ALJDEC decisions subject to certification as final

2019A-04162-RFA-ROC · Registrar of Contractors · 2020-12-14

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Thomas Michael Green,

COMPLAINANT

Orona’s Construction LLC,

License No. 240264,

RESPONDENT

No. 2019A-04162-RFA-ROC

ADMINISTRATIVE LAW JUDGE

DECISION

HEARING: October 14, 2020

APPEARANCES: Thomas Michael Green on his own behalf; Frank Orona for Respondent; Sara Asta, Esq. for the Registrar of Contractors.

ADMINISTRATIVE LAW JUDGE: Thomas Shedden

FINDINGS OF FACT

On September 11, 2020 the Registrar of Contractors (“ROC”) issued a Notice of Hearing on Appealable Agency Action setting the above captioned matter for hearing at the Office of Administrative Hearings on October 14, 2020.

The Notice of Hearing’s “Statement of Matters Asserted” provides: “Respondent [Orona’s Construction LLC] has contested the Registrar’s determination regarding Thomas Michael Green Recovery Fund Claim. The Registrar’s determination was made pursuant to A.R.S. §§ 32-1132 to 32-1133.01.”

The issue is under consideration is Mr. Green’s claim for a payment from the residential contractors’ recovery fund.

Frank Gerardo Orona is Respondent’s qualifying party and a member of the LLC.

Mr. Green appeared on his own behalf and testified; Mr. Orona appeared and testified for Respondent; ROC presented the testimony of Doug Ulmer, a Legal Assistant II who evaluated Mr. Green’s recovery fund claim.

Mr. Ulmer provided credible testimony showing that Mr. Green meets the requirements to receive a payment from the recovery fund.

In his claim, Mr. Green requested a payment of $14,000. Mr. Ulmer recommended that Mr. Green be awarded a payout of $12,500.

ROC issued as Notice of Claim for Administrative Payout, showing that Mr. Green “is to be awarded $12,500 in the form of a payment issued by the Fund.” (Underscoring added.)

Respondent requested a hearing, resulting in this matter being convened.

Legal issues

Because in prior recovery fund hearings, ROC and the Administrative Law Judge have not agreed as to which party has the burden of proof or whether this matter is an “appealable agency action,” or a “contested case," the record was held open for written closing arguments.

On November 16, 2020, ROC and Mr. Green filed their respective Closing Arguments; Respondent did not file a closing argument.

As discussed below, ROC’s position is that the matter is an appealable agency action and that Respondent is an appellant who bears the burden of proof.

The ALJ’s opinion is that the matter is a contested case, and that because Mr. Green filed a recovery fund claim asserting that he was entitled to a benefit in the form of a payment from that fund, he bears the burden of proof regardless of whether the matter is an appealable agency action or a contested case.

The operative facts

In July 2019, Mr. Green hired Respondent to repair cracks in the stucco at Mr. Green’s house in Yuma. The contract price was $3300 and Mr. Green paid Respondent in full.

On August 16, 2019, Mr. Green filed with ROC a complaint against Respondent alleging poor work on Respondent’s part.

ROC investigator Ruben Perez inspected the work and determined that there were numerous areas where the cracks that Respondent had repaired did not blend in with the rest of the stucco. On September 23, 2019, ROC issued a Directive ordering Respondent to correct the workmanship deficiencies that Mr. Perez had identified.

On October 24, 2019, ROC issued to Respondent a Citation alleging that Respondent may have violated Ariz. Rev. Stat. sections 32-1154(A)(3), (A)12) and (A)(22).

In a Final Administrative Decision and Order dated February 5, 2020, ROC adopted an Administrative Law Judge Decision finding that Respondent’s work was deficient as identified by Mr. Perez and that Respondent had violated Ariz. Rev. Stat. sections 32-1154(A)(3) and (A)(22). Based on these proven violations ROC suspended Respondent’s license for one day and assessed against it a civil penalty of $500.

Mr. Green submitted to ROC a Recovery Fund Claim dated June 12, 2020 in which he declared that the lowest bid to repair or complete the project was $12,500, he had already spent $1500 to make repairs, and he expected to receive $14,000 from the Fund.

Mr. Ulmer reviewed four bids that Mr. Green submitted to ROC in support of his recovery fund claim: (1) David White Construction and Plastering for $12,500, dated June 4, 2020; (2) New Generation Painting for $13,360, dated June 1, 2020; (3) Sunquest Painting LLC for $11,500, dated April 22, 2020; and (4) Sunquest Painting’s revised bid for $17,000 explaining that the first bid was in error, dated August 14, 2020.

Mr. Ulmer’s opinion was that Sunquest Painting’s first bid should be disallowed because it included work that was not included in Mr. Green’s contract with Respondent.

Mr. Ulmer considered Mr. Green’s request for a payment of $1500 to compensate him for a payment he made to Gary Stamp for painting done at the house after Respondent’s work but before Mr. Green filed the underlying workmanship complaint.

Mr. Ulmer found that Mr. Green’s payment to Mr. Stamp was not compensable because painting was not part of the contract between Mr. Green and Respondent.

The bid by David White Construction and Plastering was signed by Mr. Green on June 12, 2020. The scope of work included scraping existing loose and heavy texture from the walls and coloring the walls; the total price was $12,500, with the cost provided in a lump sum and not by individual task.

Through an email dated August 21, 2020, Mr. Ulmer provided Mr. Perez with copies of the bids, ROC’s Directive and the parties’ contract; he informed Mr. Perez that he was considering using the David White bid; he informed Mr. Perez that the scope of work in all the bids was to re-stucco and not patch; and he wrote “I want to make sure you feel this is not excessive. Please review the bids and make any recommendations you may have.”

Mr. Perez responded on August 24, 2020 stating “It seems appropriate.”

Mr. Ulmer prepared a spreadsheet with the pertinent information, including calculations to determine a “FINAL PAYOUT RECOMMENDATION,” which he found to be $12,500.

Mr. Ulmer’s calculation is straightforward: he determined that it was appropriate to use the repair bid of $12,500, Mr. Green’s claim for the $1500 was not compensable, and there was no balance owing on the original contract and no change orders, therefore, $12,500 is the recommended payout.

Mr. Ulmer testified that no payment had been made to Mr. Green and that to his understanding, no award has been issued.

Mr. Orona testified to the effect that $12,500 was excessive for the work at issue, and that he could do it for $8500. He also testified that he had offered to refund to Mr. Green the $3300, but Mr. Green had refused that offer.

On May 20, 2020, ROC issued a Notice of Claim for Administrative Award providing in part:

Complainant filed a claim for payment with the Residential Contractors’ Recovery Fund pursuant to A.R.S. § 32-1133.01(A). After a review of the claim and all supporting documentation, the Fund determined that Complainant is to be awarded $12,500.00 in the form of a payment issued by the Fund.

REQUEST FOR ADMINISTRATIVE HEARING

In accordance with A.R.S. § 32-1133.01, both Complainant and Respondent have 15 days from the date of mailing of this Notice to file an administrative hearing request to contest the amount or propriety of the payment. A request must be received by the Registrar no later than September 29, 2020. Pursuant to A.R.S. § 32-1133.01(C), the failure of Complainant or Respondent to file a timely written request for a hearing may be deemed a waiver to contest the amount or propriety of the payment awarded.

(Underlining with bolding added; italics and bolding only in original.)

Regarding the question of whether the matter is an appealable agency action or a contested case, through its written Closing Argument ROC provided in part:

Procedurally, a hearing on a contested case occurs before the agency renders a decision.

No hearing is required for a recovery fund payout. “The Registrar, as administrator of the Recovery Fund, simply reviews the paperwork filed for a Recovery Fund payout, issues an award without a hearing taking place, and notifies the parties of the award. (Underscoring added.)

A Recovery Fund award refers to the Notice of Claim for Administrative Award (NCAA), which is the document issued after the Registrar of Contractors determines what the claimant should be awarded. See A.R.S. § 32-1133.01(B). This is different than a Recovery Fund payout which refers to the Registrar actually issuing a check from the Recovery Fund for the award amount. See A.R.S. § 32-1137. (Underscoring in original.)

The Respondent’s license will be suspended when a check is issued. [See ROC Closing p. 6, lns. 18 – 20.]

It is only if one or more of the parties to the underlying contested case questions the amount or propriety of the Recovery Fund award, “that an appeal arises from the Registrar’s decision through a hearing request.” (Underscoring added.)

The only issue on appeal is whether ROC’s determination was reasonable. Notably, the hearing for this review comes after ROC has issued a recovery fund award, [i.e., the Notice of Claim], thereby fitting squarely in the definition of an appealable agency action. (Underscoring added.)

The sole purpose of a Recovery Fund hearing is whether the Registrar’s decision to order an award (i.e. the agency action) should be affirmed.

A Recovery Fund hearing shouldn’t be mistaken for a contested case simply because the Respondent may have its license suspended by operation of law for failure to reimburse the Recovery Fund.

A suspension will occur only “after the Recovery Fund hearing has concluded ... , a Final Decision and Order (Order) is issued and the Respondent subsequently chooses to not pay the Recovery Fund amount” itself before ROC makes a payment to Mr. Green.

ROC’s Final Decision and Order [authorizing a check to be issued] in this matter will not be issued for at least 40 days. “Getting a Recovery Fund check issued for payment, thereby triggering the suspension, also takes administrative time (typically less than a week).” Consequently, Respondent can avoid suspension by “preemptively” paying the award amount before a payment from the recovery fund occurs.

A suspension resulting from a recovery fund matter is similar to other matters in which a “license may be suspended or revoked by operation of law due to a failure to make a required payment.”

1) A.R.S. § 32-1154 (C) permits automatic suspension of a license for failure to pay certain taxes; 2) A.R.S. § 32-1154 (E) permits automatic revocation for failure to pay any civil penalty imposed under the same subsection; and 3) A.R.S. § 32-1124(F)(3) permits suspension of a license when a license or a renewal is obtained with insufficient funds, to name a few.

Characterizing a recovery fund hearing as a contested case is “inconsistent with the Registrar’s statutory framework for a licensee’s failure to make certain other required payments.”

Regarding the burden of proof, ROC’s Closing Argument provides:

As a general rule, the burden of proof rests on the party bringing the charges or making a claim. On a contested case on revocation or suspension of a license, the burden of proof is on ROC; on an appeal from an appealable agency action such as a license denial or an application for benefits, the burden is generally on the appellant. (Underscoring added.)

The Recovery Fund award, a “benefit” for a claimant, is reviewable as an appealable agency action so the appellant has the burden of proof.

Respondent has the burden of proof because it made a claim by challenging the award. This conclusion is consistent with Ariz. Admin. Code section R2-19-119(B) that “specifically says .... the party asserting a claim, right, or entitlement has the burden of proof,” “[u]nless otherwise provided by law.”

ROC concludes that: it evaluated Mr. Green’s recovery fund claim using its internal processes; during that evaluation it took the extra step of having Mr. Perez look at the bids to see if these were in line with the Directive and the contract; Mr. Ulmer testified as to the details of this process, and consequently, it requests that the Recovery Fund award of $12,500 to Mr. Green be affirmed.

Mr. Green concludes that ROC’s decision regarding the $12,500 is correct, but he should also be awarded the $1500 he paid to Gary Stamp, and an additional $1500 for alleged damages that are beyond the scope of this hearing.

CONCLUSIONS OF LAW

Applicable Statutes and Rules

Unless otherwise provided by law: the party asserting a claim, right, or entitlement has the burden of proof. Ariz. Admin. Code § R2-19-119(B).

The standard of proof on all issues in this matter is that of a preponderance of the evidence. Ariz. Admin. Code § R2-19-119(A).

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).

“Contested case means any proceeding ... in which the legal rights, duties or privileges of a party are required or permitted by law, other than [Title 41, Chapter 6], to be determined by an agency after an opportunity for an administrative hearing.” Ariz. Rev. Stat. § 41-1001(5).

“‘Appealable agency action’ means an action that determines the legal rights, duties or privileges of a party and that is not a contested case.” Ariz. Rev. Stat. § 41-1092(3).

Ariz. Rev. Stat. section 32-1133.01 provides in pertinent part:

A. Notwithstanding any other provision in this chapter, if a contractor license has been revoked or 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.

B. The registrar must serve the contractor with a notice setting forth the amount claimed or to be awarded.

C. If the contractor contests the amount or propriety of the payment, the contractor must ... request[ ] a hearing to determine the amount or propriety of the payment. The contractor's failure to respond in writing within ten days after the date of service may be deemed a waiver by the contractor of the right to contest the amount claimed or to be awarded.

(Bolding and underscoring added.)

Ariz. Rev. Stat. section 32-1139(B) provides in part:

If any amount is paid from the fund in settlement of a claim arising from the act, representation, transaction or conduct of a residential contractor, the license of the contractor shall be automatically suspended by operation of law until the amount paid from the fund is repaid in full, plus interest at the rate of ten per cent a year.

(Bold added.)

Ariz. Rev. Stat. section 32-1132(A) provides that: “The residential contractors' recovery fund is established ... for the benefit of a claimant damaged by an act, representation, transaction or conduct of a residential contractor....” (Underscoring and bolding added.)

Ariz. Rev. Stat. section 32-1135 provides that: “The assessments received by the registrar for deposit in the fund shall be held in trust for carrying out the purposes of the fund....”

Respondent’s contractor’s license is a property right that cannot be suspended without due process. See Comeau v. Board of Dental Examiners, 196 Ariz. 102, 993 P.2d 1066 (App. 1999).

Principles of Statutory Construction

The same rules in are used to construe both statutes and rules." Smith v. Arizona Citizens Clean Elections Comm'n, 212 Ariz. 407, 412, ¶ 18, 132 P.3d 1187, 1192 (2006).

The tribunal is required to give a statute’s words their ordinary meaning; when a statute is unambiguous, its terms should be applied without resort to secondary principles of construction. Secure Ventures, LLC v. Gerlach, 249 Ariz. 97, 466 P.3d 874 (Ariz. App. 2020).

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.").

“Statutes shall be liberally construed to effect their objects and to promote justice.” Ariz. Rev. Stat. § 1-211(B).

The burden of proof

This matter is unusual in that Mr. Green is making a claim for a benefit (i.e., that he is entitled to a payment from the recovery fund), but ROC’s authority to make a definitive ruling on his claim resulting in an actual payment from the recovery fund is conditioned on Respondent’s right to a hearing.

ROC’s statutes do not assign the burden of proof in a hearing on a recovery fund claim, nor do the OAH statutes found at Ariz. Rev. Stat. section 41-1092.07(G). OAH’s rules do show however, that “Unless otherwise provided by law: the party asserting a claim, right, or entitlement has the burden of proof....” Ariz. Admin. Code § R2-19-119.

The recovery fund was established to benefit “claimants” who have been injured by licensed contractors. Mr. Green filed a claim asserting that he was entitled to a payment from the recovery fund. Under a plain reading of subsection R2-19-119(B), it is Mr. Green who has the burden of proof.

This conclusion is consistent with Ariz. Rev. Stat. section 32-1133.01(C) that shows that the contractor’s request is for “a hearing to determine the amount or propriety of the payment,” (bolding and underscoring added), which is particularly pertinent considering that ROC did not get any input from Respondent when evaluating Mr. Green’s claim, but rather “simply review[ed] the paperwork filed” by Mr. Green.

ROC’s position is that this matter is an appealable agency in which the appellant bears the burden of proof, that Respondent is the appellant because it filed a request for hearing, and that Respondent made a claim by challenging the award.

ROC’s position is contrary to principles of construction because Ariz. Rev. Stat. section 32-1133.01 unambiguously uses the term “requesting a hearing” and never uses the words appeal or appellant, and it requires that the word “claim” be read to mean “requesting a hearing.”

Moreover, ROC’s own Notice of Claim for Administrative Award instructs Mr. Green and the Respondent that they can contest the (proposed) payment by filing an “administrative hearing request,” and that Notice does not use the words “appeal” or “appellant.”

Whether this matter is a contested case or an appealable agency action

By definition, a contested case is a proceeding in which: (1) a party’s legal rights, duties or privileges are determined; (2) after the party has an opportunity for a hearing; and (3) provided that the party’s hearing-right arises from a statute outside of Title 41, Chapter 6. Ariz. Rev. Stat. § 41-1001(5).

ROC’s position is that: a recovery fund “award” is a reference to its Notice of Claim for Administrative Award, it has already issued an award, its decision to issue the award/Notice of Claim is the agency action at issue, and because ROC made its decision before a hearing was held, the matter is an appealable agency action.

ROC’s assertion that “recovery fund award” is a reference to the Notice of Claim for Administrative Award is not consistent the Notice itself that reads that Mr. Green “is to be awarded,” not that ROC is issuing an award, or that ROC has issued an award. Moreover, the Notice itself is entitled “Notice of Claim for Administrative Award” and not “Notice of Award.”

In addition, ROC acknowledges that the Notice of Claim is not sufficient in and of itself to cause payment to be made to Mr. Green, but rather that ROC will have to issue a Final Decision and Order to authorize a payment to Mr. Green before a check for that purpose can be issued.

Respondent was entitled to a hearing before ROC can issue its Final Decision and Order (and before a check can be issued); ROC’s Final Decision and Order will determine Respondent’s legal rights, duties and privileges, because when a check is issued, Respondent’s legal right to provide contracting services will be suspended; and Respondent’s right to a hearing is found in Title 32, not Title 42, Ch. 6. Consequently, as applied to Final Decision and Order that ROC will be issuing, the three part definition of contested case is met. See Ariz. Rev. Stat. §§ 32-1133.01(B) and (C), and § 32-1139(B).

ROC’s Notice of Claim for Administrative Award also shows that Mr. Green filed a claim for “payment” from the fund, and not a claim for an “award,” supporting the conclusion that the agency action appropriately under consideration is tied to whether a payment should be made to Mr. Green, and not whether it was appropriate for ROC to issue its Notice of Claim for Administrative Award.

ROC argues that a recovery fund matter is like others matters in which the statutes allow for a summary suspension to be issued by operation of law. But the three statutes ROC cites are readily distinguishable from this recovery fund matter because those statutes do not provide the licensee with a right to a hearing before any suspension takes place, whereas subsection 32-1133.01(C) does provide that right in recovery fund matters.

ROC’s proposed issuance of the Final Decision and Order is the agency action properly considered to be under review, not its issuance of the Notice of Claim for Administrative Award.

Conclusion

Mr. Green bears the burden of proof because he filed a claim asserting that he was entitled to a benefit in the form of a payment from the recovery fund. Ariz. Admin. Code § R2-19-119(B).

The matter is a contested case as defined in Ariz. Rev. Stat. section 41-1001(5).

ROC presented sufficient evidence to show that a payout of $12,500 was necessary to compensate Mr. Green for his actual damages.

Although Mr. Orona testified to the effect that $12,500 to make the repairs is excessive, his testimony was not sufficiently detailed to show that ROC’s determination was in error.

The preponderance of the evidence shows that Mr. Green meets the requirements for a payment from the recovery fund and that he suffered actual damages of $12,500 as a result of Respondent’s violation of ROC’s workmanship standards. Consequently, Mr. Green should receive a $12,500 payout from the Fund.

RECOMMENDED ORDER

IT IS RECOMMENDED that the Registrar of Contractors issue a Final Decision and Order directing the Fund to make a payment of $12,500 to Thomas Michael Green.

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 40 days from the date of that certification.

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-137160-45720000Done this day, December 14, 2020.

/s/ Thomas Shedden

Thomas Shedden

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors

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-137160-45720000