ALJDEC decisions subject to certification as final

2019A-04951-RFA-ROC · Registrar of Contractors · 2021-04-05

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Joel Collins

COMPLAINANT

Wm A Clark Construction Inc.,

License No. ROC 080678,

RESPONDENT

No. 2019A-04951-RFA-ROC

ADMINISTRATIVE LAW JUDGE

DECISION

HEARING: December 14, 2020 and February 2, 2021

APPEARANCES: Emilie Bell, Esq. for Complainant; William Clark for Respondent; Sarah A. Asta, Esq. for the Registrar of Contractors

ADMINISTRATIVE LAW JUDGE: Thomas Shedden

FINDINGS OF FACT

On November 13, 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 December 14, 2020.

The Notice of Hearing’s “Statement of Matters Asserted” provides: “Respondent [Wm. A. Clark Construction, Inc.] has contested the Registrar’s determination regarding Joel Collin’s [sic] 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. Collins’s claim that he is eligible for a payout from the residential contractors’ recovery fund.

William Clark, Respondent’s president and owner, appeared and testified for Respondent. ROC presented the testimony of Shaquira Adebule, a Legal Assistant II who evaluated Mr. Collins’s recovery fund claim. Mr. Collins appeared and was represented by counsel, but presented no evidence other than cross examination of Ms. Adebule and Mr. Clark.

In April or May 2017, Mr. Collins and his wife entered a contract with Respondent that called for Respondent to build a house for the Collinses.

On September 30, 2019, Mr. Collins filed with ROC a complaint against Respondent alleging poor work on Respondent’s part. Through his complaint, Mr. Collins alleged that the fireplace fumes did not draft up, but rather out into the room.

Mr. Collins’s complaint shows that the contract price was $1.2 million, that he had paid to Respondent “$250,000 +/-,” that Respondent stopped work in June 2018, and they “parted ways” in July 2018.

ROC investigator David Fagerburg inspected the work at issue.

On December 4, 2019, ROC issued a Directive ordering Respondent to correct the workmanship deficiency that Mr. Fagerburg had identified (i.e., fumes and heat do not draft up the chimney and instead disperse into the room from the top of the fireplace opening). Mr. Fagerburg never identified the cause of the problem.

On December 31, 2019, ROC issued to Respondent a Citation alleging that Respondent may have violated Ariz. Rev. Stat. sections 32-1154(A)(3) and (A)(22).

Respondent filed an answer to the Citation asserting among other things that Mr. Collins had refused to pay a bill of over $62,000 and had terminated the contract.

In a Final Administrative Decision and Order dated April 15, 2020, ROC adopted an Administrative Law Judge Decision finding that although ROC was not able to identify the cause of spent gas drafting into the room, three contractors had opined that the cause was an incorrect installation of the damper and that Respondent had violated Ariz. Rev. Stat. sections 32-1154(A)(3) and (A)(22).

Through its Final Administrative Decision, ROC suspended Respondent’s license.

Mr. Collins submitted to ROC a Recovery Fund Claim dated April 29, 2020 in which he declared that the contract amount was $1.2 million and that he had paid $250,000 +/-, and that there was no balance owed. In the box asking “Job Abandoned?,” Mr. Collins wrote “N/A.”

In section “D 1 Contractor’s Bond: Date filed against bond,” Mr. Collins wrote “N/A – Exhausted p/ Mary – ROC legal Dept.”

ROC had entered into evidence a letter dated December 19, 2018, from Merchant’s Bonding Company showing that on that date it had issued a payment of $9000 as a result of a claim on Respondent’s bond. Respondent’s Merchant’s Bonding Company bond was in the amount of $9000, and Ms. Adebule answered “yes” to ROC’s question of whether it would have been futile for Mr. Collins to submit a claim to the bonding company.

Mr. Clark testified that the bond was taken because Respondent was “left holding the bag” after Mr. Collins terminated the contract.

In the recovery fund claim-form’s section regarding payments to Respondent, Mr. Collins provided that on March 5, 2018, he had paid $68,579.15 “related to F/P issue” and on May 4, 2018 he had paid $52,855.75 “last F/P payment.”

Ms. Adebule processed Mr. Collins’s recovery fund claim.

Ms. Adebule used the statutes that were in effect at the time she processed Mr. Collins’s claim, rather than those in effect in 2018 when Mr. Collins’s damages occurred.

Ms. Adebule accessed the county assessor’s website that shows that in 2018 the Collins’ property was “Class 2.R AG/VACANT LAND/ NON-PROFIT R/P,” and that in 2019, 2020 and 2021 the property was “CLASS 4.1 NON-PRIMARY/NOT IN OTHER CLASSES RESID.” The record does not show the classification for 2017.

Ms. Adebule accessed the County Recorder’s website that showed the property was owned by the Collins Family Trust as of October 27, 2020 and that the last deed was recorded on June 12, 2017.

Ms. Adebule’s understanding was that the trust owned the property at the time of the parties’ contract and that Mr. and Ms. Collins were the trustees.

In response to a request from Ms. Adebule, Mr. Collins provide proof that he had paid Respondent a total of $340,659.24, through five checks and three wire transfers to Respondent.

Mr. Collins submitted four bids or estimates of the cost to complete or repair the work that ROC found to be deficient: a bid from Heser Masonry, and bids from Block More Masonry, LLC, Linda Vista Plastering Inc., and Arizona Gas Products.

Ms. Adebule/ROC determined that collectively the bids from Block More, Linda Vista and Arizona Gas, totaling $18,959.66, represented Mr. Collins’s estimated loss or cost to repair.

Heser Masonry’s estimate provides the description of work to be completed as “Modify the existing fireplace in order for it to properly function and draw” and “modify existing fireplace; firebox damper, throat chamber and arch opening,” for a total cost of $17,635.35. Heser Masonry includes a disclaimer to the effect that the price is subject to change once Heser determines the “true issues involved.”

Block More Masonry’s bid describes the work as “FIREPLACE REPAIR” and provides that the minimum scope of work is to repair the damper and chimney throat, but it acknowledges that it will not know if further repairs are required until it investigates.

Block More’s bid is for the lump sum of $16,500 and it includes the cost to remove and replace the entire fireplace and chimney structure if Block More determines that it is necessary to do so, and its scope of work also included the cost of restoring the fireplace to the existing design.

Through a letter dated June 2, 2020, ROC informed Mr. Collins that it would contact him if it needed more information, and it informed Respondent that it could get a copy of Mr. Collins’s claim if he contacted ROC’s legal department.

Mr. Clark testified that he did contact ROC, asking for the file and asking ROC if it needed any information from him, but he did not hear back from ROC until September 2020 when he received from ROC its Notice of Claim for Administrative Award.

Ms. Adebule forwarded the bids to Mr. Fagerburg asking him to provide his thoughts on the bids.

In response to Ms. Adebule, Mr. Fagerburg wrote:

This may be a complicated repair as neither contractor can be certain of the entire scope of work involved without some demo and starting the repair. Unknown issues?

The 1st estimate for prep and clean up costs seem a little high. Likely to cover "unknown issues" as stated the estimate is preliminary without further evaluation. The modification costs seem reasonable.

The 2nd estimate appears to be all inclusive with the exception of the stucco. I assume the 3rd estimate "Linda Vista Plastering" is related to the 2nd estimate as the 2nd contractor is planning the repair from the exterior which will involve stucco repair to the exterior. The AZ Gas Products estimate is reasonable.

Regardless the 2 main estimates appear to be competitive in relation to the scope of work and the "unknown issues".

(Underscoring added.)

Ms. Adebule prepared a spreadsheet that included pertinent facts and the calculation of a proposed payout to Mr. Collins.

Ms. Adebule’s spreadsheet shows that there was no affidavit of primary residence on file, the trust owned the property, and Mr. Collins intended to occupy the home as a primary residence.

Ms. Adebule determined that the scope of work set out in the combination of Block More’s, Linda Vista’s and Arizona Gas’s bids was required to correct the fireplace. As such, she determined that Mr. Collins’ estimated damages or cost to repair were $18,959.66, which is Block More’s bid of $16,500 plus Linda Vista’s $2000 bid for stucco repairs plus the Arizona Gas bid of $459.66.

Mr. Clark’s opinion wat that stucco repairs would not be required, and given that Block More’s scope of work also included the cost of restoring the fireplace to the existing design, it is not clear why that bid would not have included the cost of stucco repairs if necessary.

From the estimated damages or cost to repair of 18,959.66, Ms. Adebule was required to deduct any unpaid balance on the contract and any payment that Mr. Collins had received from Respondent’s bonding company.

Ms. Adebule’s spreadsheet shows that the original contract amount was $1,082,846.73, Mr. Collins had paid to Respondent $339,609.24, but Mr. Collins had no balance due on the contract.

Ms. Adebule testified to the effect that she determined that the balance owed on the contract was $0.00 because the invoices she had showed that the line-item costs for the fireplace ($4000) had been paid. That is, Ms. Adebule did not consider either entire original contract amount or the amount Mr. Collins actually paid to Respondent when she determined whether Mr. Collins had a balance due on the contract.

The original contract price of $1,082,846.73 less the $339,609.24 that Mr. Collins did pay to Respondent leaves a balance of $743,237.49.

In reaching her conclusion that the line-item cost of $4000 for the fireplace had been fully paid, Ms. Adebule relied on Respondent’s invoice numbers 1289 and 1292 that Mr. Collins submitted with his claim.

Invoice 1289 was for $68,579.15 and was paid in full.

Invoice 1292 was for $52,855.15, and although it was not marked paid, Mr. Collins provided ROC evidence that he had paid that amount through a wire transfer.

Invoices 1289 and 1292 include billings for several line-items, including a line-item “allowance” of $4000 for the fireplace, and these invoices show that Mr. Collins had received credit for payments totaling $4000.

Respondent had entered into evidence its invoice 1297 showing three additional “allowances” for the fireplace totaling $1361.07, but that invoice also shows that Mr. Collins received credit for a payment in that amount.

Because Ms. Adebule determined that Mr. Collins did not have any unpaid balance on the contract, she found that his cost to repair of $18,959.66 was his actual damages and she recommended that he receive a payout in that amount.

Through a Notice of Claim for Administrative Award dated September 23, 2020, ROC informed Mr. Collins and Respondent that “the Fund determined that Complainant is to be awarded $18,959.66 in the form of a payment issued by the Fund.”

Through the Notice of Claim for Administrative Award, ROC informed Mr. Collins and Respondent that “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.” (Underscore and bold added.)

Respondent sought to request a hearing through an email dated October 6, 2020, which ROC had no record of receipt.

Through a Default Decision, Order and Award dated October 14, 2020, ROC informed Mr. Collins and Respondent that Mr. Collins “is awarded $18,959.66 from the Residential Contractors’ Recovery Fund,” and that “[t]he Registrar will finalize payment procedures and issue the award in due course.”

Respondent filed with ROC a request to set aside the Default Decision.

Through an Order Setting Aside Default Decision, Order, and Award, dated October 26, 2020, ROC did so, and the matter was noticed for hearing.

Evidence was taken on December 14, 2020 and February 2, 2021; the record was then held open for submission and consideration of post-hearing briefs.

At the hearing on February 2, 2021, Ms. Adebule confirmed that no award or payout from the fund had actually been issued as of that date. Ms. Adebule also confirmed that she did not have authority to authorize actual payment of an award from the fund.

Mr. Clark testified that Respondent followed the blueprints building the chimney to the specified height, with that work then being approved by City of Scottsdale. Respondent did not install the stone finish, the gas line, or the logs, because it was fired from the job in or about July 2018.

In June and July 2018, Respondent submitted to Mr. Collins invoice numbers 1297 and 1302 totaling $53,206.24. Mr. Collins did not agree that all those charges were valid, but agreed to pay Respondent $14,012.50, leaving a balance due of $39,193.74 for those two invoices.

According to Mr. Clark, Mr. Collins then terminated the contract and Respondent was not allowed back. This occurred in or about July 2018.

According to Mr. Clark, Mr. Collins did not pay Respondent in full for the work Respondent performed.

Mr. Clark was critical of the estimates from Heser and Block More because these do not describe the scope of work with certainty or specificity, but rather they include disclaimers like “if necessary” and show that more investigation is required to determine the scope or cause of the problem.

Mr. Clark also noted that ROC has never identified the cause the problem.

According to Mr. Clark the fireplace construction has only two variables: the height and the size of the opening. This fireplace was built to the height called out in the plans and is fixed at that height.

Mr. Clark’s opinion was that the problem could be fixed by modifying the existing opening, which might include changing the stone front, and that the work could be done for $1000 to $3000.

Mr. Clark testified to the effect that even if the fireplace had to be removed and replaced, Block More’s lump-sum cost was excessive based on the industry average cost of $35 per man-hour inclusive of profit and overhead. Mr. Clark’s opinion was that the project was not complex and a four-man crew would clearly be adequate.

Block More’s estimate shows that the project would take six to seven days to complete. Using the four man crew for eight hours a day at $35 per hour for six days results in an estimated labor cost of $6720. Mr. Clark testified that the material (bricks and mortar) would not be costly, and in a written statement he estimated that to be about $2000.

Mr. Clark’s opinion is that an expert is someone who uses testing devices, science and data, and they are typically certified. Using that definition, Mr. Clark concluded that neither he nor Heser or Block More are experts.

Mr. Clark assumed that Heser and Block More are good masons, but his opinion is that they have a conflict because they are trying to sell fireplaces and are not in the business of saying that work does not require repair.

Mr. Clark acknowledged that he was providing opinions, but he did not consider himself to be biased because he was responding to charges and defending himself.

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 type of matter is an “appealable agency action,” or a “contested case," the record was held open for written closing arguments. In this case, the ALJ also brought to the parties’ attention the question of whether it was appropriate for ROC to use only the line-item costs for the fireplace in calculating Mr. Collins’s actual damages, or if ROC should have used the total contract price and the total Mr. Collins had paid to Respondent.

On March 8, 2021, ROC and Mr. Collins filed their respective Closing Arguments; Respondent did not file a closing argument.

The ALJ’s opinion is that: (1) the matter is by definition a contested case, (2) because Mr. Collins filed a recovery fund claim asserting that he was entitled to a payment from that fund, under Ariz. Admin Code section R2-19-119(B), he bears the burden of proof regardless of whether the matter is an appealable agency action or a contested case, and (3) that ROC was required to use the full contract price in determining Mr. Collins’s actual damages.

As set out below, ROC’s position is that the matter is an appealable agency action in which Respondent is an appellant who bears the burden of proof because he made a claim by challenging the award amount. Regarding ROC’s calculation of actual damages, ROC argues that it was appropriate to use only the line-item costs and payments because the fireplace was the only item in Mr. Collins’s workmanship complaint.

Mr. Collins’s Closing Argument

Mr. Collins did not address whether the matter is a contested case or appealable agency action.

Relying primarily on other Administrative Law Judge Decisions, Mr. Collins argues that Respondent bears the burden of proof citing Ariz. Rev. Stat. section 41-1092.07(G)(2), Ariz. Admin. Code sections R2-19-119(A) and (B), and Vazanno v. Superior Court, 74 Ariz. 369 (1952).

Citing a prior Decision by ROC, Mr. Collins also argues that ROC’s decision to issue an award is prima facie evidence showing the amount Mr. Collins is entitled to recover and that the burden then shifts Respondent to show that ROC calculations were erroneous.

Regarding ROC’s calculation of actual damages, Mr. Collins cites Ramsey v. Ariz. Registrar of Contractors for the proposition that ROC’s interpretation of statues controls.

ROC’s Closing Argument

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, determines an award amount without a hearing taking place, and notifies the parties of the amount to be awarded that then may be challenged.”

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 is reasonable. Notably, the hearing for this review occurs after the Registrar has determined a Recovery Fund award amount, thereby fitting squarely within the definition of an appealable agency action....”

“[T]he 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. Collins.

A check will not be issued to Mr. Collins until at least forty days after ROC’s Final Decision and Order authorizing a payout is made. Consequently, Respondent can avoid suspension of its license by “preemptively” paying the award amount before a payment from the recovery fund occurs.

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.”

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.” For example: 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.

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; citations omitted.)

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 amount. 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.”

Regarding the question of whether it was appropriate for ROC to use only the line-item costs and payments for the fireplace in calculating Mr. Collins’s actual damages, ROC’s Closing Argument provides that:

Mr. Collins’s complaint focused only on the fireplace and Respondent’s license was suspended based only on a finding that that work was deficient. The scope of the “project” is the fireplace.

The contract was terminated before the project was concluded, meaning that neither party had any obligation to perform, and that Mr. Collins had no obligation to pay the contract balance and Respondent had no obligation to continue the work.

Therefore, the entire contract amount is not the appropriate value to use.

The documentary evidence shows that Mr. Collins owed no balance on the line-item cost for the fireplace. Therefore, there is no unpaid balance for that portion of the work.

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).

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).

Effective on August 27, 2019, the ROC’s statutes, including those related to the Recovery Fund, were modified. Because Mr. Collins’s damages occurred in or before 2018, in this matter, the statutes that were in effect prior to August 27, 2019 must be applied. See Aranda v. Industrial Com'n of Arizona, 198 Ariz. 467, 11 P.3d 1006 (Ariz. 2000).

When Mr. Collins’s damages occurred, Ariz. Rev. Stat. section 32-1154(G) provided in part:

Notwithstanding any other provisions in this chapter, if a contractor's license has been revoked or has been 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. The registrar shall serve the contractor with a notice setting forth the amount claimed or to be awarded. If the contractor contests the amount or propriety of the payment, the contractor shall respond within ten days of the date of service by requesting a hearing to determine the amount or propriety of the payment. Failure by the contractor to respond in writing within ten days of the date of service shall be deemed a waiver by the contractor of the right to contest the amount claimed or to be awarded.”

(Underscoring and bold 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.

(Underscoring added.)

When Mr. Collins’s damages occurred, Ariz. Rev. Stat. section 32-1132(A) provided in part: any “person injured” by a licensed residential contractor’s violation of ROC’s statutes or rules may be awarded up to $30,000 from the residential recovery fund. But an “award from the fund is limited to the actual damages suffered by the claimant as a direct result of the contractor's violation ....”

When Mr. Collins’s damages occurred, Ariz. Rev. Stat. section 32-1131(3) provided in part: “‘Person injured’: (a) Means any owner of residential real property that is either noncommercial historic property as defined in section 42-12101 or classified as class three property under section 42-12003.”

“Actual damages” was not defined in statute at the time Mr. Collins’s damages occurred. In Ramsey v. Ariz. Registrar of Contractors however, the Court adopted ROC’s interpretation of that term and “h[e]ld that damages for purposes of [section] 32-1132(A) are limited to the reasonable cost of repairing the contractor's defective work and completing the project, minus any portion of the contract price still unpaid to the original contractor.” 241 Ariz. 102, ¶ 2 (App. 2016)(underscore added).

The Court later added that “‘Actual damages’ ... mean[s] the reasonable cost of completing the contract and repairing the contractor's defective performance ‘less the part of the contract price still unpaid.’” 241 Ariz. at ¶ 11 (“This interpretation comports with both Arizona law and the Restatement of Contracts.”)

The Ramsey Court found that “This construction of the statute is also consistent with the general purpose of making a homeowner who suffers from a contractor's misdeeds ‘whole’”. 241 Ariz. at ¶ 12. “ROC's interpretation of the statute eliminates the risk that a homeowner will receive a windfall as a result of the residential contractor's misconduct at the expense of the licensed contractors who contribute to the Fund.” Id. at ¶ 16.

The legislature codified the ROC/Ramsey definition effective in August 2019: “For the purposes of this section, "actual damages" means the reasonable cost of completing the contract and repairing the contractor's defective performance, minus the part of the contract price still unpaid.” Ariz. Rev. Stat. § 32-1132.01.

When Mr. Collins’s damages occurred, Ariz. Rev. Stat. section 32-1154(G) provided in part: “An applicant to the residential contractors' recovery fund pursuant to this subsection must show that the applicant has proceeded against any existing bond covering the residential contractor and has not collected on the bond in an amount of thirty thousand dollars or more.” (Underscore added). Similar language is now found in section 32-1133.01(F)(claimant must proceed against bond) and section 32-1132.01(F)(any recovery must be deducted from actual damages).

Ariz. Rev. Stat. section 32-1132(A) now 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 bold 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 e.g., Comeau v. Board of Dental Examiners, 196 Ariz. 102, 993 P.2d 1066 (App. 1999).

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).

All three elements 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. § 32-1154(G); and (3) Respondent’s opportunity for a hearing is found in Title 32 at Ariz. Rev. Stat. section 32-1154(G).

Consequently, the matter is a contested case by definition.

ROC argues that the matter is an appealable agency action because (1) an award or payout can be made without a hearing, (2) Respondent can avoid suspension by preemptively paying any award before ROC actually makes a payout, and (3) because this matter is similar to other matters in which a license may be suspended by operation of law. ROC’s arguments are not persuasive.

ROC’s argument that no hearing is required before a payout is made, is true. But the definition of a contested case requires only that the Respondent have an opportunity for a hearing before its rights, duties or privileges are affected. Ariz. Rev. Stat. section 32-1154(G) gave Respondent the right to a hearing, subject to waiver for failure to submit a timely request. ROC provides no authority to show that a payout can be made without a hearing in cases where the contractor timely exercises its right to request a hearing.

ROC’s argument that Respondent can avoid suspension by preemptively paying any award before ROC makes the actual payout, while true does not negate the fact that any Final Order issued by ROC announcing that Mr. Collins will be issued a payout has 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 Mr. Collins, whereas under ROC’s scenario, Respondent will be required to make a payment to avoid suspension of his license. Put another way, under ROC’s scenario, Respondent would have a duty to pay Mr. Collins 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 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 32-1154(G) (and now subsection 32-1133.01(C)) provides a right to a hearing in recovery fund matters.

The burden of proof

As an initial matter, ROC and Mr. Collins both misconstrue the scope or purpose of the hearing. ROC asserts that the purpose of the hearing is limited to determining if ROC’s notice of award was reasonable. Mr. Collins makes a similar assertion. But these assertions are not consistent with subsection 32-11454(G) that explicitly shows that the purpose of the hearing is “to determine the amount or propriety of the payment,” and not to determine if ROC’s proposed award is reasonable. (Underscore and bolding added.) Similar language is now found in section 32-1133.01.

This matter is unusual in that Mr. Collins 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.

Neither ROC’s, nor OAH statutes assign the burden of proof in a hearing on a recovery fund claim.

OAH’s administrative 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. Collins 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. Collins who has the burden of proof.

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, that Respondent made a claim by challenging the award, and because Respondent made that claim, it bears the burden of proof under subsection R2-19-119(B).

ROC’s position is contrary to principles of construction because: (1) Ariz. Rev. Stat. section 32-1154(G) unambiguously uses the term “requesting a hearing” and never uses the words appeal or appellant, and (2) ROC’s position requires that the word “claim” in R2-19-119(B)(1) be read to mean “requesting a hearing.” Moreover, ROC’s own Notice of Claim for Administrative Award instructs Mr. Collins and 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.”

Mr. Collins argues that Respondent bears the burden of proof, relying on other Administrative Law Judge Decisions. But Mr. Collins provides no independent analysis of those decisions and his argument is internally inconsistent because he asserts that Ariz. Rev. Stat. section 42-1092.07(G)(2) provides support for his position. But that statute deals with disciplinary matters and unequivocally puts the burden of persuasion on ROC, not the Respondent. As such, Mr. Collins’s argument is unpersuasive.

Mr. Collins also argues that Respondent bears the burden of proof based on subsection R2-19-119(B), but this argument is not persuasive for the same reasons that ROC’s argument is not.

Mr. Collins provides no analysis of Vazanno v. Superior Court, and his assertion that that case puts the burden on Respondent is not persuasive.

Citing a prior decision by ROC, Mr. Collins also argues that ROC’s Notice of Award is prima facie evidence that shifts the burden of proof to Respondent. But neither Mr. Collins nor that Decision provide any statutory authority or case law in support of that argument. In contrast, the legislature has provided that the Department of Financial Institutions’ reports are prima facie evidence of their contents. Ariz. Rev Stat. § 6-129(D)(“Every official report of the department is prima facie evidence of the facts therein stated in any action or proceeding wherein the superintendent is a party.”) Had the legislature intend that ROC’s Notice of Claim for Administrative Award be considered prima facie evidence, it would have done so through a statute. See State ex rel. Morrison v. Anway, 87 Ariz. 206, 209 (1960)( “It is a universal rule that courts will not enlarge, stretch, expand, or extend a statute to matters not falling within its express provisions.”; cf. U.S. Parking Systems v. City of Phoenix, 160 Ariz. 210 (App. 1989)(words used in one part of a statute should not be read into another part of that statute).

Calculation of Actual Damages

ROC argues to the effect that it makes sense to consider only the line-item costs and payments related to the fireplace in calculating Mr. Collins’s actual damages. But ROC offers no legal authority for this position and ROC does not address Ramsey v. Ariz. Registrar of Contractors that holds that actual damages “are limited to the reasonable cost of repairing the contractor's defective work and completing the project, minus any portion of the contract price still unpaid to the original contractor.” 241 Ariz. at ¶ 2.

Mr. Collins cites to and quotes from Ramsey, but fails to explicitly acknowledge that the language he quotes shows that ROC was required to consider the unpaid balance on the contract when calculating actual damages.

As set forth in Ramsey, under ROC’s own interpretation of the statutory scheme at the time of Mr. Collins’s injury, ROC was required to consider the parties’ contract price and any unpaid balance when calculating the actual damages.

Conclusion

Mr. Collins 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 erred when it analyzed Mr. Collins’s claim based on the line-item cost and payments for the fireplace rather than using the contract price less the unpaid balance as was required by ROC’s own interpretation of “actual damages” and the Ramsey case. The preponderance of the evidence shows that deducting Mr. Collins’s unpaid balance of $743,237.49 from the estimated cost to repair of $18,959.66 leaves a negative balance. Consequently, the preponderance of the evidence shows that Mr. Collins suffered no actual damages and is not entitled to a payout from the recovery fund.

ROC erred when it processed Mr. Collins’s claim using the statutes that were in effect beginning in August 2019, rather than the statutes in effect when his damages accrued. The preponderance of the evidence shows that Mr. Collins is not eligible for a payout from the recovery fund because his house was neither a “noncommercial historic property as defined in section 42-12101 [nor] classified as class three property under section 42-12003” at the time his damages accrued.

ROC erred when it processed Mr. Collins’s claim without requiring him to make a claim on Respondent’s bond as was required by Ariz. Rev. Stat. section 32-1154(G). Although there was evidence to suggest that such a claim would have been futile, the statute unambiguously requires that a claim be filed. Moreover, the evidence also suggests that the bond payment that was made may have been to Mr. Collins.

The preponderance of the evidence does not show that $18,959.66 is a reasonable cost to repair Mr. Collins’s fireplace because neither ROC nor Block More specified the cause of the problem, and to the contrary, the preponderance of the evidence shows that neither ROC, Block More nor Heser actually know what the cause of the problem is. Moreover, Block More’s bid includes the cost to remove and rebuild the fireplace while acknowledging that that work may not be necessary.

Consequently, Mr. Collins’s recovery fund claim should be denied.

RECOMMENDED ORDER

IT IS ORDERED that the Registrar of Contractors’ decision that Joel Collins is to be awarded a payout of $18,959.66 from the recovery fund is rescinded;

IT IS FURTHER ORDERED that Joel Collins’s claim for a payout from the recovery fund 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.

-54864001

001

-137160-45720000Done this day, April 5, 2021.

/s/ Thomas Shedden

Thomas Shedden

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors

-54864001

001

-137160-45720000