ALJDEC decisions subject to certification as final

2019A-02226-RFA-LS-ROC · Registrar of Contractors · 2022-07-20

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Alison Sheila Mcilroy,

COMPLAINANT,

v.

Absolute Air Authority LLC

ROC License No. 287444,

RESPONDENT.

No. 2019A-02226-RFA-LS-ROC

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: June 22, 2022 at July 07, 2022.

APPEARANCES: Assistant Attorney General Mona Baskin, Esq. appeared on behalf of the Arizona Registrar of Contractors (“Registrar”) with Katelyn Rolling and David Fagerburg as witnesses. Alison Mcilroy (“Complaint”) appeared on her own behalf with Eric Spencer as a witness. No appearance(s) by or on behalf of Absolute Air Authority LLC (“Respondent”).

ADMINISTRATIVE LAW JUDGE: Jenna Clark.

_____________________________________________________________________

Having heard the evidence and testimony and having considered the record in this matter, the undersigned Administrative Law Judge hereby makes the following Findings of Fact and Conclusions of Law and issues the following Recommended Order to the Director of the Registrar.

FINDINGS OF FACT

Background and Procedure

According to the Registrar’s public website, on December 18, 2013, the Registrar issued ROC License No. 287444 for specialty dual CR-39 Air Conditioning and Refrigeration contracting to Respondent. Clinton John Harris is as the Qualifying Party and Control Person on the license. The Clint Harris Trust is also listed as a Member on the license. Respondent’s address of record for the license is 5609 E. Dixileta Dr. Cave Creek, AZ 85331.

Pursuant to Ariz. Admin. Code R4-9-117 Administrative Notice is taken of Respondent’s prior license record for ROC License No. 287444, as reflected on the Registrar’s public website. On June 20, 2022, the license was revoked by the Registrar. The license has been disciplined by the Registrar on two (2) prior occasions, and currently has one open complaint against it. The license had a $6,750.00 surety bond that was cancelled on March 07, 2020.

On April 30 2019, the Registrar received a 20-item complaint filed by Complainant alleging poor and hazardous work. Attached to the complaint was the parties’ contract and Complainant’s proof of payment to Respondent for the project.

At 10:30 a.m. on May 24, 2019, Registrar investigator David Fagerburg (“Investigator Fagerburg”) performed a Jobsite Inspection at the project site. Specifically, he inspected the work that had been done on the project to date and took 35 photographs of the project. When he was finished, Investigator Fagerburg drafted Jobsite Inspection Notes whereby he substantiated 17 of Complainant’s complaint items; numbers 3-16 and 18-20.

On June 14, 2019, Investigator Fagerburg issued a Directive from the Registrar to Respondent because he substantiated a majority of Complainant’s allegations that the work Respondent had done on the project failed to meet minimum workmanship standards. Respondent was put on notice that it had until 5:00 p.m. on July 02, 2019, to notify the Registrar of its compliance with the Directive or face discipline pursuant to Ariz. Rev. Stat. §§ 32-1154(A)(3); Ariz. Admin. Code R4-9-108, and 32-1154(A)(22) and 32-1154(E).

On June 26, 2019, the City of Scottsdale inspected Respondent’s work and “red tagged” it to identify that the work was deficient. Because Respondent’s work did not pass the city’s inspection, the Registrar did not conduct a compliance jobsite inspection.

On July 05, 2019, the Registrar issued a Citation and Complaint (“Citation”) to Respondent for alleged violations of Ariz. Rev. Stat. §§ 32-1154(A)(3); Ariz. Admin. Code R4-9-108, and 32-1154(A)(22). Respondent was given until July 22, 2019, to respond with its Answer or face discipline pursuant to Ariz. Rev. Stat. §§ 32-1154(A)(22) and 32-1155.

It is unclear from the record when, if ever, Respondent submitted an Answer to the Registrar.

On July 26 2019, the Registrar referred this matter to the Office of Administrative Hearings (“OAH”), an independent state agency, for an evidentiary hearing on September 20, 2019. Per the Notice of Hearing the issue to be determined was whether the Registrar had cause to discipline Respondent’s license based on the following charges:

Charge 1: A violation of Rule 4-9-108, titled “Minimum Construction Standards,” in the Arizona Administrative Code, and thereby of A.R.S. § 32-1154(A)(3).

Charge 2: A violation of A.R.S. § 32-1154(A)(22) (“Failure to take appropriate corrective action to comply with this chapter or with rules adopted pursuant to this chapter without valid justification within a reasonable period of time after receiving a written directive from the registrar. The written directive shall set forth the time within which the contractor is to complete the remedial action. The time permitted for compliance shall not be less than fifteen days from the date of issuance of the directive.”).

On November 20, 2019, and January 15, 2020, an administrative evidentiary hearing took place at OAH.

On February 20, 2020, the Registrar issued a Final Administrative Decision and Order to the parties whereby Respondent was held to be in violation of Ariz. Rev. Stat. §§ 32-1154(A)(3); Ariz. Admin. Code R4-9-108, and 32-1154(A)(22). As such, the Registrar suspended Respondent’s license for seven (7) business days and imposed a $250.00 civil penalty under Ariz. Rev. Stat. § 32-1154. On March 31, 2020, the Final Administrative Decision and Order became effective.

On or about January 31, 2021, the Registrar received Complainant’s petition for payment from the Residential Contractors’ Recovery Fund (“Recovery Fund”), pursuant to Ariz. Rev. Stat. §§ 32-1132(A) and 32-1154(G), in the amount of $37,952.97. Attached were Complainant’s Warranty Deed, Certificate and Authority of Trust, First Amendment to the Alison Mcilroy Trust, proof of payments Complainant made Respondent on the project, a $4,250.00 bond approval letter from Respondent’s insurance company, and proof of remediation payments to Honest Air Care and Home Services LLC (“Honest Air Care”) (ROC License No. 310928).

On April 06, 2022, the Registrar issued a Notice and Order of Recovery Fund Claim Denial to the parties which held Complainant was denied payment from the Fund because Complainant “did not sustain actual damages.” Specifically, it was determined that Complainant’s repair contract with Honest Air was not “in alignment with the original contracts” because Complainant had allegedly “upgraded her two 17 SEER gas split systems to 18 SEER gas split systems,” and because Complainant allegedly had a third SEER gas split system installed.”

On April 28, 2022, the Registrar issued an Order Amending Notice and Order of Recovery Fund Claim Denial to the parties which modified the basis for Complainant’s recovery fund denial based on the allegation that Complainant “upgraded her three 16 SEER gas split systems of 3-ton, 4-ton, and 2.5-ton capacity, to 17 SEER gas split systems of 4-ton, 5-ton, and 2-ton.” Per the Registrar, Complainant had not suffered “actual damages” because the systems she installed were “better qualify [sic]/more efficient, and of higher overall capacity.”

On April 15, 2022, the Registrar received Complainant’s appeal contesting her denied Recovery Fund petition.

On April 29, 2022, the Registrar again referred the matter to the Office of Administrative Hearings for an independent evidentiary hearing. Per the Notice of Hearing on Appealable Agency Action sent to the parties on May 13, 2022, the issue for hearing was to determine if the Registrar’s denial of Complainant’s Recovery Fund petition was appropriately made pursuant to Ariz. Rev. Stat. § 32-1131 et seq. as justified by the evidence.

On June 22, 2022 at July 07, 2022, an administrative evidentiary hearing took place at OAH.

Hearing Evidence

At the hearing, the Registrar called Katelyn Rolling and Investigator Fagerburg as a witnesses and submitted Exhibits 1-20. Complainant testified on their own behalf, called Eric Spencer as a witness, and submitted Exhibits 11, 13-16, and 27. The Notice of Hearing was also admitted into the record. The substantive evidence is as follows:

Registrar’s Case-in-Chief

Complainant owns property located at 7354 E. Baker Dr. Scottsdale, Arizona 85266, which was the site of the underlying project at issue.

Ms. Rolling testified that she is a Legal Assistant II for the Registrar. Ms. Rolling made the determination that Complainant was eligible to access the Fund because she satisfied all statutory requirements.

To determine the amount of Complainant’s prospective administrative award from the Recovery Fund, Ms. Rolling verified the original contract amount between the parties, the contract terms, and the amount Complainant paid on the contract.

To that end, Ms. Rolling determined that Complainant used a loan to pay Respondent $16,952.00 on June 11, 2018, and $7,905.00 on January 10, 2019. Complainant also issued Respondent a check for $750.00 on April 19, 2019.

On September 06, 2019, because of Respondent’s conduct, Complainant’s lender released her from the loan agreement and reimbursed her $4,435.02 for payments she had made on the loan.

Next, Ms. Rolling confirmed that on or about August 14, 2020, Complainant received a $4,250.00 payout from Respondent’s bond.

