ALJDEC decisions subject to certification as final

2018A-619-CHC-ROC · Registrar of Contractors · 2018-09-06

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

A Team Air Conditioning and Heating Inc,

COMPLAINANTS ,

v.

Pronto Air Conditioning & Refrigeration LLC,

License No: 315742

RESPONDENT.

No. 2018A-619-CHC-ROC

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: August 17, 2018, 1:00 P.M.

APPEARANCES: Richard D. Elley, Esq., appeared on behalf of Complainant; Alejandro Perez, Esq., appeared on behalf of Respondent

ADMINISTRATIVE LAW JUDGE: Roger A. Geddes

_____________________________________________________________________

FINDINGS OF FACT

Background and Procedure

1. Pronto Air Conditioning & Refrigeration, LLC (Respondent), is the holder of License Number 315742 issued by the Registrar of Contractors (Registrar) on November 15, 2017. (Complainant’s Exhibit AT25).

2. On or about February 8, 2018, A Team Air Conditioning and Heating, Inc. (Complainant), filed a Complaint against Respondent with the Registrar alleging fraud by Respondent in connection with Respondent’s alleged use of Complainant’s work orders, license number, credit card, credit line, and bank accounts.

3. The Registrar then issued a Citation to Respondent, dated March 8, 2018, for the alleged violation of the following:

a. A.R.S. § § 32-1154(A)(6) (doing of a fraudulent act as a contractor resulting in another person being substantially injured).

4. The Registrar issued a Notice of Hearing, setting a hearing for May 14, 2018, at 1:00 P.M. The hearing was continued to June 29, 2018, then to August 15, 2018, and then again to August 17, 2018.

5. At the hearing, Complainant presented the testimony of Orlando Galvez, owner of Complainant. Respondent presented the testimony of Francisco Bugarin, co-owner of Respondent, and employee Jose Rascon. The Tribunal received and admitted Complainant’s exhibit numbers 1 - 61 and Respondent’s exhibit numbers 1 - 11.

6. Orlando Galvez, owner of Complainant, testified on behalf of Complainant that he had hired Jose Rascon in 2016 to be Complainant’s office manager with job responsibilities of receiving work orders, scheduling, invoicing, and business development. He stated that there was no written employment agreement but that he had had a verbal agreement with Mr. Rascon that Mr. Rascon would not work for any other company while working for Complainant. Mr. Galvez further testified that he did not have a non-competition agreement with Mr. Rascon but that Mr. Rascon agreed not “steal” Complainant’s customers. He stated Mr. Rascon left his employment without notice to go to work for Respondent and that his last pay check from Complainant was October 27, 2017.

7. Complainant presented evidence purportedly demonstrating that Mr. Rascon diverted customers from Complainant to Respondent before Mr. Rascon left his employment with Complainant. (Complainant’s Exhibit AT11-12, 14, 39, 40, 361 (Mann Hopkins job)); (AT17-20 (Lambeth job); AT27-28 (Kipple job); AT316-320 (Brito job)); AT29-34 (Urban Boba Tea House job)).

8. Complainant presented evidence purportedly demonstrating that Respondent was using Complainant’s credit line to purchase equipment from Goodman Manufacturing, (Complainant’s Exhibit AT41-42, 47-48), and from Lennox. (Complainant’s Exhibit 50-51). Mr. Galvez testified that Respondent’s purchase from Goodman (Complainant’s Exhibit AT41-42) had apparently been paid in cash but that he believed that Respondent had made other purchases from Goodman under Complainant’s account for which Respondent had not paid. He stated this resulted in Complainant’s account going into collections. Complainant presented no documentation to substantiate these other purchases from Goodman for which Respondent purportedly did not pay.

9. Complainant presented evidence purportedly demonstrating that Respondent registered warranties on units sold by Respondent under Complainant’s name. (Complainant’s Exhibit AT39-40).

10. Complainant presented evidence purportedly demonstrating that Respondent was operating before its contractor’s license was issued. (Complainant’s Exhibit AT360-361, AT364, AT495).

11. Complainant presented evidence purportedly demonstrating that Respondent was using Complainant’s work order form displaying Complainant’s license number. (Complainant’s Exhibit AT19).

12. Jose Rascon testified on behalf of Respondent that he had started working for Complainant in June 2016 with the understanding that he would eventually become a partner. He stated that he instead ultimately left his employment with Complainant and told Mr. Galvez in July 2017 that he would be leaving but that he stayed on until October 2017 to assist Complainant in finding his replacement and training them. He further testified that there was no agreement for confidentiality or that he could not work for another company while employed by Complainant. In fact, he stated he told Mr. Galvez that he was also working for Respondent and that Mr. Galvez responded that “he wanted to be part of it.” Mr. Rascon further stated that he never diverted any of Complainant’s customers to Respondent.

13. Francisco Bugarin, co-owner of Respondent, testified on behalf of Respondent that he is also an owner of FRB Refrigeration in Prescott, Arizona, which is licensed for HVAC work. He stated that when he hired Mr. Rascon to work for Respondent, Mr. Rascon could not give two weeks’ notice and stated he had to continue to work for Complainant to help hire his replacement. He further testified that he was able to do the jobs Respondent did before its license was issued because FRB Refrigeration had a license.

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 acts:

...

6. The doing of a fraudulent act by the licensee as a contractor resulting in another person being substantially injured.

5. A.R.S. § 32-1154(A)(6). Complainant has not presented sufficient evidence to establish cause to discipline Respondent’s contractor’s license under A.R.S. § 32-1154(A)(6) for Respondent’s alleged fraudulent act resulting in substantial injury to another.

6. Neither party presented any legal authority of the definition of a “fraudulent act” in the statute but in argument relied upon the general common law definition of fraud:

A showing of fraud requires (1) a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) the speaker's intent that it be acted upon by the recipient in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) the hearer's reliance on its truth; (8) the right to rely on it; (9) his consequent and proximate injury.

Echols v. Beauty Built Homes, 132 Ariz. 498, 500 (Ariz. 1982). Each element of fraud must be supported by sufficient evidence and may never be established by doubtful, vague, speculative, or inconclusive evidence. Enyart v. Transamerica Ins. Co., 195 Ariz. 71, 77 (Ariz. Ct. App. 1998).

7. Complainant argued that Mr. Rascon’s alleged diversion of customers, whether then-existing customers of Complainant or potential customers of Complainant, constituted a fraudulent act. While Complainant submitted that this diversion or stealing of customers was also improper and untruthful and constituted conversion and a breach of fiduciary duty, Complainant otherwise provided no authority for this proposition that these actions, if proven to be true, could constitute a fraudulent act. Perhaps Complainant could argue that Mr. Rascon made a representation at the time he commenced employment with Complainant that he would not divert customers or otherwise work for a competing company during his employment with Complainant. Further, Complainant could argue that Mr. Rascon knew this representation to be false when he made it and that he made it with an intent to deceive Complainant. However, there was no evidence presented of this possible scenario or from which to infer that this ever happened.

8. Indeed, the parties differ on whether confidentiality, exclusivity, or non-competition were terms of the employment relationship. The Tribunal does not find credible evidence to support a finding that these terms were part of Mr. Rascon’s employment agreement with Complainant. However, even if they were, the fact that these terms were not in writing renders it difficult, if not impossible, to enforce them due to the unknown scope of those terms.

9. Even if the Tribunal were to find these verbal terms were in fact made and were susceptible to enforceability, there was no evidence presented that if and when Mr. Rascon agreed to these terms, he did so knowing that his representation to be bound by these terms was false and was made with the intent to deceive Complainant. Indeed, it is highly unlikely that Mr. Rascon could have envisioned in June 2016 when he commenced employment with Complainant that in October 2017 he would be diverting then-existing customers or potential customers of Complainant to a yet to be formed or yet to be licensed new employer entity, namely Respondent. Thus, Mr. Rascon’s failure to honor these terms, even if they existed, could at most raise a claim for breach of an oral contract, not a fraudulent act.

10. Complainant’s remaining allegations regarding Respondent’s actions do not support a finding of a fraudulent act. Complainant argued that Respondent was using Complainant’s credit line to order equipment. However, the only documentation Complainant submitted in this regard showed that Respondent had paid cash for what it had ordered, an act that would not be a use of a credit line or result in any injury. Complainant maintained there were other instances where Respondent had used Complainant’s credit line and had not paid for the purchases. However, Complainant had an opportunity to support this allegation with documentation but did not do so. Thus, this testimony alone of Complainant is insufficient to support a finding of a fraudulent act in this regard.

11. The Tribunal finds that Respondent purported registration of warranties under Complainant’s name similarly does not constitute a fraudulent act. First, the evidence was not clear that Respondent did in fact register a unit sold by Respondent under Complainant’s name. Moreover, even if it had, there was no evidence presented of any injury, such as Complainant having had to honor any such warranty for a unit that Respondent sold.

12. The Tribunal finds that Respondent purported operation before its contractor’s license was issued also does not constitute a fraudulent act. Notably, Respondent was not cited for operating without a license.

13. The Tribunal finds that Respondent purported use of Complainant’s work order form substituting Respondent’s log therein was not a fraudulent act. Complainant had no proprietary interest in its form and the Tribunal is persuaded that Respondent’s inclusion of Complainant’s license number on the form was a clerical error or oversight.

14. Lastly, a violation of A.R.S. § 32-1154(A)(6) requires a finding of substantial injury. Mr. Galvez’s unsupported testimony that Complainant’s damages caused by Respondent could approach $500,000.00 is insufficient to establish a finding of a substantial injury. Indeed, the evidence presented demonstrated that even if Complainant suffered any injury due to Respondent’s acts, its damages nowhere approached that amount.

15. Accordingly, Complainant has not established that Respondent’s license should be disciplined for a violation of § 32-1154(A)(6).

RECOMMENDED ORDER

Based on the foregoing, it is recommended that on the effective date of this Order, that the Citation and Complaint in Case No. 2018A-619 shall be dismissed.

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 6, 2018.

/s/ Roger Geddes

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors