ALJDEC - Licensing

2019A-02226-RFA-LS-ROCRHG · Registrar of Contractors · 2023-04-15

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-ROCRHG

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: March 30, 2023 at 9:00 AM.

APPEARANCES: Alison Mcilroy (“Complainant”) appeared on her own behalf. Assistant Attorney General Mona Baskin, Esq. appeared on behalf of the Arizona Registrar of Contractors (“Registrar”) with Katelyn Rolling 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

Pursuant to Ariz. Admin. Code R4-9-117 Administrative Notice is taken of Respondent’s prior license record for ROC License No. 287444. On December 18, 2013, the Registrar issued the license to Respondent for Specialty Dual Cr-49 Air Conditioning and Refrigeration contracting. Clinton John Harris is as the Qualifying Party and Control Person on the license. Respondent’s address of record for the license is 5609 E. Dixileta Dr., Cave Creek, AZ 85331. The license expired on March 23, 2023. The license has been disciplined by the Registrar on 3 prior occasions, one of which is presumed to be related to the above-captioned matter. The license’s surety bond has been cancelled.

Administrative Notice is also taken for ROC License No. 294390 as issued to Respondent on September 18, 2014, for Specialty Dual CR-37 Plumbing contracting license which was revoked by the Registrar effective August 25, 2022. Mr. Harris was also the Qualifying Party and Control person on that license.

On April 30, 2019, the Registrar received a 20-item complaint filed by Complainant alleging poor work performance on an HVAC contract and one or more safety hazards. Attached to the complaint was the parties’ contract and Complainant’s proof of payment to Respondent for the project.

The Registrar assigned investigator David Fagerburg (“Investigator Fagerburg”) to the complaint.

On May 24, 2019, Registrar investigator Fagerburg inspected the work that had been done on the project. As a result, on June 14, 2019, he issued a Directive from the Registrar to Respondent because he substantiated 17 of Complainant’s’ allegations that the work Respondent had done on the project failed to meet minimum workmanship standards. Respondent was further advised to comply with the local building authority’s related inspection report. Respondent was put on notice that it had until 5:00 p.m. on July 2, 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 July 5, 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. 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.R.S. § 32-1154(A)(3)

Charge 2: A.R.S. § 32-1154(A)(22)

On November 20, 2019 and January 15, 2020, an administrative evidentiary hearing took place at OAH, presided by Administrative Law Judge T. Sheddon.

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) 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 January 31, 2022, the Registrar received Complainant’s petition for payment from the Residential Contractors’ Recovery Fund (“Fund”), pursuant to Ariz. Rev. Stat. §§ 32-1132(A) and 32-1154(G), in the amount of $37,952.97.00. Attached were Complainant’s Warranty Deed, Certificate and Authority of Trust, First Amendment to the Alison Mcilroy Trust, proof of $25,607.00 in payments made Respondent on the project, proof of $37,952.98 in payments made to Honest Air Care, ROC License No. 310928, for corrective work performed, 2 release agreements executed July 18, 2019, between Complainant and Service Finance Company, LLC (“Service Finance”) regarding Complainant’s home improvement installment loans for the underlying project, and a $4,250.00 bond approval letter from Respondent’s insurance company with a release of claim assignment.

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.

On August 19, 2022, the Registrar issued a Final Administrative Decision and Order to the parties whereby affirmed the undersigned’s decision to (1) grant Complainant’s appeal, (2) quash the April 06, 2022, Notice and Order of Recovery Fund Claim Denial, and (3) quash the April 28, 2022, Order Amending Notice and Order of Recovery Fund Claim Denial. The Registrar modified the undersigned’s recommendation decision to allow costs paid to Honest Air Care to appropriately calculate Complainant’s payout amount from the Fund, resulting in a determination that Complainant sustained $8,789.44 in actual damages.

On September 12, 2022, the Registrar issued a Notice of Claim for Administrative Award to the parties which held Complainant was awarded $8,789.44 from the Fund.

On or about September 12, 2022, the Registrar received an appeal letter from Complainant contesting her award amount from the Fund.

On September 28, 2022, the Registrar once 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 October 07, 2022, the issue for hearing is to determine if Complainant’s award from the Fund was properly calculated and appropriately issued pursuant to Ariz. Rev. Stat. §§ 32-1132 to 32-1133.01 and 32-1154(F), as justified by the evidence.

On March 30, 2023, an administrative evidentiary hearing took place at OAH.

Adopted Hearing Evidence

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 SEER,” but conceded that he could not confirm whether the units Honest Air Care installed ran at 16 SEER 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.

Complainant’s 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, as opposed to the units Honest Air Care used to correctly 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.

Rehearing Evidence

At the rehearing, the Registrar called Katelyn Rolling as a witness and submitted Exhibits 1-15. Complainant testified on their own behalf. The Notice of Hearing and all related minute entries granting continuance were also admitted into the record as their own exhibits. The substantive evidence is as follows:

Registrar’s Case-in-Chief

After the prior hearing, the Registrar recalculated Complainant’s actual damages to allow costs paid to Honest Air Care and, relying heavily on its interpretation of Ariz. Rev. Stat. § 32-1132.01(F), deducted the unpaid balance of Respondent’s original contract and money obtained from other sources from monies paid to Honest Air Care to complete the contract and repair the underlying defective performance.

The Registrar determined that Complainant’s 3 contracts with Respondent totaled $25,607.00, and that Complainant had secured $24,857.00 in loans for the project, which were paid to Respondent. It was also determined that Complainant tendered $750.00 directly to Respondent for the project. Thus, the Registrar concluded that there was no unpaid balance remaining on the underlying contract(s).

On July 18, 2019, Complainant’s lender forgave the balance of $20,478.52 owed on her loans. Additionally, on September 06, 2019, Complainant’s lender refunded $4,435.02 in payments to Complainant made on the loans for the project. On August 14, 2020, Complainant received $4,250.00 from Respondent’s bond. As such, the Registrar concluded that Complainant had received $29,163.54 from other sources which required deduction from her actual damages calculation.

Because Complainant’s 3 payments to Honest Air Care totaled $37,952.97, the Registrar deducted $29,163.54 as monies from other sources, to conclude that Complainant’s actual damages totaled $8,789.44.

Complainant’s Case-in-Chief

Complainant conceded that her loan balances totaling $20,478.52 had been forgiven, and that she had received a return of all payments she had made to repay said loans, totaling, $4,435.02. Complainant also agreed that she received $4,250.00 from Respondent’s bond.

Per Complainant, the Registrar misinterpreted Ariz. Rev. Stat. § 32-1132.01(F)’s “monies obtained from other sources” provision, as she had not been enriched by the monies received, and still needed to be “made whole” by the Registrar due to its licensee’s “unscrupulous behavior” on her project.

As such, Complainant testified that she believed she was due $29,267.95 from the Fund, as $20,478.51 had been improperly deducted from her actual damage calculation.

Closing Arguments

In closing, the Registrar argued that the forgiveness of Complainant’s loans reflect an amount recovered for her loss(es) under Ariz. Rev. Stat. § 32-1132.01(F). The Registrar argued that Complainant accepted the benefit of the payments from her lender to Respondent. Instead of having to pay the loans back, the loans were forgiven. As a consequence, Complainant did not suffer any loss of those funds. The Registrar opined that had the loan forgiveness not been reduced, Complainant would have received a “windfall” by obtaining an award from the Fund for an amount that she did not pay to Respondent, and does not owe a debt for. In short, the Registrar argued that Complainant would have received compensation for which she suffered no loss of money had it not taken deductive action. As a stewards of the monies in the Fund, the Registrar further argued that its actions were mandated by statute. Therefore, the Registrar asked that its September 12, 2022, Notice of Claim for Administrative Award be affirmed, as the Registrar opined that it had properly calculated Complainant’s actual damages.

In closing, Complainant argued that the Registrar’s calculation of her actual damages was in error and should be modified because her forgiven loans should not have been deducted from her award. 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 a $49,267.96 administrative payout from the Fund. Per Complainant, leaving her “on the hook” for just over $29,000.00 to Honest Air Care was unjust and a breach of its duty to protect the public.

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 calculated her administrative award from the Recovery Fund. 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.

Here, the issue to be determined is whether the Registrar properly calculated Complainant’s actual damages, and thusly issued her a correct administrative payout award from the Recovery Fund. Based on the relevant and credible evidence in the record, the undersigned concludes that at least one of the Registrar’s calculations were incorrect. The crux of the parties’ dispute involves Complainant’s loan forgiveness. Specifically, whether $20,478.52 should have been deducted as “monies obtained from other sources” from Complainant’s actual damages. The Tribunal finds this was in error.

As a good steward of the Fund’s monies, the Registrar may not permit an aggrieved homeowner to become unjustly enriched by receiving funds over which would make them whole. That is not what occurred in this case. Unfortunately, the loan forgiveness in this matter has conflated the issue. Complainant was merely a conduit in the transaction between the lender and Respondent. Respondent was paid in full, and walked away enriched from the project. Complainant, however, did not walk away so easily.

In the case at bar Complainant paid Honest Air Care $37,952.98 to perform remediations necessary to correct Respondent’s deficiencies, within the original scope of work. Because of Respondent’s conduct, the loans she took out to cover the cost of the contract were cancelled, and all monies she made to repay said loans were returned. Complainant was not enriched by this transaction, as she was not permitted to keep any portion of the loan. Just like the lender was not permitted to keep any of Complainant’s payments on the cancelled loans. Therefore, the only “monies obtained from other sources” reflected in the record are sourced from Respondent’s bond company.

But for the Registrar’s inclusion of Complainant’s loan forgiveness as part of the calculation of actual damages, Complainant’s administrative payout from the Fund would have been considerable larger and closer to “making her whole” as intended by applicable statutes. Because Complainant has sustained her burden of proof in the matter by a preponderance of the evidence, the Registrar’s Notice of Claim for Administrative Award must be modified and reissued.

RECOMMENDED ORDER

Based on the foregoing,

it is recommended that Complainant’s appeal be granted

it is FURTHER recommended that the Registrar’s September 12, 2022, $8,789.44 Notice of Claim for Administrative Award be quashed.

IT IS FURTHER RECOMMENDED that the Registrar issue a Notice of Claim for Administrative Award, within (30) days following the effective date of the Registrar’s Final Order in this matter, that does not include a deduction of $20,478.52 in related loans to calculate Complainant’s actual damages or administrative payout award amount.

NOTICE

Pursuant to Ariz. Rev. Stat. § 41-1092.08(I), the licensee may accept the Administrative Law Judge Decision by advising the Office of Administrative Hearings in writing not more than ten (10) days after receiving the decision. If the licensee accepts the Administrative Law Judge Decision, the decision shall be certified as the final decision by the Office of Administrative Hearings.

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, April 17, 2023.

Office of Administrative Hearings

/s/ Jenna Clark

Administrative Law Judge

Transmitted electronically to:

Martín Quezada, Director

c/o Legal Department

Registrar of Contractors

1700 W. Washington St., Ste. 105

Phoenix, AZ 85007

[email redacted]

Mona Baskin, Esq., Assistant Attorney General

Office of the Attorney General, Counsel for the Registrar

2005 N. Central Ave.

Phoenix, AZ 85004-1592

[email redacted]

Absolute Air Authority LLC, Respondent

5609 E. Dixileta Dr.

Cave Creek, AZ 85331

[email redacted]

Alison Sheila Mcilroy, Complainant

7354 E. Baker Dr.

Scottsdale, AZ 85266

[email redacted]

By: OAH Staff