ALJDEC - Licensing

2024A-05306-NPC-ROC · Registrar of Contractors · 2025-05-22

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

MJ Underground LLC,

COMPLAINANT,

HMW Construction LLC, License No. ROC 328765 and 330762,

RESPONDENT.

No. 2024A-05306-NPC-ROC

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: May 1 and 2, 2025.

APPEARANCES:

For Complainant: Jeffery Laskin.

For Respondent: Jason Clark.

ADMINISTRATIVE LAW JUDGE: Samuel Fox

EXHIBITS ADMITTED INTO EVIDENCE: Amended Notice of Hearing Packet. Complainant’s Exhibits 1–31. Respondent’s Exhibits 1–47.

_____________________________________________________________________

Having reviewed the complete record, the Administrative Law Judge makes the following Findings of Fact and Conclusions of Law.

FINDINGS OF FACT

HMW Construction LLC (Respondent) was the holder of Licenses Numbered 328765 and 330762, issued by the Arizona Registrar of Contractors (Registrar) on May 7, 2020, and September 24, 2020, respectively. As of this Decision, both Licenses were suspended for non-renewal: License No. 328765 was suspended on May 3, 2024, and License No. 330762 was suspended on December 26, 2023.

On or about January 1, 2022, Respondent and MJ Underground LLC (Complainant) entered a Subcontract Agreement for Complainant to act as a subcontractor for Respondent. At issue in this hearing were two different projects where Complainant worked as a subcontractor for Respondent, the Allo/Kingman project and the Pauley project, collectively the projects. Paragraph 14 of that contract allows Respondent to withhold payments to Complainant if Respondent has not received payment from the customer for the work performed.

In December 2023, Respondent closed its Arizona Division operations.

On or about May 7, 2024, Complainant filed a Non-Payment Complaint Form with the Registrar, claiming Respondent had failed to pay multiple invoices, $36,738.24 for Allo/Kingman and $102,644.54 for Pauley, amounting to $139,382.78.

On or about May 21, 2024, the Registrar notified Respondent that it had received a complaint and the Respondent could raise issues and defenses by May 28, 2024. On May 23, 2024, Respondent informed the Registrar that it had paid Complainant in full because Complaint was subject to the subcontractor rate, 20% lower rate than Respondent’s billing rate. On May 29, 2024, Complainant disagreed with that assertion.

On June 12, 2024, the Registrar issued a Citation, alleging that Respondent violated Arizona Revised Statutes (A.R.S.) § 32-1154(A)(10). Respondent timely submitted an Answer on June 26, 2024, stating that Complainant was overbilling by 20% and had been previously overpaid on invoices that did not include the 20% discount.

The matter was referred to the Office of Administrative Hearings for an administrative hearing. The Notice of Hearing was issued on July 15, 2024, setting the hearing for August 27, 2024. Following several continuances, the hearing was set for, and held on, May 1 and 2, 2025.

Jessica Woods was the owner of RAK Fiber Operations (a consulting company), the Operations Manager for Respondent’s Arizona Division, and beginning in September 2023, a consultant for Complainant. She testified for Complainant. She testified that, as Respondent’s Arizona Operations Manager, she reviewed all invoices and supporting paperwork, which included field reports approved by field supervisors. She testified that the work in the at-issue invoices was completed before the invoices were sent to Respondent. Her understanding of Complainant’s billing rate, during the relevant period, was that Complainant billed at the same rate as Respondent because Complainant shared ownership with Respondent. She testified that based on her review of Respondent’s financial information, which she reviewed as part of an internal audit for Respondent, she believed Respondent had been paid for all of Complainant’s work on both of the projects.

Henry Doss was a Member for Respondent’s Licenses numbered 328765 and 330762 and the manager for Doss Family Communications LLC, and he testified for Complainant. He testified that he and Mr. Espalin were part owners of Respondent’s Arizona operations. He testified that he was at a meeting with Mr. Espalin and Mr. Hatcher where they all agreed that Complainant would be able to invoice Respondent at the same rate that Respondent billed the customer.

Matthew Espalin was the Member and Qualifying Party for Complainant and former Qualifying party for Respondent’s License, No. 330762, and he testified for Complainant. He testified that prior to the work at issue, he met with Mr. Hatcher, and they agreed that because Mr. Espalin was the qualifying party for Respondent, Complainant could bill at Respondent’s rates when Complainant acted as a subcontractor for Respondent.

Jason Hatcher was the owner of Respondent and a member on Respondent’s Licenses numbered 328765 and 330762, and he testified for Respondent. He testified that he had not been paid in full on the projects, and the customers informed him about poor work and incomplete work. He testified that he did not know whether the customer’s issues were related to Complainant’s work. He testified that he did not trust any of Complainant’s witnesses, and he believed they were trying to take advantage of him. He testified that Complainant was subject to the subcontractor rate. During a meeting between himself, Mr. Espalin, and Mr. Doss, he felt as though they were strong-arming him, but the meeting did not end in any agreement. He testified that at the end of the meeting, he told them that he needed to speak with his lawyer and accountant first.

CONCLUSIONS OF LAW

This matter lies within the Registrar’s jurisdiction.

Complainant bore the burden of proof to establish Respondent’s statutory violations by a preponderance of the evidence. Respondent bore the burden of proof to establish an affirmative defense 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)(10) includes 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.

In Arizona, when construing statutes, we look first to a statute’s language as the best and most reliable index of its meaning. If the statute’s language is clear and unambiguous, we give effect to that language and apply it without using other means of statutory construction, unless applying the literal language would lead to an absurd result. Words should be given “their natural, obvious, and ordinary meaning,” unless defined by the legislature.

The relationships between the parties and witnesses in this matter were unique, and everyone’s testimony, and some of the documents, contained credibility issues resulting from those relationships and the interests of the parties. Having weighed the testimony and documents and considered the credibility concerns, the preponderance of the evidence supports the following:

Complainant completed the work for which it invoiced Respondent.

Complainant invoiced Respondent at the correct billing rate.

The customers on both projects paid Respondent more than the amount of Complainant’s invoices.

The customers paid for the work performed by Complainant.

Respondent does not currently have the enough money to pay Complainant in full, but it has the capacity to pay in increments.

It is an affirmative defense to prove by a preponderance of the evidence that the licensee (1) “lacks the capacity to pay,” and (2) “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.”

Capacity to pay means the ability to produce sufficient funds to pay. That element is not necessarily satisfied when the licensee does not have enough cash on hand. Generally, if a licensee is operating, and certainly if a licensee is profitable, it has the capacity to pay.

Has not received sufficient monies means that the customer has not paid the licensee enough money to pay for the work at issue. If the customer has paid the licensee more than the amount at issue, then the licensee has received sufficient monies.

Complainant met its burden that $139,382.78 was due, and Respondent did not meet its burden to prove the affirmative defense.

The preponderance of the evidence showed that Respondent violated A.R.S. § 32-1154(A)(10) as alleged.

RECOMMENDED ORDER

It is recommended that the Registrar of Contractors refrain from issuing a Final Decision for the above-entitled matter until the parties submit a Final Judgment in the ongoing civil action.

It is further recommended that on the effective date of the Registrar’s Order, Respondent’s licenses, numbered 328765 and 330762, be suspended until it pays Complainant $139,382.78 and provides proof of such payment to the Registrar.

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, May 22, 2025.

/s/ Samuel Fox

Administrative Law Judge

Transmitted by either mail, e-mail, or facsimile to:

Tom Cole, Director

Registrar of Contractors

Jason A. Clark

LANG THAL KING & HANSON PC

[email redacted]

Jeffrey L. Laskin, Esq.

Jeffrey L. Laskin, PC

[email redacted]

By: OAH Staff