FINACT2019A-02912-CHC-ROC.pdf

2019A-02912-CHC-ROC · Registrar of Contractors · 2020-03-05

REGISTRAR OF CONTRACTORS OF THE STATE OF ARIZONA Eric R Muench, Case No. 2019-02912 COMPLAINANT, Docket No. 2019A-02912-CHC-ROC v.

MVP Buildings LLC License No. ROC 324058, FINAL ADMINISTRATIVE DECISION AND ORDER RESPONDENT. Under A.R.S. § 41-1092.08(B), the Registrar may review and accept, modify, or reject an administrative law judge’s written decision. If the Registrar modifies or rejects that decision, then the Registrar must provide written justification setting forth the reasons for the modification or rejection of each finding of fact or conclusion of law. MODIFICATION AND WRITTEN JUSTIFICATION In this case, a hearing was held, and the administrative law judge issued a written decision. See Administrative Law Judge Decision, attached. The Registrar reviewed that decision and modifies it. The administrative law judge concluded that Respondent had not violated A.R.S. § 32-1154(A)(1) and (22), because it was not a successor to Spears Enterprises, and also that Respondent had not abandoned the project. ALJ Dec. 10:17 – 11:8. However, after those conclusions, the administrative law judge made hypothetical arguments in which Respondent did abandon the project and was the successor to Spears Enterprises and made conclusions based upon those hypothetical facts. ALJ Dec. 11:9-24. Because those conclusions are not supported by the facts or law, the Registrar modifies the Administrative Law Judge’s Decision.

of 2 REGISTRAR OF CONTRACTORS 1700 W. Washington St.– Ste. 105 – Phoenix, AZ 85007-2812 Telephone (602)542-1525 Toll Free (877)692-9762 Lg131 8/19 CONCLUSION AND ORDER The Registrar modifies the Administrative Law Judge’s Decision by the following: On page 11, striking paragraphs 14 and 15. The Registrar accepts the remainder of the Administrative Law Judge’s Decision, which becomes effective on April 6, 2020.

FINAL NOTES On page 1, line 25, replace “February 27, 2019” with “February 26, 2019.” Dated February 26, 2020. By: /s/ Joseph Citelli Joseph Citelli Chief Counsel Chief of Legal and Recovery Fund Arizona Registrar of Contractors Copy mailed via USPS First Class mail February 26, 2020 to: Respondent MVP Buildings LLC PO Box 1733 Overgaard, AZ 85933 Complainant Eric R Muench POB 367 Overgaard, AZ 85933 Complainant’s Attorney Aaron Brown 2020 S McClintock Dr STE 109 Tempe, AZ 85282 Copy sent electronically this same date to: Office of Administrative Hearings Thomas Shedden, Administrative Law Judge Respondent at email address on record with the Registrar Complainant at email address on record with the Registrar Complainant’s attorney at email address on record with the Registrar Case No. 2019-02912 / DE

of 2 REGISTRAR OF CONTRACTORS 1700 W. Washington St.– Ste. 105 – Phoenix, AZ 85007-2812 Telephone (602)542-1525 Toll Free (877)692-9762 Lg131 8/19 RECEIVED 1.29.2020 ROC LEGAL

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Eric R Muench, No. 2019A-02912-CHC-ROC

COMPLAINANT ADMINISTRATIVE LAW JUDGE DECISION v.

MVP Buildings LLC, License No. ROC 324058,

RESPONDENT

HEARING: November 12, 2019 and January 9, 2020 APPEARANCES: D. Aaron Brown, Esq. for Complainant; Lawrence Gerald “Gary” Spear III for Respondent ADMINISTRATIVE LAW JUDGE: Thomas Shedden

FINDINGS OF FACT 1. On October 9, 2019, the Registrar of Contractors (“ROC”) issued a Notice of Hearing on Contested Case setting the above-captioned matter for hearing on November 12, 2019 at the Office of Administrative Hearing. The matter was convened on that that date and concluded on January 9, 2020. 2. Through the Notice of Hearing ROC alleges that Respondent MVP Buildings LLC violated ARIZ. REV. STAT. section 32-1154(A)(1) as set out in a complaint and citation that were served on MVP on August 26, 2019. 3. MVP holds license No. 324058 issued by ROC. Lawrence Gerald “Gary” Spear III is the qualifying party and he and his wife are the members of the LLC. 4. MVP’s LLC was formed on February 27, 2019, and its license was issued by ROC on April 10, 2019. 5. Complainant is Eric R. Muench. 6. This matter arose out of a contract that Mr. Muench and his wife entered with Spear Enterprises LLC. RECEIVED 1.29.2020 ROC LEGAL

7. Mr. Muench alleges that Spear Enterprises LLC breached the contract resulting in an abandonment of the contract, and that MVP is a successor to, or reincarnation of, Spear Enterprises LLC and is liable for the breach/abandonment. 8. Mr. Spear testified that MVP is not, and was not, intended to be, a successor to Spear Enterprises LLC, noting that when MVP was formed, his father Larry Spear (who then owned Spear Enterprises LLC) was still living. 9. Although Mr. Spear does not believe that MVP has liability for Spear Enterprises LLC’s work, he has been, and continues to be, willing to abide by ROC’s mandates to make any required repairs to complete the building that is the subject of the contract. 10. Mr. Spear also argues that it is the Muenches who breached the contract by failing to make all required payments. 11. The payment terms were $12,000 on signing, $12,000 when the building shipped, and the remaining balance of $5600 before installation. The Muenches have paid to Spear Enterprises LLC the two $12,000 payments, but not the remaining balance of $5600. 12. Mr. Muench argues that the last payment is not due, because the complete building has not shipped, whereas Mr. Spear argues that Spear Enterprises LLC was not required to begin construction until the final payment is made. The Muenches have filed a civil lawsuit regarding their breach of contract claim(s). 13. Spear Enterprises LLC is not a party to this matter and it was never licensed by ROC. 14. Gary Spear was 50% owner of Spear Enterprises LLC from January 13, 2015 until September 27, 2018. Gary’s father Larry Spear owned the other 50% during the time Gary Spear was 50% owner and Larry Spear was the 100% before and after that time. In this Decision Gary Spear is typically referred to as Mr. Spear, with his father being referred to as Larry Spear. 15. In March 2019, Larry Spear passed away, and Gary Spear became the owner of Spear Enterprises LLC through his father’s will.

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16. Although Spear Enterprises LLC was still in existence as of January 2020 it was not conducting business, but rather was being held while Mr. Spear sorts out his father’s affairs. 17. Mr. Spear owns and operates several other businesses including Gary Spear Agency, which along with MVP and Spear Enterprises LLC, operates out of the same building located on Highway 260 in Heber.1 18. On April 21, 2018, Mr. Muench and his wife Betsy entered a contract with Spear Enterprises LLC through which it sold to the Muenches a VersaTube-brand steel building. Through the contract Spear Enterprises LLC also agreed to construct the building at the Muenches’ property located at 3380 Purple Sage Drive in Overgaard. 19. Mr. Spear was a 50% owner of Spear Enterprises LLC when the Muenches entered the contract. 20. Gary Spear was not involved in the sale or the negotiations leading to the sale, which details were handled by Larry Spear. Gary handled accounting matters for Spear Enterprises LLC and also worked with the building-crews. 21. Spear Enterprises LLC subcontracted to have the foundation poured and began construction of the building without obtaining the required permit and Navajo County ordered that the work be stopped. 22. To get a permit, Spear Enterprises LLC was required to obtain and submit plans to the County, which it did, and Navajo County issued the permit on August 2, 2018. 23. On September 7, 2018, Spear Enterprises LLC was at the site working on the building under Mr. Spear’s direction when ROC issued to Mr. Spear a Cease and Desist Order. 24. The Cease and Desist Order charged Mr. Spear with contracting without a license and assessed against him a civil penalty of $2500. The civil penalty was reduced to $200, which Mr. Spear paid.

1 Mr. Muench’s exhibits 14 and 15 are advertisements for Gary Spear Agency. Mr. Muench had these entered into evidence in an effort to tie MVP to Spear Enterprises LLC. But neither ad mentions MVP or Spear Enterprises LLC and the exhibits are of no significant probative value. 3 RECEIVED 1.29.2020 ROC LEGAL

25. Navajo County inspected the property, and on September 17, 2018, it issued a Notice showing that the footings were not dug per plan and that the screw pattern in part of the building’s framing was also not to plan. 26. After ROC issued the Cease and Desist Order, Mr. Muench filed with ROC a complaint against Spear Enterprises LLC. 27. After the Cease and Desist order was issued, Larry Spear filed with ROC an application for licensure for Spear Enterprises LLC. Gary Spear was to be the qualifying party. 28. ROC informed Gary Spear that Spear Enterprises LLC did not meet the qualifications for licensure based on Larry Spear’s background, but ROC’s legal counsel did not see any bar to Gary Spear obtaining a license. 29. Mr. Spear formed MVP and applied for its license. In MVP’s application, Mr. Spear disclosed that he had been issued the Cease and Desist Order and he disclosed that he had been involved with Spear Enterprises LLC’s application that was withdrawn. 30. After MVP obtained its license, Mr. Muench learned that Mr. Spear was involved with MVP; he brought the information to ROC’s attention and “Joe” told him to refile his complaint naming both Spear Enterprises LLC and MVP as the contractor. 31. On June 5, 2019, Mr. Muench filed with ROC his complaint against both LLCs alleging abandonment. ROC assigned Danny Oen to investigate the complaint. 32. On June 28, 2019, Mr. Oen conducted a jobsite inspection at which Messrs. Spear and Muench were present. At that time the two men provided Mr. Oen with their perspectives of the contract dispute, and they discussed the fact that the foundation had not passed inspection and whether that could be remedied with mobile- home type anchors. 33. Part of Mr. Muench’s basis for asserting that Spear Enterprise LLC breached the contract is that not all the parts for the building frame are present on the site. During the jobsite inspection, Mr. Spear said that MVP would get the parts to finish the job if Mr. Muench wanted him to do so, or if ROC ordered MVP to do so.

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34. Also not at the site are two windows, the man-door, and the garage door. At hearing Mr. Spear testified that it was common practice to not have the windows and doors delivered until the time of installation to avoid damage. 35. After his jobsite investigation and other investigative work, Mr. Oen determined that it was appropriate to issue to MVP a directive requiring it to complete the building for the following reasons: (1) the “Respondent” 2 was 20% or more owner of Spear Enterprises LLC at the time of the contract; (2) the “Respondent” worked on the project as an unlicensed entity before ROC issued to it the Cease and Desist Order on September 7, 2018; (3) the “Respondent” worked with the Attorney General’s Office and ROC to get the civil penalty reduced from $2500 to $200 and obtain a valid ROC License; (4) the “Respondent” listed this project on the Unlicensed Activity Disclosure Form that MVP filed with its application for licensure; and (5) the Navajo County Inspector dealt with the “Respondent” on this job. 36. At the hearing Mr. Oen added that a November 19, 2018 letter from Spear Enterprises LLC to Mr. Muench’s attorney that had Gary Spear’s name in the signature block was also a factor in his decision to issue the Directive to MVP. Mr. Spear testified however that he had not authorized his father to use his name and that he was not a member of Spear Enterprises LLC when his father wrote the letter. 37. On July 30, 2019, Mr. Oen contacted Mr. Muench and Mr. Spear and advised them that he was issuing a Directive against MVP’s current ROC License. 38. In response to Mr. Oen, Mr. Spear said he was happy to finish the project, but he wanted Mr. Muench to pay the $5600 balance owed as required by the contract. Mr. Oen emailed Mr. Muench informing him that MVP wanted to finish the project, but wanted the $5600 first. Mr. Muench responded that he figured as much and that they would work something out. 39. On August 1, 2019, ROC issued to MVP a Directive that provides in part: …. You must provide the Registrar with satisfactory written proof of your compliance with this Directive prior to 5:00 p.m. on 8/19/2019.

2 In his notes, Mr. Oen referred to both Mr. Spear and MVP as “Respondent.” 5 RECEIVED 1.29.2020 ROC LEGAL

You are hereby directed to remedy the following violations by the appropriate means and obtain a passing final inspection from Navajo County. (Underscoring in original.)

Complaint Item 2: Verified. Spear started installation of the building Framework 6/12 -6/13 but then stopped work until 9/3/18 Unknown to us Spear was Unlicensed. We contacted Craig Thatcher, Badge #202 AZ ROC issued a criminal cite for his building at my site and another cease and desist with a fine. There are at least 2-3 more buildings like this in the area. Spear has not delivered the materials paid for and has taken materials from the building kit preventing completion (valued at $1200) and has never returned since 9/3/18”

Investigator’s Observation: I observed several piles of parts to the metal building in the yard. I observed the majority of the frame system for the building erected on a concrete pad without footers. (Underscoring added.)

Governing Rule: Workmanship Rule: ARS 32-1154(A)(1) Abandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.

The Registrar has determined that any workmanship violations alleged in the complaint but not listed above are unsubstantiated and do not require corrective action.

40. After receiving the Directive, Mr. Spear began working to comply by contacting Navajo County to discuss an engineering solution for the foundation and by contacting VersaTube’s engineers regarding the same. 41. Mr. Oen acknowledged that the Directive did not allow MVP sufficient time to make the repairs that ROC ordered it to complete. Mr. Oen’s opinion was that 30 days would not have been sufficient, but 60 days might have been. Mr. Oen explained 6 RECEIVED 1.29.2020 ROC LEGAL

that ROC would nevertheless not issue any extensions to the deadline unless Mr. Muench was willing to allow it. 42. On August 6, 2019, Mr. Muench emailed Mr. Oen acknowledging receipt of the Directive, and noting that he had questions but would talk to his attorney given the existence of a statute of limitations deadline for any civil lawsuit. Mr. Muench acknowledged the $5600 contract balance and stated that he might be willing to put it into escrow for MVP, but based on how he (and Ms. Muench) had been treated, that it was up for discussion. 43. On August 7, 2019, Mr. Muench emailed Mr. Oen writing that if MVP showed sufficient progress, such as proving he had ordered the missing parts, “he will get an extension” of time. Mr. Muench noted that MVP also needed to get engineering done to pass the County inspection, which he acknowledged can “burn time.” 44. On August 15, 2019, Mr. Spear left Mr. Oen a voicemail to the effect that he had been trying to contact Mr. Muench, that he was working with Navajo County on re-engineering the building’s footings, that Mr. Muench’s attorney had contacted him with a settlement offer, and that he wanted to make sure that he was complying with the Directive. 45. On August 19, 2019, MVP submitted to ROC a letter that it styled as a response to the Directive. Through the letter of August 19th, Mr. Spear explained that: a. He had discussed with Navajo County’s building inspector a solution to the failed inspection of the foundation that called for VersaTube’s engineers to prepare plans showing that mobile-home type anchors would meet code requirements and that VersaTube’s engineers were working on it. b. He related that: he had attempted to contact Mr. Muench without success; Mr. Muench’s attorney made a settlement offer and he explained to the attorney that he had a viable solution to complete the project; the attorney agreed to look into that solution; and he was waiting to hear back as to whether Mr. Muench would accept the proposed solution. 7 RECEIVED 1.29.2020 ROC LEGAL

c. He requested a 60 day extension on the Directive to allow him to obtain the revised plans, to submit them to Navajo County for review, and for Mr. Muench to accept or reject the proposed solution. d. He also restated his position that the contract called for the final payment of $5600 before installation started, and that Mr. Muench was threatening to sue him. He stated that he would not move forward on any corrective work until it was paid under the contract terms. e. He effectively asked ROC to issue a ruling on the contract dispute, and stated that if ROC could not do so, he would like to have the matter referred to an Administrative Law Judge. 46. On August 19, 2019, Mr. Oen and Mr. Muench exchanged emails in which Mr. Muench stated that he did not agree with Mr. Spear’s version of events, he considered MVP to have abandoned the project, and he suggested that he and Mr. Oen talk. 47. On August 21, 2019, Mr. Oen spoke to Mr. Muench asking if he was willing to extend the deadline by which MVP had to comply with the Directive, but Mr. Muench was unwilling to do so. 48. On August 21, 2019, Mr. Oen spoke with a VersaTube representative who informed him that Mr. Spear had instructed VersaTube to move forward on the revised engineering plans. 49. On August 26, 2019, ROC issued to MVP a Citation alleging it may have violated ARIZ. REV. STAT. section 32-1154(A)(1). 50. On September 9, 2019, MVP filed an answer to the Citation in which it acknowledged that ROC found it responsible for Spear Enterprises LLC’s contract with the Muenches, it reasserted its breach of contract argument, and explained that it had ordered the revised engineering plans, which it expected to have within two weeks. 51. On the first day of the hearing, Mr. Spear provided the tribunal and Mr. Muench a copy of the revised plans, although it appears that Mr. Muench may not have accepted the copy Mr. Spear offered to him. Mr. Spear also filed a copy with the Office of Administrative Hearings on that date. 8 RECEIVED 1.29.2020 ROC LEGAL

52. At the hearing, Mr. Oen affirmed his decision that Mr. Spear had sufficient involvement with Spear Enterprises LLC to warrant ROC issuing the Directive to MVP. 53. At the hearing, Mr. Oen testified that after the Directive was issued, MVP was working to comply with ROC’s order by meeting with Navajo County and paying to have the additional engineering done, but Mr. Muench would not agree to an extension of time to allow MVP to finish the project. 54. Mr. Spear acknowledged that after the Cease and Desist Order was issued, no work had been conducted at the site, but he added that MVP was working to comply with ROC’s Directive as evidenced by its work with the County and in obtaining the revised engineering. CONCLUSIONS OF LAW 1. Unless otherwise provided by law, a party asserting a claim, right, or entitlement bears the burden of proof; a party asserting an affirmative defense has the burden of establishing the affirmative defense. The standard of proof on all issues in this matter is that of a preponderance of the evidence. ARIZ. ADMIN. CODE § R2-19-119. 2. “At a hearing on an agency action to suspend, revoke, terminate or modify on its own initiative material conditions of a license or permit, the agency has the burden of persuasion.” ARIZ. REV. STAT. § 41-1092.07(G)(2). 3. A preponderance of the evidence is: The 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 1373 (10th ed. 2014). 4. Statutes should be interpreted to provide a fair and sensible result. Gutierrez v. Industrial Commission of Arizona, 226 Ariz. 395, 249 P.3d 1095 (2011)(citation omitted); State v. McFall, 103 Ariz. 234, 238, 439 P.2d 805, 809 (1968) ("Courts will not place an absurd and unreasonable construction on statutes.").