Next, Ms. Rolling consulted Investigator Fagerburg regarding Complainant’s remediation contract and payments to Honest Air. The two determined that although the company was properly licensed by the Registrar, the units the company installed to correct and/or complete the underlying project did not comport with the original contract between Complainant and Respondent. Thus, the entire $19,393.48 Complainant paid to Honest Air was disallowed as being excessive and outside the scope of the Directive.

Investigator Fagerburg testified that the units Respondent installed were tested and “running at 14 STEER,” but conceded that he could not confirm whether the units Honest Air Care installed ran at 16 STEER per the parties’ original contract.

Ultimately, because the payments Complainant made to Honest Air were disallowed, Ms. Rolling deducted $8,685.02 from Complainant’s $0.00 costs plus bids, resulting in a “negative” administrative payout from the Recovery Fund.

Complainants Case-in-Chief

Mr. Spencer testified that he is the Qualifying Party for Honest Air Care and has been working in the HVAC industry for the last twenty-six (26) years.

Per Mr. Spencer, SEER is an acronym for Seasonal Energy Efficiency Ratio, which is a rating used to calculate maximum energy efficiency in air-conditioning units. Ratings range between thirteen (13) and twenty-one (21). In Arizona, governmental regulations mandate that that the lowest SEER that can be sold in the state is fourteen (14). Air-conditioning units are sold in “SEER families” that vary in efficiency, differentiating in range by as much as two points depending on the unit’s tonnage. Thus, a 5-ton unit in a 16 SEER family may only have a 14.5 to 15.5 SEER rating, while a 3-ton unit may actually have a 16 SEER rating. Other factors, such as condenser type, ductwork, and/or furnace condition(s) may also impact a unit’s SEER.

Mr. Spencer opined that the overall capital expenditure to replace Respondent’s installations and associated ductwork on Complainant’s project was less than correction of the numerous deficiencies therein. Additionally, the units that Respondent used were not the same that Complainant had contracted for. To that end, the units Honest Air Care used to remediate the project

The units Respondent installed in Complainant’s project were not the units identified in the underlying contracts. Thus, Honest Air Care installed units from the 17 SEER family in 4-ton, 5-ton, and 2-ton to ensure that Complainant would have an overall 16 SEER output throughout.

Half size tonnage units are not available in the 17 SEER family. Honest Air Care decreased the tonnage in one unit, and increased the tonnage in another unit, to achieve the final 16 SEER output with the 17 SEER family units.

Regarding the issue of “contract mis/matching,” Mr. Spencer testified as follows:

“There was some changing that had to be done to get her 16 SEER units. That’s the bottom line. We gave what the contract asked, and that’s 16 SEER units. We did it the only humanly way possible. We had to improvise to give the customer what she wanted, a full 16 SEER. That’s what her old contract was. There was no upgrade done. We matched what was told by another company to this customer, to get her 16 SEER.”

Mr. Spencer clarified that energy efficiency is not inherently commiserate with higher SEER ratings, as certain units within a SEER family will have a lower efficiency rating than their identified rating by a point.

Closing Arguments

In closing, the Registrar argued that its denial of Complainant’s Recovery Fund petition should be upheld because Honest Air Care’s remediation contract was out of alignment with Complainant’s underlying contract with Respondent. The Registrar argued that Investigator Fagerburg’s testimony should be given more weight than Mr. Spencer’s, and opined that higher SEER ratings equate higher unit efficiency. Therefore, per the Registrar, Honest Air Care’s installation of 17 SEER units upgraded Complainant’s contract effectively cancelling her eligibility to access the Recovery Fund.

In closing, Complainant argued that the Registrar’s denial of her Recovery Fund petition was in error and should be reversed because Honest Air Care’s remediation contract produced her desired result from the underlying contract with Respondent. Complainant argued that Mr. Spencer’s testimony should be given more weight than Investigator Fagerburg’s because Mr. Spencer had more specialized industry knowledge and expertise than Investigator Fagerburg. To that end, Complainant opined that it was the Registrar’s duty and responsibility to “make her whole” due to its licensee’s unscrupulous conduct on her project, and that she had provided evidence sufficient to be issued an administrative payout from the Recovery Fund.

CONCLUSIONS OF LAW

This matter lies within the Registrar’s jurisdiction. The matter was properly brought before OAH.

The purpose of the Registrar’s licensing statutes is to protect the public from unscrupulous, unqualified, and financially irresponsible contractors.

The Notice of Hearing mailed to Respondent’s address of record is sufficient, and Respondent is deemed to have received notice of the hearing in this matter. Because OAH and the Registrar mailed all correspondence to Respondent in the same manner and failed to receive any mail returned as undeliverable by the United States Postal Service, Respondent is deemed to have received all correspondence regarding the matter as well.

Complainant bears the burden of establishing by a preponderance of the evidence that the Registrar incorrectly and/or improperly denied her Recovery Fund petition. The Registrar bears the burden to establish factors in mitigation by the same evidentiary standard.

“A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” 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.”

Pursuant to Ariz. Rev. Stat. § 32-1131 et seq., in order to be eligible to access the Recovery Fund an applicant must meet specific eligibility criteria. An individual is eligible for an award from the residential contractors’ recovery fund if they both: (1) own residential real property that is damaged by the failure of a residential contractor to adequately build or improve a residential structure or appurtenance, and (2) actually occupy or intend to occupy the residential real property as the individual’s primary residence. Additionally, the applicant must have contracted with a residential contractor who was appropriately licensed either at the time of contract execution, when the first payment on the project was made, or when the work on the project first began.

Ariz. Rev. Stat. § 32-1154(F) provides that “if a contractor’s license has been revoked or has been suspended as a result of an order to remedy a violation of this chapter the registrar may order payment from the residential contractors’ recovery fund to remedy the violation.”

Statutes shall be liberally construed to affect their objects and to promote justice. In interpreting a statute, “[w]e first consider the language of the statute and, if it is unclear, turn to other factors, including ‘the statute’s context, subject matter, historical background, effects, consequences, spirit, and purpose.”

Statutes should be interpreted to provide a fair and sensible result. “In applying a statute its words are to be given their ordinary meaning unless the legislature has offered its own definition of the words or it appears from the context that a special meaning was intended.”

The Tribunal is required to apply equitable principles when rendering decisions. The application of equity entails offering a remedy to avoid an unconscionable or unjust result.

Complainant’s eligibility to access the Recovery Fund is not at issue. The issue to be determined is whether grounds exist for the Registrar lawfully deny Complainant an administrative payout award from the Recovery Fund. Based on the relevant and credible evidence in the record, the undersigned concludes that the Registrar’s denial was in error.

Here, the fact that Honest Air Care’s contract was not identical to Respondent’s conflates the issue. The applicable statutes do not require a word-for-word recitation, only that the corrective work produce the agreed upon product from the original agreement. Respondent’s underlying contract called for 16 SEER, but the units Respondent installed had a 14 SEER output. In order to provide Complainant with what she had originally contracted for, based on her desired number of units and available tonnage, Honest Air had limited options but was ultimately able to provide Complainant with units from the 17 SEER family that collectively produced a 16 SEER residential output.

Mr. Spencer clarified the differences between individual units by ton within SEER family ratings, and credibly testified that the end result of his installations provided Complainant with the 16 SEER output she contracted for with Respondent – no more, no less. Given Mr. Spencer’s longevity and experience in the industry, his testimony is afforded more weight against any related disputed fact(s) in this matter.

But for the Registrar’s disallowance of remediation payments Complainant issued to Honest Air Care, Complainant would have received a payment from the Recovery Fund. As such, the Registrar erred when it disallowed Complainant’s cost plus bids when calculating her actual damages. Therefore, Complainant has sustained her burden of proof in this matter, as the credible evidence of record establishes that Complainant’s administrative award payout amount was improperly calculated.

Because the Registrar erred in issuing the Notice and Order of Recovery Fund Claim Denial and subsequent Order Amending Notice and Order of Recovery Fund Claim Denial, Complainant’s appeal must be granted.

RECOMMENDED ORDER

Based on the foregoing,

it is recommended that Complainant’s appeal be granted.

IT IS FURTHER RECOMMENDED that the Registrar quash the Notice and Order of Recovery Fund Claim Denial and the Order Amending Notice and Order of Recovery Fund Claim Denial, as issued on April 06, 2022, and April 28, 2022, respectively.

IT IS FURTHER RECOMMENDED that the Registrar issue a Notice of Claim for Administrative Award, within thirty (30) days following the effective date of the Registrar’s Final Order in this matter, using $19,393.48 as Complainant’s cost plus bids, less payments and reimbursements received, to calculate her administrative payout award amount.

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 forty (40) days from the date of that certification.

Done this day, July 20, 2022.

Office of Administrative Hearings

/s/ Jenna Clark

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors

By Miranda Alvarez

Legal Secretary