ALJDEC decisions subject to certification as final

2018A-2193-RFA-ROC · Registrar of Contractors · 2020-10-14

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Nicholas Holland,

COMPLAINANT

Craven Construction LLC,

ROC License: ROC 311721

RESPONDENT

No. 2018A-2193-RFA-ROC

ADMINISTRATIVE LAW JUDGE

DECISION

HEARING: July 8 and August 25, 2020

APPEARANCES: Richard D. Elley, Esq. for Complainants; Fredrick Taylor, Esq. for Respondent; John Tellier, Esq. for the Registrar of Contractors

ADMINISTRATIVE LAW JUDGE: Thomas Shedden

FINDINGS OF FACT

On February 21, 2020 the Registrar of Contractors (“ROC”) issued a Notice of Hearing on Appealable Agency Action setting the above captioned matter for hearing on March 25, 2020 at the Office of Administrative Hearings.

The matter was continued and the hearing was conducted on July 8 and August 25, 2020.

Respondent Craven Construction LLC holds license number 311721 issued by ROC.

The issue is whether Nicholas and Patricia Holland’s claim for a payout from the residential contractors’ recovery fund is justified by the evidence.

ROC presented the testimony of its legal assistant Tedi White. The Hollands presented the testimony of Ms. Holland, ROC investigator Dennis Bierma, and Thomas Noll. Respondent presented the testimony of its principal Randy Craven.

In May 2017, the Hollands hired Respondent to remove and replace the roof at their house in Chandler. The parties’ contract did not call for Respondent to replace the flashing, which requires cutting into the stucco. Mr. Craven testified replacing flashing is not common for roofing jobs in Arizona and that in about nine out of ten jobs the flashing is not replaced.

The Hollands’ roof had an existing leak (or leaks) when they bought the house and they received a credit at closing as compensation.

The Hollands paid Respondent $14,800, which was payment in full. The Hollands’ claim for a payout shows that they owed Respondent $8000, but this was an error.

Respondent installed a metal roof, the individual pieces of which were often referred to as tiles or panels. Respondent used the “direct to deck” method of installation as seen in ROC exhibit 10. This method calls for each tile to be secured at the top and the bottom of the tile. ROC exhibit 10 shows several ways to attach the panels; Respondent followed the fastening instructions at Bates pages 91 and 92 of ROC exhibit 10.

On May 15, 2018, Mr. Holland filed with ROC a complaint against Respondent alleging poor workmanship.

ROC’s investigator Dennis Bierma conducted a jobsite inspection on June 15, 2018. Although Mr. Craven was present at that investigation, the Hollands did not allow him to enter the house when Mr. Bierma inspected the interior for water damage.

During his jobsite inspection, Mr. Bierma did not go on the roof and did not conduct a water test. Mr. Bierma’s jobsite inspection notes are in evidence as ROC exhibit 2 and some of the digital photographs he took are in evidence as ROC exhibit 3.

On June 27, 2018, ROC issued a Directive ordering Respondent to remedy by the appropriate means complaint items 1, 2, 3, 4, 5, 6, 7, 17, and 18.

On August 14, 2018, ROC issued to Respondent a Citation alleging that Respondent may have violated Ariz. Rev. Stat. sections 32-1154(A)(3) and (A)(22).

Respondent did not file a timely answer to the Citation, and through a Final Administrative Decision and Order dated September 28, 2018, ROC a found that Respondent had violated Ariz. Rev. Stat. sections 32-1154(A)(3) and (A)(22). Based on these proven violations ROC suspended Respondent’s license for one day and assessed against it a civil penalty of $250.

On March 18, 2019, the Hollands submitted to ROC a Recovery Fund Claim that included bids from three licensed contractors to perform corrective work: (1) Elevated Metal’s bid for $34,000; Arizona Roofing Systems’ bid for $30,897; and Vertex Metal Roofing’s bid for $51,368.

In all three cases, the bids called for removal and replacement of the existing work.

Mr. Craven testified that the Hollands’ house was a standard or simple home and that he found the three bids that the Hollands had received to be extremely high.

Arizona Roofing Systems’ estimate of $30,897 was the bid ROC found was the appropriate bid. That bid calls for the use of G-40 modified, metal and tile underlayment. Mr. Craven testified that this was not the correct underlayment for the roof at issue. The bid also called for installing the roof using a batten system, whereas Respondent used direct to deck installation.

The author of the Arizona Roofing Systems’ bid (who did not appear and testify) opined in that bid that the existing roof had failed due to incorrect installation and because of a failure to use the manufacturer’s trim pieces. Mr. Craven testified that Respondent purchased the roof as a package in which the manufacturer supplied the trim pieces. He acknowledged that a change in ownership of the manufacturer may have resulted in the new owner changing its standards.

The third bid from Vertex is for $51,368. That bid calls for work that was not part of the parties’ contract. The bid also erroneously shows that the roof has a felt paper underlayment, whereas Respondent used a GAF synthetic underlayment.

Mr. Noll prepared the bid on behalf of Elevated Metal. That bid is limited to a single line showing that Elevated would remove the old panels (tiles) and replace these with new tiles for $34,000. Included with that bid was an email from Mr. Noll in which he wrote that the tiles were designed to be installed with a hidden fastening system, whereas Respondent had screwed through the top of every panel, compromising the integrity. Mr. Noll also noted that the flashing at the chimneys, the parapet walls and the skylights had gaps that also compromised the integrity of the roof.

Mr. Craven testified that any gaps in or at the flashing could be repaired using sealant, but it would be necessary to see the area at issue to verify the proper way to repair any deficiency.

At the hearing, Mr. Noll acknowledged that his email was incorrect in that the tiles could be secured using screws (rather than the hidden fastening system) but he opined that in that installation method, each screw should have a rubber washer. ROC exhibit 10 does not show that rubber washers are to be used in the installation.

Mr. Noll acknowledged that in preparing Elevated’s bid he did not consider repairing, rather than replacing, the roof because he was called to bid on a new roof. He was of the opinion that repairing the roof was not a good option and he testified that repairs were not something Elevated would get involved with in this case.

At the hearing, Mr. Noll acknowledged that Elevated was calling for the flashing to be removed and replaced.

ROC’s Tedi White evaluated Mr. Holland’s Recovery Fund Claim.

Ms. White determined the Hollands met the eligibility requirements that were in effect when they filed their recovery fund claim.

Ms. White testified to the effect that ROC’s Directive sets out the workmanship issues for which ROC found substantiated violations and to the effect that the bids for any corrective work must conform to the work set out in the Directive.

Ms. White acknowledged that she did not have sufficient knowledge to determine what was required to correct the work that ROC found to be deficient. In her review of the Hollands’ claim she relied on information Mr. Bierma and his supervisor provided, and on information in the three bids the Hollands provided.

The lowest bid of $30,897 was from Arizona Roofing.

Although not in evidence, ROC apparently issued a notice showing that the Hollands would be awarded $30,000 from the fund, which is the maximum allowable payout.

At the hearing, Mr. Bierma testified to the effect that he had no real independent recollection of the Hollands’ house and that he had to rely on his notes and other information from ROC’s files, some of which may not have been disclosed in this matter.

At the hearing, Mr. Bierma opined that the best solution in this matter would be to remove the Respondent’s work and start over, and he noted that typically one contractor will not be willing to repair another contractor’s work.

Mr. Craven acknowledged that minor repairs were required, but in his opinion a new roof was not required. Mr. Craven could not say what those repairs would cost without a chance to inspect the inside of the house.

During his jobsite inspection on June 15, 2018, Mr. Bierma did not go onto the roof and he did not conduct a water test. Mr. Bierma could not verify whether there was an active leak on that date.

Ms. Holland testified to the effect that the house experienced leaking in several locations after Respondent completed its work. She testified that there were leaks at both chimneys, but one chimney is located outside the roof line and was not part of Respondent’s scope of work. She testified that before the Hollands filed a complaint with ROC, ineffective repairs had been made.

Mr. Craven testified that he was not allowed into the home after Respondent completed its work, so he could not testify as to issue of whether the roof leaked after Respondent completed its work.