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5. “Statutes shall be liberally construed to effect their objects and to promote justice.” ARIZ. REV. STAT. § 1-211(B). 6. The purpose of the Registrar’s licensing statutes is to protect the public from unscrupulous, unqualified, and financially irresponsible contractors. See Aesthetic Property Maintenance v. Capital Indem. Corp., 183 Ariz. 74, 900 P. 2d 1210 (1995). 7. There was no substantial evidence showing that MVP is unscrupulous, unqualified, or financially irresponsible. 8. The Administrative Law Judge may consider ROC’s administrative record. See ARIZ. ADMIN. CODE § R4-9-118. 9. A license holder is subject to discipline for the “Abandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.” See ARIZ. REV. STAT. section 32-1154(A)(1). 10. Mr. Muench argues that MVP has successor liability for Spears Enterprises LLC’s contract, that Spears/MVP has breached the contract, and that the breach is an abandonment of the contract. MVP argues that it is not liable for Spears Enterprises LLC’s contract, that it is the Muenches who are in breach, and that there was no abandonment. 11. In support of his argument for successor liability, Mr. Muench cites Warne Investments, Ltd. v. Higgins, 195 P.3d 645, 219 Ariz. 186 (Ariz. App. 2008), but that case is not applicable in this matter. Warne addresses matters in which an entity sells or transfers its principal assets to a successor entity. There is no evidence in the record showing that Spear Enterprises LLC sold or transferred any assets to MVP, nor is there any substantial evidence showing that MVP is a successor to Spear Enterprises LLC. Mr. Muench has not shown that MVP has successor liability for Spear Enterprises LLC. 12. Mr. Muench argues that Spear/MVP has abandoned the project by virtue of having breached the contract, but he has not proven this by a preponderance of the evidence. Instead the preponderance of the evidence shows that the parties have what appears to be a good faith dispute resulting in mutual allegations of breach of contract that is being litigated in the civil courts.

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13. After ROC issued to MVP its Directive ordering MVP to comply with Spear Enterprises LLC’s contract, MVP took steps to comply with the Directive. The preponderance of the evidence shows that ROC, through its Directive, did not allow MVP enough time to complete the work ROC ordered it to complete. After Mr. Muench refused to allow MVP an extension of time to comply with ROC’s Directive, MVP continued to work to comply with the Directive. Under these facts, the appropriate conclusion is that Mr. Muench was unwilling to allow MVP time to finish the project, not that MVP abandoned the project. 14. Although Mr. Spear at times has stated an unwillingness to proceed on substantive repairs unless and until Mr. Muench pays the remaining balance on the contract, he also asked ROC to either resolve the contract dispute or to set a hearing on it, which ROC chose not to do. Consequently, although Mr. Spear’s comments do not constitute abandonment (because he was still working on the project when he made the comments), even if they did, his request for a hearing on the contract dispute would provide a legal justification. See J.W. Hancock Enterprises, Inc. v. Arizona State Registrar of Contractors, 142 Ariz.400, 690 P.2d 119 (App. 1984)(ROC has authority to resolve disputed contracts); ARIZ. REV. STAT. § 32-1154(A)(2)(failure to comply with a contract’s plans or specifications is a basis on which a license holder can be disciplined). 15. It has not been shown by a preponderance of the evidence that Spear Enterprises LLC abandoned the project because it was actively working on the building on the day that ROC issued the Cease and Desist Order and its status as an unlicensed entity provides a legal excuse for its failure to complete the project.3 Consequently, even if ROC was to agree with Mr. Muench that MVP is a successor to Spear Enterprises LLC, MVP would not be in violation of subsection 32-1154(A)(1).

3 Discipline for this unlicensed activity was addressed by ROC through the Cease and Desist Order and civil penalty and, presumably, ROC conducted additional investigation of the unlicensed activity as a result of the complaint Mr. Muench filed with ROC against Spear Enterprises LLC. 11 RECEIVED 1.29.2020 ROC LEGAL

16. It has not been proven by a preponderance of the evidence that MVP Building LLC violated Ariz. Rev. Stat. section 32-1154(A)(1) and this matter should be dismissed. RECOMMENDED ORDER IT IS ORDERED that on the effective date of the final Order in this matter case number 2019-02912 is dismissed.

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 is forty days after the date of that certification.

Done this day, January 29, 2020.

/s/ Thomas Shedden Thomas Shedden Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director Registrar of Contractors

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