ALJDEC decisions subject to certification as final

2018A-05353-ROC · Registrar of Contractors · 2019-05-21

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: May 03, 2019 at 1:00 PM.[1] APPEARANCES: Patrick Monahan, Esq., appeared on behalf of Greek Palace (“Complainant”) with Steve Lawton, Benjamin Esho, and Steve Younan as witnesses. Michael Schrader appeared on behalf of Schrader Construction, LLC (“Respondent”). ADMINISTRATIVE LAW JUDGE: Jenna Clark. _____________________________________________________________________ After review of the hearing record in this matter, the undersigned Administrative Law Judge makes the following Findings of Fact and Conclusions of Law, and issues this Recommended Order to the Director of the Registrar of Contractors (“ROC”). FINDINGS OF FACT Background and Procedure 1. Pursuant to Ariz. Admin. Code R4-9-117, Administrative Notice is taken of Respondent’s prior License record as reflected on the ROC’s public website on May 03, 2019. According to the site, on January 07, 2009, the ROC issued License No. 251760 General Dual KB-2 Residential and Small Commercial contracting license to Respondent.[2] The license is currently active and renewed through January 31, 2021.[3] Michael Allen Schrader is the Qualifying Party/Member on this license.[4] Respondent’s address of record for the license is 2122 S Red Rock Ct, Gilbert, AZ 85259-5567.[5] Respondent has an active $14,000.00 surety bond on the licensed issued by Western Surety Company effective January 18, 2017.[6] There is no prior discipline noted for the license, save one open complaint which is presumably Complainant’s. 2. Complainant owns commercial property located at 10006 W Happy Valley Rd., Peoria, Arizona 85383. 3. On or about January 06, 2018, Complainant and Respondent entered into a $260,000.00 contract to remodel the interior of Complainant’s commercial restaurant space.[7] Complainant obtained a building permit from the City of Peoria.[8] Per theparties’ construction schedule, the project was supposed to commence on August 13, 2018, and conclude on or before October 31, 2018.[9] Per the complaint, work on the project commenced on June 05, 2018, and ceased on October 20, 2018.[10] 4. On October 08, 2018, Complainant submitted a complaint to the ROC against Respondent’s License No. 251760 alleging abandonment of their project.[11] The ROC received the complaint on November 08, 2018, whereby it was designated Complaint No. 2018-05353 and assigned to Senior Construction Investigator Steve Lawton. 5. On December 05, 2018, Investigator Lawton issued a Jobsite Inspection Notification Letter to the parties, advising that he would conduct an inspection of the project on December 19, 2018, at 3:00 p.m.[12] 6. On December 19, 2018, Investigator Lawton presented to the project site for his inspection. Both parties were present. Investigator Lawton conducted a review of the contract executed between the parties and inspected the work that had been performed on the project to date. He also took photographs of the project site.[13] When he was finished, Investigator Lawton drafted his Inspection Notes.[14] 7. On January 10, 2019, Investigator Lawton issued a Directive from the Registrar to Respondent because he substantiated Complainant’s allegation that Respondent had not completed the project per contract, though Complainant had paid the contract price in full.[15] Respondent was put on notice that it had until 5:00 p.m. on January 30, 2019, to notify the ROC of its compliance with the corrective order or face discipline pursuant to Ariz. Admin. Code R4-9-108, and Ariz. Rev. Stat. §§ 32-1154(A)(3), 32-1154(A)(22) and 32-1154(E).[16] 8. On February 06, 2019, Investigator Lawton forwarded the matter to the ROC’s legal department whereby he suggested that Respondent be cited under Ariz. Admin. Code R4-9-108, and Ariz. Rev. Stat. §§ 32- 1154(A)(3), 32-1154(A)(12); 32-1158, and 32-1154(A)(22).[17] 9. On February 07, 2019, the ROC issued a Citation and Complaint to Respondent under Ariz. Rev. Stat. § 32-1155(A).[18] Respondent was given until February 22, 2019, to respond with its Answer.[19] 10. The ROC received Respondent’s Answer on February 21, 2019.[20] 11. On March 08, 2019, the ROC referred this matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing on May 03, 2019. Per the Notice of Hearing the issue to be determined is whether the ROC has cause to discipline Respondent’s license based on the following charges: Charge 1: A violation of Rule 4-9-108, titled “Minimum Construction Standards,” in the Arizona Administrative Code, and thereby a violation of A.R.S. § 32-1154(A)(3). Charge 2: A violation of A.R.S. § 32-1154(A)(12) (“Failure in any material respect to comply with this chapter; Namely A.R.S. § 32- 1158.) Charge 3: A violation of A.R.S. § 32-1154(A)(22) (“Failure to take appropriate corrective action to comply with this chapter or with rules adopted pursuant to this chapter without valid justification within a reasonable period of time after receiving a written directive from the registrar. The written directive shall set forth the time within which the contractor is to complete the remedial action. The time permitted for compliance shall not be less than fifteen days from the date of issuance of the directive.”). Hearing Evidence 12. Complainant called Steve Lawton, Benjamin Esho, and Steve Younan as witnesses, and submitted fifty-three exhibits into the record. Respondent called Michael Schrader as a witness and submitted two exhibits. The ROC’s electronic hearing file and Notice of Hearing were also admitted into the record. Steve Lawton’s testimony 13. Investigator Lawton testified that less than half of the project had been completed by the date of his jobsite inspection, and Respondent did not complete any additional work on the project during the compliance period offered after the Directive was issued. 14. Per Investigator Lawton, Respondent alleged that full payment by Complainant had not been received so Respondent refused to perform further work until Complainant paid additional monies. 15. Investigator Lawton testified that the ROC received proof of payment from Complainant, however, which satisfied the payment terms of the parties’ contract. Benjamin Esho’s testimony 16. Mr. Esho testified that he is the owner of Greek Palace LLC and contracted with Respondent for remodeling of the restaurant on Complainant’s behalf. 17. Mr. Esho testified that he created the architectural plans for the restaurant in late-2017, and that the City of Peoria approved the blueprints May 25, 2018. 18. Per Mr. Esho, there was not a progress payment schedule for the project. Per the terms of the contract he was required to make a down payment, and then remit the $255,000.00 balance to Respondent as requested. 19. Mr. Esho testified that he tendered twelve payments to Respondent totaling $263,070.09. Initially, Complainant provided a down payment to Respondent on January 06, 2018 for $5,000.00.[21] Next, Complainant issued Respondent a check on February 12, 2018, for $4,000.00.[22] Complainant issued Respondent a cashier’s check on April 12, 2018, for $32,520.09.[23] Complainant issued Respondent a check on April 24, 2018, for $12,150.00.[24] Complainant issued Respondent a check on June 06, 2018, for $11,000.00.[25] Complainant issued Respondent a check on June 27, 2018, for $1,600.00.[26] Complainant issued Respondent a check on July 02, 2018, for $1,800.00.[27] Complainant issued Respondent a check on July 07, 2018, for $18,000.00.[28] Complainant issued Respondent a check on August 04, 2018, for $54,000.00.[29] Complainant issued Respondent a check on August 15, 2018, for $43,000.00.[30] Complainant issued Respondent a check on September 05, 2018, for $30,000.00.[31] Complainant’s last payment to Respondent was issued via check on October 10, 2018, for $50,000.00.[32] 20. Per Mr. Esho, the project suffered two unexpected issues, regarding the relocation of a grease trap and flooring installation, which created tension between the parties. Specifically, the restaurant’s architectural plan for the placement of the grease trap was not functional and had to be relocated. Additionally, because Mr. Esho believed that he had been overcharged for flooring materials and labor he asked to amend the flooring plan but Respondent refused and would not compromise. Mr. Esho filed a complaint with the ROC as a result.[33] Steve Younan’s testimony 21. Mr. Younan testified that he is a friend of Mr. Esho and also the general manager of Younan Builders LLC. Mr. Younan testified that he agreed to assume and complete Complainant’s project after Respondent refused to finish the job. 22. Per Mr. Younan, when his company took over for Respondent the project was approximately half done. 23. Mr. Younan testified that Younan Builders charged Complainant $97,094.92 to finish the project.[34] Michael Schrader’s testimony 24. Mr. Schrader testified that when he entered into his contractual agreement with Complainant that he was told the design plans for the project had been approved and were waiting at the city to be picked up. However, he learned shortly afterward that the plans had not passed the city’s first review. Once the redlined plans were available for pickup, Mr. Schrader retrieved them from the city and delivered them to Mr. Esho’s architect for revision. At that time Mr. Schrader learned that the fire alarm and sprinkler system layouts had not been included by the prior builder. Once the plans were updated by the architect, Mr. Schrader resubmitted them to the city. Although the plans had to be corrected several additional times, they were finally approved by the city in July 2018. 25. Per Mr. Schrader, the project was subject to several delays that were outside of his control, including when Complainant had to choose a different grease trap model and new location for the unit, when Complainant refused to permit Respondent to complete the flooring, and when he had to intervene on several occasions when Mr. Esho would try and enlist his trades to do work on the side. 26. Mr. Schrader agreed that he had been paid in excess of $260,000.00 at the time work on the project stopped. Mr. Schrader also agreed that he had been paid $33,750.00 before the City of Peoria approved Complainant’s design plan(s), and that he worked on the project for approximately seven months before he issued a draw schedule to Complainant. He argued, however, that there had been several Change Orders that Complainant had agreed to which resulted in Respondent being paid additional monies per the terms of the parties’ contract. Per Mr. Schrader, Complainant owes Respondent an outstanding $10,000.00 to complete the project. 27. Mr. Schrader testified that he did not address the action item(s) identified in the ROC’s Directive because he had not received final payment for the project. CONCLUSIONS OF LAW 1. This matter lies within the ROC’s jurisdiction.[35] 2. The ROC may resolve contractual disputes if such resolution in ancillary to its regulatory mission and may penalize a contractor’s license by ordering payment of restitution if a proven statutory violation was not remedied by corrective action.[36] 3. Complainant bears the burden of proof to establish cause to discipline Respondent’s license by a preponderance of the evidence.[37] Respondent bears the burden to establish factors in mitigation of the penalty and affirmative defenses by the same evidentiary standard.[38] 4. “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[39] 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.”[40] 5. Ariz. Admin. Code R4-9-108 holds, in pertinent part, that a contractor shall perform all work in a professional and workmanlike manner and that a contractor shall perform all work in accordance with any applicable building codes and professional industry standards. 6. Ariz. Rev. Stat. § 32-1154(A)(3) holds that a holder of a license may not violate a rule adopted by the ROC. 7. Ariz. Rev. Stat. § 32-1154(A)(22) holds, in pertinent part, that a holder of a license may not fail to take appropriate corrective action to comply with this chapter or rules adopted pursuant to this chapter without valid justification within a reasonable period of time after receiving a written directive from the registrar. The written directive shall set forth the time within which the contractor is to complete the remedial action. The time permitted for compliance shall not be less than fifteen days from the date of issuance of the directive. A license shall not be revoked or suspended nor shall any other penalty be imposed for a violation of this paragraph until after a hearing has been held. The ROC has the authority to issue license discipline under this provision, including summary suspension, revocation, or imposing a civil penalty or recovery fund award. 8. Ariz. Rev. Stat. § 32-1158(A) holds, in pertinent part, that a contract between a contractor and property owner amounting to more than one thousand dollars must contain the following information in writing: 1. The name of the contractor and the contractor's business address and license number. 2. The name and mailing address of the owner and the jobsite address or legal description. 3. The date the parties entered into the contract. 4. The estimated date of completion of all work to be performed under the contract. 5. A description of the work to be performed under the contract. 6. The total dollar amount to be paid to the contractor by the owner for all work to be performed under the contract, including all applicable taxes. 7. The dollar amount of any advance deposit paid or scheduled to be paid to the contractor by the owner. 8. The dollar amount of any progress payment and the stage of construction at which the contractor will be entitled to collect progress payments during the course of construction under the contract. 9. That the property owner has the right to file a written complaint with the Registrar for an alleged violation of Ariz. Rev. Stat § 32-1154(A). The contract shall contain the Registrar's telephone number, website address, and shall state that complaints must be made within the applicable time period as set forth in Ariz. Rev. Stat § 32-1155(A). The information must be prominently displayed in the contract in at least ten point bold type, and the contract shall be signed by the property owner and the contractor.

9. Ariz. Rev. Stat. § 32-1154(E) holds, in pertinent parts, that the ROC may impose a civil penalty not to exceed five hundred dollars on a contractor for each violation. The failure by the licensee to pay any civil penalty imposed results in the automatic revocation of the license thirty days after the effective date of the order providing for the civil penalty. It also holds that no future license may be issued to an entity consisting of a person who is associated with the contractor, unless payment of any outstanding civil penalty is tendered. 10. The evidence of record establishes that Respondent did not complete the project per the terms of its contract with Complainant, and that the work that Respondent did perform did not satisfy the minimum standards set for workmanship by the ROC. It is also clear that Respondent failed to comply with the ROC’s Directive. 11. Because Respondent did not meet minimum workmanship standards as required by Ariz. Admin. Code R4-9-108, Complainant has established a violation of Ariz. Rev. Stat. § 32-1154(A)(3). 12. Because Respondent’s contract with Complainant did not satisfy the minimum elements of a contract, Complainant has established a violation of Ariz. Rev. Stat. § 32-1158(A). 13. Because Respondent failed to take appropriate corrective action after the Directive was issued by the ROC for the underlying project, Complainant has established a violation of Ariz. Rev. Stat. § 32- 1154(A)(22). 14. Therefore, the only remaining issue to address is whether Respondent raised a sufficient justification or excuse for failing to timely complete or refund the aforementioned projects. These are affirmative defenses that Respondent bears the burden to establish. There is no evidence in the record that tends to suggest Respondent sustained his burden of proof. Mr. Schrader’s argument that he believes was owed outstanding monies and did not want to finish the job until he was paid is an insufficient excuse for disregarding the ROC’s Directive. 15. Because Complainant has established the above-captioned statutory violations by a preponderance of the evidence, Complainant has also established cause for a civil penalty to be assessed against Respondent and for Respondent’s license to be disciplined by the ROC. RECOMMENDED ORDER In light of the foregoing, IT IS RECOMMENDED that five days after the effective date of the Final Order in this matter, Respondent Schrader Construction LLC, ROC License No. 251760, be suspended for three days based on its violations of Ariz. Admin. Code R4-9-108 and Ariz. Rev. Stat. §§ 32-1154(A)(3), 32- 1154(A)(22), and 32-1158(A). IT IS FURTHER RECOMMENDED that Respondent shall pay the sum of $150.00 in certified funds to the ROC as a civil penalty pursuant to Ariz. Rev. Stat. § 32-1154(E). IT IS FURTHER ORDERED that if Respondent fails to pay the entire amount of the civil penalty on or before thirty days following the effective date of the Final Order, the ROC shall revoke Respondent’s license, effective on such deadline date. 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, May 21, 2019.

/s/ Jenna Clark Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director Registrar of Contractors ----------------------- [1] Per stipulation of the parties, the record was held open until May 23, 2019; extending the deadline for the transmission of the Recommended Order in this matter to June 07, 2019. [2] See https://roc.az.gov/contractor-search?Id=a0Yt000000ACKChEAP. [3] Id. [4] Id. [5] Id. [6] Id. [7] See the ROC’s electronic file at pages 8-10. [8] See the ROC’s electronic file at page 154. [9] See the ROC’s electronic file at pages 11-13. [10] Id. [11] Id. [12] See the ROC’s electronic file at pages 58-60. [13] See the ROC’s electronic file at pages 42-44. [14] See the ROC’s electronic file at pages 39-41. [15] See the ROC’s electronic file at pages 37-38. [16] Id. [17] See the ROC’s electronic file at page 36. [18] See the ROC’s electronic file at pages 27-33. [19] Id. [20] See the ROC’s electronic file at pages 4-7. [21] See the ROC’s electronic file at page 74. [22] See the ROC’s electronic file at page 73. [23] See the ROC’s electronic file at pages 108-109. [24] See the ROC’s electronic file at page 70. [25] See the ROC’s electronic file at page 69. [26] See the ROC’s electronic file at page 106. [27] See the ROC’s electronic file at page 107. [28] See the ROC’s electronic file at page 68. [29] See the ROC’s electronic file at page 67. [30] See the ROC’s electronic file at page 66. [31] See the ROC’s electronic file at page 65. [32] See the ROC’s electronic file at page 64. [33] See Complainant Exhibit 36. [34] See Complainant Exhibit 53. [35] See Ariz. Rev. Stat. § 32-1154(A). [36] See Ariz. Rev. Stat. § 32-1156.01; Sunpower of Arizona v. Arizona Registrar of Contractors, 166 Ariz. 437, 441, 803 P.2d 430, 434 (App. 1990). [37] Ariz. Rev. Stat. § 41-1092.07(G)(2); Ariz. Admin. Code R2-19- 119(B)(1); see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [38] See Ariz. Admin. Code R2-19-119(B)(2). [39] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [40] Black’s Law Dictionary at page 1220 (8th ed. 1999).

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