ALJDEC decisions subject to certification as final

2021A-00903-CHC-ROC · Registrar of Contractors · 2021-11-01

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Adam Johnson,

COMPLAINANT

Fordel Development, LLC,

License No. ROC 284258,

RESPONDENT

No. 2021A-00903-CHC-ROC

ADMINISTRATIVE LAW JUDGE

DECISION

HEARING: September 20, 2021; the record closed on October 14, 2021, after being held open for the submittal of post-hearing memoranda

APPEARANCES: Mickell Summerhays, Esq. represented Complainant Adam Johnson who was present. Grant Frazier, Esq. represented Respondent Fordel Development, LLC. Anthony Kurth was also present on behalf of Respondent. Registrar of Contractors Investigator Steve Nelson appeared as a witness.

ADMINISTRATIVE LAW JUDGE: Sondra J. Vanella

FINDINGS OF FACT

Fordel Development, LLC (“Respondent”) is the holder of License No. 284258 issued by the Arizona Registrar of Contractors (“Registrar”). Anthony Joseph Kurth is Respondent’s qualifying party.

On or about July 31, 2019, Adam Johnson (“Complainant”) contracted with Respondent for the demolition and construction of a home on Complainant’s property. The contract specified that the project would be substantially completed on or before January 1, 2021.

The contract specified a down payment as follows: “The owner is to pay the contractor 10% of the budgeted costs upon contract acceptance. The contractor is to apply these funds to the owner’s final invoice.” On July 31, 2019, Complainant paid $74,177.00 as the down payment per the contract terms.

On or about March 2, 2021, the Registrar received a Complaint against Respondent from Complainant alleging numerous violations of the State’s contracting laws with respect to the project.

The Registrar assigned the Complaint to Investigator Steve Nelson. After a review of the Complaint with the Registrar’s legal counsel, Investigator Nelson referred the Complaint to the Registrar’s Legal Department for the issuance of a Citation. Investigator Nelson did not conduct a jobsite inspection, and therefore, did not ascertain whether any workmanship deficiencies existed.

On March 23, 2021, the Registrar issued a Citation against Respondent, charging possible violations of A.R.S. § 32-1154(A)(6), A.R.S. § 32-1154(A)(8), A.R.S. § 32-1154(A)(12), namely A.R.S. § 32-1158, and A.R.S. § 32-1154(A)(17).

Investigator Nelson testified regarding his Complaint review, a copy of which is contained in the agency record and is set forth below:

General Notes: Complainant has stated that the Respondent’s scope of work was reduced in September 2020 and then the Respondent was terminated in October 2020 for what appears to be failure to perform. The Complainant has brought in new contractors and the initial work has been modified. While A.R.S. § 32-1155(D) precludes the Registrar from issuing 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” (see A.A.C. R4-9-108(A) and (B)) if the “work has been subject to neglect, modification or abnormal use,” there does appear to be sufficient evidence to support numerous other violations as listed below.

Compliance Item 1: A.R.S. § 32-1154(A)(1) Fordel has abandoned the project by failing to abide by its obligations under the contract including but not limited to failing to obtain proper permits & inspections.

Investigator’s Observation: While there is significant evidence to support that there were numerous delays caused by the Respondent that may have had a negative impact on the project, as a matter of practice the Registrar generally will not pursue an abandonment citation where there appears to be continued open communication between the parties. In addition, as the Complainant has terminated the contract, it would not be appropriate for the Registrar to cite for abandonment at this time.

Compliance Item 2: Fordel departed from or disregarded the applicable building codes by failing to obtain proper permits & inspections.

Investigator’s Observation: While there is significant evident to support this allegation, A.R.S. § 32-1155(D)(2) precludes the Registrar from issuing a citation for “failure to perform work in a professional and workmanlike manner or in accordance with any applicable building codes” if the “work has been subject to neglect, modification or abnormal use.” In this instance, the work has been modified.

Compliance Item 3: Fordel violated R4-9-108 by failing to obtain proper permits & inspection.

Contract language on page 5 states: “The Contractor shall obtain all necessary approvals from local authorities or other statutory bodies concerned for the Work and shall hold the Owner harmless for any violations and accordingly indemnify the Owner.”

Compliance Item 4: Fordel has done several fraudulent acts, including but not limited to misrepresenting its obtaining permits & inspections, failing to reconcile as promised- whether Adam had overpaid Fordel for work it did not complete, and requiring Adam to pay $57,000 for framing supplies and never delivered said supplies.

Investigator’s Observation: The behavior displayed by the Respondent in attempting to circumvent or negatively influence the local building official regarding permitting certainly could be defined as “a fraudulent act that results in a person’s substantial injury.” Exhibit 9 in the complaint submittal is a statement provided by the Local Building Official outlining this action. The Registrar defines a fraudulent act as “a material representation that a licensee makes, that is relied on by another person and that results in damage to that person or person’s property.” A.R.S. § 32-1154(A)(6). As stated in Compliance item #3, the contract specifies the Respondent will obtain necessary approvals from local officials.

There is a deposited check in the amount of $57,000 made payable to Fordel Development for framing in exhibit 10. The Complainant provided a declaration showing communications with the Respondent in regards to this item which also affirms that no work was completed to material delivered. There is no specific draw or line item for framing in the amount of $57,000. There is a line item for framing Hardware/Labor/Lumber included within the Shell costs, which appears to be $448,466.

The two items above would constitute a violation of A.R.S. § 32-1154(A)(6) and a citation should be issued.

The allegation statement of “failing to reconcile- as promised” would most likely be suited for a civil venue.

Compliance Item 5: Failing in a material respect to complete a construction project or operation for the price in the contract, or modification of the contract.

Investigator’s Observation: As the Respondent did not complete the project, this allegation may be substantiated merely on its merit.

Compliance Item 6: Fordel has failed to provide a fully executed & signed contract.

Investigator’s Observation: This appears to be accurate, although there is no response from the Respondent as of March 23, 2021. At a minimum, after review of the contract, there are missing elements required by A.R.S. § 32-1158(A), namely subsection (9), which requires a statement that the property owner has a right to file a written complaint with the Registrar. Draw schedule and total dollar amount also appear to be missing. There also appears to be a violation of A.R.S. § 32-1158(B), which requires a copy of all documents signed and a written and signed receipt to be provided to the owner.

Compliance Item 7: Fordel has, upon information and belief, acted as a duly licensed contractor while its license was suspended by the Registrar.

Investigator’s Observation: Below is a screenshot of the Respondent’s effective and cleared suspension dates. The license is currently suspended.

All errors in original.

Investigator Steve Nelson’s Testimony

Investigator Nelson testified that as to the charge of fraud, in his opinion, Respondent’s improper communications to the local building official regarding permitting, as well as requiring Complainant to pay $57,000.00 for framing materials that were never obtained by Respondent, constituted fraudulent acts.

Investigator Nelson testified regarding a November 6, 2020 letter authored by Chuck Ransom, Inspector/Plans Examiner for the town of Paradise Valley, that sets forth the following information concerning his dealings with Respondent:

I did a demolition inspection for the property at 7745 N Tatum Blvd as well as, a sewer tap only towards the beginning of 2020. The contractor wanted me to do other inspections, but I told him he needs approved permits and plans onsite for those inspections to be performed. Then on a Friday night back in mid- June he texted me if he could pour the slab as the permit should be issued the following week, I texted him back that he can NOT pour the slab until the permit has been issued and we inspect the work. About 20 minutes later he texted me asking what kind of trouble he would be in if he went ahead anyway, would he get a fine or would it be a slap on the wrist sort of thing, I took offense to that and did not respond to that text nor since.

All errors in original.

Investigator Nelson testified that he viewed Respondent’s actions as described in the building official’s letter, as “trying to circumvent local building codes which could cause damage.” Investigator Nelson opined that Respondent’s action could have resulted in substantial injury to Complainant as any circumvention of building officials could be a safety hazard. Investigator Nelson further opined that notwithstanding the eventual return of the $57,000.00, Respondent’s taking of $57,000.00 from Complainant for materials that were never provided, also resulted in substantial injury to Complainant. Complainant was deprived of the use of those funds while they were in Respondent’s possession.

Investigator Nelson testified that it appeared, after a review of the parties’ contract, the document was devoid of the required statement regarding an owner’s right to file a written complaint with the Registrar. Investigator Nelson further testified that the contract lacked a draw schedule, a total dollar amount, and that Respondent failed to provide a copy of the signed contract to Complainant. Therefore, Respondent was not in compliance with Registrar requirements for minimum elements of a contract and for the provision of a signed contract.

