FINACT2019A-04302-LDA-ROC.pdf

2019A-04302-LDA-ROC · Registrar of Contractors · 2020-01-10

REGISTRAR OF CONTRACTORS OF THE STATE OF ARIZONA

Arizona Registrar of Contractors, Case No. 2019-04302

COMPLAINANT, Docket No. 2019A-04302-LDA-ROC v. Design Tree Maintenance Inc., FINAL ADMINISTRATIVE Application No. [number redacted], DECISION AND ORDER

RESPONDENT.

The administrative law judge engaged in improper, independent fact-finding into

the central issue in this case: the prior license history of a person named on Respondent’s

license. By conducting this independent investigation, the administrative law judge

exceeded his role as a neutral arbitrator, and instead, became an active participant in the

case. The Registrar cannot accept a recommended decision premised on this improper

procedure.

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. 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

rejects it.

of 6 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 REGISTRAR’S REJECTION AND JUSTIFICATION Respondent submitted an application for a contractor’s license which the Registrar denied after determining that Respondent’s 50% Owner, Robert Kett, was previously named on a license that was suspended after a recovery fund payout.1 Respondent requested a hearing and the Registrar referred this matter to the Office of Administrative Hearings. During the hearing, the Registrar presented evidence demonstrating that Mr. Kett was named on License No. 213846 which was suspended subject to an outstanding recovery fund payout. See ALJ Dec. 2:24-27 & 3:5-9. Respondent presented evidence indicating Mr. Kett was unaware of his status as a person named on License No. 213846 and that Mr. Kett was removed from the LLC that held License No. 213846 in early 2008, prior to the recovery fund payout. See ALJ Dec. 2:22-23 & 3:1-4. After the hearing concluded, the administrative law judge independently sought out additional information concerning Mr. Kett’s license history by accessing the Registrar’s website and using the Registrar’s “contractor search tool” to search for variations of Mr. Kett’s name.2 See ALJ Dec. 3:10-26; see also ALJ Dec. pg.3 fn. 1. The administrative law judge documented his findings in the recommended decision under the “Findings of Fact” section without providing an opportunity for either party to respond. Based in part on these findings, the administrative law judge recommended overturning the agency’s proposed license denial. 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.

1 Under A.R.S. § 32-1139(B), any person who was named on a license at the time of an act or omission that led to a suspension and subsequent recovery fund payout may not receive a new license until the amount paid from the fund is repaid. See also A.R.S. §§ 32-1162(B) & (C). The Registrar’s contractor search tool is a limited tool which permits a member of the public to check a contractor’s current licensing status.

of 6 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 A. The Administrative Law Judge Failed to Provide the Parties the Opportunity to Respond to Information Accepted into the Record as Fact. The administrative law judge accepted evidence into the record without providing either party an opportunity to respond or object. Under A.R.S. § 41-1092.07(D), “All parties [to a hearing] shall have the opportunity to respond and present evidence and argument on all relevant issues.” The wisdom behind this requirement is clear; in addition to insulating an administrative law judge from allegations of perceived bias, it allows parties to a proceeding to present facts about which the judge they may not have been previously aware. In this case, neither the Registrar, nor Respondent, was provided an opportunity to respond to the information unilaterally obtained by the administrative law judge after the hearing. Most notably however, the administrative law judge relied on the information he obtained to refute direct, documentary evidence presented by the Registrar during the hearing. See ALJ Dec. 6:20 “Although ROIC’s Exhibit 7 shows that Mr. Kett was a 25% owner of Robert Smith Development’s LLC’s license number 213846, ROC’s on-line database does not have information showing that Mr. Kett was named on that license.”). Had the administrative law judge followed proper procedure, the Registrar could have notified the administrative law judge that the contractor search tool is not a complete collection of the Registrar’s official records. Rather, it is a tool of convenience that permits the public to acquire current information on a limited basis about a contractor’s license. It does not provide a complete audit history for a license, nor does it permit a user to conduct a complete search of historical Registrar records.3 The administrative law judge’s failure to provide the parties with an opportunity to respond to information about the central issue in this matter violates the Administrative

The contractor search tool does not identify every individual who has ever been associated with a license. For example, individuals who were once named on a license, and were subsequently removed, would not show on a licensed contractor’s profile. However, the Registrar would still have internal records documenting that individual’s prior association.

of 6 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 Procedure Act’s statutory requirements. B. The Administrative Law Judge Failed to Follow Proper Procedures for Taking Judicial Notice of Cognizable Facts.

The administrative law judge failed to follow proper procedure in taking judicial notice of the information he obtained using the contractor search tool. While an administrative law judge is permitted to take judicial notice of cognizable facts, all parties must be notified either before or during the hearing of the material noticed, and all parties must have an opportunity to contest the material noticed. See A.R.S. § 41-1092.07(F)(3). As previously noted, neither party was provided an opportunity to contest the information obtained by the administrative law judge. Additionally, the contractor’s search tool is not a complete audit history of the Registrar’s records and cannot serve as the basis to override actual documents and records provided by the Registrar. The administrative law judge’s decision to: (1) conduct his own investigation; (2) accept the findings of that investigation as fact; and (3) fail to provide both parties an opportunity to contest those findings, represents a procedural error and violates the Administrative Procedure Act’s statutory requirements. C. The Administrative Law Judge Based His Findings of Fact on Statutorily Prohibited Evidence.

The administrative law judge violated statutory requirements by making findings of fact based on improperly obtained information. Under A.R.S. § 41-1092.07(F)(6), findings of fact must be based exclusively on the evidence presented at the hearing and on matters officially noticed. Neither party presented results from the contractor’s search tool into evidence, and as previously mentioned the administrative law judge failed to follow proper procedure for taking judicial notice of this information. To the extent the administrative law judge required additional information in order to issue a recommended decision, the proper mechanism for obtaining that information was to request that the

of 6 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 parties formally present the information to the Office of Administrative Hearings and allow the other party an opportunity to respond. Instead, the administrative law judge’s conduct violated the Administrative Procedure Act’s statutory requirements. CONCLUSION AND ORDER The Registrar rejects this decision only as a result of the procedural errors committed by the administrative law judge and makes no finding as to the propriety of the administrative law judge’s ultimate recommended decision to overturn the agency’s denial. The Registrar will issue a notice of hearing in due course. Dated January 8, 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 January 8, 2020 to: Respondent Design Tree Maintenance IncRobert Ludwig Kett 1635 W Parkview Ln #1 Phoenix, AZ 85085-1302 Complainant Arizona Registrar of Contractors 1700 W Washington St Ste 105 Phoenix, AZ 85007 Complainants Attorney John R. Tellier, Esq. 1275 W Washington St Phoenix, AZ 85007 Copy sent electronically this same date to: Registrar’s Counsel John Tellier, Assistant Attorney General Office of Administrative Hearings Thomas Shedden, Administrative Law Judge

of 6 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 Respondent at email address on record with the Registrar Complainant at email address on record with the Registrar Complainant’s Attorney at email address of record with Registrar Case No. 2019-04302 / DU

of 6 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 12.11.2019 ROC LEGAL

OAH ALJ Recommendations - AZROC <[email redacted]>

New ALJ Decision transmitted for ROC (2019A-04302-LDA-ROC) message

OAH Electronic Decision Transmission System <[email redacted]> Wed, Dec 11, 2019 at 3:52 PM To: [email redacted]

This is a message from the Arizona Office of Administrative Hearings to inform you that a decision has been transmitted for Registrar of Contractors. The details are as follows:

Decision type: ALJ Decision Matter ID: 2019A-04302-LDA-ROC Filed by: OAH Filed on: 12/11/2019 Due Date for Final Agency Action (if applicable): 1/15/2020

You may access this decision at https://portal.azoah.com/aljdec/documents/ROC/2019A-04302-LDA-ROC-ALJDecision- 6687.pdf.

To view all available ALJ decisions, visit https://portal.azoah.com/aljdec/documents/ROC/. RECEIVED 12.11.2019 ROC LEGAL

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Arizona Registrar of Contractors, No. 2019A-04302-LDA-ROC COMPLAINANT v. ADMINISTRATIVE LAW JUDGE Design Tree Maintenance Inc. DECISION License No. [number redacted], RESPONDENT

HEARING: November 21, 2019

APPEARANCES: John Tellier, Esq. for the Registrar of Contractors; Robert Ludwig

Kett and Anita Ann Kett for Respondent

ADMINISTRATIVE LAW JUDGE: Thomas Shedden

FINDINGS OF FACT

1. On September 10, 2019, the Registrar of Contractors (“ROC”) issued a

Notice of License Denial Hearing setting the above-captioned matter for hearing on

October 11, 2019 at the Office of Administrative Hearings in Phoenix, Arizona. The

matter was continued and the hearing was conducted on November 21, 2019.

2. The issue for hearing is Design Tree Maintenance Inc.’s appeal of ROC’s

denial of Design Tree’s application for licensure.

3. Robert Ludwig Kett, Design Tree’s president and qualifying party, and

Anita Ann Kett, its vice-president appeared and testified for Design Tree. Mr. Kett and Ms. Kett are each 50% owners of the corporation. 4. ROC presented the testimony of Chance Peterson, its assistant chief counsel. 5. On July 5, 2019, Design Tree submitted an application for a CR 21 license. Mr. Kett and Ms. Kett each disclosed that they are associated with DTM Landscape Inc. that holds license number 216644 issued by ROC on February 11, 2006. 6. 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.”

Office of Administrative Hearings 1740 West Adams Street, Lower Level Phoenix, Arizona 85007 (602) 542-9826 RECEIVED 12.11.2019 ROC LEGAL

7. ROC denied Design Tree’s application because it has a record showing that Mr. Kett was named as an owner of Robert Smith Development LLC license number 213846 that is suspended as a result of a recovery fund payout having been made against that license and because it found that Mr. Kett failed to establish good character and reputation by virtue of his failure to disclose that he had been named on the Robert Smith Development LLC license. 8. The recovery fund payout against license number 213846 was made through an Order dated May 21, 2009 in case number RF09-0447. As of the hearing date in this matter, the payout of $13,500.44 had not been repaid to the recovery fund. 9. Robert Smith was the qualifying party for license 213846. 10. Mr. Smith was DTM Landscape Inc.’s qualifying party from about 2005 or 2006 through 2008, but Ms. Kett was not sure of the exact dates. Mr. Smith was being paid as an employee. 11. 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. 12. 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. 13. 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. 14. 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. 15. Mr. Peterson testified to the effect that on receipt of an Officer Change Form, ROC’s procedure would be to verify that the members listed on that form were shown as members in the Corporation Commission’s records. RECEIVED 12.11.2019 ROC LEGAL

16. Design Tree’s Exhibit 3 (at pages 26 and 27) is Articles of Amendment for Robert Smith Development LLC removing Mr. Kett as a member of the LLC that was filed with the Arizona Corporation Commission on January 10, 2008. Robert J. Smith signed the Amendment form. 17. ROC’s Notice of License Denial 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 license number 213846 and that in order to disassociate from a license a person must file with ROC a form for that purpose. 18. When ROC’s on-line licensing database is searched for Robert Kett, the only licenses that appear are numbers 216644 and 216951, both of which were issued to DTM Landscape Inc. License number 216951 expired in 2013. 19. When ROC’s licensing database is searched for license number 213846, no results appear. 20. When ROC’s licensing database is searched for Robert Smith Development LLC, five licenses appear, but none of these are Robert Smith Development LLC’s license number 213846 and none of the people named on these five licenses is Robert Smith. 21. When ROC’s licensing database is searched for Robert Smith, fourteen licenses appear, but none of these are Robert Smith Development LLC’s license number 213846, none of the people named on these fourteen licenses is Robert Smith, and DTM Landscape Inc. is not among these fourteen licensees. 22. When ROC’s licensing database is searched for Robert Jeffrey Smith, nine licenses appear, but none of these are Robert Smith Development LLC’s license number 213846, none of the people named on these nine licenses is Robert Smith, and DTM Landscape Inc. is not among these nine licensees.1 23. The recovery fund payout against Robert Smith Development LLC’s license number 213846 was made to Roy and Suzan J. Bergman.

ROC shows Mr. Smith’s middle name as Jeffery. A search for Robert Jeffery Smith results in six results, none of which involve Mr. Kett, Mr. Smith, or Robert Smith Development LLC. RECEIVED 12.11.2019 ROC LEGAL

24. ROC’s Exhibit 10 is an Administrative Law Judge Decision issued on July 7, 2008 in three matters that were consolidated for hearing.2 The Complainants in all three matters were the Bergmans; Respondents were DTM Landscape Inc. (docket number 07F-M1377X-ROC), Robert Smith Development LLC’s license number 213846 (docket number 07F-M1377-ROC), and Robert Smith Development LLC’s license number 218066 (docket number 07F-M1377W-ROC). 25. DTM Landscape Inc. was found to have been improperly named as a Respondent and the complaint against it was dismissed, the complaint against Robert Smith Development LLC’s license number 218066 was also dismissed, and Robert Smith Development LLC’s license number 213846 was suspended. 26. At the 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 Inc.’s involvement in the complaints filed by the Bergmans 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 Robert Smith Development LLC’s license number 213846. CONCLUSIONS OF LAW 1. Design Tree bears the burden of persuasion. ARIZ. REV. STAT. § 41- 1092.07(G)(1). 2. 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. 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.

The undersigned Administrative Law Judge signed that Decision on behalf of the ALJ who took the evidence and made the ruling, but had no substantive involvement in the matter. RECEIVED 12.11.2019 ROC LEGAL

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."). 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. 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.

8. 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. RECEIVED 12.11.2019 ROC LEGAL

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

10. As pertinent to this matter, the qualifying party for a licensee may act in the capacity of the qualifying party for one additional licensee only if there is a common ownership of at least twenty-five per cent of each licensed entity for which the person acts in a qualifying capacity. ARIZ. REV. STAT. § 32-1127. 11. 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’s license number 213846. Consequently, there is insufficient evidence to show that Mr. Kett violated ARIZ. REV. STAT. section 32-1154(A)(5). 12. Although ROC’s Exhibit 7 shows that Mr. Kett was a 25% owner of Robert Smith Development LLC’s license number 213846, ROC’s on-line database does not have information showing that Mr. Kett was named on that license. 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 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) . In addition, 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 LLC. RECEIVED 12.11.2019 ROC LEGAL

13. Considering these facts, particularly that it has not been shown that Mr. Kett consented to being named on 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.3 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. 14. 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.

Done this day, December 11, 2019.

/s/ Thomas Shedden Thomas Shedden Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director Registrar of Contractors

3 ROC raised the question of whether Mr. Smith would make a gift of 25% of his company without telling Mr. Kett. But assuming Mr. Smith did so, it appears he unilaterally rescinded that gift when he filed with the Corporation Commission the second Articles of Amendment.