ALJDEC decisions subject to certification as final

2018A-284-NPC-ROC · Registrar of Contractors · 2018-04-20

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Ikon Steel LLC,

COMPLAINANT,

v.

J K D Building Group LLC ,

License No: 180400

RESPONDENT.

No. 2018A-284-NPC-ROC

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: April 2, 2018, 8:30 A.M.

APPEARANCES: Richard G. Erickson, Esq., appeared on behalf of Complainant; Chase E. Halsey, Esq., appeared on behalf of Respondent

ADMINISTRATIVE LAW JUDGE: Roger A. Geddes

_____________________________________________________________________

FINDINGS OF FACT

Background and Procedure

1. J K D Building Group, LLC (Respondent), is the holder of License Number 180400 issued by the Registrar of Contractors (Registrar).

2. On or about January 22, 2018, Ikon Steel, LLC (Complainant), filed a Complaint against Respondent with the Registrar alleging that Respondent owed Complainant the sum of $26,410.00. This amount represented an unpaid invoice, dated September 28, 2017, relating to work performed by Complainant consisting of the steel erection of a three story parking garage in Fountain Hills, Arizona, for which Respondent was the general contractor. (Complainant’s Exhibit 3).

3. On February 9, 2018, the Registrar then issued a Citation for Alleged Violation of A.R.S. § 32-1154(A)(10) for the alleged failure by Respondent to pay monies in excess of $750.00 when due for materials or services rendered in connection with Respondent’s operations as a contractor.

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 April 2, 2018, at 8:30 A.M. At the hearing, Complainant presented the testimony of Chris Kirby, Senior Project Manager of Complainant. Respondent presented the testimony of Todd Deniger, Principal of Respondent. The Tribunal received and admitted Complainant’s exhibit letters 1 - 6 and Respondent’s exhibit numbers 1 - 9.

5. Chris Kirby on behalf of Complainant testified that he was the project manager for Complainant on the job for the erection of the structural steel for a parking garage for Respondent pursuant to a contract, dated March 20, 2017. (Complainant’s Exhibit 1). He testified that Complainant provided Invoice 6788, dated September 28, 2017, with a September pay application to Respondent for the requested amount of $26,410.00 for the erection of the third floor steel portion of the project. (Complainant Exhibit 3). Invoice 6788 was forwarded to Respondent on September 28, 2017, and Complainant followed up on October 25, 2017, inquiring about payment. (Complainant Exhibit 5).

6. Mr. Kirby further testified that he received no objections to the September pay application. He stated Respondent objected in October 2017 to amounts relating to change orders but that the change orders were unrelated to the September pay application.

7. Todd Deniger on behalf of Respondent testified that Respondent prepared the contract between the parties. He stated that the owner of the project paid Respondent the subject $26,410.00 for Complainant’s work in mid-November 2017, but that Respondent credited it back to the owner at the request of the owner on January 3, 2018. This is consistent with Respondent’s job cost sheet that reflects that the owner paid Respondent $26,410.00 for Complainant’s work and then that amount was subsequently credited back. (Respondent’s Exhibit 7). Respondent contended it objected to Complainant’s work in an October 25, 2017, email to Complainant. (Respondent’s Exhibit 8).

8. Mr. Deniger further testified that he believed Complainant did not complete 100% of the erection of the third floor steel as was represented in Invoice 6788. Specifically, he testified that Complainant had not completed such items as raising two beams, welding vertical rebars, supplying inbed plates, and moving an encroaching stairway.

9. Respondent did not assert that it lacked the capacity to pay the amount Complainant contends is due.

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)(10) includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license:

[f]ailure by a licensee or agent or official of a licensee to pay monies in excess of seven hundred fifty dollars when due for materials or services rendered in connection with the licensee’s operations as a contractor when the licensee has the capacity to pay or, if the licensee lacks the capacity to pay, when the licensee has received sufficient monies as payment for the particular construction work project or operation for which the services or materials were rendered or purchased.

