ALJDEC - Licensing

2022A-06758-CHC-ROC · Registrar of Contractors · 2023-03-03

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Megan Bert,

COMPLAINANT,

v.

R D Enterprises, LLC

License No. ROC 251644,

RESPONDENT.

No. 2022A-06758-CHC-ROC

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: February 13, 2023

APPEARANCES: Chad Kaffer, Esq. represented Complainant Megan Bert, who was present. Teri Foster, Esq. represented Respondent R D Enterprises, LLC. Ron Barney appeared on behalf of Respondent. Arizona Registrar of Contractors Investigator Steve Klein appeared as a witness.

ADMINISTRATIVE LAW JUDGE: Sondra J. Vanella

FINDINGS OF FACT

R D Enterprises, LLC (“Respondent”) is the holder of License No. 251644 issued by the Arizona Registrar of Contractors (“Registrar”). Ronald Barney is Respondent’s Qualifying Party and a member of Respondent.

On or about June 23, 2020, Megan Bert (“Complainant”) contracted with Respondent for Respondent to perform remodeling work at Complainant’s home. The parties executed a Cost Plus Fee contract that states in pertinent part:

The builder agrees to perform all necessary labors, including but not limited to arranging bids, selection and scheduling of subcontractors, supervision, inspections, oversee quality control of the construction of the above residence. Construction to be per the above referenced plans and specifications. As consideration for the builder construction of the residence, the Homeowner/Client agrees to pay a Cost-plus fee to the builder of 9% for Overhead/Profit as well as 9% for Supervision of all materials and labor to build this home for his services.

On or about February 18, 2021, Respondent obtained an estimate from Dwell Custom Cabinetry, LLC (“Dwell”) for the cabinets for the project, based upon the plans provided by Respondent to Dwell on February 2, 2021, in the amount of $82,700.00. Complainant paid Respondent $41,350.00 for the cabinets.

On or about September 1, 2022, the Registrar received a Complaint against Respondent from Complainant alleging:

Cabinetry paid for but not provided/installed. Cabinetry subcontractor filed for bankruptcy and General Contractor is refusing to provide cabinets as a result despite being paid;

Failure to pull proper permits. It appears General Contractor may have only pulled a demolition permit for a full remodel.

The Registrar assigned the Complaint to Investigator Steve Klein. After an October 28, 2022 jobsite inspection, on October 31, 2022, Investigator Klein issued a Written Directive to Respondent that provided as follows:

After investigation, the Registrar determined that you failed to meet the requirements of A.R.S. § 32-1154(A), and now issues this Directive requiring you to take appropriate corrective action. Failure to comply with this Directive constitutes a violation of A.R.S. § 32-1154(A)(22) and may result in the issuance of a citation, discipline of your license, and a civil penalty pursuant to A.R.S. § 32-1154(E) of up to $500.00. You must notify

the Registrar’s assigned Investigator of your compliance with this Directive prior to 5:00 p.m. on December 1, 2022.

You are directed to remedy the following violations by the appropriate means:

Complaint #1 Cabinetry paid for but not provided/installed,. Cabinetry subcontractor filed for bankruptcy and General Contractor is refusing to provide cabinets as a result despite being paid.

Inspector’s Observation: Verified there are no cabinets installed.

• Respondent shall complete project per original contract agreement, plans,

specifications, properly executed change orders and manufacturer’s installation instructions.

ITEMS NOT REQUIRING CORRECTION

The following complaint items require no action by the Respondent:

Complaint #2 Failure to pull proper permits. It appears General Contractor may have only pulled a demolition permit for a full remodel.

Inspector’s Observation: Completed prior to the jobsite inspection.

After the issuance of the Written Directive and the expiration of the time period in which to perform corrective work, Investigator Klein contacted Complainant and was advised that Respondent had not addressed the Written Directive. Thereafter, Investigator Klein forwarded the matter to the Registrar’s Legal Department. The Registrar issued a Citation against Respondent charging possible violations of A.R.S. § 32-1154(A)(1), A.R.S. § 32-1154(A)(3), namely A.A.C. R4-9-108(a), and A.R.S. § 32-1154(A)(22).

Investigator Klein conducted a prehearing inspection on February 9, 2023, and found that there were “some cabinets” on site, however none were installed.

Investigator Klein testified consistently with his findings contained in the Written Directive. Investigator Klein testified that Respondent did not comply with the Written Directive. Investigator Klein further testified that he “does not interpret contracts or resolve financial disputes.”

Ron Barney testified regarding his experience in the construction industry, as well as his use of Cost Plus contracts. Mr. Barney also testified regarding the parties’ contract terms as set forth above. Mr. Barney explained that he uses Cost Plus contracts because there are usually so many changes during a remodel process.

Mr. Barney further testified that he suggested to Complainant that Dwell be chosen as the cabinet subcontractor based upon the fact that Dwell provided the lowest bid for the project. Respondent had previously utilized Dwell on approximately four projects. Complainant agreed with Respondent’s suggestion (which was reasonable and justified given that Respondent was hired for its experience and expertise, and that Respondent was compensated for such by being paid 9% for Overhead/Profit as well as 9% for Supervision). Respondent contracted with Dwell for the project. Mr. Barney testified that Dwell only provided the drawings for the cabinets, and did not provide any labor or materials for the project.

Mr. Barney referenced an invoice dated September 23, 2021, from Respondent to Complainant, that included a line item for cabinets in the amount of $8,270.00. This is the amount that Dwell invoiced Respondent for the drawings on August 12, 2021. Complainant paid Respondent $8,270.00 for the cabinet drawings.

Mr. Barney testified that the draw schedule for the project indicates that the contracted amount for the cabinets was $82,700.00 based upon Dwell’s bid, and that Dwell was paid $8,720.00 on September 30, 2021.

Mr. Barney testified that Dwell submitted an invoice to Respondent on October 1, 2021, in the amount of $33,000.00, which was the remainder of the 50% deposit after the $8,270.00 payment.

On November 8, 2021, Respondent invoiced Complainant in the amount of $33,080.00 for the cabinets.

Respondent’s November 18, 2021 draw schedule shows that by that date, Complainant had paid $41,350.00 to Respondent toward the cabinets and at that point only drawings had been completed.

In May 2022, seven months after she had already paid $41,350.00 for cabinets, Complainant emailed Respondent’s office manager the following in pertinent part:

. . . I was under the impression I had signed off on cabinetry design back in December when we finalized the drawings. The framing of the interior of the house was completed months ago. I don't understand why a walk through with Dwell was only just completed this week. I was under the impression production had started back in December. When looking at slabs for countertops, I asked if we could change from a waterfall on the kitchen island to panels because I had thought they were already in production. . . .

Overall, just looking for more transparency of where things stand. A month ago, I had thought we'd be in the house no later than the end of October and based on the cabinet and other projected timelines I'm looking at another 10 months. We need more transparency and an urgency to bring this project to completion at a fast pace.

From December 2021 until May 2022, Complainant had believed the cabinet design had been finalized and that she could not make any changes, however, when she discovered in May 2022, that the cabinets had not yet begun to be manufactured, Complainant made some design changes. The only reason Complainant was able to make any changes was because Dwell had not yet started production of the cabinets.

On May 12, 2022, via email, Complainant signed her approval of the final cabinet design.

Respondent had taken no action on the status of the cabinetry from November 2021, when Complainant had paid half of the price of the cabinets, until May 2022, when Complainant inquired as to the status of the cabinets. Mr. Barney essentially had no explanation as to why Dwell did not move forward with the cabinet production after Complainant’s designer approved of the design in December 2021, indicating a lack of supervision by Respondent.

On June 16, 2022, Dwell filed for Chapter 7 Bankruptcy.

On August 29, 2022, Respondent filed a Proof of Claim with the Bankruptcy Court in the amount of $41,350.00. Therefore, any monies recouped, would go directly to Respondent, not Complainant.

Mr. Barney testified in regard to the Written Directive, that Respondent would not move forward with the cabinets until Complainant had agreed to pay one hundred percent for a new cabinet contract, notwithstanding the fact that Complainant had already paid $41,350.00 for cabinets. Respondent refused to provide a credit to Complainant for the $41,350.00 that Complainant had already paid toward the cabinets.

Regarding workmanship issues, Mr. Barney asserted that because no work was completed, there could not have been any workmanship deficiencies.

The new cabinet contract price is $118,666.00 for the same cabinets Respondent contracted with Dwell to provide. Therefore, Complainant is currently in the position of paying a total of $160,016.00 for the cabinets for the project, given that Respondent will not provide any credit for the $41,350.00 Complainant already paid for cabinets she did not receive, which is approximately double the original contract price of $82,700.00.

Complainant testified that she submitted timely payments to Respondent every time she received an invoice. Complainant further testified that the maturity date for her construction loan was November 1, 2022, and therefore, construction needed to be complete and a Certificate of Occupancy issued, prior to the conversion of the loan.

Complainant testified that the drawings provided by Dwell could not be used because the replacement cabinet subcontractor refused to use another subcontractor’s drawings. Complainant further testified that at the outset, Respondent only provided Dwell as an option as a cabinet subcontractor.

Regarding the replacement cabinet contractor, Complainant testified that after she learned of Dwell’s bankruptcy, she provided the names of six cabinet contractors to Respondent, all of which varied in price.

Administrative notice is taken of Respondent’s prior License record on March 2, 2023. Such prior License record reflects that Respondent’s License No. 251644 was first issued on December 22, 2008, and is active. Such prior License record also reflects that there is only the instant open complaint, zero resolved/settled complaints, and no discipline 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.”

A.R.S. § 32-1154(A) provides the following:

The holder of a license or any person listed on a license pursuant to this chapter shall not commit any of the following acts or omissions:

Abandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.

. . . . .

3. Violation of any rule adopted by the registrar.

. . . .

22. Failure to take appropriate corrective action to comply with this chapter or with rules adopted pursuant to this chapter without valid justification within a reasonable period of time after receiving a written directive from the registrar. . . .

A.A.C. R49108(a) provides that “[a] contractor shall perform all work in a professional and workmanlike manner.”

In this case, the material facts are not in dispute.

The uncontroverted evidence of record, including Mr. Barney’s testimony, established that Respondent refused to perform work regarding the cabinets after Dwell filed bankruptcy, unless Complainant paid a combined total of $160,016.00, representing the amounts paid to Respondent for its subcontract with Dwell, as well as the full amount of the new cabinet subcontract. Respondent asserted that pursuant to a Cost Plus contract, the homeowner bears all risks and costs incurred in connection with the construction, and therefore, Respondent was absolved of any losses incurred as a result of its subcontractor’s bankruptcy. The Administrative Law Judge disagrees with Respondent’s assertion given the particular facts and circumstances unique to this case. The parties’ contract specifies that Respondent “agrees to perform all necessary labors, including but not limited to arranging bids, selection and scheduling of subcontractors, supervision, inspections, oversee quality control of the construction . . .” Complainant agreed to pay a fee to Respondent of 9% for Overhead/Profit, as well as 9% for Supervision of all materials and labor. Respondent suggested Dwell to Complainant and Respondent contracted with Dwell. Complainant timely made all requested payments and believed the plans for the cabinets were finalized in December 2021. It was not until May 2022, when Complainant emailed Respondent inquiring as to the status of the cabinetry, that Respondent realized that nothing had been done in regard to the cabinetry during this extended period of time. Mr. Barney had no explanation as to why Dwell did not move forward with the cabinet production notwithstanding Complainant having paid 50% of the price of the cabinets by November 2021, and Complainant’s designer’s approval of the design in December 2021. Further, Mr. Barney failed to address Dwell’s inaction during such a protracted period of time, indicating a lack of oversight and scheduling of subcontractors, a lack of supervision, and a lack of quality control of the construction by Respondent – all services Respondent was contractually obligated to perform and for which Complainant paid to have Respondent perform. Respondent’s failure to perform its contractually obligated duties contributed to a nearly seven month delay in the cabinets. Had Respondent performed its supervision diligently, the cabinets may have been manufactured and/or installed prior to Dwell filing bankruptcy. Therefore, Respondent does not have legal excuse for the refusal to perform. Complainant established that Respondent violated A.R.S. § 32-1154(A)(1).

Respondent’s lack of follow through, lack of supervision and lack of scheduling constitutes a failure to perform its work in a professional and workmanlike manner in violation of A.R.S. § 32-1154(A)(3), namely, A.A.C. R49108(a).

The uncontroverted evidence of record further established that Respondent did not compete the corrective work following the Written Directive being issued. The Administrative Law Judge concludes based on the credible and substantial evidence of record, that valid justification does not exist for Respondent’s failure to comply. Therefore, Complainant established that Respondent failed to take appropriate corrective action following a Written Directive from the Registrar in violation of A.R.S. § 32-1154(A)(22).

RECOMMENDED ORDER

Based on the foregoing, it is recommended that on the effective date of the Order, the Registrar shall suspend Respondent’s License No. 251644 for a period of seven (7) days.

It is further recommended that the Registrar require Respondent to pay the sum of $500.00 as a civil penalty pursuant to A.R.S. § 32-1154(E).

It is further recommended that if Respondent fails to pay the entire amount of the civil penalty 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 prior civil penalty.

Pursuant to A.R.S. § 41-1092.08(I), the licensee may accept the Administrative Law Judge Decision by advising the Office of Administrative Hearings in writing not more than ten (10) days after receiving the decision. If the licensee accepts the Administrative Law Judge Decision, the decision shall be certified as the final decision by the Office of Administrative Hearings.

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.

Done this day, March 3, 2023.

/s/ Sondra J. Vanella

Administrative Law Judge

Transmitted electronically to:

Martín Quezada, Director

Registrar of Contractors

[email redacted]

Teresa H. Foster, Esq.

[email redacted]

Chad Kaffer

[email redacted]

Steve Klein

[email redacted]

By: OAH Staff