ALJDEC decisions subject to certification as final

2021A-02506-NPC-ROC · Registrar of Contractors · 2021-10-25

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

R J Russo LLC,

COMPLAINANT

Bayley Construction LP

License No. ROC 313236,

RESPONDENT

No. 2021A-02506-NPC-ROC

ADMINISTRATIVE LAW JUDGE

DECISION

HEARING: October 7, 2021

APPEARANCES: Chris Lonn, Esq. for Complainant; Todd Baxter, Esq. for Respondent

ADMINISTRATIVE LAW JUDGE: Thomas Shedden

FINDINGS OF FACT

On July 19, 2021, the Registrar of Contractors (“ROC”) issued an Amended Notice of Hearing on Contested Case setting the above-captioned matter for hearing on August 20, 2021 at the Office of Administrative Hearings. The matter was continued and the hearing was conducted on October 7, 2021.

Through its Amended Notice of Hearing ROC alleges that Respondent Bayley Construction LP may have violated Ariz. Rev. Stat. section 32-1154(A)(10). Respondent holds License No. 313236 issued by ROC.

Complainant R J Russo LLC holds ROC license number 237600. Rustin Russo is Complainant’s qualifying party and a partner in the LLC.

Both parties appear through counsel; Respondent presented the testimony of Don Frank, Project Executive, and Complainant that of Mr. Russo.

Respondent is the general contractor on a project known as the Dells View Apartments.

Complainant and Respondent executed a subcontract that calls for Complainant to provide and install steel stairs at the project. The parties stipulated that the subcontract was binding. The subcontract is included in ROC’s administrative records and was moved into evidence.

The subcontract is to be interpreted under Arizona law, which would include application of the prompt pay act.

The subcontract shows that the main contract is considered to be a part of the subcontract and that the main contract is available for the subcontractor to review. Beginning in February 2021, Complainant made requests for Respondent to provide a copy of the main contract but as of the hearing date Complainant had not received it.

The main contract had no bearing in Respondent’s decisions related to the issue for hearing.

On June 3, 2021, Complainant filed with ROC a complaint against Respondent alleging that Respondent owed Complainant $90,407.26 (principal only, exclusive of interest and fees). Complainant submitted invoices 326, 336, 348, 366, which had been partially paid, and 380 and 453, which were unpaid.

On June 22, 2021, ROC issued to Respondent a citation through which it alleged that Respondent may have violated Ariz. Rev. Stat. section 32-1154(A)(10).

On July 2, 2021 Respondent filed with ROC an answer asserting that the subcontract had been terminated based on Complainant’s default.

At the hearing, Complainant reduced the scope of its claim and the parties stipulated that the matter was limited to invoice 380, which is pay application 5 for $58,605, and is in evidence as Complainant’s exhibit 22.

The parties stipulated that pay application 5 had not been paid as of the hearing date.

Complainant was required to submit its pay applications to Respondent by the 25th of each month.

Respondent takes the subcontractors’ pay applications and prepares a pencil or draft copy for the Owner and Architect to review and their approval is required before the applications can be paid.

The Owner does not deal directly with the subcontractors and is not responsible for approving Complainant’s work.

Complainant submitted pay application 5 in October 2020.

Mr. Russo signed pay application 5 that shows Complainant considered its work to be 75% complete.

Mr. Russo testified that typically Complainant would hear within about fifteen days if there were any problems with a pay application. Because Complainant did not hear that there were problems with pay application 5 within that time, it considered the application to have been approved.

In pay application 5, Complainant used the forms required by Respondent and followed the same format as it had for pay applications 1 through 4, which have been paid by Respondent.

Respondent paid Complainant for pay applications 1 through 4 because the Owner deemed these to be accurate.

Complainant included with pay application 5 the Conditional Lien Waiver and Release for Complainant’s work, and an AIA Form required by Respondent.

Complainant did not include with pay application 5 the lien releases from its own subcontractors and suppliers.

Complainant’s pay applications 1 – 4 were also submitted without lien releases from Complainant’s own subcontractors and suppliers.

The subcontract’s Progress Payment section requires submission of the conditional and unconditional lien releases for Complainant and for Complainant’s subcontractors and suppliers with each monthly pay application.

Complainant submitted to Respondent pay application 6 on November 25, 2020, which had not been paid as of the hearing date. In pay application 6, Complainant represented that its work was 95% complete.

Through an email dated December 11, 2020, Respondent informed Complainant that:

During Respondent’s pay application review with the Owner, the Owner rejected Complainant’s November pay application’s 95% completion figure and no money had been approved.

The October pay application (# 5) had been approved and was awaiting funding.

Respondent questioned the 75% completion value set out in pay application 5, and in support of its concern, it provided a list of 8 items that had not been completed.

This email is Complainant’s official notice that pay application 6 had been rejected and that all future payments were being withheld until the percentage completion matches the requested amount.

As of December 11, 2020, Complainant’s October application (# 5) had been approved by the Owner and Architect, but Respondent had not received from the Owner/Lender the funds to make the payment to Complainant. Mr. Frank’s intent in the December 11th email was to inform Complainant that all future payments were being held, which included October because it had not yet been paid.

Respondent did not intend the December 11th email to be a notice under the prompt pay act, but rather it was a notice based on the terms of the contract.

Mr. Frank testified that the Owner rejected Complainant’s November application (# 6) because the Owner did not accept that the work was 95% complete.

The Owner did not reject Complainant’s October application because it was already in progress. Respondent and Owner did however question whether the October application was accurate (i.e., whether Complainant’s work was 75% complete).

About a week or two after December 11th, Respondent did receive from the Owner/Lender the funds for Complainant’s October application, but in January 2021 Respondent refunded or credited those funds back to the Owner. It was the Owner’s decision to have Respondent make that refund.

Mr. Russo testified that this email was the first Respondent knew of any problems with pay application 5 and the first it knew of any issue with the 75% completion figure.

Mr. Russo acknowledged that work had not been completed on the eight items of concern listed in the December 11th email as of that date.

On February 9, 2021, Respondent terminated Complainant’s subcontract. Mr. Russo testified that Complainant was working until it was fired.

Respondent considers Complainant’s work to have reverted back to its September pay application that shows the work at about 52% complete (to Mr. Frank’s recollection).

Respondent asserts that Complainant has not performed as required because it had not paid its own subcontractors and material suppliers with money paid to it for that purpose.

Mr. Russo acknowledged that some of its subcontractors had filed liens, but only for October 2020.

In August 2021, Respondent filed a civil lawsuit against Complainant.

CONCLUSIONS OF LAW

Unless otherwise provided by law, a party asserting a claim, right, or entitlement bears the burden of proof; a party asserting an affirmative defense has the burden of establishing the affirmative defense. The standard of proof on all issues in this matter is that of a preponderance of the evidence. Ariz. Admin. Code § R2-19-119.

“At a hearing on an agency action to suspend, revoke, terminate or modify on its own initiative material conditions of a license or permit, the agency has the burden of persuasion.” Ariz. Rev. Stat. § 41-1092.07(G)(2).

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).

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).

The purpose of the Registrar’s licensing statutes is to protect the public from unscrupulous, unqualified, and financially irresponsible contractors. See Aesthetic Property Maintenance v. Capital Indem. Corp., 183 Ariz. 74, 900 P. 2d 1210 (1995).

There was no substantial evidence adduced showing that Respondent is unscrupulous, unqualified, or financially irresponsible.

Among the grounds for suspension or revocation of a contractor’s license is a “[f]ailure by [the] licensee . . . to pay monies in excess of seven hundred fifty dollars when due for materials or services rendered in connection with the licensee’s operations as a contractor when the licensee has the capacity to pay or, if the licensee lacks the capacity to pay, when the licensee has received sufficient monies as payment for the particular construction work project or operation for which the services or materials were rendered or purchased.” Ariz. Rev. Stat. § 32-1154(A)(10).

Complainant argues that Respondent has violated the prompt pay act and has violated Ariz. Rev. Stat. section 32-1154(A)(10). But ROC did not charge Respondent with a violation of the prompt pay act and there was no evidence adduced showing that Complainant raised that allegation in its complaint or that Complainant posted the required bond. See Ariz. Rev. Stat. § 32-1183(I)(requiring complainants to post a bond when alleging a violation of the prompt pay act). Consequently, Complainant’s allegation of a prompt pay violation is not properly at issue. Ariz. Rev. Stat. § 41-1092.07(F)(6) (the scope of the hearing is limited to issues officially noticed).

It has not been proven that Respondent violated section 32-1154(A)(10).

This matter is best seen as a good faith contracts dispute in which Respondent asserts that the no money is due to Complainant for pay application 5 because Complainant has not performed under the subcontract and has not complied with the subcontract’s requirement to submit lien releases, and Complainant essentially raising a “course of performance” argument because Respondent paid Complainant’s four prior pay applications. As such, superior court is the proper venue and this matter should be dismissed.

RECOMMENDED ORDER

IT IS ORDERED that case number 2021-02506 is 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 is forty days after the date of that certification.

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-137160-45720000Done this day, October 25, 2021.

/s/ Thomas Shedden

Thomas Shedden

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors

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001

-137160-45720000