ALJDEC - Licensing

2023A-12569-OMC-LS-ROC · Registrar of Contractors · 2025-03-22

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Arizona Registrar of Contractors,

COMPLAINANT,

CQH CONTRACTING LLC,

License No. ROC 338678,

RESPONDENT.

No. 2023A-12569-OMC-LS-ROC

ADMINISTRATIVE LAW JUDGE DECISION

VIRTUAL HEARING: After a continuance, hearing conducted January 23, 2025.

APPEARANCES: Gary Lynn Fortune appeared on behalf of CQH Contracting LLC (Respondent). Assistant Attorney General Charles Hover III represented the Arizona Registrar of Contractors (Registrar); Witnesses, Jim Dimond, Registrar Investigator; Chance Peterson, Registrar General Counsel.

ADMINISTRATIVE LAW JUDGE: Kay A. Abramsohn

EXHIBITS ADMITTED INTO EVIDENCE: Registrar Notice of Hearing Packet (Packet); Registrar Exhibits 1 through 43.

_____________________________________________________________________

FINDINGS OF FACT

Respondent’s License Application

CQH Contracting LLC (Respondent) submitted its application for a contractor’s license on March 21, 2022.

The license application (Application) submitted on March 31, 2022 was designated as APP-[number redacted]. The Application named David Paul Schlax as the qualifying party and named Gary Lynn Fortune as the sole owner. See Exhibit 2 and Exhibit 4.

On June 9, 2022, The Registrar issued License No. 338678, KB-2 Dual Residential and Small Commercial Contractor, to Respondent. See Exhibit 1.

Respondent’s Corporate Filings

Respondent’s Articles of Organization, filed with the Arizona Corporation Commission (ACC) on October 11, 2021, listed Gary Fortune and Randy Instine as principals. See Exhibit 5.

On May 27, 2022, Respondent filed Articles of Amendment with the ACC, removing Randy Instine. See Exhibit 6.

Complaints against Respondent - Case 2023-12569-OMC

On or about October 10, 2023, Registrar Investigator Jim Dimond received information from the Town of Prescott Valley’s Chief Building Official (CBO), Woody Lewis, in reference to a construction project at 9760 E. Towago Drive in Prescott Valley, Arizona.

Inv. Dimond noted his investigation and findings in a Registrar’s Official Departmental Report (ODR). See Exhibit 7.

The ODR indicted that CBO Lewis advised Inv. Dimond “that unlicensed entities are running the project and performing unpermitted work [and] that Clyde Neville is running the project on behalf of [Respondent] CQH Contracting LLC.” Id. at 2.

The building permit for 9760 E. Towago Drive includes a letter signed by Gary Fortune on behalf of Respondent, stating: “Please except (sic) Clyde Neville, GC Consultants as my agent/representative on the construction project at Chuck Leons, single family residence, 9670 E. Towago.” See Exhibit 8.

For the construction of that home at 9670 E. Towago Drive, Clyde Neville had entered into an agreement with Chuck Leon which provided that “[t]he construction of the residence will be the responsibility of Clyde Neville.” See Exhibit 9.

That agreement was entered into pursuant to a “General Partnership Agreement” dated September 21, 2021, between Charles and Kay Leon and Clyde and Linda Neville for the “primary purpose” of “construction projects in the State of Arizona.” See Exhibit 10 [Agreement Section III].

Regarding his investigation at that project, Inv. Dimond noted in the ODR that Clyde Russell Neville, of GC Consultants, was known to him to be an unlicensed contractor. See Exhibit 7 at 5.

OTHER PROJECTS

Former Yavapai County CBO Carrie Holmes informed Inv. Dimond of an additional project at 833 Cochise in Dewey, Arizona, for which Respondent is the contractor of record. Id.

Current Yavapai County CBO Warren Colvin provided Inv. Dimond with several additional project addresses for which Respondent is the contractor of record, including:

4696 Jack Pine, Prescott, Arizona (as of September 11, 2023, Clyde Neville of GC Consultants and Randy Instine were listed on the permit). See Exhibit 12.

1129 N. Turquoise, Prescott, Arizona (on January 9, 2024, GC Consultants, Clyde Neville, filed the permit application). See Exhibit 13; see also Exhibit 7 at 6.

ROC Disciplinary Action

On January 8, 2024, Inv. Dimond issued three warning letters to Respondent for violations of A.R.S. §§ 32-1154(A)(2); and 32-1154(A)(12), namely 32-1124(B), on two of the three projects, i.e., on 9670 E. Towago Drive in Prescott Valley, Arizona, and on 833 Cochise in Dewey, Arizona. See Exhibits 14 through 16.

On March 6, 2024, Inv. Dimond issued a warning letter to Respondent for a violation of A.R.S. § 32-1154(A)(4), for failing to maintain workers’ compensation insurance. See Exhibit 17.

On March 6, 2024, Inv. Dimond issued a letter notifying Respondent of the opening of formal Complaint No. 2023-12569 and requesting a written response. See Exhibit 18.

On March 15, 2024, Respondent, through Gary Fortune, emailed its response to Inv. Dimond regarding Complaint No. 2023-12569. See Exhibit 19. Mr. Fortune responded that Randy Instine was “a bona fide W-2 employee;” that Clyde Neville was not an employee but only did design work and permit processing; that CQH was “in the process of renewing” workman’s compensation; that “most of the signage” was up and the rest would be done within the next few days; and that permits had been applied for the 9760 E Towago Drive project.

Via e-mail, Inv. Dimond requested the W-2 for Randy Instine; Gary Fortune responded that he could not provide a W-2 for 2023 because it had not been “set up” for that year. Id.

Via e-mail, Inv. Dimond told Gary Fortune that Clyde Neville could not run the projects or order materials and Mr. Neville needed to either be a bona fide employee or a licensed contractor; Gary Fortune responded that “we” would not have Clyde Neville order materials or run projects for the CQH license. Id.

Complaint No. 2024-00106

On January 4, 2024, the Registrar received a homeowner’s complaint from Thomas Carroll, filed against Respondent in reference to a residential new build at 7285 West Clare Island Drive, Wilhoit, Arizona. Mr. Carroll’s complaint was designated as Complaint No. 2024-00106. See Exhibit 20.

Inv. Dimond discovered that the permit applicant for this project was “GC Consultants, Clyde Neville.” See Exhibit 22.

Inv. Dimond conducted a jobsite inspection for Complaint No. 2024-00106 on January 19, 2024. In addition to the homeowner (Mr. Carroll), Gary Fortune and Randy Instine were in attendance; Mr. Instine was indicated to be an “employee.” See Exhibit 21.

When Inv. Dimond asked the homeowner, Mr. Carroll, whether he was employing Clyde Neville as a consultant, Mr. Carroll replied, “No - Clyde is working for CQH.” See Exhibit 23.

David Paul Schlax

Inv. Dimond found that Respondent’s qualifying party, David Paul Schlax, does not appear on any of Respondent’s permit applications or other documentation in this matter.

David Paul Schlax had not been identified in any of Inv. Dimond’s communication or interactions with Respondent.

Upon information and belief, Mr. Schlax is not involved in any of Respondent’s work, and is neither an owner of Respondent nor regularly employed by Respondent.

Previously, David Paul Schlax was the qualifying party for Custom Quality Homes Corporation, a KB-2 Dual Residential and Small Commercial Contractor; that entity held License No. 317796. Both Gary Lynn Fortune and Randall LaRoi Instine were officers of Custom Quality Homes Corporation. ROC License No. 317796 was voluntarily cancelled in March 2022.

Randy Instine’s Prior Licenses - Registrar

Randy Instine LLC was the holder of three ROC licenses that were previously revoked: License Nos. 183459, 184764, and 182413. See Exhibit 24.

Randall LaRoi Instine was the sole member and the qualifying party for the three previously revoked ROC licenses. See Exhibits 25 through 26.

Randy Instine’s Prior Licenses - Arizona Department of Housing

Randy Instine LLC was the holder of an Arizona Department of Housing (ADOH) Dealer License No. 8418, Class D-12. See Exhibit 27.

On January 13, 2022, ADOH issued a Citation and Complaint against License No. 8418, in Case No. 2022-003. See Exhibit 28.

On February 16, 2022, ADOH issued an Order of Suspension against License No. 8418, in Case No. 2022-003. See Exhibit 29.

On March 7, 2023, ADOH issued a Final Order Re: Consumer Recovery Fund against license No. 8418, in Case No. 2022-003, issuing a payout from the Consumer Recovery Fund in the amount of $60,610.00, and suspending License No. 8418 until the amount is repaid in full. See Exhibit 30.

On June 16, 2023, ADOH issued a Final Order Re: Consumer Recovery Fund against License No. 8418, in Case No. 2022-019, issuing a payout from the Consumer Recovery Fund in the amount of $47,500.00, and suspending License No. 8418 until the amount is repaid in full. See Exhibit 31.

Clyde Neville’s Prior Licenses

Clyde Russell Neville was the qualifying party for ROC License Nos. 091790 and 091797, both issued to Golden Crafts, both now revoked. See Exhibits 32 and 33.

CQH Contracting LLC’s Employment Records

The Arizona Department of Economic Security (ADES) has no records associated with CQH Contracting LLC dba Custom Quality Homes. See Exhibit 34.

ADES has no record of wages paid to, associated with, Randy Instine’s social security number. See Exhibit 35.

ADES has no record of wages paid to, associated with, Clyde Neville’s social security number. See Exhibit 36.

As of March 1, 2024, the Arizona Industrial Commission (ICA) had no record of workers compensation insurance coverage for CQH Contracting LLC. See Exhibit 37.

As of March 1, 2024, ICA had no record of workers compensation insurance coverage for Randy Instine. See Exhibit 38.

As of March 1, 2024, ICA had no record of workers compensation insurance coverage for Clyde Neville. See Exhibit 39.

On or about May 1, 2024, Respondent submitted to the Registrar proof of a workers compensation insurance policy which became effective on April 6, 2024. See Exhibit 40.

On September 24, 2024, Registrar issued its Citation and Complaint in the instant matter. See Exhibit 41. The Registrar alleged the following violations by Respondent:

Charge 1: A.R.S. § 32-1154(A) – 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:

(4) Failure to comply with the statutes or rules governing social security, workers' compensation or unemployment insurance.

Charge 2: A.R.S. § 32-1154(A) – 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:

(9) Attempting to evade this chapter by:

(a) Aiding or abetting a licensed or unlicensed person.

(b) Acting or conspiring with a licensed or unlicensed person.

(d) Acting as agent, partner, associate or otherwise of a licensed or unlicensed person.

Charge 3: A.R.S. § 32-1154(A) – 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:

(12) Failure in any material respect to comply with this chapter,

Specifically, A.R.S. § 32-1124(B)(1) The license number appearing on any licenses held by the licensee must be preceded by the acronym “ROC” and shall be posted or placed as follows:

1. In a conspicuous place on premises where any work is being performed.

Charge 4: A.R.S. § 32-1154(A) – 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:

(12) Failure in any material respect to comply with this Chapter,

Specifically, A.R.S. § 32-1127.01(A) If a person who qualified for a license ceases to be connected with the licensee, both the licensee and the qualifying party shall notify the registrar in writing within fifteen days after

the disassociation.

45. On October 8, 2024, the Registrar received Respondent’s written answer to the Citation and Complaint. See Packet at 201pdf.

46. On October 21, 2024, the Registrar issued its Notice of Hearing in this matter. See Packet.

47. At hearing, Inv. Dimond testified regarding his investigation and inspections as were reflected in the Registrar’s exhibits. Inv. Dimond indicated that he had no ability to reach David Paul Schlax, who appeared to be a nonexistant person; Mr. Schlax had never responded back to the Registrar or Inv. Dimond with regard to any of these matters.

48. Inv. Dimond testified that David Paul Schlax was named as the Qualifying Party on a prior Registrar license for Custom Quality Homes Corp., License No. 317796, which had been issued on February 14, 2018 and had been cancelled effective June 24, 2022.

49. Inv. Dimond testified that, with regard to the project at E. 9670 Towago Drive in Prescott Valley, Arizona, after the disciplinary hearing in Case 2024-02658 was held, Clyde Russell Neville was determined to have been engaged in unlicensed contracting because Respondent CQH had been the contractor listed on the building permit for the 9670 E. Towago Drive project.

50. At hearing, Gary Fortune provided little clarification regarding CQH and its operations. Mr. Fortune testified that Clyde Neville is not an employee and that CQH uses him as a designer and to set up permits and inspections. Mr. Fortune stated that it was his fault that the worker’s compensation had not been set up, but that they had had it set up with the prior license of Custom Quality Homes and were now working with a CPA regarding W-2Ss.

51. Mr. Fortune described Mr. Schlax as our “bona fide [qualifying] party” and that Mr. Schlax had “worked with us” at Custom Quality Homes. Mr. Fortune explained that Mr. Schlax was not listed in the [CQH] Articles of Incorporation because he was changing the form of business from a corporation to an LLC; Mr. Fortune noted that Mr. Schlax had been an officer of the corporation. Mr. Fortune indicated that Mr. Schlax had taken and passed the contracting classes.

