ALJDEC decisions subject to certification as final

2018A-2338-CHC-ROC · Registrar of Contractors · 2019-09-03

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: August 12, 2019, 9:00 A.M.: August 13, 2019, 9:00 A.M. APPEARANCES: Mark Molique, Esq., appeared on behalf of Complainant; Ben J. Himmelstein, Esq., appeared on behalf of Respondent ADMINISTRATIVE LAW JUDGE: Roger A. Geddes _____________________________________________________________________ FINDINGS OF FACT Background and Procedure 1. Anthony L. Vay, dba Certa Propainters (Respondent), is the holder of License Number 165330 issued by the Registrar of Contractors (Registrar). 2. On or about March 24, 2018, Barraza Investigations, LLC (Complainant), filed a Complaint against Respondent with the Registrar alleging aiding and abetting unlicensed contracting in connection with two painting projects at multi-unit complexes in Phoenix and Scottsdale, Arizona. 3. The Registrar performed an investigation of the two projects on March 31, 2019. Thereafter, the Registrar issued a Citation, dated June 21, 2018, for the alleged violation of the following: a. A.R.S. § 32-1154(A)(9) (aiding or abetting an unlicensed person to evade chapter or knowingly or recklessly combining with an unlicensed person or allowing one’s license to be used by another with intent to evade this chapter); b. A.R.S. § 32-1154(A)(14) (acting in the capacity of a contractor under a license in a name other than as set forth on license). 4. The Registrar referred the matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. The Registrar issued a Notice of Hearing setting a hearing for August 28, 2018, at 1:00 P.M. After a series of continuances, the hearing was held on August 12-13, 2019. 5. At the hearing, Complainant Barraza Investigations, LLC, presented the testimony of Bobby Barraza and Anthony Vay. Respondent presented the testimony of Anthony Vay. Beau Cruz and Laurie Swanson, Registrar Investigators, and Randy Cason, Assistant Chief of Investigations, testified on behalf of the Registrar. The Tribunal received and admitted Complainant’s Exhibit numbers 1, 3-7, 9-10, 12-16, 18- 21, 23-28, 32-34, 40-41, 43, 45, 58-61, 66, 70, 76, 86-88, 101, and 105-106 and Respondent’s Exhibit numbers 2-11, 13, and 15. 6. Investigator Beau Cruz testified on behalf of the Registrar that he visited the Montego Bay Condominiums project in Phoenix, Arizona (“Phoenix project”) on May 31, 2019, and met with Miguel Bonilla and Aroldo Ramirez who appeared to be in the process of painting the complex. Mr. Cruz stated that Mr. Bonilla told him he worked for Respondent and he gave Mr. Cruz permission to speak with Mr. Ramirez. Mr. Cruz further testified that Mr. Ramirez told him that he did not work for Respondent but that he was hired by Mr. Bonilla who had been in need of a worker. Mr. Cruz further stated that Mr. Bonilla indicated he was on his cell phone with Respondent and that after Mr. Bonilla got off the call, Mr. Bonilla told Mr. Ramirez to stop speaking with the investigators. Mr. Cruz said he then told Mr. Ramirez that he could not continue to work and Mr. Ramirez responded that he would wait around to be paid by Mr. Bonilla, who he indicated was to pay him in cash. Investigator Cruz subsequently discovered that there was evidence the project might have been performed by Diamond Allied Services, L.L.C. (“Diamond Allied”). 7. Investigator Laurie Swanson testified on behalf of Registrar that she also visited Montego Bay Condominiums with Investigator Cruz on May 31, 2019. She stated she talked with Mr. Bonilla who wore a CertaPro shirt and that he told her that he worked for Respondent. She said Mr. Bonilla said Mr. Ramirez also worked for CertaPro. She further stated that Mr. Bonilla was on a cell phone call with Respondent and handed the phone to her and that Respondent told her she was harassing him and that Mr. Bonilla and Mr. Ramirez were his employees. She testified she asked Respondent to provide W-2 forms to verify their employment and she later received a call from Respondent’s attorney indicating they would be provided. She stated she was aware that the Registrar received Mr. Bonilla’s W-2 form but that nothing in that regard was received regarding Mr. Ramirez. Investigator Swanson further testified that as a result of a hot line tip, she also visited Sterling Place in Scottsdale, Arizona (“Scottsdale project”) (Comp. Exhibit 45) but was unable to enter the gated community. (Comp. Exhibit 45). She said she then telephoned the number provided in the tip and spoke to someone who identified himself as Francisco Balux who told her he worked for CertaPro Painters and was receiving 60 % of what the job paid but that he did not know the exact amount. She stated he admitted he did not have a contractor’s license. She further stated that he said he would provide information on who hired him but she never heard back from him. 8. Randy Carson, Assistant Chief of Investigations, testified on behalf of the Registrar as to the Registrar complaint process. He stated that all complaints get investigated by the Registrar regardless of who filed the complaint. 9. Bobbie Barraza testified on behalf of Complainant that he has had a private investigator firm for 12 years and that he was hired by Attorney Molique to investigate potential unlicensed contract activity by Respondent. He stated he was directed as to which projects to visit. Much of Mr. Barraza’s testimony with respect to the Phoenix project can be detailed in the following timeline: Feb 7 CertaPro proposal (Comp. Exhibit 5) March 27 Montego proposal acceptance (Comp. Exhibit 6) April 20 Deposit invoice to Montego (Comp. Exhibit 7) May 8 Email disclosing foreman Miguel (Comp. Exhibit 10) May 16 Check to Impressive Multi Color Painting LLC[1] (Comp. Exhibit 7) May 21 Bonilla W-4 (Comp. Exhibit 86) May 22 Barraza site investigation of project (Comp. Exhibit 3) May 23 Check to Impressive Multi Color Painting (50%) (Comp. Exhibit 7) May 24 Complaint filed (Comp. Exhibit 1) May 25 Progress (50%) invoice to Montego (Comp. Exhibit 10) May 31 Registrar site investigation of project (Comp. Exhibit 43) June 1 Bonilla first payroll check (Comp. Exhibit 3) 10. Much of Mr. Barraza’s testimony with respect to the Scottsdale project can be detailed in the following timeline: May 16 Sterling proposal acceptance (Comp. Exhibit 18) May 22 Barraza site investigation of project (Comp. Exhibit 3) May 24 Complaint filed (Comp. Exhibit 1) May 31 Registrar site investigation of project (Comp. Exhibit 45) June 5 Final invoice to Sterling (Comp. Exhibit 21) June 8 Check to Frank B T Painting LLC[2] (Comp. Exhibit 23) Sept 21 Tahay W-4 (Comp. Exhibit 70) Oct 5 Tahay first earnings statement (Resp. Exhibit 2) 11. Anthony Vay testified that he obtained his contractor’s license in his individual capacity and that he created Diamond Allied in 2000 upon the recommendation of his accountant. (Comp. Exhibit 33). He stated he was the sole member of Diamond Allied, which did not have a contractor’s license. (Comp. Exhibit 58). As to the individual workers in question, he stated that he did not know Mr. Ramirez who was on the Phoenix project but that he was aware of Mr. Tahay or Frank B T painting on the Scottsdale project. He further stated that both individuals were employees, although he presented no evidence of withholding payroll taxes or of worker’s compensation insurance for them for the time period leading up to the filing of the Complaint. 12. Respondent previously received a letter dated November 17, 2017, from the Registrar referencing Case No. 2017-5253 concerning a potential violation of A.R.S. § 32-1154(A)(9). (Comp. Exhibit 101). CONCLUSIONS OF LAW 1. The Registrar has jurisdiction over this matter, pursuant to A.R.S. § 32-1101, et seq., which authorizes the Registrar to impose disciplinary sanctions against licenses for violations of A.R.S. § 32-1154. 2. The burden of proof at an administrative hearing falls to the party asserting a claim, right, or entitlement and the standard of proof on all issues in these matters is by preponderance of the evidence. See Arizona Administrative Code Rule 2-19-119. 3. To warrant such sanctions by the Registrar, Complainant must demonstrate by a preponderance of the evidence that Respondent violated the statutory section cited. Proof by a “preponderance” means that “the evidence is sufficient to persuade the finder of fact that the proposition is more likely true than not.” In re: Arnold and Baker Farms, 177 B. R. 648 (9th Cir. BAP (Ariz.) 1994). See also Culpepper v. State of Arizona, 187 Ariz. 431, 930 P.2d 508 (App. 1996). It is “evidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not.” BLACK’S LAW DICTIONARY 1182 (Rev. 6th ed. 1990). 4. A.R.S. § 32-1154(A) includes in pertinent part among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license, any of the following: … 9. Aiding or abetting a licensed or unlicensed person to evade this chapter, knowingly or recklessly combining or conspiring with a licensed or unlicensed person, allowing one's license to be used by a licensed or unlicensed person or acting as agent, partner, associate or otherwise of a licensed or unlicensed person with intent to evade this chapter.[3] … 14. Acting in the capacity of a contractor under any license issued under this chapter in a name other than as set forth on the license.

5. A.R.S. § 32-1154(A)(9). Complainant has presented sufficient evidence to establish that Respondent aided or abetted a licensed or unlicensed person to evade this chapter, knowingly or recklessly combined or conspired with a licensed or unlicensed person, or allowed his license to be used by a licensed or unlicensed person in violation of A.R.S. § 32- 1154(A)(9). As a threshold matter, with regard to the workers in question, the Tribunal finds that Respondent violated this section by allowing his license to be used by his own limited liability company, Diamond Allied, for the purpose of evading the applicable chapter (Chapter 10 of Title 32 of the Arizona Revised Statutes). There was no dispute that Diamond Allied, an unlicensed entity with the Registrar, submitted proposals for the projects, (Comp. Exhibit 6, 10), obtained liability insurance for the projects, (Comp. Exhibit 5), and paid its contractors or employees (Comp. Ex. 10). 6. The principal issue raised was whether Aroldo Ramirez, who worked on the Phoenix project, and Francisco Balux Tahay, who worked on the Scottsdale project, were employees or independent contractors of Respondent. In determining the presence of an employer-employee relationship, Arizona courts look to the Restatement of Agency. Santiago v. Phoenix Newspapers, Inc., 162 Ariz. 86, 89 (Ariz. App., 1988); Tarron v. Bowen Mach. & Fabricating, Inc., 225 Ariz. 147, 152 (2010). While the Restatement sets forth a non-exhaustive list of factors which are to be considered in determining whether an employer has the right to control the employee's physical conduct or method of performance of the services, the ultimate test is the right to control the method rather than the result.[4] Santiago at 90. Other factors which the courts have considered in the determining employee status include the withholding from wages of state and federal income tax and social security payments, and the payments of workmen's compensation premiums. Ringling Bros. & Barnum & Bailey Combined Shows v. Superior Court, 140 Ariz. 38, 43 (Ariz. App. 1983) (citing Industrial Commission v. Meddock, 65 Ariz. 324 (1947)). 7. It would serve little purpose to evaluate each factor outlined in the Restatement of Agency or Registrar’s Substantive Policy Statement 102 to develop something in the nature of a scorecard of all the factors. In evaluating the factors, the court looks to the totality of the facts and circumstances of each case. Reed v. Industrial Commission, 23 Ariz. App. 591, 593 (1975). No one factor is in itself controlling. El Dorado Insurance Co. v. Industrial Commission, 25 Ariz. App. 617, 619 (1976). 8. Phoenix Project: The Tribunal finds that Respondent aided or abetted Aroldo Ramirez to evade Chapter 10 and therefore violated A.R.S. § 32-1154(A)(9). Preliminarily, although Respondent was not cited in connection with using Miguel Bonilla as a worker, the evidence suggests that Respondent was contracting with and writing checks to Impressive Multi Color Painting LLC, Mr. Bonilla’s company unlicensed with the Registrar, and the Tribunal questions whether Mr. Bonilla would have become an employee of Respondent when he did had Complainant and the Registrar not began to investigate the Phoenix project. However, even if Mr. Bonilla was an employee of Respondent, as a foreman of the project, his hiring of Mr. Aroldo, an unlicensed worker, was done so on behalf of Respondent even if Respondent was unaware of it. There was no credible evidence presented that Mr. Aroldo was ever an employee of Respondent. Further, there was no evidence presented that Respondent had the requisite right to control Mr. Ramirez’s work; rather the evidence suggested he was an independent contractor and unlicensed with the Registrar. What little evidence was offered that he was a “provisional employee” was unsupported, particularly in view that he admitted he did not work for Respondent. Notably, Mr. Ramirez was to be paid in cash, and there was no evidence of tax withholding from that compensation. 9. The Tribunal found it particularly significant that Investigator Swanson testified that Respondent told his workers by cell phone to stop speaking with the Investigators, something that Respondent did not deny. While Respondent may have had to a right to so instruct his workers, such a lack of immediate cooperation suggests to the Tribunal that Respondent may have desired his workers not to be so forthcoming with the Investigators about their employment status. 10. Scottsdale Project: The Tribunal finds that Respondent aided or abetted Frank B T Painting to evade Chapter 10 and therefore violated A.R.S. § 32-1154(A)(9). With regard to Respondent’s use of Mr. Tahay or Frank B T Painting LLC to perform painting work at the Scottsdale project, the Tribunal similarly finds the evidence lacking to find an employee- employer relationship. The evidence supports a finding that Respondent did not have the requisite right to control Mr. Tahay’s work on the project. Further, the evidence reflects that Respondent had been using Frank B T Painting LLC from March through May 2018 for other projects and paying Frank B T Painting LLC directly. (Comp. Exhibit 15). While Respondent offered explanations as to why Mr. Tahay might have requested his employee compensation be paid instead to his company, it was noted that Mr. Tahay was not presented as a witness to actually explain why as an alleged employee, he would desire that all of his compensation from the Scottsdale job be paid directly to his unlicensed company. Notably, Frank B T Painting LLC was compensated on a percentage of the job price basis (less cost of materials), not hourly or by salary, and there was no evidence of withholding of taxes from that compensation for the Scottsdale project. 11. Lastly, the Tribunal is persuaded by Complainant’s argument that even if the workers in question were employees of Respondent for the relevant time periods, the evidence presented was insufficient to show that Respondent complied with the statutes or rules governing social security, workers' compensation, or unemployment insurance as required by A.R.S. § 32- 1154(A)(4). Therefore, in failing to comply, Respondent aided or abetted Mr. Aroldo and Mr. Tahay to evade Chapter 10 and therefore violated A.R.S. § 32-1154(A)(9) even if they were employees. 12. A.R.S. § 32-1154(A)(14). Complainant has presented sufficient evidence to establish cause to discipline Respondent’s contractor’s license under of A.R.S. § 32-1154(A)(14) for acting in the capacity of a contractor under a license in a name other than as set forth on the license. As stated above, there was no legitimate dispute that Respondent was operating in effect as Diamond Allied. Respondent’s argument that Respondent was the sole member of Diamond Allied and that he and the entity were purportedly “one in the same” was not persuasive. Diamond Allied was a distinct entity and Respondent offered no legal authority for the position that the alter ego doctrine could be raised in effect as a defense as contrasted with its conventional use in piercing the entity veil. 13. Accordingly, Complainant has established that Respondent’s license should be disciplined for a violation of § A.R.S. § 32-1154(A)(9) and A.R.S. § 32-1154(A)(14). RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of this Order, Anthony L. Vay, dba Certa Propainters, is suspended for five days. In the event of certification of this 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 the certification. Done this day, September 3, 2019.

/s/ Roger Geddes Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director Registrar of Contractors

----------------------- [1] The evidence reflected that Impressive Multi Color Painting LLC was an unlicensed entity with the Registrar in which Miguel Bonilla was a member. (Comp. Exhibits 12, 58). [2] The evidence reflected that Frank B T Painting LLC was an unlicensed entity with the Registrar in which Frank Balux Tahay was a manager. (Comp. Exhibits 26, 58).

[3] The Tribunal recognizes Arizona Senate Bill 1397 and the amendments to A.R.S. § 32-1154(A)(9) but has applied A.R.S. § 32-1154(A)(9) in effect at the time of the alleged violations. A.R.S. § 32-1154(A)(9) as amended reads: Attempting to evade this chapter by: (a) Aiding or abetting a licensed or unlicensed person. (b) Acting or conspiring with a licensed or unlicensed person. (c) Allowing one's license to be used by a licensed or unlicensed person. (d) Acting as agent, partner, associate or otherwise of a licensed or unlicensed person.” [4] Many of these same factors are included in the Registrar’s Substantive Policy Statement 102 (Licensed Contractors: Independent Contractors and Employees) (revised March 15, 2016).

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