ALJDEC decisions subject to certification as final

2019A-04302-LDA-ROC-RES-2 · Registrar of Contractors · 2020-06-15

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Arizona Registrar of Contractors,

COMPLAINANT

Design Tree Maintenance,

Robert Ludwig Kett,

Application No. [number redacted].,

RESPONDENT.

No. 2019A-04302-LDA-ROC-RES-2

ADMINISTRATIVE LAW JUDGE

DECISION

HEARING: May 21, 2020

APPEARANCES: John Tellier, Esq. for the Registrar of Contractors; Gregory A. Robinson, Esq. for Respondent

ADMINISTRATIVE LAW JUDGE: Thomas Shedden

FINDINGS OF FACT

On April 20, 2020, the Registrar of Contractors (“ROC”) issued a Notice of Hearing on Appealable Agency Action setting the above-captioned matter for hearing on May 21, 2020 at the Office of Administrative Hearings in Phoenix, Arizona.

The issue for hearing is Design Tree Maintenance Inc.’s appeal of ROC’s denial of Design Tree’s application for licensure. ROC denied Design Tree’s license application because it found that one of Design Tree’s principals, Robert Ludwig Kett, was named on a license that is suspended with an outstanding debt to the Registrar’s recovery fund and because it found that Mr. Kett did not prove he was of good character because he failed to disclose the prior association.

The matter is a rehearing of Docket Number 2019A-04302-LDA-ROC (referred to as the original matter and the original hearing).

Robert Ludwig Kett is Design Tree’s president and qualifying party, and Anita Ann Kett, its vice-president. Mr. Kett and Ms. Kett are each 50% owners of the corporation.

Design Tree was represented by counsel at the rehearing and Mr. and Ms. Kett both testified at both hearings.

At both hearings ROC presented the testimony of assistant chief counsel Chance Peterson, who drafted the Notice of Denial at issue.

The Two Licenses

Pertinent to the matter are two licenses: (1) DTM Landscape Inc.’s license number 216644; and (2) Robert Smith Development LLC license number 213846 (referred to as the Smith LLC and Smith license).

The Ketts are the owners of DTM Landscape Inc. that holds license number 216644 a C 21 Residential Landscaping and Irrigation Systems issued by ROC on February 11, 2006.

DTM Landscape filed its application with ROC on January 30, 2006. The application shows that Mr. Kett is a 75% owner, that Mr. Smith is the qualifying party and 25% owner, and that Mr. Kett, Ms. Kett and Mr. Smith are all corporate officers.

Because Mr. Smith was already the qualifying party on the Smith license, he could not be qualifying party on DTM Landscape’s license unless there was a common ownership.

The Smith License is a class B general residential license issued on December 5, 2006. Robert Smith was the qualifying party for license 213846.

Smith license 213846 is suspended because there is an outstanding debt owed to the recovery fund.

Robert Smith Development LLC also held license number 218066, but that fact is not probative of the issues at hand.

The Officer Change Form

ROC Exhibit 7 is an “Officer Change Form” filed with ROC by Robert Smith Development LLC on January 30, 2006. That form shows that Robert Jeffrey Smith is a member and 75% owner of the LLC and the qualifying party for license 213846, and that that Robert Ludwig Kett was a member and 25% owner of the LLC.

Robert J. Smith signed the form as “President” and his signature was notarized but was not taken under oath or affirmation (i.e., the notarial act was an acknowledgement, not a jurat). ROC’s Form also requires the notarized signature of the secretary, but that portion was left blank.

ROC Exhibit 6 is Articles of Amendment for Robert Smith Development LLC adding Mr. Kett as a member of the LLC that was filed with the Arizona Corporation Commission on January 5, 2006. The amendment does not specify Mr. Kett’s percentage of ownership in the LLC.

Mr. Kett did not sign either the Officer Change Form or the Articles of Amendment.

Mr. Kett and Ms. Kett both testified that they were unaware that Mr. Smith had named Mr. Kett as a member/owner of Robert Smith Development LLC.

In 2006 when the Officer Change Form was filed, a person could be added to a license without signing documents acknowledging or requesting to be added to the license. ROC’s policy on receiving a change form such as the one at issue was to verify that the members listed on that form were shown as members in the Arizona Corporation Commission’s records.

ROC’s Notice of License Denial issued in the original matter shows that Mr. Kett was named on license number 213846 from January 30, 2006 to February 4, 2008. Mr. Peterson testified however that ROC had no record of Mr. Kett disassociating from Smith license number 213846 and that in order to disassociate from a license a person must file with ROC a form for that purpose.

On January 10, 2008, Mr. Smith filed with the Corporation Commission Articles of Amendment for Robert Smith Development LLC removing Mr. Kett as a member of the LLC. Robert J. Smith signed the Amendment form, but Mr. Kett did not.

The Underlying Disciplinary Matter

In January 2007, Roy and Suzan J. Bergman filed with ROC a complaint against the Smith license and Smith LLC’s license number 218068. ROC subsequently noticed three matters for a consolidated hearing. ROC named the Smith LLC as a respondent in two of the matters and it named DTM Landscape as the third respondent.

ROC never issued to DTM Landscape a citation and DTM should not have been named as a Respondent. DTM Landscape was therefore dismissed from the hearing.

The complaint against Smith LLC’s license number 218066 was also dismissed.

Smith LLC was found to have committed violations of Ariz. Rev. Stat. section 32-1154(A)(3). Smith LLC’s license number 213846 was suspended as a result of those findings. The Administrative Law Judge Decision is in evidence as Respondent’s Exhibit 1.

The Recovery Fund Payout

Complainants Roy and Suzan J. Bergman were awarded a payout of $13,500.44 from the residential contractor’s fund through a Decision, Order and Award ROC issued on May 21, 2009.

As of the hearing date in this matter, the payout of $13,500.44 had not been repaid to the recovery fund.

On July 21, 2009 ROC issued a Notice showing that the payout had been made that was sent to Smith LLC at its address of record.

The Notice informed Smith LLC that its license was suspended until the recovery fund was repaid with all applicable interest. The Notice further advised that any other license on which any person named on the Smith license at the time of the acts that led to the payout would also be suspended by operation of law.

Neither the Ketts nor DTM Landscape received from ROC a notice showing that DTM Landscape was being suspended, nor did they receive any other notice showing that ROC had found them responsible for the recovery fund payout to the Bergmans.

Design Tree’s Application and ROC’s Denial

Design Tree submitted the application at issue to ROC on July 5, 2019. Mr. Kett and Ms. Kett each disclosed that they are associated with DTM Landscape.

Mr. Kett is the applicant’s qualifying party. In response to the question asking whether the qualifying party was named on any other licenses that have been revoked or are currently suspended, Mr. Kett answered “no.” The Smith license is suspended by operation of law because Registrar’s recovery fund made a payout that was charged to that license.

ROC denied Design Tree’s application because ROC’s Exhibits 7 and 6 show that Mr. Kett had an ownership interest in the Smith LLC. Consequently, ROC concluded that Mr. Kett had not been truthful in the application, which is a violation of Ariz. Rev. Stat. section 32-1154(A)(5).

ROC concluded that Design Tree was precluded from licensure by Ariz. Rev. Stat. section 32-1139(B), because of Smith’s outstanding debt to the recovery fund.

ROC found that Mr. Kett’s violation of section 32-1154(A)(5) shows that he did not establish good character within the meaning of section 32-1122(C).

The Original Hearing

ROC issued a Notice of License Denial Hearing in the original matter on September 10, 2019, and the original hearing took place on November 21, 2019.

ROC included in the Notice the following advisement:

V. PRIOR RECORD: The parties are further advised that in the event Respondent is found to have violated any of the statutory provisions charged in this case, then the assigned Administrative Law Judge, in accordance with a standing motion filed by the Registrar of Contractors with the Office of Administrative Hearings, may properly consider the Respondent’s prior disciplinary record and current license status as a matter in mitigation or aggravation when formulating and submitting an appropriate recommended disposition of this matter.

Mr. Peterson provided the background facts and explained ROC’s reasoning in denying the application.

At the original hearing Mr. Kett and Ms. Kett were confused as to why Design Tree’s application was denied. Mr. Kett had been under the impression that the denial was based on DTM Landscape’s involvement in the complaint filed by Roy and Suzan J. Bergman and it was only during the course of the hearing that he became aware that the reason for the denial was ROC’s determination that he had been named on the Smith license number 213846.

Mr. Kett and Ms. Kett each provided credible testimony showing that they were unaware Mr. Kett had been named an owner on the Smith license.

On cross-examination, Mr. Kett was asked if he ever checked ROC’s records or on-line database, in the same manner that one might Google themselves, to which he replied “no.”

The ALJ Decision in the Original Matter

The matter concluded and taken under review.

Consistent with the advisement at paragraph V of the Notice of License Denial Hearing, and Ariz. Admin. Code section R4-9-117, the undersigned accessed ROC’s on-line contractor search tool. The purpose was two-fold (1) for consideration as possible aggravating or mitigating factors while “formulating and submitting an appropriate recommended disposition of th[e] matter.” Notice of License Denial Hearing; and (2) for use as a tool to confirm the accuracy of details such as the spelling of names or addresses for DTM Landscape’s license, the Smith license, and Smith LLC’s license 218066.

On December 11, 2019, the undersigned Administrative Law Judge issued an Administrative Law Judge Decision finding that Design Tree had met its burden to show that it should be granted a license and recommending that ROC rescind its order denying the application.

In that Decision, the undersigned wrote findings of fact about his search of the database, and referenced some of the search results in the conclusions of law.

ROC’s Final Administrative Decision and Order in the Original Hearing

In Final Administrative Decision and Order dated January 8, 2020, ROC rejected the Administrative Law Judge Decision finding that by accessing the database, the ALJ committed error by conducting impermissible independent research after the conclusion of the hearing.

ROC found that: “The administrative law judge’s unilateral investigation is a procedural error that cannot be cured by a modification. Therefore, the Registrar must reject the recommended decision and remand this matter to the Office of Administrative Hearings for additional consideration.”

The Rehearing

Mr. Peterson confirmed that ROC denied the application because it found that Mr. Kett was named on the Smith license at the time of the acts that led to the recovery fund payout, and Design Tree is therefore precluded from getting a license.

ROC based its decision on the Officer Change Form and the Articles of Amendment filed with the Corporation Commission (ROC exhibits 7 and 6).

Mr. Peterson conducted a thorough review of ROC’s non-public records prior to the rehearing and he found no other documents supporting the conclusion that Mr. Kett was named on the Smith license.

During his review of ROC’s records, Mr. Peterson located DTM Landscape’s January 2006 application for licensure. Mr. Peterson found that the document does not support ROC’s denial of the application, but it does shed light on the timing. That the document has no significant probative value is seen by the fact that ROC did not include it as a proposed exhibit in its disclosure statement.

Mr. Peterson confirmed that at the time Mr. Smith submitted the Officer Change Form, ROC did not require the signature of the person being added to a license.

Mr. Peterson confirmed that ROC’s on-line contractor search tool is not a complete database of ROC’s records; it is intended to show only the status for current licenses and not expired licenses.

Mr. Kett provided credible testimony to the effect that Mr. Smith did not offer him ownership in the Smith LLC, nor did he ever ask Mr. Smith for an ownership interest, and it was not until the original hearing that he learned that ROC’s position was that he had been named on the Smith license.

It was not until 2019 that Mr. Kett saw ROC exhibits 7 and 6.

Mr. Kett never received any money from the Smith LLC, nor did he ever receive any of the documentation that one associates with ownership (e.g., a K 1, 1099, or W2). Mr. Lett did not do anything, or pay anything, to earn 25% of Smith LLC.

Smith LLC was a general contractor and Mr. Kett had never been to any of its jobsites.

Ms. Kett’s role in DTM Landscape has varied, but is primarily financial and customer service.

Ms. Kett testified to the effect that until the original hearing, the Ketts had not known that Mr. Kett was named as an owner of Smith LLC.

Ms. Kett added that when Mr. Kett learned, he pitched a fit, because owning a company comes with a lot of legal obligations, and not only those related to ROC. Ms. Kett would never accept that liability as an absentee owner.

Ms. Kett acknowledged that she had not been involved in the discussions between Mr. Kett and Mr. Smith when DTM Landscape filed its application in 2006, but the Ketts have been married for 30 years and she was confident that she would have known if Mr. Kett had any ownership of Smith LLC.

CONCLUSIONS OF LAW

Design Tree bears the burden of persuasion. Ariz. Rev. Stat. § 41-1092.07(G)(1).

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.

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).

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 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).

Ariz. Rev. Stat. § 32-1122(C) provides that:

To obtain, renew or maintain a license under this chapter, each person who is named on a license must be of good character and reputation. Lack of good character and reputation may be established by showing that a person engaged in contracting without a license or committed any act that, if committed or done by any licensed contractor, would be grounds for suspension or revocation of a contractor's license or by showing that the person was named on a license that was suspended or revoked in this state or another state.

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

If any amount is paid from the [recovery] 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. Any person who is or was, at the time of the act or omission, named on a license that has been suspended because of a payment from the recovery fund is not eligible to receive a new license or retain another existing license that also shall be suspended by operation of law, nor shall any suspended license be reactivated, until the amount paid from the fund is repaid as provided in this subsection.

Ariz. Rev. Stat. section 32-1154(A) provides that:

The holder of a license or any person named on a license pursuant to this chapter may not commit any of the following acts or omissions:

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5. Misrepresentation of a material fact by the applicant in obtaining a license.

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20. Having a person named on the license who is or was named on any other license in this state or in another state that is under suspension or revocation for any act or omission that occurs while the person is or was named on the license unless the prior revocation was based solely on a violation of this paragraph.

Ariz. Admin. Code section R4-9-117, “Prior Record,” provides: “In determining the appropriate discipline for a licensed contractor, the Administrative Law Judge and the Registrar may consider not only facts in the current case, but also facts in prior cases and any documents regarding the contractor on file with the Registrar.”

The preponderance of the evidence shows that Mr. Kett was not aware that Mr. Smith had named him as a member of Robert Smith Development LLC. Consequently, there is insufficient evidence to show that Mr. Kett violated Ariz. Rev. Stat. section 32-1154(A)(5).

Although ROC’s Exhibit 7 shows that Mr. Kett was a 25% owner of Robert Smith Development LLC, there was no evidence adduced showing that Mr. Kett consented to Mr. Smith’s filing with ROC the Officer Change Form naming Mr. Kett as an owner. There was also no evidence adduced showing that Mr. Kett consented to Mr. Smith’s filing with the Arizona Corporation Commission the two Amendments at issue (the first naming Mr. Kett as a member of the LLC and the second, unilaterally removing him as a member) .

Mr. Kett and Ms. Kett each provided credible testimony showing that they were unaware that Mr. Smith had filed with ROC or the Corporation Commission paperwork showing that Mr. Kett was a member of the Smith LLC.

Considering these facts, particularly that it has not been shown that Mr. Kett consented to being named on Smith license number 213846, it would be an unfair and unreasonable interpretation of the statutes to conclude that Mr. Kett is a person named on a license that has been suspended or revoked. Consequently, there is insufficient evidence to show that Mr. Kett violated Ariz. Rev. Stat. section 32-1154(A)(20) and insufficient evidence to show that section 32-1139(B) is a bar to Design Tree being licensed.

Design Tree Maintenance Inc. has presented sufficient evidence to show that ROC’s decision to deny its application for licensure should be reversed.

RECOMMENDED ORDER

IT IS RECOMMENDED that ROC’s Notice of License Denial issued to Design Tree Maintenance Inc. be rescinded.

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.

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-137160-45720000Done this day, June 15, 2020.

/s/ Thomas Shedden

Thomas Shedden

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors

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