Although Mr. Bierma could not verify that there was an active leak, through its Directive, ROC ordered Respondent to repair damage from the original leak (complaint items 1 and 4). Mr. Bierma testified that he would not have included that requirement in his notes or the Directive if Respondent had not acknowledged responsibility during the jobsite inspection. Mr. Craven testified that he had not made such an acknowledgement.

Through its Directive, ROC ordered Respondent to correct a tile or tiles at the front of the house because the screws were not attached to the house itself (complaint item 2). Mr. Bierma acknowledged that this could be fixed by removing the screw and sealing the hole and then re-screwing the tile in a different location.

Mr. Craven testified that this could be fixed either with a manufacturer’s touch-up kit or by removing and replacing the panel. Mr. Craven testified to the effect that the tile was supposed to hang over the edge of the house as seen in ROC exhibit 10 at Bates page 90.

Through its Directive, ROC ordered Respondent to correct misaligned and crooked tiles on the kitchen/dining area (complaint item 3). Mr. Bierma acknowledged that these tiles could be removed and replaced. Mr. Craven testified that the issue is with the ridge tiles, and that it could be fixed by removing and replacing the tiles at issue.

Through its Directive, ROC ordered Respondent to seal both chimneys at the house (complaint item 5). The evidence shows that Respondent’s contract did not call for any work at one of the chimneys, which was outside the roofline. Mr. Bierma could not recall the exact nature of the deficiency around the other chimney and could not offer any opinion as to how it could be repaired. Mr. Craven testified to the effect that the other chimney was properly sealed.

Through its Directive, ROC ordered Respondent to close a gap in the trim in the front of the house (complaint item 6). Mr. Bierma could not recall what specifications he was referring to when ordering Respondent to correct this issue and he testified to the effect that a licensed roofing contractor would be better able than he to say what was required to fix the issue. Mr. Craven’s opinion was that this was work not deficient and that ROC 10 at Bates page 90 calls for the base metal and the riser metal to be cut to allow water from the parapet to properly drain along the channel metal.

Complaint item 7 shows that each tile was improperly secured to the roof per the manufacturer’s specifications and per a representative that was sent to inspect the roof. Through the Directive, ROC ordered Respondent to “complete[ ] per manufacturer specs.” Mr. Bierma never talked to a manufacturer’s representative and he was relying on what Ms. Holland told him she had been told by a representative. At the hearing, Ms. Holland’s testimony showed that she may have been relying on information provided by another roofing contractor and not a manufacturer’s representative. The name of this person and whether he was qualified to render an informed opinion are not in evidence.

Ms. Holland testified that this unnamed person told her that the manufacturer’s warranty had been voided because the panels had not been properly installed.

Mr. Craven’s opinion was that all the tiles but one were properly secured following the manufacturer’s specifications, with that one tile being a first-row tile with a screw in the valley.

ROC exhibit 10 at Bates pages 85, 91 and 92 shows that each tile is to be fastened with screws (or nails) at the top and the bottom of each tile. At the hearing, Mr. Bierma testified that each tile would cover the screws on the tile below it, but this is not what exhibit 10 shows.

Through the Directive, ROC ordered Respondent to put flashing around the air conditioning unit’s curb in conformity with the manufacturer’s specifications (complaint item 17). It has not been shown that Respondent was not responsible for installation of flashing at the air conditioner, which was installed by another contractor before Respondent did its work.

Complaint item 18 shows that there were numerous tiles with puncture holes that were not sealed. In his jobsite investigation notes, Mr. Bierma wrote that these holes should be properly sealed. At the hearing, Mr. Bierma acknowledged that these holes could be sealed unless there were too many, in which case replacement of the roof was called for. The number of unsealed holes is not in the record.

Mr. Craven testified that the manufacturer sells a touch-up or sealant kit to use seal any holes and that this would not void the warranty. ROC exhibit 10 at Bates page 85 shows a touch-up kit and calls for its use over each top fastener. Mr. Craven’s opinion was the touch-up material would last for fifteen to twenty years, and he added that he had been using that material for nineteen years.

There is one location on the roof where the screw through the bottom of a “first row” tile (i.e. the tiles closest to the bottom of the roof) is in the valley, which is not in conformity with the manufacturer’s specifications that call for the first row tiles to be screwed through the ridges. (The specifications show that the screws at the top of the tiles can be placed in the valley.) Mr. Craven agreed that this needed to be fixed, but he also noted that the jobsite inspection photograph shows that there is another screw in the proper location

CONCLUSIONS OF LAW

Applicable Statutes and Rules

Unless otherwise provided by law: the party asserting a claim, right, or entitlement has the burden of proof; a party asserting an affirmative defense has the burden of establishing the affirmative defense; and the proponent of a motion shall establish the grounds to support the motion. Ariz. Admin. Code § R2-19-119(B).

The standard of proof on all issues in this matter is that of a preponderance of the evidence. Ariz. Admin. Code § R2-19-119(A).

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).

“Contested case means any proceeding ... in which the legal rights, duties or privileges of a party are required or permitted by law, other than [Title 41, Chapter 6], to be determined by an agency after an opportunity for an administrative hearing.” Ariz. Rev. Stat. § 41-1001(5).

“‘Appealable agency action’ means an action that determines the legal rights, duties or privileges of a party and that is not a contested case.” Ariz. Rev. Stat. § 41-1092(3).

When the Hollands filed their recovery fund claim, Ariz. Rev. Stat. section 32-1154(G) provided in part:

Notwithstanding any other provisions in this chapter, if a contractor's license has been revoked or has been suspended as a result of an order to remedy a violation of this chapter, the registrar may order payment from the residential contractors' recovery fund to remedy the violation. The registrar shall serve the contractor with a notice setting forth the amount claimed or to be awarded. If the contractor contests the amount or propriety of the payment, the contractor shall respond within ten days of the date of service by requesting a hearing to determine the amount or propriety of the payment. Failure by the contractor to respond in writing within ten days of the date of service shall be deemed a waiver by the contractor of the right to contest the amount claimed or to be awarded.”

(Underscoring and bold added.)

Ariz. Rev. Stat. section 32-1139(B) provides in part:

If any amount is paid from the fund in settlement of a claim arising from the act, representation, transaction or conduct of a residential contractor, the license of the contractor shall be automatically suspended by operation of law until the amount paid from the fund is repaid in full, plus interest at the rate of ten per cent a year.

(Underscore added.)

When the Hollands filed their recovery fund claim, Ariz. Rev. Stat. section 32-1132(A) provided in part:

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 [licensed] residential contractor ... 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.

Ariz. Rev. Stat. section 32-1132(A) now provides that: “The residential contractors' recovery fund is established ... for the benefit of a claimant damaged by an act, representation, transaction or conduct of a residential contractor....” (Underscore and bold added.)

Ariz. Rev. Stat. section 32-1135 provides that: “The assessments received by the registrar for deposit in the fund shall be held in trust for carrying out the purposes of the fund. ...”

Principles of Statutory Construction

The same rules in are used to construe both statutes and rules." Smith v. Arizona Citizens Clean Elections Comm'n, 212 Ariz. 407, 412, ¶ 18, 132 P.3d 1187, 1192 (2006).

If a statute is unambiguous, we apply its terms without resorting to other tools of statutory interpretation, unless doing so leads to impossible or absurd results. Orca Commc'ns Unlimited, LLC v. Noder, 236 Ariz. 180, ¶ 9, 337 P.3d 545 (Ariz. 2014)(citation omitted).

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.").

“Statutes shall be liberally construed to effect their objects and to promote justice.” Ariz. Rev. Stat. § 1-211(B).

Whether this matter is a contested case or an appealable agency action

By definition, a contested case has three elements: (1) a party’s legal rights, duties or privileges are determined; (2) after the party has an opportunity for a hearing; and (3) provided that the party’s hearing-right arises from a statute outside of Title 41, Chapter 6.

All three elements are present in this matter: Respondent’s legal right and privilege to engage in contracting will be suspended if ROC actually makes a payout from the fund. Ariz. Rev. Stat. § 32-1139(B). Before such a payout could be made, ROC had to provide Respondent with notice of the proposed payout and Respondent had a right to request a hearing to contest the proposed payout (subject to waiver if the request for hearing was not made in a timely manner). Ariz. Rev. Stat. § 32-1154(G). Respondent’s opportunity for a hearing is found at Ariz. Rev. Stat. section 32-1154(G).

Consequently, the matter is a contested case by definition.

ROC argues that the matter is an appealable agency action, but its argument is not persuasive because (1) its argument is predicated on the erroneous conclusion that it has already issued a recovery fund award; and (2) and it misconstrues the definition of contested case.

Twice in its Post-hearing Memorandum, ROC asserts that a recovery fund hearing occurs after a payout has been made. See ROC Post-hearing Memo at p. 3 lns. 16 and 17, and lns. 23 and 24. This is incorrect as seen by the fact that if an award or payout had already been made in this case, Respondent’s license would have been automatically suspended by operation of law, which did not happen.

ROC’s position is that because it has made a decision to issue an award to the Hollands, which occurred without Respondent having a right to a hearing, the matter is not a contested case.

But the operative feature of a contested case is not whether an agency has made a decision on an issue, but rather whether a party has a right to a hearing before its legal rights, duties and privileges are determined. In this case, Respondent’s legal rights, duties and privileges are (or will be) determined only when a payment from the fund is actually made (resulting in automatic suspension of Respondent’s license) and Respondent had a right to a hearing before that could occur. Consequently, ROC has misconstrued the definition of contested case.

The Burden of Proof

The matter is unusual in that the Hollands are making a claim for a benefit, but ROC’s authority to make a definitive ruling resulting in an actual payout from the recovery fund is conditioned on Respondent’s right to a hearing.

ROC’s statutes do not assign the burden of proof in a hearing on a recovery fund claim, nor do the OAH statutes found at Ariz. Rev. Stat. section 41-1092.07(G). OAH’s rules do show however, that “Unless otherwise provided by law: the party asserting a claim, right, or entitlement has the burden of proof....” Ariz. Admin. Code § R2-19-119.

The recovery fund was established to benefit “claimants” who have been injured by licensed contractors. A sensible reading of the subsection R2-19-119(B) is that the Hollands, the party claiming a benefit, has the burden of proof.

This conclusion is also consistent with former section Ariz. Rev. Stat. section 32-1154(G) that shows that the contractor’s request is for “a hearing to determine the amount or propriety of the payment.” (Underscore added.)

Conclusion

The Hollands have not shown by a preponderance of the evidence that they should be awarded a payout of $30,000 because they have not shown that their roof must be replaced.

Although Mr. Bierma testified that the best solution would be to have the roof replaced, this is not the standard on which payouts are made. Moreover, he never went on the roof and his opinions were based on information provided to him by Ms. Holland that has not been shown to be reliable. And, apparently he did not understand how the roof was to be installed because he testified to the effect that he should not have been able to see any screws, but this testimony was not consistent with the installation instructions found in ROC exhibit 10.

Mr. Noll’s testimony is not persuasive because he also did not understand how the roof was to be installed. Initially (through his email) he opined that the roof should have been installed using a clip system and one set of screws per tile, which is not correct, and that this use of two sets of screws per panel had compromised the integrity of the roof, which was not proven to be true. Although he changed his opinion at the hearing and acknowledged that the tiles could be installed without clips, he added that rubber washers were then required, which is not consistent with the manufacturer’s specifications. Mr. Noll also acknowledged that he did not even consider bidding on repairing the roof.

The Hollands argue that their warranty has been voided, but this position is not proven because it is based on Ms. Holland’s testimony about what an unnamed person purportedly told her.

Although the Hollands presented sufficient evidence to show that they meet the eligibility requirements and that they have been damaged by Respondent’s work, there is insufficient evidence to determine the extent of their actual damages.

Consequently, ROC’s decision to award the Hollands a payout of $30,000 should be rescinded.

RECOMMENDED ORDER

IT IS ORDERED that the Registrar of Contractor’s decision that the Hollands be awarded a payout of $30,000 from the recovery fund 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.

-54864001

001

-137160-45720000Done this day, October 14, 2020.

/s/ Thomas Shedden

Thomas Shedden

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors

-54864001

001

-137160-45720000