ALJDEC decisions subject to certification as final

2019A-04384-CHC-ROC · Registrar of Contractors · 2020-05-13

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Basel Ismail,

COMPLAINANT,

v.

American Industries LLC,

DBA: American Construction & Renovation,

License No. ROC 319975,

RESPONDENT.

No. 2019A-04384-CHC-ROC

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: March 1, 2020, at 1:00 p.m.; April 30, 2020, at 9:00 a.m.

APPEARANCES: Basel Ismail (“Complainant”) was represented by Richard C. Gramlich, Esq., Tiffany & Bosco, PA; American Industries LLC DBA American Construction & Renovation (“Respondent”) was represented by Jonathan P. Ibsen, Esp., Canterbury Law Group, LLP.

ADMINISTRATIVE LAW JUDGE: Diane Mihalsky

_____________________________________________________________________

FINDINGS OF FACT

Background and Procedure

According to the Arizona Registrar of Contractors’ (“the Registrar’s”) public website, on May 25, 2018, the Registrar issued License No. ROC 319975 for General Dual KB-2 Dual Residential and Small Commercial contracting to Respondent. Respondent’s license was suspended for lack of bond on November 7, 2019. Respondent’s address of record is 7345 E. Evans Rd., Ste. 6, Scottsdale, Arizona 85260-3100.

On or about August 29, 2019, Complainant filed a complaint against Respondent with the Registrar about its substantial remodeling of Complainant’s house at 4002 E. Flynn Lane, Paradise Valley, Arizona 85253. According to the complaint, the contract amount was $542,575.80, Complainant had paid $500,000.00, and the change orders were all written.

Complainant attached to his complaint a list of alleged violations of A.R.S. § 32-1154(A)(1), (2), (3), (6), (8), and (10). The narrative that Complainant provided itemized costs to repair and complete various trades’ work.

The complaint was sent to Respondent’s address of record and assigned to the Registrar’s Investigator Danny Oen.

On September 30, 2019, Investigator Oen performed a jobsite inspection, which Complainant and his attorney, but not Respondent attended. On October 16, 2019, Investigator Oen issued a directive requiring Respondent to perform certain corrective work on or before November 4, 2019, at 5:00 p.m., in relevant part as follows:

Complaint Item 1: American Construction has violated A.R.S. 32-1154(A)(1) (Abandonment of contract) American Construction abandoned the jobsite;

Investigator’s Observation: Verified. I observed a jobsite that was currently under construction. Per the Complainant and Attorney, the Respondent has filed for Bankruptcy.

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.

Complaint Item 2: American Construction has violated A.R.S. 32-1154(A)(2) (Departure from plans/specifications);

Investigator’s Observation: Verified. The Complainant showed me the following items that were listed on the plans, but not done to plans/specs: pocket doors, bathroom window, shower drains, office framing for cabinets and living room entertainment area. I reviewed the items as listed on the plans and verified what was present was not what the plans called for.

Governing Rule: Workmanship Rule: ARS 32-1154(A)(2), Disregarding or departing from plans/specs without written consent.

Complaint Item 3: American Construction has violated A.R.S. 32-1154(A)(3) (Violation of any rule, namely R4-9-108-Workmanship). American Construction has performed the following poor/defective work:

a. Electrical incorrect and incomplete, costing $13,761 to finish

b. Stucco incorrect and incomplete, costing $9,500 to finish

c. Framing incorrect and incomplete, costing $3,500 to finish

d. Septic incorrect and incomplete, costing $30,900 to finish

e. Drywall incomplete, costing $28,400 to finish

f. Plumbing incomplete, costing $3,400 to finish

Investigator’s Observation: Verified. Items b, c, d, & e were modified and/or corrected by another contractor prior the JSI. I observed unfinished electrical and plumbing throughout the house. At the time of the JSI there was a company working on the Septic System.

Governing Rule: Workmanship Rule: ARS 32-1154(A)(3), namely R-4-9-108, Poor work not performed in accordance with professional industry standards. The work is poor because it’s not finished.

ITEMS NOT REQUIRING CORRECTION

The following complaint items require no action by the Respondent:

Complaint Item 4: American Construction has violated A.R.S. 32-1154(A)(6) (The doing of a fraudulent act). American Construction has falsified lien releases and pay applications to Ismail and his bank; American Construction abandoned the jobsite and one of its owners, Austin Richardson, fled the state with money paid by the owner, which had not been forwarded to subcontractors and material suppliers;

Investigator’s Observation: Unverified. The Complainant and his Attorney were advised to file a report with the local police department.

Governing Rule: N.A. This is a statement about fraudulent acts and not an allegation that implicates poor work that I can inspect and report on. If any criminal acts are adjudicated in a court of law this complaint item could be revisited at a later date.

Complaint Item 5: American Construction has violated A.R.S. 32-1154(A)(8) (Failure in a material respect to complete for price stated in contract). American Construction wrongfully charged owner $158,004 in unwritten and unapproved change orders; and Investigator’s Observation: Unverified. Complainant and his Attorney states they were charged more than the contract price for unapproved change orders.

Governing Rule: N.A. This is statement representing a money dispute and not an allegation that implicates poor work that I can inspect and report on.

Complaint Item 6: American Construction has violated A.R.S. 32-1154(A) (10) (Failure to pay money in excess of $750). American Construction has failed to pay the following sums to the following subcontractors/material suppliers despite payment from the owner:

a. David’s Professional Fire Services = $10,870, paid to American Construction in full by owner;

b. KJ’s Cooling and Heating = $13,761, paid to American Construction in full by owner;

c. Plumbing Company (Studio 41) = $10,645, paid to American Construction in full by owner;

d. Roofing company (Mulcock Roofing) = $12,600, paid to American Construction in full by owner;

e. Framing company (Masterson Framing) = $4,400, paid to American Construction in full by owner;

f. Insulation company (EMC Insulation) = $6,675, paid to American Construction in full by owner

Investigator’s Observation: Verified. This complaint item is verified based on the fact Liens have been placed by contractors who were not paid for their services/materials. However, the individual contractors need to file No Pay Complaints with the Registrar. While at the JSI the Complainant provided an additional invoice for Bean Drywall showing an unpaid balance of $6633.66.

Governing Rule: N.A.

After Complainant informed Investigator Oen that Respondent had not complied with the directive, he referred the complaint to the Registrar’s Legal Department. On November 6, 2019, the Registrar issued a citation against Respondent’s license, charging cause to revoke or suspend the license under A.R.S. § 32-1154(A)(1), A.R.S. § 32-1154(A)(2), A.R.S. § 32-1154(A)(3), namely A.A.C. R4-9-108, and A.R.S. § 32-1154(A)(22). Respondent filed a timely written answer, denying any violations.

The Registrar referred the matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. A hearing was held on March 1 and April 30, 2020. Complainant testified and submitted fifteen exhibits. Respondent submitted four exhibits and presented qualifying party/member Austin Lee Richardson’s testimony. Because Investigator Oen had retired, Senior Investigator Jim Dimond testified about the Registrar’s investigation.

Additional Hearing Evidence

Investigator Dimond testified that he had minimal involvement in the matter, having only performed a cursory review of the file. He performed a prehearing inspection on February 28, 2020. At that time, the house was substantially complete. Complainant explained that he had to move forward on his own.

Investigator Dimond acknowledged that he reviewed photographs that showed missing pocket doors and drains and partially completed shelves in the office. Investigator Dimond stated that it was the Registrar’s policy to quote complaint items verbatim on directives unless the complaint consisted of a long narrative.

Investigator Dimond acknowledged that he had no knowledge of whether Respondent received notice of the jobsite inspection. Investigator Oen’s notes did not include any conversations with Respondent about the inspection or directive.

Investigator Dimond testified that he had no knowledge of who had substantially completed Complainant’s house. Investigator Dimond noted that under A.R.S. § 32-1155(D)(2), the Registrar cannot cite items of construction that have been modified or corrected by others.

Complainant is a Canadian entrepreneur with an MBA degree from Cornell in general management who designs websites. Complainant and his wife purchased the house in Paradise Valley on June 1, 2017. They hired a designer/architect to draw up plans to demo and rebuild approximately 40% of the house. They meant to complete the project by December 2018.

Complainant obtained bids from several contractors, including Respondent. Complainant hired another general contractor, however, because the contractor offered a cost-plus contract that was the low bid. Complainant testified that he is very budget conscious.

Complainant testified that the original general contractor obtained a permit and demolished approximately half the house and started construction.

In June 2018, the general contractor that Complainant had hired had its license suspended then revoked. Complainant contacted Respondent about completing the project. Complainant provided the plans and Respondent looked at the gutted house.

On or about June 22, 2018, Complainant signed Respondent’s proposal to complete the project $542,578.80. Although the contract required change orders to be in writing signed by both parties, it did not mention the “Co-Construct,” which is a software program for construction project management.

Respondent worked two to three weeks on the project, preparing forms. At that time, the parties discovered that the plans showed the addition 4’ shorter than the architect and Complainant intended.

The plans had to be amended. Mr. Richardson stated that the mistake forced Respondent to stop construction and delayed the project approximately 6 or 8 weeks. The delay made it impossible for Respondent to complete the project before December 2018.

Mr. Richardson testified that, because the additional 4’ made the addition comprise more than 50% of the house’s square footage, everything in the house needed to be brought to code, even things that were not in the remodeling plan.

Complainant testified that the parties verbally agreed that change orders would be proposed and agreed to using Co-Construct. Complainant testified that by May 2019, he had only agreed to the $48,218.00 in change orders that had been processed through Co-Construct. Complainant testified that, by that time, he had paid $500,000.00 of the contract price.