Regarding Respondent’s contracting while its license was suspended, Investigator Nelson testified about the Registrar’s records concerning Respondent’s license suspensions and the dates thereof. Investigator Nelson testified that it appeared that Respondent was actively working on this project from January 1, 2020, through October 30, 2020, and that Respondent’s license was suspended seven times during that period. Respondent’s license was suspended from March 2, 2020 through June 12, 2020, for lack of bond. Investigator Nelson testified that Complainant provided a Declaration of dates that Respondent was actively engaged in contracting on the project, as well as multiple text messages and photographs that corroborate the Declaration and the dates that Respondent performed work on the project.

Investigator Nelson testified that Respondent’s license was suspended from July 25, 2019 through August 5, 2019, and that Respondent accepted a down payment for the project from Complainant on July 31, 2019. Investigator Nelson explained that Respondent’s acceptance of a down payment for a project was considered contracting, and doing so while suspended was a violation of the State’s contracting laws.

Investigator Nelson also testified that Respondent’s license was suspended from March 2, 2020 through June 12, 2020, and that text messages dated April 23, 2020 and May 6, 2020, demonstrated that Respondent was working on the project during a period of time that its license was suspended. Further, Respondent submitted an invoice to Complainant dated May 6, 2020, and accepted payments from Complainant on May 15, 2020 and May 27, 2020.

Respondent’s license was also suspended from July 22, 2020 through July 28, 2020, and Respondent accepted a payment from Complainant on July 25, 2020.

Adam Johnson’s Testimony

Adam Johnson testified at length regarding the parties’ contract and Respondent’s lack of performance. Mr. Johnson testified that he hired Respondent to perform the demolition and reconstruction of his home because Mr. Johnson’s wife knew Mr. Kurth’s wife. Mr. Johnson asserted that he would not have hired Respondent had he been aware that Respondent’s license was suspended at the time he contracted with Respondent. Mr. Johnson testified that although the parties contracted in July 2019, the actual construction was to commence on January 2, 2020.

Mr. Johnson testified that he paid Respondent a 10% down payment in the amount of $74,177.00 on July 31, 2019, upon execution of the contract, pursuant to Section 4(b) of the contract. Mr. Johnson testified that pursuant to this contract term, that payment was not to be used until the final invoice was issued, which pursuant to the timeline set forth in the contract, was to be January 1, 2021.

Mr. Johnson testified that Respondent began demolition of the home in January 2020, however, Respondent did not contract for the design of the home until April 28, 2020.

Mr. Johnson testified that his contract with Respondent did not contain dates for progress payments, did not delineate taxes, and did not advise him of his right to file a complaint with the Registrar.

Mr. Johnson testified that Respondent assured him that all permits were in place pursuant to the parties’ contract which specified that the “[c]ontractor shall obtain and, at its expense, pay for any and all licenses or permits required by law to accomplish any Work required in connection with this Agreement . . . .” Respondent did not obtain the demolition permit until May 18, 2020, yet performed the demolition in January 2020. The plumbing permit was obtained on June 5, 2020, yet it appeared that plumbing work had been performed prior to that date. The residential addition-alteration permit was not obtained until October 2, 2020, notwithstanding that Mr. Johnson and his family moved out of the home in January 2020, and the project was to be completed by January 1, 2021.

Mr. Johnson testified regarding the Paradise Valley Inspector detailing his interactions with Respondent and his concerns that he did not know whether the work performed by Respondent was correct, and if not, whether it could result in a safety issue for his family.

Mr. Johnson described the payments he made to Respondent which were delineated in Complainant’s Exhibit 2. By September 2020, Mr. Johnson had paid in excess of $285,000.00 to Respondent. Respondent returned $42,251.00 to Mr. Johnson in October 2020, and $57,000.00 on July 12, 2021, representing the amount Mr. Johnson paid for the framing supplies which were never purchased by Respondent. Mr. Johnson paid Respondent $57,000.00 on August 9, 2020, almost a year prior to the return of the funds, in order to secure the price of the lumber. Respondent failed to obtain the materials, and the price of lumber had since increased.

Mr. Johnson testified that he and Respondent parted ways in October 2020, and at that point the project was approximately 10% to 15% completed. At that point, Mr. Kurth indicated he would provide an accounting to Mr. Johnson. Mr. Kurth failed to provide an accounting to Mr. Johnson, and a subpoena was issued for documents establishing Respondent’s use of funds paid by Mr. Johnson.

Respondent created an accounting in or after July 2021 (as it included the $57,000.00 refund). Respondent’s own accounting (that was created many months after Respondent stopped working on the project) acknowledged that Respondent owed Complainant $24,265.91. Mr. Johnson testified regarding many inaccuracies contained in Respondent’s accounting and referenced the amounts invoiced by Respondent and paid by Complainant.

Mr. Johnson further testified regarding amounts he was compelled to expend due to Respondent’s poor workmanship, in the amount of $32,220.50. In this case, Mr. Johnson did not file a workmanship complaint against Respondent with the Registrar. Mr. Johnson did not want to delay work on the project any further and had the repairs performed without the Registrar performing a jobsite inspection. Consequently, the Registrar was not able to make a determination regarding whether Respondent committed workmanship violations resulting in the alleged damages. Therefore, the Administrative Law Judge finds that it would be inappropriate to consider those expended amounts. However, nothing herein precludes Complainant from seeking damages in a venue that has the jurisdiction to award damages.

Complainant requested a restitution award in the amount of $145,154.05, calculated as the amount that Respondent spent on materials and labor for the project (i.e., $73,220.26), subtracted from the amount that Complainant paid to Respondent (i.e., $186,153.81, which took into account the returned amounts), which equated to $112,933.55. Complainant also requested the addition of $32,220.50 spent repairing Respondent’s work. These amounts equaled the requested restitution award of $145,154.05.

Anthony Kurth’s Testimony

Anthony Kurth testified that the preliminary design of the home required many revisions and meetings because Complainant decided in March 2020 that he wanted a second story bonus room. Mr. Kurth further testified that because Complainant and his family did not move out of the existing home until January 2020, no work could have been accomplished prior to January 2, 2020. Mr. Kurth blamed slow communication with the municipality on the pandemic as there was only digital communication and no physical presence.

Mr. Kurth testified that Complainant initially terminated Respondent on September 21, 2020, as Complainant was “unhappy with the timeline.” Mr. Kurth told Complainant that he would provide a reconciliation of funds and he put Complainant in touch with a replacement contractor. Mr. Kurth testified that he believed the reconciliation he provided was accurate. Mr. Kurth and Complainant agreed upon a limited scope of work that Respondent would complete. Complainant terminated Respondent in October 2020.

Mr. Kurth testified that prior to termination, Respondent had a survey performed, a soils report and compaction testing done, as well as the termite pre-treatment. Respondent completed the demolition and began grading, however, “plans still needed to be approved,” therefore, Respondent did not perform the front grading. Respondent prepared an area in the backyard for a bocce ball court. Respondent installed the foundation, except for the patio, and performed the underground plumbing. Mr. Kurth testified that Complainant was aware that there was no permit at the time the footings and foundation were installed, however, the structural engineer reviewed the work.

Regarding the allegation of deficient work, Mr. Kurth asserted that Respondent had no notice of any issues and no ability to inspect.

Mr. Kurth testified that Respondent did not charge Complainant for a number of changes, nor did he charge for his hourly general contractor fee. Mr. Kurth testified that he has since amended his contract to include the required language regarding an owner’s right to file a complaint with the Registrar.

Regarding Respondent’s prior disciplinary history, Mr. Kurth testified that those suspensions were based upon non-payments or “slow” payments to subcontractors, and payments were made after the suspensions were imposed.

Administrative notice is taken of Respondent’s prior License record on October 25, 2021. Such prior License record reflects that Respondent’s License No. 284258 was first issued on May 9, 2013, and is currently suspended since October 23, 2020, for non-renewal. Such prior License record also reflects that there is the instant open complaint, eight prior complaints resulting in discipline, and five prior resolved/settled complaints against Respondent’s license.

CONCLUSIONS OF LAW

This matter lies within the Registrar’s jurisdiction.

Complainant bears the burden of proof to establish Respondent’s statutory violations by a preponderance of the evidence. “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”

The credible, substantial and probative evidence of record established that: i) Respondent failed to timely secure permits for the project, and proceeded to work on the project without the required permits, which is a safety issue; and ii) Respondent had Complainant pay $57,000.00 for framing materials in August 2020, failed to order those materials, did not return the funds to Complainant until July 2021, eleven months later, depriving Complainant use of those funds, and resulted in Complainant having to expend additional funds for lumber due to increases in price. These material misrepresentations by Respondent were relied upon by Complainant and Complainant sustained damages as a result. Therefore Complainant established that Respondent committed fraudulent acts resulting in substantial injury to Complainant in violation of A.R.S. § 32-1154(A)(6).

The credible, substantial, and probative evidence of record established that by October 2020, when Complainant terminated Respondent, Complainant had paid Respondent $243,153.81 (which took into account the return of $42,251.00) and Respondent had only performed the demolition, some of the grading, most of the foundation (without a permit), and the underground plumbing (which may have been deficient). The entire project was to be completed by January 2021. The parties modified Respondent’s scope of work in September 2020, and Respondent failed to perform that work as well. Therefore, Complainant established that Respondent failed to complete the project for the contract price or in any modification thereto in violation of A.R.S. § 32-1154(A)(8).

The evidence established and Respondent admitted that Respondent’s contract documents failed to include the required language informing a property owner of the right to file a written complaint with the Registrar. Therefore, Complainant established that Respondent failed to comply with the Registrar’s statute in violation of A.R.S. § 32-1154(A)(12), namely A.R.S. § 32-1158.

The credible, probative, and substantial evidence of record established that Respondent entered into a contract with Complainant, accepted payments from Complainant, and worked on the project while its license was suspended. Therefore, Complainant established that Respondent contracted while its license was suspended in violation of A.R.S. § 32-1154(A)(17).

Pursuant to A.R.S. § 32-1156.01(A), “[a]fter a hearing pursuant to this article, an administrative law judge may recommend that a licensee provide restitution to any person who is injured or whose property is damaged by an action of the licensee.” Respondent argued in its post-hearing memorandum that restitution “is inappropriate because there is insufficient evidence in the record to support such a determination and the restitution demand stems from a complex breach of contract claim and relief analysis best suited for resolution in the Superior Court.” The Administrative Law Judge concludes that Respondent’s argument is not persuasive. The statute is unambiguous, and grants the authority for an award of restitution after an administrative hearing. In this case, there was credible and substantial evidence establishing that Complainant was injured by Respondent’s actions and inactions. Therefore, an award of restitution is appropriate.

Complainant established that Respondent should return the amount of $74,177.00 paid pursuant to the terms of the parties’ contract: “[t]he owner is to pay the contractor 10% of the budgeted costs upon contract acceptance. The contractor is to apply these funds to the owner’s final invoice.” In this case, there was no final invoice to which to apply those funds as Respondent failed to complete the contract and any modification to the contract. Complainant was contractually obligated to pay this sum as a down payment, however, Respondent did not earn those funds as they were to be applied to the final invoice. Those funds were presumably to be held in an escrow-like status until they were earned by Respondent upon completion of the project. Therefore, that sum rightfully belongs to Complainant and it is appropriate for Respondent to return these funds to Complainant.

The amounts requested for repairing and or replacing deficient work were addressed above, and the Administrative Law Judge concludes that it would be inappropriate in this proceeding to award restitution for those amounts as workmanship violations were not alleged and the Registrar did not investigate or charge Respondent with such violations. Regarding the remainder of the requested restitution, while additional amounts may be due and owing to Complainant from Respondent, the evidence failed to establish with sufficient specificity and certainty as to those remaining amounts, and therefore, the Administrative Law Judge concludes that a restitution award of $74,177.00 has been proven and is appropriate. Noting herein precludes Complainant from seeking additional monetary relief in another appropriate forum.

RECOMMENDED ORDER

IT IS RECOMMENDED that on the effective date of the final Order in this matter, the Registrar suspend Respondent Fordel Development, LLC’s License Number 284258 until such time that the Registrar receives proof that Respondent has paid to Complainant Adam Johnson the sum of $74,177.00 as restitution pursuant to A.R.S. § 32-1156.01.

IT IS FURTHER RECOMMENDED that if Respondent fails to pay the entire amount of the restitution on or before thirty (30) days following the effective date of the Registrar’s final order, the Registrar revoke Respondent’s license, effective on such deadline date. No future license shall be issued to any entity consisting of persons associated with Respondent, as defined in A.R.S. § 32-1101(A)(7), unless Respondent tenders payment of any outstanding restitution.

IT IS FURTHER RECOMMENDED that, on or before thirty (30) days after the effective date of the final order, Respondent shall provide a sample contract to the Registrar to demonstrate that it has amended its contracts to include the nine terms required by A.R.S. § 32-1158(A). If Respondent fails to establish to the Registrar that it has brought its contracts into compliance with A.R.S. § 32-1158(A) within thirty days, its contractor’s license shall be suspended until it demonstrates that it has done so.

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 forty (40) days from the date of that certification.

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-137160-45720000Done this day, November 1, 2021.

/s/ Sondra J. Vanella

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors

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-137160-45720000