ALJDEC decisions subject to certification as final

2018A-04778-RFA-ROC · Registrar of Contractors · 2019-11-21

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: November 1, 2019 APPEARANCES: Sally A. Kokes on her own behalf; Cari Michele Chlarson for Respondent; John Tellier, Esq. for the Registrar of Contractors. ADMINISTRATIVE LAW JUDGE: Thomas Shedden FINDINGS OF FACT 1. On October 1, 2019 the Registrar of Contractors (“ROC”) issued a Notice of Recovery Fund Hearing setting the above captioned matter for hearing at the Office of Administrative Hearings on November 1, 2019. The Notice shows the issue as whether an award and payout from the residential contractors’ recovery fund pursuant to Ariz. Rev. Stat. section 32-1131 et seq. is justified by the evidence.[1] 2. Respondent Lil’ Painter Girl LLC holds license number 306349 issued by ROC. Cari Michele Chlarson is Respondent’s qualifying party. 3. Complainant is Sally A. Kokes. 4. Ms. Kokes appeared at the hearing and testified. Ms. Chlarson appeared and testified for Respondent. ROC presented the testimony of Flora Hayden, one of its Legal Assistants. 5. On December 5, 2018, ROC issued a Notice of Claim for Administrative Payout showing that Ms. Kokes would be awarded $30,000 in the form of a payout from the recovery fund unless either she or the Respondent requested a hearing to contest the amount or propriety of the payment. Respondent did request a hearing. 6. ROC’s involvement in the underlying dispute began on October 9, 2018, when Ms. Kokes filed with ROC an “Unlicensed Complaint Form” alleging that Steve McDaniel and Cari Charlson [sic] were unlicensed contractors who had performed work at 163 E. Via Chica in Huachuca City. 7. Ms. Kokes alleged abandonment and poor work on a project adding a room to a trailer. ROC has determined that Ms. Kokes’ trailer was a class 4 property, not class 3. 8. ROC investigated and issued to Respondent a Directive ordering it to remedy the ten workmanship violations as set out in that Directive. 9. On November 28, 2018, ROC issued a Citation that was served on Respondent with Ms. Kokes’ complaint. Respondent did not file a timely answer to the Citation as required by Ariz. Rev. Stat. section 32-1155(A). 10. Though a Final Administrative Decision and Order dated December 19, 2018, ROC found that pursuant to section 32- 1155(B), Respondent’s failure to timely answer was deemed an admission by the Respondent that it had committed the acts alleged in the complaint. 11. ROC concluded that Respondent had violated Ariz. Rev. Stat. sections 32-1154(A)(1), (A)(3), and (A)(22). Based on these proven violations ROC suspended Respondent’s license for one day. 12. On July 3, 2019, Ms. Kokes submitted to ROC a “Recovery Fund Claim” requesting a payout of $60,000 from the Fund. In her Claim Ms. Kokes “verified” that the original contract price for the work at issue was $30,000, that there were change- orders of $40,000, and that she had made payments of $13,850 to Respondent. The record shows that Ms. Kokes transposed the numbers and that she had actually written checks to Ms. Chloral totaling $13,580. 13. With her claim for a payout, Ms. Kokes included receipts for material she claimed was used to complete or repair the project. Ms. Kokes also included three bids or cost-to-repair estimates for work to finish the project. 14. Ms. Hayden prepared a spreadsheet with the information Ms. Kokes provided and that shows Ms. Hayden’s calculations of Ms. Kokes’ damages and her putative payout from the fund. The spreadsheet also shows that Ms. Kokes’ trailer was a class 4 property, not class 3. 15. Ms. Hayden verified that Ms. Kokes had written five checks to Ms. Chlarson with the total being $13,580. 16. Ms. Kokes’ actual damages are limited to the cost to comply with the Directive ROC issued to Respondent. Ms. Hayden evaluated the bids and receipts submitted by Ms. Kokes to determine whether these were compensable costs or expenses. 17. The three bids for repair Ms. Kokes submitted were for $62,400, $60,900, and $46,750. Ms. Hayden found that the low bid of $46,750 was for work to complete the project and was a compensable cost. 18. Ms. Hayden evaluated the receipts Ms. Kokes submitted with her claim and found that $17,213.94 were for were compensable expenses, but $7157.09 were not. 19. Ms. Hayden added the low bid of $46,750 to the $17,213.94 in material expenses, yielding gross damages of $63,963.94. 20. To get the actual damages, Ms. Hayden made an adjustment to account for the fact that Ms. Kokes had paid only $13,580, and not the entire cost of the project. 21. To make the required adjustment, the amount Ms. Kokes actually paid is deducted from the total cost of the project. The difference (or unpaid balance) is not damages suffered by Ms. Kokes. In this case the total cost of the project was $70,000 ($30,000 for the original contract plus $40,000 for the change order). 22. In making her calculations, Ms. Hayden did not account for the $40,000 change order. 23. Ms. Hayden subtracted the $13,580 that Ms. Kokes paid to Ms. Chloral from the $30,000 contract price, which results in an unpaid balance of $16,420. Because this unpaid balance is not damages suffered by Ms. Kokes, Ms. Hayden deducted the $16,420 from Ms. Kokes’ gross damages of $63,963.94, which results in $47,543.94, which Ms. Hayden considered to be Ms. Kokes’ actual damages. 24. Because the applicable statutes limit payouts from the recovery fund to $30,000, ROC determined that Ms. Kokes was entitled to a payout of $30,000 from the recovery fund. 25. But Ms. Kokes did not pay the $40,000 change order cost, and as with the $16,420 that she did not pay toward the original contract price, this $40,000 is not damages suffered by Ms. Kokes and must be deducted from Ms. Kokes’ gross damages to determine an accurate count of her actual damages. 26. When this $40,000 unpaid balance is deducted from ROC’s calculated actual damages of $47,543.94, Ms. Kokes’ actual damages are seen to be $7,543.94. 27. On September 10, 2019, ROC issued the Notice of Claim for Administrative Payout at issue. 28. Respondent requested a hearing as was its right, which led to this matter being conducted. 29. At the hearing, Ms. Chloral acknowledged that she received from Ms. Kokes checks totaling $13,580. 30. When asked to reconcile her receipt of these checks with her claim to the effect that she was not involved in the project, Ms. Chloral explained that Ms. Kokes was acting as her own general contractor and Ms. Chloral’s then boyfriend/roommate (Mr. McDaniel) was working for Ms. Kokes, but he did not have a bank account, so she took the checks for him. 31. Ms. Kokes acknowledged that the checks were intended for Mr. McDaniel, and she testified that she would not have written them to Ms. Chloral but for the fact that the two said they were married. When asked directly, Ms. Kokes acknowledged that she had hired unlicensed contractors to perform work at issue in this matter. She explained that this was because she did not know the Arizona rules regarding contractors. CONCLUSIONS OF LAW 1. Respondent has a right to a hearing contesting any proposed payment from the recovery fund before ROC may actually order that the payment be made. Ariz. Rev. Stat. § 32-1154(G);[2] see also Ariz. Rev. Stat. § 41-1001(5)(defining contested case). 2. Unless otherwise provided by law, the party asserting a claim, right, or entitlement has the burden of proof, and a party asserting an affirmative defense has the burden of establishing the affirmative defense. Ariz. Admin. Code § R2-19-119. 3. Because Ms. Kokes filed a claim asserting that she has a right or entitlement to a payout from the recovery fund, she bears the burden of proof to show that she meets the eligibility requirements for such a payout. Ariz. Admin. Code § R2-19-119; see also Harvest v. Craig, 195 Ariz. 521, ¶ 15 (App. 1999) (“it is generally held that a party seeking a right or benefit under a statute bears the burden of proving that he comes within the ambit of the statute”).[3] 4. The standard of proof on all issues in this matter is that of a preponderance of the evidence. Ariz. Admin. Code § R2-19-119. 5. A preponderance of the evidence is: The 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.

Black’s Law Dictionary 1373 (10th ed. 2014). 6. No statute is retroactive unless expressly declared therein. Ariz. Rev. Stat. § 1-244. 7. Statutes should be interpreted to provide a fair and sensible result. Gutierrez v. Industrial Commission of Arizona, 226 Ariz. 395, 249 P.3d 1095 (2011)(citation omitted); State v. McFall, 103 Ariz. 234, 238, 439 P.2d 805, 809 (1968) ("Courts will not place an absurd and unreasonable construction on statutes."). 8. “Statutes shall be liberally construed to effect their objects and to promote justice.” Ariz. Rev. Stat. § 1-211(B). 9. The purpose of the recovery fund is to provide improved protection for owners and lessees of property who contract for the construction or alteration of residential structures. McMurren v. JMC Builders, 204 Ariz. 345 (App. 2003). The legislature's intent in creating the recovery fund was to protect those who contract for residential construction by encouraging them to hire properly licensed residential contractors. Id. 10. If ROC orders that a payout be made from the recovery fund in this matter, Respondent’s license will be suspended as a matter of law. Ariz. Rev. Stat. § 32-1139(B). 11. “The assessments received by the registrar for deposit in the fund shall be held in trust for carrying out the purposes of the fund.” Ariz. Rev. Stat. § 32-1135. 12. “‘Person injured’ means “any owner of residential real property which is classified as class three property under [a section of the tax code] and which is actually occupied or intended to be occupied by the owner as a residence . . . who [is] damaged by the failure of a residential contractor . . . to adequately build or improve a residential structure or appurtenance on that real property.” McMurren at ¶ 8; Ariz. Rev. Stat. § 32-1131(3).

13. Any “person injured” by a licensed residential contractor’s violation of ROC’s statutes or rules may be awarded up to $30,000 from the residential recovery fund. But an “award from the fund is limited to the actual damages suffered by the claimant as a direct result of the contractor's violation ….” Ariz. Rev. Stat. § 32-1132(A). 14. “‘Actual damages’ … mean[s] the reasonable cost of completing the contract and repairing the contractor's defective performance ‘less the part of the contract price still unpaid.’” Ramsey v. Ariz. Registrar of Contractors, 241 Ariz. 102, ¶ 8 (App. 2016)(adopting ROC’s definition of actual damages). 15. The preponderance of the evidence shows that Ms. Kokes’ trailer is not a class three property, but rather is class 4. The preponderance of the evidence shows that Ms. Kokes is not a “person injured” within the meaning of the applicable statutes. 16. The preponderance of the evidence shows that Ms. Kokes was using unlicensed contractors for the work and that the checks she wrote to Ms. Chloral were actually for Mr. McDaniel. 17. ROC argued that whether Ms. Kokes had a contract with Respondent was determined during the underlying disciplinary hearing. Accepting that that determination is binding on Respondent, it is not binding on ROC which has a duty to properly administer the recovery fund, which is money held in trust. 18. The preponderance of the evidence shows that ROC’s calculation of Ms. Kokes’ actual damage was in error because it did not account for the unpaid change order of $40,000. The preponderance of the evidence shows that Ms. Kokes’ actual damages are $7543.94. 19. Considering the above, the preponderance of the evidence shows that Ms. Kokes does not meet the requirements for a payout from the recovery fund. RECOMMENDED ORDER IT IS ORDERED that Sally A. Kokes’ claim for a payout from the recovery fund is denied; IT IS FURTHER ORDERED that the Registrar’s September 10, 2019 Notice of Claim for Administrative Payout is rescinded. 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 40 days from the date of that certification. Done this day, November 21, 2019.

/s/ Thomas Shedden Thomas Shedden Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director Registrar of Contractors ----------------------- [1] The applicable statutes were modified in August 2019. The statutes in effect at the time of events at issue are applied in this matter. See Ariz. Rev. Stat. § 1-244. [2] This provision is now found at Ariz. Rev. Stat. section 32-1133.01(C). [3] During her opening statement, Ms. Chloral asserted that Ms. Kokes had the burden of proof and that she would not be able to meet it because she could not show that they had a contract. ROC objected, arguing to the effect that this issue was decided against Respondent in the underlying disciplinary hearing. Neither ROC nor the Complainant argued that Respondent is wrong with respect to the burden of proof. ROC’s Notice of Claim shows that the party challenging the amount of the proposed award is required to bear the burden of proof at the hearing, but that Notice provides no legal authority for that proposition. In the past ROC has taken different positions as to who bears the burden of proof in matters such as this one where the contractor has exercised its right to a hearing before any payout is made. Compare docket numbers 2010A-[number redacted]-ROC-rf (burden on the Complainant) and 2009A-565982-ROC-rf (showing that ROC’s Notice of Claim for Administrative Payout provided that Complainant had the burden) to 2017A-6066-ROC (burden on the party appealing ROC’s determination).

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