obligation as a basis for damages is speculative.[20] Complainants have not established that they suffered any actual damages under Arizona law. 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.[21] 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. Such proof is lacking in this case. 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 Complainants Franklin and Myra Holzer’s claim to the Fund shall be affirmed and Complainants’ 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 22, 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 the Registrar’s Exhibit 2. [3] See the Registrar’s Exhibit 3. [4] See the Registrar’s Exhibit 4. [5] See the Registrar’s Exhibit 5 (Warranty Deed). [6] See the Registrar’s Exhibit 6. [7] See the Registrar’s Exhibit 7. [8] See the Registrar’s Exhibit 8. [9] See the Registrar’s Exhibit 9. [10] See the Registrar’s Exhibit 10. [11] The Registrar’s Exhibit 11. [12] See 32-1101 et seq. [13] 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). [14] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [15] Black’s Law Dictionary at page 1220 (8th ed. 1999). [16] See McMurren v. J.M.C. Builder, Inc., 204 Ariz. 345 (App. 2003). [17] See Ramsey v. Arizona Registrar of Contractors, 241 Ariz. 102, 106, 384 P.3d 316, 320 (App. 2016). [18] A.R.S. § 32-1132(A). [19] Coury Bros. Ranches, Inc. v. Ellsworth, 103 Ariz. 515, 521 (1968) (citations omitted). [20] See, e.g., Lewin v. Miller Wagner & Co. Ltd., 151 Ariz. 29, 34 (App. 1986). In that case, the Court of Appeals held that the plaintiff did not establish that his accountants poor advice that could cause him tax liability was actionable because he failed to establish actual damages: In the present case, the Lewins proved with reasonable certainty the amount of damages they would sustain if the Internal Revenue Service disallowed the straddle losses. Despite defendants’ arguments to the contrary, we also find sufficient evidence from which the defendants could be found liable for these damages if they were to occur. We find, however, that the fact of the damages occurring was not shown with sufficient certainty to allow the jury to award damages for such a possible future occurrence. . . . Id. [21] 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