ALJDEC decisions subject to certification as final

2018A-905-NPC-ROC · Registrar of Contractors · 2018-06-25

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Kay Construction Inc,

COMPLAINANT,

v.

Secon LLC,

License No: 260035

RESPONDENT

No. 2018A-905-NPC-ROC

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: May 30, 2018, 8:30 A.M.

APPEARANCES: William Kay, President of Complainant, appeared on behalf of Complainant; Dan Fredenberg, Esq., appeared on behalf of Respondent

ADMINISTRATIVE LAW JUDGE: Roger A. Geddes

_____________________________________________________________________

FINDINGS OF FACT

Background and Procedure

1. Secon, LLC, (Respondent), is the holder of License Number 260035 issued by the Registrar of Contractors (Registrar).

2. On or about February 26, 2018, Kay Construction, Inc., (Complainant), filed a Complaint against Respondent with the Registrar alleging that Respondent owed Complainant the sum of $184,700.00 for framing work in connection with the building of six condominiums.

3. On March 16, 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 May 30, 2018, at 8:30 A.M. At the hearing, Complainant presented the testimony of William Kay, President. Respondent presented the testimony of Jerry Ownby, Qualifying Party, and Barney Hernandez, Product Manager. The Tribunal received and admitted Complainant’s exhibit numbers 1 - 4 and Respondent’s exhibit numbers 1 - 6.

5. William Kay testified on behalf of Complainant that Complainant entered into a contract with Respondent, dated August 21, 2017, for the contract amount of $350,307.00 for the framing work for nine condominium units, although Complainant admitted it only completed framing work on six units. (Complainant’s Exhibit 1). He stated Respondent made three payments to Complainant totaling $75,000.00 leaving a balance due of $188,025.00, which included interest, late fees, and lien fees. He stated the balance due without interest, late fees, and lien fees was $184,700.00, although unpaid invoices he presented totaled slightly less, the amount of $184,500.00. (Complainant’s Exhibit 2). He further testified this amount included $6,900.00 for unwritten change orders for additional sheering which Respondent requested and for changes needed to accommodate plumbing.

6. Mr. Kay further testified that the contract amount for six condominium units was $263,025.00 while Respondent contended the amount was $232,540.00. After a discussion between the parties at the hearing after their review of the outstanding invoices, the parties agreed that the contract amount for six units was $250,700.00. Complainant stated he completed the project except for installation of a pony wall which he estimated to be less than $1,000.00 worth of work and that he left the job on January 31, 2018. He further testified that he did not know the specific amounts Complainant owed to its suppliers for the job.

7. Jerry Ownby testified on behalf of Respondent that Respondent had a construction loan of $1.5 million and that its lender stopped funding when Complainant’s suppliers filed liens against the property. He stated that suppliers of Complainant, 84 Lumber and Trust Fab, filed liens against the subject property on February 23, 2018, and that on or about April 19, 2018, Respondent paid 84 Lumber the amount of $85,479.00 (which included lien fees and interest), and Trust Fab in the amount of $47,011.00 to release the liens.

8. Mr. Ownby further testified that as a result of the liens of Complainant’s suppliers, Respondent has had to proceed to refinance with the lender. He testified also that he is in the process of negotiating two other liens filed by Complainant’s suppliers, Rew Materials and A & W, in the amounts of $5,984.00 and $4,806.84, respectively, and that he has paid them $2,500.00 and $1,000.00, respectively, for the release of their liens.

9. Barney Hernandez testified on behalf of Respondent that two of the units were yellow tagged by the inspectors meaning they were not completed. (Respondent’s Exhibit 4). He stated that two of the six units had not received or passed strap and sheer inspections and that there had been no certificate of completion for any of the units. He also testified that there was more work yet to be completed by Complainant than just the completion of a pony wall. He further stated that the quality of Complainant’s work was shoddy and presented photographs showing missing nails, incomplete treads, incorrect framing dimensions, incorrect beams, and missing OSB (Respondent’s Exhibit 5) and a written narrative documenting these items. (Respondent Exhibit 6). He stated that El Dorado Framing estimated an amount in excess of $45,000.00 to complete Complainant’s work, although he presented no written evidence in that regard. Lastly, he testified that alleged change order items were either not requested by him or that the extra work was attributable to errors in Complainant’s work.

10. Respondent asserted that it lacked the capacity to pay the amount Complainant contends is due, stating that its lender had suspended any further funding.

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, a 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. Complainant has not presented sufficient evidence to show the amounts due from Respondent, if any. Complainant may very well be due sums from Respondent. However, Complainant has simply has not provided sufficient documentation to show the amount it seeks (or any other amount is due) or to perform a reconciliation of the amounts allegedly unpaid by Respondent.

6. Complainant’s evidence is not sufficient to permit a reconciliation to be performed of the amounts allegedly due. The evidence reflected that the contract amount was for $350,307.00 for which Complainant admitted he had received $75,000.00. Complainant then stated the contract amount was reduced to $263,025.00, but agreed during the hearing that the amount was $250,700.00. Complainant then maintained it was owed $184,700.00 without interest and fees. However, in requesting said amount, Complainant made no adjustments for payments Respondent made to Complainant’s suppliers. Complainant could not provide the amounts its suppliers were owed. The evidence showed that Respondent paid some of Complainant’s suppliers more than Complainant owed as a result of the payment of interest and lien fees. On the other hand, the evidence also showed that Respondent paid some of Complainant’s suppliers less than Complainant owed in a compromise of the liens. Further, the evidence reflected that Respondent was still in the process of negotiating the liens of Respondent’s suppliers. Thus, amounts have not been provided to the Tribunal to permit a precise calculation as to what Complainant might be owed. In any case, an award in the amount of $184,700.00 requested by Complainant would result in a windfall to Complainant in that Respondent paid Respondent’s suppliers directly to satisfy liens against the property.

7. Further, the liens filed by Complainant’s suppliers factor into a determination as to whether Respondent has failed to make payment “when due” under the contract. Schedule C of the contract in relevant part provides:

Payment will be made to the Sub Contractor within ten (10) business days after: (1) the work is satisfactorily completed and has been inspected by the General Contractor and the Owner, (2) General Contractor has received the Sub Contractor’s invoice, statements and satisfactory release of liens or claims for all work or installed materials, and General Contractor has received all other documents from the Sub Contractor necessary to receive the disbursement of the loan necessary to pay the Sub Contractor (if any).

The final payment will be made when, (1) the property and all improvements contracted for have passed all City of Phoenix inspections, (2) the General Contractor has issued the Certificate of Completion under the Agreement and has recommended the release of funds and has stated such in writing to the General Contractor, and (3) the Sub Contractor has submitted receipts and all applicable State and local taxes have been paid, and (4) General Contractor has accepted the improvements.

Invoices 227, 228, 229, 230, 231, and 232 were all dated February 19, 2018, in the amounts of $43,050.00, $41,150.00, $1,150.00, $950.00, $33,050.00, and $33,050, respectively. (Complainant’s Exhibit 2). Therefore, these invoices in the total amount of $152,400.00 were not due until at least March 5, 2018, ten business days after submission. In the interim, according to the evidence, at least two of Complainant’s suppliers filed liens against the property. Thus, Invoices 227 - 232 were not due under the contract until Complainant provided lien releases. However, there was no evidence presented of lien releases from Complainant or that Complainant made any attempts to obtain such. The only evidence presented was that Respondent undertook to satisfy these liens. Thus, at the very least, the amount of $152,400.00 reflected in Invoices 227 - 232 did not become due, at least for determining the precise date payment was due, because Complainant did not provide lien releases as required under the contract.

8. The Tribunal also finds that Respondent’s evidence was insufficient as to Complainant’s alleged deficiencies in the work and any alleged incomplete work on the part of Complainant other than the installation of the pony wall.

9. The Tribunal further finds that Respondent’s evidence as to inability to pay was insufficient. Although evidence was presented that its construction lender had suspended funding, there was no evidence presented that Respondent had no other funds to pay Complainant.

10. Accordingly, in this matter, the evidence is incomplete and does not support a finding that Respondent failed to pay the amount of $184,700.00, or any other specific amount, to Complainant for materials or services rendered in connection with Respondent’s operations as a contractor. Complainant has not 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 the final order in this matter, that the Citation and Complaint in Case No. 2018A-905 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, June 25, 2018.

/s/ Roger Geddes______

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors