ALJDEC decisions subject to certification as final

2018A-2938-LDA-ROC · Registrar of Contractors · 2018-10-16

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: September 26, 2018, 8:30 A.M. APPEARANCES: Arizona Registrar of Contractors was represented by Assistant Attorney General Thomas Raine; Robert P. Solliday, Esq., appeared on behalf of Applicant ADMINISTRATIVE LAW JUDGE: Roger A. Geddes _____________________________________________________________________ FINDINGS OF FACT Background and Procedure 1. Applicant Tatem Air, Inc., is the holder of license 155249 issued by the Registrar. 2. On May 23, 2018, Applicant submitted an Application for Exemption from Qualifying Party Requirements. (Registrar’s Exhibit 2). 3. On June 7, 2018, the Registrar issued a Notice of Qualifying Party Exemption Denial in which the Registrar stated the ground for the denial was Applicant’s failure to show as required by A.R.S. § 32-1125(C) that the subject licensee had not had a transfer of ownership in the past 5 years of 50 per cent or more of the stock or beneficial interest. (Registrar’s Exhibit 1). 4. The Registrar issued a Notice of Hearing that set a hearing for September 26, 2018. At the hearing, he Registrar presented the testimony of Brian Kirby. Applicant Cynthia Tatem testified on her own behalf. The Tribunal received and admitted Registrar’s exhibit numbers 1 - 7 and Applicant’s exhibit numbers 1 - 16[1] 5. Brian Kirby, Chief of Licensing and Chief Information Officer, testified on behalf of the Registrar that Applicant applied for and was issued the subject license in April 2000 showing that Mark Tatem was the 100% owner of Applicant. (Registrar’s Exhibit 6). He stated that on May 16, 2018, the Registrar received an Application for Exemption from Qualifying Party Requirements (“Application”), (Registrar’s Exhibit 2), as well as an Ownership/Personnel Change form. (Registrar’s Exhibit 3). In the Application, Cynthia Tatem indicated she was the 100% owner of Applicant. The Application further reflected that Ms. Tatem had been listed on Applicant’s business tax returns as its 50% owner. Further, an accompanying letter to the application from Applicant’s accountant indicated that according to information provided by the client, Ms. Tatem had been a 50% owner of Applicant since its inception. (Registrar’s Exhibit 2). 6. Mr. Kirby further testified that the Application was denied because it reflected that Ms. Tatem was the 100% owner of the stock of Applicant. He stated that in that the Registrar’s records had reflected that Mr. Tatem had in fact been the 100% owner of Applicant, there had been a transfer of 50% or more of the ownership of the stock within the past years. He stated further that even if the Registrar’s records had reflected that Mr. and Ms. Tatem had each owned 50% of Applicant’s stock, the death of Mr. Tatem and the consequent devise or transfer of Mr. Tatem’s stock to Ms. Tatem in 2015 constituted a transfer of 50% or more of the stock of Applicant within the past 5 years. 7. Cynthia Tatem testified on behalf of Applicant that the corporation was formed in 2000 during her marriage with Mark Tatem. She stated she had always been a shareholder, director, and officer of Applicant. She testified further that in 2008, she and Mr. Tatem transferred the stock of Applicant to the Mark A. and Cynthia Family Trust dated March 20, 2008 (“Trust”), (Applicant’s Exhibit 16), and that they were sole trustees and beneficiaries of that trust. She stated that Mark Tatem, the Qualifying Party of Applicant, died in 2015. CONCLUSIONS OF LAW 1. This matter lies within the Registrar’s jurisdiction. See A.R.S. § 32-1101 et seq. 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. “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” MORRIS K. UDALL, ARIZONA LAW OF EVIDENCE § 5 (1960). 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.” BLACK’S LAW DICTIONARY at p. 1220 (8th ed. 1999). 4. In order to qualify for an exemption from a qualifying party, A.R.S. § 32-1125(C) provides that:

A licensee may make written application to the registrar for exemption from a qualifying party. The applicant shall show to the satisfaction of the registrar that during the past five years:

1. The license has been in effect.

2. A transfer of ownership of fifty per cent or more of the stock, if applicable, or beneficial interest, in the licensee has not occurred.

3. No more than five valid complaints which have not been resolved by the licensee, as determined by the registrar, have been filed against the licensee.

5. The Tribunal finds that Applicant has failed to show, to the satisfaction of the Registrar, that there has not been a transfer of ownership of 50% or more of the stock of or beneficial interest in Applicant in the past 5 years. It is not in dispute that Ms. Tatem has owned or has had a beneficial interest in 100% of Applicant’s stock at some point in time after Mr. Tatem’s death in 2015. At issue is whether Ms. Tatem owned or had a beneficial interest in that stock prior to that time, and whether and to what extent there was a transfer of stock or interest to Ms. Tatem within the past 5 years. 6. The evidence presented showed that Ms. Tatem had an ownership interest in Applicant prior to Mr. Tatem’s death. Yearly Annual Reports and Certificates of Disclosure filed by Applicant from 2010 - 2016 with the Arizona Corporation Commission all reflect that Ms. Tatem owned at least 20% of the stock. (Applicant’s Exhibit 5, 6, 7, 8, 9, 10, 11). Other evidence presented reflected that Ms. Tatem had been listed on Applicant’s business tax returns as its 50% owner and that Applicant’s accountant indicated that Ms. Tatem had been a 50% owner of Applicant since its inception according to information provided by Applicant. (Registrar’s Exhibit 2). 7. Applicant’s submitted that the case of In re the Estate of Fred N. Kirkes, 231 Ariz. 334 (2013), was dispositive on the issue as to whether there was a transfer of 50% or more of the stock in this case. The case holds that Arizona follows the “aggregate theory” for the disposition of community property upon death of a spouse, thereby permitting a spouse to devise more than a 50% interest in a particular community property asset to a non-spouse beneficiary as long as the surviving spouse still received 50% of the community property in the aggregate. 8. Based on Kirkes, Applicant argued that prior to Mr. Tatem’s death, although Ms. Tatem held an undivided 50% interest in the community property in the aggregate, she did not own 50% of the stock of Applicant or of any particular community asset. Applicant further maintained that there was no assigned or defined ownership interest in the stock either to Mr. Tatum or Ms. Tatem prior to Mr. Tatum’s death, and that the assignment of interests in their community property assets, including 100% of the stock to Ms. Tatem, was made after his death. Applicant argued that Mr. and Ms. Tatum could have assigned specific interests in the stock prior to his death but chose not to do so. The evidence, however, suggests otherwise. Applicant filed documents with the Arizona Corporation Commission attesting that Ms. Tatem owned at least 20% of the stock since 2010. Tax returns of Applicant reflect that she owned 50%. Therefore, even though the evidence supports a finding that Applicant’s stock had been a community property asset, the evidence also suggests that Mr. and Ms. Tatem in fact assigned their respective interests in the stock prior to his death at 50% each. Thus, Ms. Tatem’s subsequent 100% ownership interest reflected a transfer of 50% or more of the stock within the past five years. 9. The Tribunal finds that the transfer of the stock to the Trust in 2008 does not affect a determination of the outcome of this matter. Although the Trust document was not presented as evidence, testimony disclosed that Mr. and Ms. Tatem were the sole trustees and beneficiaries of the trust. It was not clear from the evidence whether the stock of Applicant was still held in a trust. However, any beneficial interest of Ms. Tatem in the stock would have similarly been increased by 50% upon Mr. Tatem’s death. 10. The Tribunal can appreciate Applicant’s position that enforcement of A.R.S. § 32-1125(C) under these circumstances imposes a hardship on unsuspecting spouse owners of closely-held companies. However, there was nothing presented to persuade the Tribunal that the Legislature intended to carve out an exception for transfers between spouses. 11. Accordingly, the Registrar did not err in denying Applicant’s Application for Exemption from Qualifying Party Requirements. RECOMMENDED ORDER In view of the foregoing, it is recommended that on the effective date of the final order in this matter, that Applicant’s Application for Exemption from Qualifying Party Requirements be denied. 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, October 16, 2018.

/s/ Roger Geddes Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director Registrar of Contractors

----------------------- [1] The Tribunal also took administrative notice of the Registrar’s file.

-----------------------

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