ALJDEC decisions subject to certification as final

2019A-04389-RFA-LS-ROC · Registrar of Contractors · 2021-10-07

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

LC Views Arizona LLC,

COMPLAINANT

Wm A Clark Construction Inc.,

License No. ROC 080678,

RESPONDENT

No. 2019A-04389-RFA-LS-ROC

ADMINISTRATIVE LAW JUDGE

DECISION

HEARING: July 13 and August 6, 2021

APPEARANCES: Frank Bell Jr. for Complainant; William Clark for Respondent; John Tellier, Esq. for the Registrar of Contractors

ADMINISTRATIVE LAW JUDGE: Thomas Shedden

FINDINGS OF FACT

On June 7, 2021, 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 July 13, 2021.

Regarding the issue for hearing, ROC’s Notice of Hearing provides:

PARTICULAR ARIZONA STATUTES AND RULES INVOLVED

The following Arizona statutes are rules are relevant to this matter: Title 32, Chapter 10, Article 2.1 of the Arizona Revised Statutes (A.R.S. §§ 32-1131 – 32-1140)

SHORT AND PLAIN STATEMENT OF THE MATTERS ASSERTED

Respondent has contested the Registrar’s determination regarding LC Views Arizona LLC’s Recovery Fund Claim. The Registrar’s determination was made pursuant to A.R.S. §§ 32-1132 to 32-1133.01.

(Underscore added.)

Complainant is LC Views Arizona LLC that filed a claim with ROC’s residential contractors’ recovery fund requesting a payout of $30,000. Frank Bell Jr. appeared and testified for Complainant.

William Clark appeared and testified for Respondent Wm A Clark Construction Inc.

ROC presented the testimony of Eric Ulinger, legal assistant II.

Complainant and Respondent entered a contract that called for Respondent to construct a house for Complainant. The contract price was $2,218,503.

Complainant and Respondent terminated that contract in a Termination of Construction Agreement executed on July 30, 2019.

Complainant has paid Respondent $1,015,388, which is payment in full for all work completed and for all amounts due and invoiced, which included payment for construction of concrete footings.

On August 29, 2019, Complainant filed with ROC a complaint against Respondent alleging that Respondent had billed for work not completed. Complainant subsequently amended its complaint.

ROC issued to Respondent a citation and an administrative hearing was conducted to address Complainant’s allegations.

On July 17, 2020, ROC issued a Final Administrative Decision and Order through which it adopted an Administrative Law Judge Decision dated June 23, 2020.

The ALJ in that matter concluded that Respondent’s work on trusses, a slab, and concrete footings was deficient in violation of ROC’s workmanship standards.

Through its Final Order ROC suspended Respondent’s license for fourteen days.

Complainant filed with Respondent’s bonding company a claim that was denied.

On or about February 16, 2021, Complainant filed its Recovery Fund Claim.

In its claim, Complainant provided that it had entered the contract on May 4, 2018, work started in April 2018, and that Respondent last performed work on July 29, 2019.

Complainant’s claim shows that it had already spent $138,025 in repair costs and that the lowest bid to complete the project was $66,000 to $84,750.

The current version of ROC’s statutes became effective in August 2019, which was after Complainant and Respondent terminated their contract, but before ROC issued its Final Order suspending Respondent’s license.

ROC’s Mr. Ulinger evaluated Complainant’s claim using the current version of the statutes because those statute were in effect when ROC’s Final Order was issued.

Mr. Ulinger found that Complainant had paid to Respondent $982,386.02 that was compensable and $28,000 that was not compensable. Mr. Ulinger did not consider any unpaid balance on the contract.

Complainant’s claim included proof that it had paid another contractor $5380 to remove the concrete footings installed by Respondent and $26,089 to have new footings installed. Mr. Ulinger accepted that these were valid compensable expenses.

Because these expenses totaled more than the maximum allowable payout of $30,000, Mr. Ulinger did not consider any other bids or expenses Complainant submitted with its claim, and he recommended that Complainant receive a payout of $30,000.

ROC issued a Notice of Claim for Administrative Award on April 27, 2021 that shows that Complainant “is to be awarded $30,000” in the form of a payment issued by the Recovery Fund.

Respondent exercised its right to contest the matter and requested a hearing.

As of the hearing dates, no payout from the recovery fund had been made.

Before any payment can be made, ROC must issue a Final Order directing the fund to make the payout. That Final Order will not be effective until forty days after it is issued.

ROC exhibit 11 is a warranty deed showing that LC Views Arizona LLC owns the property at issue.

ROC exhibit 12 is LC Views Arizona LLC’s Articles of Incorporation showing that Mr. Bell is the LLC’s managing member, the only owner with more than a 20% interest in the LLC is the Frank Bell Jr. Living Trust, and Mr. Bell is that Trust’s Trustee. ROC exhibits 4 and 13 also show that Mr. Bell is the LLC’s managing member.

ROC exhibit 8 shows that Mr. Bell and his wife Jennifer Bell are principals in the LLC and ROC exhibit 14 shows that they are owners of the LLC.

ROC exhibit 14 includes checks showing the account holder as LC Views Arizona LLC, Frank Bell Jr. and Hui-Fen Hsu Bell.

ROC exhibit 9, Complainant’s recovery fund claim, shows LC Views Arizona LLC as the owner, with Mr. Bell signing as the homeowner.

Mr. Clark testified to the effect that he is trying to save his license and livelihood and that this project ruined him financially. He expressed his remorse as to how things worked out.

CONCLUSIONS OF LAW

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).

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).

The tribunal may not read into the statute words or requirements that the legislature did not include. See Home Builders Association of Central Arizona v. City of Scottsdale, 187 Ariz. 479, 483, 930 P.2d 993, 997 (1997).

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).

Applicable Statutes and Case Law

“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) (underscore added).

“‘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.

(Underscore and bolding 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.

(Underscore and bolding added.)

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

“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.” Ariz. Rev. Stat. § 32-1133.01(A).

Payouts from the recovery fund are limited to the actual damages suffered by a claimant. Actual damages “may not exceed an amount necessary to complete or repair a residential structure or appurtenance within residential property lines.” Ariz. Rev. Stat. § 32-1132.01(B)(1).

An individual claimant may not receive more than $30,000 from the fund. Ariz. Rev. Stat. § 32-1132.01(D).

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....” (Underscore and bolding added.)

Ariz. Rev. Stat. section 32-1132(B) provides in part:

Only the following claimants are eligible for an award from the residential contractors' recovery fund:

***

2. A limited liability company to which all of the following apply:

(a) The limited liability company owns the residential real property that is damaged by the failure of a residential contractor to adequately build or improve a residential structure or appurtenance.

(b) All of the limited liability company's members actually occupy or intend to occupy the residential real property as described in subdivision (a) of this paragraph as their primary residence.

3. A trust to which all of the following apply:

(a) The trust is a revocable living trust.

(b) The trust owns the residential real property that is damaged by the failure of a residential contractor to adequately build or improve a residential structure or appurtenance.

(c) All of the trust's trustors actually occupy or intend to occupy the residential real property described in subdivision (b) of this paragraph as their primary residence.

(d) A trustor has not received monies from the fund in the last two years.

Whether the matter is an appealable agency action or contested case

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 right to a hearing arises from a statute outside of Title 41, Chapter 6. Ariz. Rev. Stat. § 41-1001(5).

ROC raises a number of arguments in support of its position that the matter is an appealable agency action, but none of these are persuasive.

ROC argues that no hearing is required before a payout is made, which is true. But the definition of a contested case does not require a hearing before the Respondent’s legal rights, duties or privileges are affected, only that it be permitted an opportunity for a hearing. Respondent is permitted a right to a hearing, which right is subject to waiver for failure to submit a timely hearing request. Ariz. Rev. Stat. section 32-1133.01(C). And ROC provides no authority to show that a payout can be made without a hearing in cases such as this one where the Respondent has timely exercised its right to request a hearing.

ROC acknowledges that any suspension will not occur until after the recovery fund hearing is concluded and it issues a Final Order directing the fund to make a payout. ROC argues however that Respondent can avoid suspension by preemptively paying any award after ROC’s Final Order is issued but before ROC actually does make the payout. This may be true, but it does not negate the fact that any Final Order issued by ROC actually ordering that that a payment be made to Complainant will have affected or determined Respondent’s legal rights, duties or privileges.

This is seen by the fact that Respondent now has a right engage in contracting activities, but is under no obligation to make a payment to Complainant to retain that right, whereas under ROC’s scenario, Respondent will be required to make a payment to avoid suspension of its license. Put another way, under ROC’s scenario, Respondent would have a duty to pay Complainant as a condition to retain his legal right or privilege to act as a contractor, which is not now the case.

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

ROC asserts that a contested case takes place before the agency makes a decision, whereas an appealable agency action takes place after the decision is made. Consequently, ROC argues that this matter is an appealable agency action because it has made a decision to issue an award to Complainant. But the definition of contested case does not turn on when the agency makes its decision, but rather it turns on when the licensee/contractor’s legal rights, duties or privileges are determined. As ROC acknowledges, any suspension of Respondent’s license will not occur until after the hearing concludes. Moreover, no payout can be made until ROC makes a decision to issue the Final Order directing the fund to actually make a payout.

All three elements of a contested case are present in this matter: (1) Respondent’s legal right and privilege to engage in contracting will be suspended if ROC actually makes a payout from the fund. Ariz. Rev. Stat. § 32-1139(B); (2) Before such a payout could be made, ROC had to provide Respondent with notice of the proposed payout and Respondent had a right to request a hearing to contest the proposed payout (subject to waiver if the request for hearing was not made in a timely manner). Ariz. Rev. Stat. § 32-1133.01(C); and (3) Respondent’s opportunity for a hearing is found in Title 32 at Ariz. Rev. Stat. section 32-1133.01(C). See also Ariz. Rev. Stat. § 32-1132.01(E)(“ Monies in the residential contractors' recovery fund may not be awarded for attorney fees or costs, except in contested cases appealed to the superior court.”)(Underscore added.)

Consequently, this matter is a contested case by definition.

The Burden of Proof

Recovery fund matters are unusual in that Complainant is making a claim for a benefit (a payout from the fund), but ROC’s authority to make a definitive ruling resulting in an actual payout 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 Office of Administrative Hearings’ statutes found at Ariz. Rev. Stat. section 41-1092.07(G). OAH’s rules 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(B) (underscore added).

ROC argues to the effect that Respondent bears the burden under R2-19-119(B) because when Respondent requested a hearing, it was appealing ROC’s determination (i.e., its Notice of Claim for Administrative Award), and that appeal was a claim challenging ROC’s determination.

The recovery fund was established to benefit “claimants” who have been injured by licensed contractors, and Complainant filed a claim asserting that it has a right or entitlement to a payout from the Recovery Fund pursuant to Ariz. Rev. Stat. section 32-1132. As such, a sensible reading of the subsection R2-19-119(B) is that the burden of proof falls to Complainant because it has made the claim at issue.

Complainant bears the burden of proof show that it meets the requirements for a payout from the Fund. Ariz. Admin. Code § R2-19-119(B).

Resolution of this matter

The preponderance of the evidence shows that LC Views Arizona LLC has been damaged by Respondent, with actual damages of more than the $30,000 maximum payout.

The record does not show that LC Views Arizona LLC is a claimant that meets the requirements of Ariz. Rev. Stat. section 32-1132(B)(2) because there is incomplete and potentially conflicting evidence as to who all the LLC’s members are, and there is no evidence to show that none of those members have received a payout in the prior two years.

The record does not show that the Frank Bell Jr. Living Trust is a claimant that meets the requirements of Ariz. Rev. Stat. section 32-1132(B)(3) because was no evidence adduced as to who the trustors are and whether those trustors also meet the requirements of subsections (B)(3)(c) and (B)(3)(d).

Consequently, LC Views Arizona LLC’s recovery fund claim should be denied.

RECOMMENDED ORDER

IT IS ORDERED that LC Views Arizona LLC’s recovery fund claim is denied.

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, October 7, 2021.

/s/ Thomas Shedden

Thomas Shedden

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors

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-137160-45720000