5. Paragraph 3 of the contract between the parties in pertinent part states,

Payment of the Subcontract price shall be made by Contractor to Subcontractor as follows: invoice in DUPLICATE shall be presented as the work progresses and payment of a like amount as that allocated to Contractor by Owner for work done under the Subcontract will be made within ten days after payment is received by Contractor in accordance with its contract with the owner, except that in such partial payments there shall be retained by Contractor zero (0%) of the estimated amount. Notwithstanding anything herein to the contrary, it is fully understood and agreed that the ONLY source and fund for any payment pursuant thereto, including extra work, progress, and final payments, shall be the corresponding payment made by the Owner to Contractor under the Prime Contract. It is therefore agreed that Subcontractor, and the Subcontractor alone, assumes the risk that the owner may fail or refuse to make such payments and Subcontractor shall be entitled to any extra work, progress, final, or other payment from Contractor ONLY if and when Contractor receives the corresponding payment from the owner.

6. According to the contract, Complainant’s invoices are to be paid within 10 days after payment of a like amount (as that allocated between Respondent and the owner) is received by Respondent in accordance with its contract with the owner. Complainant submitted Invoice 6188 to Respondent on September 29, 2017, and Respondent concedes that it received the “like amount” from owner in mid-November 2017. Thus, according to the contract, payment of the invoice “will be made” within 10 days thereof. The Tribunal finds that Invoice 6188 was “due” in late November 2017, 10 days from Respondent’s receipt of the corresponding payment from owner in mid-November 2017.

7. The Tribunal does not attach any legal significance to Respondent’s refund or crediting of the $26,410.00 back to the owner in terms of the obligation due to Complainant. Neither party provided any legal authority supporting any legal effect or even involving such circumstances. Further, the contract, drafted by Respondent, fails to contemplate these specific circumstances. The contract specifies that payment will be made to Complainant within ten days after Respondent receives the corresponding payment from the owner. There is no provision in the contract, such as a condition subsequent, that would make a payment that has become due to Complainant no longer due. The owner and Respondent had adequate time to evaluate Complainant’s invoice before the owner paid the like or corresponding amount to Respondent. The October 25, 2017, email from Respondent to Complainant is insufficient to constitute an objection to the September pay application. That Respondent did not timely object, or that owner might ultimately request a payment back, are not risks that are specifically assumed by Complainant under the contract.

8. The parties differ on whether paragraph 3 of the contract was a valid “pay-when-paid clause.” A pay-when-paid clause is effective as a condition precedent to excuse a contractor from paying a subcontractor when a corresponding payment was not received by the contractor from the owner if there is contractual language demonstrating the parties’ unequivocal intent that the obligation is to be paid out of a specific fund of money created by the owner’s payment to the contractor and that particular fund alone. L. Harvey Concrete, Inc. v. Agro Const. & Supply Co., 189 Ariz. 178, 182 (1997). Here, the applicable clause in the contract while delineating the timing of payments would also seem to clearly identify the fund that was to be the source of payments to the subcontractor: the “ONLY source and fund for any payment ...shall be the corresponding payment made by the Owner to Contractor....” However, the Tribunal need not determine the validity or effect of the clause in this case because the owner did in fact already make the corresponding payment to Respondent for which Complainant was invoiced thereby creating a specific fund of money in Respondent’s hands.

9. Respondent lastly argued that Complainant’s alleged failure to complete the third floor steel erection justified non-payment or at least supported back charges to the amount in question. However, without regard to the timeliness of raising these alleged deficiencies, Respondent has failed to present sufficient evidence to substantiate the cost to remedy in this regard. Respondent offered no evidence in the form of bids or invoices to support the cost or an estimate of the cost to correct or complete Complainant’s work.

10. Accordingly, in this matter, the evidence supports a finding that Respondent failed to pay the amount of $26,410.00 to Complainant for materials or services rendered in connection with Respondent’s operations as a contractor. Complainant has established that Respondent’s license should be disciplined for a violation of A.R.S. § 32-1154(A)(10).

RECOMMENDED ORDER

Based on the foregoing, it is recommended that on the effective date of this Order, J K D Building Group, LLC’s, License Number 180400 is suspended until the Registrar receives and accepts written verification that J K D Building Group, LLC, has paid $26,410.00 to Ikon Steel, LLC, in certified funds.

It is further recommended that if and when the Registrar receives and accepts J K D Building Group, LLC’s, evidence that it has paid Ikon Steel, LLC, $26,410.00 in certified funds, the Registrar may close the Complaint in Case No. 2018A-284-NPC-ROC.

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, April 23, 2018.

/s/ Roger Geddes______

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors