ALJDEC - Licensing

2023A-14395-NPC-ROC · Registrar of Contractors · 2024-04-27

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

State Forty Eight Home Comfort LLC,

COMPLAINANT

v.

Bonum Development & Construction, LLC

DBA: , Bonum Development & Construction

License No. ROC 344755,

RESPONDENT

No. 2023A-14395-NPC-ROC

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: April 9, 2024, 9:00 A.M.

APPEARANCES: William Swartz, Owner and Managing Member, appeared on behalf of Complainant; Gerald Turner, Owner, appeared on behalf of Respondent

ADMINISTRATIVE LAW JUDGE: Roger Geddes

EXHIBITS ADMITTED INTO EVIDENCE: Complainant’s Exhibit Nos. 1-7; Respondent’s Exhibit Nos. 1- 2

FINDINGS OF FACT

Background and Procedure

1. Bonum Development & Construction, LLC (“Respondent”), is the holder of License Number 344755 issued by the Registrar of Contractors (“Registrar”).

2. On or about December 18, 2023, State Forty Eight Home Comfort, LLC (“Complainant”), filed a Complaint against Respondent with the Registrar alleging that Respondent owed Complainant the sum of $117,185.60. This amount represented the total of four unpaid invoices dated between August and September 2023 for Complainant’s HVAC material and services provided to Respondent for Cheeba Hut and Nektar projects (collectively “project”).

3. On January 4, 2024, the Registrar then 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.

4. The Registrar issued a Notice of Hearing that set a hearing after a continuance for April 9, 2024, at 1:00 P.M. At the hearing, Complainant appeared and presented the testimony of William Swartz, Justin Lemos, and Rocky Gupta; Respondent appeared and presented the testimony of Gerald Turner. The Tribunal received and admitted Complainant’s Exhibit Nos. 1-7 and Respondent’s Exhibit Nos. 1-2.

5. William Swartz testified on behalf of Complainant, as herein directly relevant to the Citation, that there were two HVAC projects with Respondent (Cheeba Hut and Nektar) represented by three written agreements (Invoice Nos. 0819, 0820 (Cheeba Hut), and 0841 (Nektar)) and one change order (Invoice 0831 (Cheeba Hut)). He stated Respondent had promised him payment within 15 days but that his invoices were never paid. Rather, he stated he received only a $7,500 payment from Respondent as an incentive payment to stay on the job but not as a payment on the outstanding invoices. He further stated Respondent prepared and signed an addendum to the Cheeba Hut agreements (Amendment V1) signed November 29, 2023, that reflected he would be paid in full. He testified he submitted the change order invoice to Respondent on September 1, 2023. He further testified the Nektar project was 90 per cent complete within the first week.

6. Justin Lemos testified on behalf of Complainant, as herein relevant to the Citation, that he was the Nektar client for which Respondent was doing tenant improvements. He stated he was making progress payments to Respondent and found out that Respondent was not paying its subcontractors. He further stated he was billed $17,900 by Respondent for Complainant’s HVAC work and that he paid Respondent $14,328 for the first payout application for Complainant’s work and $895 for the second application. He further testified after such payment 90 per cent of the HVAC was done but that Complainant despite not being paid by Respondent came back on his own accord to finish the work

7. Rocky Gupta testified on behalf of Complainant, as herein directly relevant to the Citation, that he was the client representative on the Cheeba Hut project and that the client had paid Respondent over $535,000 over the course of the project. He further stated the client paid Respondent’s October 2023 pay application and that that application reflected that Complainant’s HVAC portion of the work was 90 per cent completed ($36,824 of the total valued at $40,916) and Complainant’s exhaust hood and evaporative system portion of the work was 100 per cent completed (valued at $34,538). Therefore, He testified the client had paid Respondent $71,362.00 ($36,824 plus $40,916) attributable to Complainant’s work.

8. Gerald Turner testified on behalf of the Respondent, as herein relevant to the Citation, that he did not dispute the amounts in Complainant’s invoices, including the change order invoice. He testified he has not been fully paid by the Cheeba Hut and Nektar clients. Specifically, he stated Cheeba Hut was a cost plus contract and that he gave an estimate to the client in January 2023 but that Respondent did not provide its estimate until fall 2023 after the job started which he stated increased the project cost. He further stated he has billed the Cheeba Hut client over $700,000 but has been paid only $535,000, and that part of the outstanding balance he attributes to amounts he owed Complainant. He further testified he never submitted the Complainant’s Cheeba Hut change order to the client until January 2024 even though he received it and the work was done in September 2023.

With regard to the Nektar project, which he alluded to as being a $197,000 project, he testified the Nektar client was rejecting portions of his payment applications and not specifying which subcontract payments were approved when it paid a lesser sum than the application amount. He stated the Nektar client had not paid for the HVAC work. He further stated he estimated $17,900 for HVAC for the project, and that he was bound by that because it was a lump-sum project and stated the difference between the estimate and Complainant’s invoice was his responsibility.

9. Administrative notice is taken of the Registrar’s public website which reflects Respondent was first issued the subject license on May 2, 2023, and indicates the license has been in disciplinary suspension status since at least March 28, 2024. The site also presently reflects six Open cases, one Disciplined case, and two Resolved/Settled cases.

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, a 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. The suspended status of Respondent’s license does not deprive Complainant of the right to prosecute a complaint against Respondent or prevent the Registrar from determining the merits of Complainant’s complaint. See A.R.S. § 32-1154(D) (“The expiration, cancellation, suspension or revocation of a license . . . shall not deprive the registrar of jurisdiction to proceed with any investigation of or action or disciplinary proceeding against such license, or to render a decision suspending or revoking such a license . . .”).

5. 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.

6. A.R.S. § 32-1154(A)(10). Complainant has satisfied its burden to demonstrate that Respondent has failed to pay Complainant an amount in excess of $750.00 that had become due for materials or services rendered in connection with Respondent’s operations as a contractor. Respondent did not dispute the amounts billed by Complainant. Rather, Respondent contended the amounts were not yet due because the clients on the two projects had failed to pay Respondent for Complainant’s work. Respondent submitted that the written subcontracts between the parties contain a payment term attachment which specified that for projects of a duration of more than 30 days, “sub-contractors will be paid on or about the 15th of the following month [following month of Subcontractor’s invoice] as long as Bonum DC has been paid in a timely manner by the Client.” (Respondent’s Exhibit No. 1). The payment term attachment also specified that for projects of a duration less than 30 days, subcontractors were to be paid within 14 business days after approval of the subcontractor’s work (irrespective of any payment from the client to Respondent). Lastly, the subcontract agreement (the terms of the agreement and not the attachment) also provides that a 10 percent retention payment can “potentially” be held until after the general Contractor completes the project or has been fully paid by the owner.

Nektar Project: With regard to the Nektar project, Respondent has failed to establish the applicability of the term regarding payment to the subcontractor only upon payment from the client. According to the agreement between Complainant and Respondent, the payment term does not apply to projects of a duration of less than 30 days. Whether that term was intended to apply to the entire project or just the subcontractor’s portion of the project, Respondent did not contend nor did it present any evidence that the Nektar project or Complainant’s work on the Nektar project was or was to have been of a duration longer than 30 days. Only evidence relating to Complainant’s work was submitted. The Subcontract Agreement for the Nektar project was dated September 12, 2023, and Complainant’s invoice for its work was dated September 14, 2023, which suggested a project of short duration. Further, Complainant testified it performed 90 percent of the work within a week, and it appears from the testimony that the remaining portion of the work, even if performed outside of 30 days, was delayed due to payment issues. Thus, the evidence reflected that at least Complainant’s work with regard to the Nektar project had a duration of less than 30 days, and the evidence to refute that was lacking.

Even if the duration of the Nektar project was to have been longer than 30 days, although there was no evidence presented to suggest it was, Respondent has failed to show that it was not paid by the client for Complainant’s work. Respondent disputed the Nektar client’s testimony that the client had paid Respondent fully for Complainant’s work. However, Respondent provided no accounting, no payment evidence, nor any payment applications to substantiate its testimony that it was not paid for Complainant’s work or to even show how Respondent allocated the payments from the client among the subcontractors or others. Thus, the evidence was insufficient to find that the client had not paid Respondent for Complainant’s work.

Lastly, in arguing that the Nektar invoice was not yet due, Respondent seemed to allude to Complainant’s final billing amount exceeding Respondent’s earlier estimate for HVAC work. However, that Respondent may have underestimated the HVAC bid component that Respondent presented to the client is of no consequence with regard to the amount Respondent owed Complainant.

Cheeba Hut Project: Again, Respondent has failed to establish the applicability of the term regarding payment to the subcontractor only upon payment from the client. Respondent did not contend nor did it present any evidence that the Cheeba Hut project or Complainant’s work on the Cheeba Hut project was or was to have been of a duration longer than 30 days. Indeed, the dates of all of the Cheeba Hut subcontracts between Complainant and Respondent were within days of the dates of Complainant’s Cheeba Hut invoices. Thus, the evidence reflected that at least Complainant’s work with regard to the Cheeba Hut project had a duration of less than 30 days, and the evidence to refute that was lacking.

Similar to the case above, even if the duration of the Cheeba Hut project was to have been longer than 30 days, although the evidence suggested that it was not, Respondent has failed to show that it was not paid by the client for Complainant’s work. Respondent disputed the Cheeba Hut client’s testimony that the client had paid Respondent for the vast majority of Complainant’s work. However, Respondent provided no accounting, no payment evidence, nor any payment applications to substantiate its testimony that it was not paid for Complainant’s work or to even show how Respondent allocated the payments from the client among the subcontractors or others. Thus, the evidence was insufficient to find that the client had not paid Respondent for Complainant’s work.

Irrespective of the duration of the two projects and even though Respondent has failed to substantiate that it was not paid by the clients for Complainant’s work, Respondent has established it had not been fully paid by the clients. Accordingly, as per the subcontract agreements, Respondent was permitted to withhold 10 per cent of the subcontractor’s payment ($11,708.56) until final payment was made to Respondent by the owner, which constitutes an amount not yet due for material or services under A.R.S. § 32-1154(A)(10).

7. Although Respondent argued in essence that it had not received sufficient monies as payment for the project for which Complainant’s services or materials were rendered, it made no contention that it lacked the capacity to pay Complainant, nor did it present any evidence in that regard.

8. In this matter, 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 within seven (7) days of the effective date of this order, Respondent’s License Number 344755 is suspended until the Registrar receives and accepts written verification that Respondent has paid $105,467.04 (amount invoiced of $117,185.60 less 10 per cent retention of $11,718.56) 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 $105,467.04 in certified funds, the Registrar may close this Complaint.

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, April 29, 2024.

/s/ Roger Geddes

Administrative Law Judge

Tom Cole, Director

Registrar of Contractors

c/o Legal Department

1700 W. Washington Street, Suite 105

Phoenix, AZ 85007

[email redacted]

Bonum Development & Construction, LLC

DBA: Bonum Development & Construction

2820 S. Alma School Rd., #18-456

Chandler, AZ 85286

[email redacted]

William H. Breier, Esq.

Radix Law, PLC

15205 N. Kierland Blvd., Suite 200

Scottsdale, AZ 85254

[email redacted]

State Forty Eight Home Comfort, LLC

8722 N. 83rd Dr.

Peoria, AZ 85345

[email redacted]

By: OAH Staff