Complainant testified that Respondent had charged Complainant $112,003.00 in unauthorized change orders. Complainant testified that he never discussed or authorized any of these charges or change orders.

Mr. Richardson testified that the parties made change orders verbally and in email, as well as through Co-Construct. Respondent submitted emails about various change orders that were not through Co-Construct, including additional concrete forms, abandoning the existing septic system in the front of the house and building a new septic system in the back, adding outlets in the home gym, adding data panels and cameras to the alarm system, and adding exterior lighting. In addition, changing an octagonal bathroom to rectangular and increasing the size of the addition 4’ required additional stucco, lath, and other construction components. Mr. Richardson testified that those were the only emails that he was able to find. Mr. Richardson testified that the changes brought the cost of Respondent’s contract to complete the project to $716,690.32.

Complainant testified that he had to pay numerous subs for work for which Complainant had paid Respondent. Complainant testified that he had received numerous pre-lien notices and that the total of such charges was $66,000.00. Subcontractors are hounding him non-stop. He has not been able to recover against Respondent’s bond.

Mr. Richardson testified that, even before Respondent stopped working on the project after Complainant failed to make progress payments, Complainant was going behind his back, hiring Respondent’s subcontractors directly. Mr. Richardson denied that Respondent had failed to pay any subcontractors for work on Complainant’s project. Mr. Richardson testified that, after Complainant refused to pay Respondent to continue working on the project, Complainant hired many of Respondent’s subcontractors to continue the project and, in some cases, upgraded materials or the scope of work.

Complainant testified that Respondent had departed from plans in many respects, including the drains and septic.

Complainant testified that he has paid a quarter of a million dollars to complete the project, plus the $500,000.00 that he paid to Respondent.

In November 2019, Respondent filed for protection under Chapter 11 of the federal Bankruptcy Act. Complainant testified that he believed some of the creditors listed on the schedule were subcontractors and materialmen on his project.

Mr. Richardson testified that Respondent stopped working on the project due to Complainant’s refusal to make progress payments and going behind Respondent’s back to hire subcontractors. Mr. Richardson testified that although Respondent continued to work on the project after conflicts arose, it could not continue to work on the project without funds to pay its subcontractors.

After Respondent stopped working on Complainant’s project, Mr. Richardson moved to Montana. At one point, Respondent agreed to pay whatever it was determined that it owed subcontractors after an accounting was performed, but the parties were unable to work together to resolve their differences.

CONCLUSIONS OF LAW

This matter lies within the Registrar’s jurisdiction.

Complainant bears the burden of proof to establish cause to suspend or revoke Respondent’s licenses by a preponderance of the evidence. Respondent bears the burden to establish affirmative defenses and factors in mitigation of the penalty by the same evidentiary standard.

“A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”

The complaint that Complainant filed with the Registrar and Complainant’s hearing evidence alleged specific dollar amounts associated with every alleged statutory violations. Investigator Oen’s directive noted that, at the time of the September 30, 2019 jobsite inspection, many of the complaint items, including stucco, framing, septic, drywall, and plumbing, had been completed. With respect to Respondent’s alleged departures from plan, both parties at the hearing acknowledged that the parties had agreed to change orders, which Complainant did not call to Investigator Oen’s attention. Because Respondent did not attend the jobsite inspection, Mr. Richardson was unable to tell Investigator Oen about additional change orders, the parties’ financial dispute, or the additional work that Complainant had performed on the project after the parties’ relationship broke irreparably and Respondent left the job. When Investigator Dimond performed the prehearing jobsite inspection, the project was substantially complete.

Respondent established that it left the project because Complainant refused to pay progress payments that included changes that Complainant had authorized. A.R.S. § 32-1155(D) provides in relevant part as follows:

The registrar may not issue a citation for failure to perform work in a professional and workmanlike manner or in accordance with any applicable building codes and professional industry standards if either:

. . . .

2. The contractor's work has been subject to neglect, modification or abnormal use.

Because by the time Investigator Oen saw the project, it had been modified, it is not appropriate to resolve any workmanship dispute in an administrative complaint against Respondent’s contractor’s license. The workmanship is only incidental to the parties’ mostly financial dispute.

The parties’ dispute is primarily financial. Because the legislature has not empowered either the Office of Administrative Hearings or the Registrar to adjudicate or award money damages, the parties must resolve their dispute in the bankruptcy court or in a court of competent civil jurisdiction.

RECOMMENDED ORDER

Based on the foregoing, IT IS ORDERED that Complainant Basel Ismail’s complaint against Respondent American Industries LLC DBA: American Construction & Renovation’s License No. ROC 319975 shall be 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 will be five days from the date of that certification.

Done this day, May 14, 2020.

/s/ Diane Mihalsky

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors