ALJDEC decisions subject to certification as final

2022A-06132-NPC-ROC · Registrar of Contractors · 2022-11-05

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Madera Electric,

COMPLAINANT

Division II Construction Company Inc

License No. ROC 069855,

RESPONDENT

No. 2022A-06132-NPC-ROC

ADMINISTRATIVE LAW JUDGE

DECISION

HEARING: October 6, 2022, 9:00 A.M.

APPEARANCES: William Whaley appeared on behalf of Complainant; Jeanna M.W. Chandler, Esq., appeared on behalf of Respondent

ADMINISTRATIVE LAW JUDGE: Roger A. Geddes

_____________________________________________________________________

FINDINGS OF FACT

Background and Procedure

1. Division II Construction, Inc. (Respondent), is the holder of License Number 069855 issued by the Registrar of Contractors (Registrar).

2. On or about July 25, 2022, William Whaley on behalf of Madera Electric (Complainant) filed a Complaint against Respondent with the Registrar alleging that Respondent owed Complainant the sum of $25,658.00. The Complaint stated that amount represented the unpaid project retention amount for electrical work Complainant supplied to Respondent, general contractor, pursuant to a subcontract between Complainant and Respondent (Subcontract”) in connection with the construction of Pima County SE Library (“project”). Respondent answered contending it only owed Complainant $9,055.09 of the retention amount because of back charges it seeks to impose.

3. On August 4, 2022, the Registrar issued a Citation for Alleged Violation of A.R.S. § 32-1154(A)(10) for the alleged failure by Respondent to pay monies in excess of $750.00 when due for materials or services rendered in connection with Respondent’s operations as a contractor. The Registrar referred the matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. The Registrar issued a Notice of Hearing setting a hearing for October 6, 2022, at 9:00 A.M.

4. At the October 6, 2022, hearing, Complainant testified on his own behalf. Respondent presented the testimony of Trey Luglan, Eric Jacobson, Dale Huber, and Ann Hickox. The Tribunal received and admitted Respondent’s exhibit letters A - U. The hearing remained open until October 17, 2022, in order to give Complainant the opportunity to review and respond to newly-submitted Respondent exhibits, as well as afford him the opportunity to supplement the record with further evidence.

5. Complainant testified that he is owed the full retention amount of $25,658.00 and that no back charges are warranted. He stated that he was always willing and able to do the final testing and that he had asked to do the final testing but was denied or was never given a deadline. He contends that Respondent was not permitted under the Subcontract to hire a replacement subcontractor to do Complainant’s work because the Subcontract was never terminated. He further stated he submitted a bid for $11,551.00 for a change order to change out a control panel, but did not want to go forward with the change order until the final retention payment was worked out. He further testified that he paid all his subcontractors in full.

6. Trey Luglan, Respondent’s project manager, testified on behalf of Respondent that Complainant did not provide closing documents for its work as required under the Subcontract, and that Complainant did not respond to sign off for months. He stated Complainant did not do final testing as required under the Subcontract despite repeated requests. As a result, he testified that he did not terminate the Subcontract, but rather hired another subcontractor that did the testing on or about April 10, 2021. He stated that due to Complainant’s delay in responding or proceeding with the testing, he was required to extend the Procore software subscription which was required under the general contract. He further testified he was required to pay one of Complainant’s subcontractors who threatened to lien the property.

7. Eric Jacobson, Respondent’s estimator of the project, testified on behalf of Respondent that he signed the Subcontract on behalf of Respondent. He further stated that close out documents were requested from Complainant but they were received one at a time and were strung out over time.

8. Dale Huber, Respondent’s Superintendent of the project, testified on behalf of Complainant that he was not involved on the project at the end but that he was involved with the change order replacement of the control panel.

9. Ann Hickox, Office Manager of Respondent, testified on behalf of Respondent that she prepared the invoices for the back charges and that she prepared the check in the amount of $9,055.09 to Complainant, but that he did not accept it. She stated Complainant never disputed the back charges.

CONCLUSIONS OF LAW

1. The Registrar has jurisdiction over this matter, pursuant to A.R.S. § 32-1101, et seq., which authorizes the Registrar to impose disciplinary sanctions against licenses for violations of A.R.S. § 32-1154.

2. The burden of proof at an administrative hearing falls to the party asserting a claim, right, or entitlement and the standard of proof on all issues in these matters is by preponderance of the evidence. See Arizona Administrative Code Rule 2-19-119.

3. To warrant such sanctions by the Registrar, Complainant must demonstrate by a preponderance of the evidence that Respondent violated the statutory section cited. Proof by a “preponderance” means that “the evidence is sufficient to persuade the finder of fact that the proposition is more likely true than not.” In re: Arnold and Baker Farms, 177 B.R. 648 (9th Cir. BAP (Ariz.) 1994). See also Culpepper v. State of Arizona, 187 Ariz. 431, 930 P.2d 508 (App. 1996). It is “evidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not.” BLACK’S LAW DICTIONARY 1182 (Rev. 6th ed. 1990).

4. A.R.S. § 32-1154(A)(10) included among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license:

[f]ailure by a licensee or agent or official of a licensee to pay monies in excess of $750 when due for materials or services rendered in connection with the licensee’s operations as a contractor unless the licensee proves that the licensee lacks the capacity to pay and has not received sufficient monies as payment for the particular construction work project or operation for which the services or materials were rendered or purchased.

5. A.R.S. § 32-1154(A)(10). Complainant has satisfied its burden to demonstrate that Respondent has failed to pay Complainant the amount of $16,602.50 that had become due for materials or services rendered in connection with Respondent’s operations as a contractor. Respondent did not dispute that the retention amount under the Subcontract was $25,658.00. Rather, Respondent contended that back charges attributable to work performed by third parties and Respondent’s employees due to Complainant’s unfinished or delayed work should be offset against the amount owed by Respondent and that only $9,055.09 is due. Respondent sought back charges in the amount of $16,602.91 as more particularly described below.

6. Preliminarily, Complainant contends no back charges are permitted because Respondent did not terminate the Subcontract prior to hiring another subcontractor to finish Complainant’s work. However, according to the Subcontract, such a termination is unnecessary. Article 4 of the Subcontract provides that in the event that Complainant fails to perform work of proper quality or with promptness, the Respondent as general contractor has two options, perform the work on its own or terminate the Subcontract upon 3 days’ notice. Article 4 in relevant part states:

Should subcontractor at any time refuse or neglect to supply skilled workmen or materials of the proper quality or quantity or fail in any respect to perform Work with promptness and diligence or cause by any action or omission the stoppage or delay of or interference with the Work of Contractor or of any other subcontractors on the Project, or fail in the performance of any of the agreements contained herein, or become bankrupt or insolvent or go into liquidation either voluntarily or under an order of a court of competent jurisdiction or make a general assignment for the benefit of creditors or otherwise stop the Work or evidence financial incapacity to continue or complete the work, then after three day’s written notice to Subcontractor mailed or delivered to the last known address of the Subcontractor, Contractor may (a) provide through itself or through others any such labor or materials necessary to perform the Work until in the sole judgment of the Contractor the deficiencies of the Subcontractor’s work have been corrected and deduct the cost thereof from any money due, or thereafter otherwise to become due Subcontractor under this Subcontract, or (b) terminate this Subcontract in which event Contractor shall be at liberty to enter on the jobsite or the Subcontractors business premises and take possession, for the purpose of completing the Work of all materials, tools and equipment thereon, and to employ any other person or persons to finish the Work, and to provide supervision, materials, tools and equipment thereof.

(Respondent’s Exhibit A) (emphasis added).

7. Third party testing subcontractor: Respondent sought a back charge in the amount of $7,517.00 in connection with Respondent hiring another subcontractor to complete the final testing that had been required to be performed by Complainant. (Respondent’s Exhibit C). Complainant did not dispute that he did not do the testing. Rather, Complainant indicated he was always willing to do the testing but was never asked. However, Complainant’s position is inconsistent with an email of March 26, 2021, from Respondent to Complainant wherein Respondent gave Complainant the required three days’ notice before proceeding with the work:

“We need to get this done. I need this Schedule by Monday 3/29/21 or Division II will be forced to hire another subcontractor to do the testing for you that will be deducted from your contingency money.”

(Respondent’s Exhibit T). Complainant testified he did not recall this email and was unable to review it at the hearing. Therefore, the Tribunal kept the hearing open to give Complainant the opportunity to address this email or provide other evidence with respect to that email. Despite additional time, Complainant did not address the email or provide any other evidence to the Tribunal. Accordingly, this Tribunal finds that the amount of $5,500.00 Respondent paid to another subcontractor for testing is a supportable back charge due to Complainant’s failure to complete its work.

In connection with the hiring of this replacement subcontractor, Respondent also seeks an additional $1,334.00 back charge for Respondent’s Project Manager time, Superintendent time, travel time, and mileage. However, no evidence was presented to substantiate such time or the mileage other than an invoice from Respondent to Complainant. While such amounts may have been awardable as a back charge, Respondent failed to support these charges with sufficient evidence, such as time sheets or mileage sheets or other documentary support. Thus, the Tribunal finds insufficient evidence to support this $1,334.00 back charge amount.

Finally, in connection with hiring this replacement subcontractor, Respondent seeks a back charge in the amount of $683.00 (10% of the subtotal of $6,834.00) representing an overhead and fee “allowed by Subcontract.” However, Respondent failed to identify support for this overhead fee. Article 4 of the Subcontract provides for an overhead fee of 10% of its costs in finishing the work “[i]n the case of termination of the employment of Subcontractor...” (Respondent’s Exhibit A). However, the Tribunal does not interpret this provision as applying to cases of non-termination of the Subcontract , nor did Respondent take such a position at the hearing. Mr. Ludvig testified the Subcontract was not terminated. Thus, the Tribunal finds insufficient evidence to support this $683.00 back charge amount.

8. Respondent’s employees’ time: Respondent sought a back charge in the amount of $4,750.00 for 80 hours of clerical time and 50 hours of Project Manager time expended by Respondent’s employees allegedly due to Complainant’s failure to fully perform the Subcontract. (Respondent’s Exhibit D). These even number of hours suggests these times to be estimates, and similar to the case above, no evidence was presented to substantiate the time other than an invoice from Respondent to Complainant. While such amounts may have been awardable as a back charge, Respondent failed to support these charges with sufficient evidence, such as time sheets or other documentary support. Thus, the Tribunal finds insufficient evidence to support this $4,750.00 back charge amount.

9. Procore subscription: Respondent sought a back charge in the amount of $2,028.51 representing the cost to resubscribe to Procore software for the months of February through April 2021. (Respondent’s Exhibit E). Mr. Ludwig testified that the owner required Respondent as the general contractor to subscribe to Procore during the course of the work. He further testified that due to Complainant’s delay, Respondent was required to subscribe for another year. Therefore, Respondent seeks a back charge for three months of that yearly subscription due to Complainant’s delay. According to the evidence, three months of the one year subscription calculates to be $1,844.10. (Respondent’s Exhibit F). Complainant did not dispute this charge, but argued that Procore was not part of the Subcontract and that subscribing was Respondent’s choice. The Tribunal finds this argument unpersuasive and finds that the evidence demonstrated that the continued subscription was attributable to Complainant’s delay. Accordingly, the Tribunal finds that the amount of $1,844.10 Respondent paid for Procare is a supportable back charge due to Complainant’s delay.

In connection with the Procore subscription, Respondent also seeks a 10% “Admin fee” in the amount of $184.41 as a back charge. For the reasons stated above, the Tribunal finds insufficient evidence to allow this 10% fee or the $184.41 back charge amount.

10. Scott Fire and Security, LLC: Respondent sought a back charge in the amount of $2,307.40 with respect to work performed by Scott Fire and Security, LLC (“Scott Fire”), who was a subcontractor first of Complainant and then of Respondent. The back charge sought was evidenced by a collection of invoices from Scott Fire totaling $13,858.40, less a bid from Complainant in the amount of $11,551.00 for a control panel change order. (Respondent’s Exhibit B). There was no dispute that Complainant did not perform the control panel work that was the subject of the change order. Therefore, Respondent has failed to show how invoices relating to a change order for which Complainant did not do the work would factor into a calculation of back charges.

Respondent, however, has presented evidence that Complainant owed Scott Fire the retention sum of $1,711.40 on the underlying subcontract between Complainant and Scott Fire unrelated to the change order. Evidence presented showed that Respondent paid this amount to avoid a Scott Fire lien and for Respondent to proceed with further work with Scott Fire. (Respondent’s Exhibit G). Complainant testified he believed he had paid Scott Fire all sums he owed them. The Tribunal allowed Complainant additional time to supplement the record by presenting evidence that he paid Scott Fire all sums due, or at least the $1,711.40 retention sum. Despite additional time, Complainant presented no further evidence. Accordingly, this Tribunal finds that the amount of $1,711.40 paid to Scott Fire is a supportable back charge due to Complainant’s failure to pay its subcontractor.

11. Accordingly, the Tribunal finds supportable back charges in the amount of $5,500.00 for testing, $1,844.10 for the Procore subscription, and $1,711.40 for the payment to Scott Fire for the total back charge amount of $9,055.50.

12. Respondent did not contend nor did it present any evidence that it lacked the capacity to pay Complainant or that it had not received sufficient monies as payment for the project for which Complainant’s services were rendered.

13. In this matter, Respondent failed to pay the amount of $16,602.50 ($25,658.00 retention balance less $9,055.50 supportable back charges) to Complainant for materials or services rendered in connection with Respondent’s operations as a contractor. Complainant has established that Respondent’s license should be disciplined for a violation of A.R.S. § 32-1154(A)(10).

RECOMMENDED ORDER

Based on the foregoing, it is recommended that on the effective date of this Order, Division II Construction, Inc.’s,, License Number 069855 is suspended until the Registrar receives and accepts written verification that Division II Construction Inc., has paid $16,602.50 to Complainant in certified funds.

It is further recommended that if and when the Registrar receives and accepts Respondent’s evidence that it has paid Complainant $16,602.50 in certified funds, the Registrar may close this Complaint.

In the event of certification of this Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order will be five days from the date of the certification.

Done this day, November 4, 2022.

/s/ Roger Geddes

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors

Madera Electric

3141 S Aldebaran Pl

Tucson, AZ 85730

William Jay Whaley

DBA: Madera Electric

PO Box 698

Vail, AZ 85641

John Brady, Esq.

4801 E Broadway Blvd Ste 400

Tucson, AZ 85711

[email redacted]

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-137160-45720000By Miranda Alvarez

Legal Secretary