52. Mr. Fortune stated that he had known Mr. Schlax since High School and that he talks to him “on a daily basis.” Mr. Fortune stated that he had talked to Mr. Schlax about the warning letters.

CONCLUSIONS OF LAW

This matter lies within the Registrar’s jurisdiction. See A.R.S. § 32-1101 et seq.

The Registrar bears the burden of proof to establish by a preponderance of the evidence that the actions of, and failures to act by, Respondent were violations of the Arizona contracting and licensing laws and rules as they have been so cited. See A.R.S. § 41-1092.07(G); A.A.C. R2-19-119; see also Vazzano v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” Morris K. Udall, Arizona Law of Evidence § 5 (1960).

The conduct and circumstances set forth in the hearing record constitute violations of A.R.S. § 32-1154(A)(9). Based on the evidence of record, Respondent aided, abetted, and conspired with unlicensed individuals, including Randy LaRoi Instine and Clyde Russell Neville, to permit those individuals to perform acts which are statutorily determined to be contracting work while evading the applicable contracting and licensing requirements of Title 32, Chapter 10. Further, Respondent presented itself as partnering and/or associating with Clyde Neville and GC Consultants, an unlicensed entity, thereby permitting Clyde Neville and GC Consultants to associate with Respondent’s license in order for Clyde Neville and GC Consultants to obtain permits and perform work requiring a contractor’s license. Further, these actions and associations led Respondent’s customers to believe that Mr. Neville worked for Respondent.

The conduct and circumstances set forth in the hearing record constitute violations of A.R.S. § 32-1154(A)(4). Based on the evidence of record, since the time Respondent became licensed on June 9, 2022, Respondent has employed individuals, including Randy LaRoi Instine and Clyde Russell Neville, and did not hold any worker’s compensation insurance. Respondent did not obtain worker’s compensation insurance until April 6, 2024.

The conduct and circumstances set forth in the hearing record constitute violations of A.R.S. § 32-1154(A)(12), specifically A.R.S. § 32-1124(B)(1). Based on the evidence of record, Respondent failed to post its ROC license number on premises where it was performing construction work.

The conduct and circumstances set forth in the hearing record constitute a violation of A.R.S. § 32-1154(A)(12), specifically A.R.S. § 32-1127.01(A). Based on the evidence of record, Respondent obtained its license by naming one David Paul Schlax as the qualifying party. However, Mr. Fortune is listed as the sole owner; Mr. Schlax is not listed as an owner. To the extent that Mr. Schlax was ever connected with Respondent’s license, the hearing record does not demonstrate any active connection with the license and/or with Respondent’s operations; the hearing record appears to demonstrate that Mr. Schlax has ceased to be connected with the license. Given Mr. Schlax’s nonappearance in any manner in these matters, despite Mr. Fortune’s alleged “daily” conversation and/or discussions with him regarding the warning letters, there is no evidence that Mr. Schlax ever ran, operated, or worked for CQH in any capacity. Neither Mr. Schlax nor Respondent have ever notified the Registrar of a disassociation of Mr. Schlax with the License. By law, CQH would be unable to operate or engage in contracting activity which is required to be performed by a licensed contractor without a qualifying party.

A.R.S. § 32-32-1127(B) provides as follows: “[w]hile engaged as the qualifying party for a licensee, the qualifying party is responsible for any violation of this chapter by the licensee for licensure regulatory purposes under this chapter.”

A.R.S. § 32-1164(A)(2) prohibits a person from acting as a contractor without a license.

The Administrative Law Judge concludes by a preponderance of the evidence that the Registrar has demonstrated the above-determined violations by Respondent warrant the revocation of Respondent’s ROC License No. 338678.

RECOMMENDED ORDER

Based upon the foregoing, it is recommended that the Registrar revoke Respondent’s License No. 338678, effective on the issuance date of the Registrar’s final Order in this matter.

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 22, 2025.

/s/ Kay A. Abramsohn

Administrative Law Judge

Transmitted electronically to:

Tom Cole, Director

Registrar of Contractors

CQH CONTRACTING LLC

5121 N Mission Ln

Prescott Valley, AZ 86314

[email redacted]

Charles S. Hover, III

Office of the Attorney General

[email redacted]

By: OAH Staff