ALJDEC - Licensing

2024A-08300-NPC-ROC · Registrar of Contractors · 2025-04-15

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Inline Electrical Resources Inc.,

COMPLAINANT,

v.

Kapella Group LLC,

License No. ROC 330554,

RESPONDENT.

No. 2024A-08300-NPC-ROC

No. 2024A-08302-NPC-ROC

ADMINISTRATIVE LAW JUDGE DECISION

HEARING SESSION: February 21, 2025

APPEARANCES: Attorney Eugene M. Kadish for Inline Electrical Resources Inc, (Complainant). Attorney Richard Noel for Kapella Group LLC (Respondent).

ADMINISTRATIVE LAW JUDGE: Kay A. Abramsohn

EXHIBITS ADMITTED INTO EVIDENCE: Registrar Notice of Hearing Packet (Packet) 08300 [Pages 1 through 100]; Packet 08302 [Pages 1 through 285]; Complainant Exhibits 1 through 13 [119 pages and a recording]; Respondent’s Exhibits 1 through 9 [60 pages]. _____________________________________________________________________

FINDINGS OF FACT

Kapella Group LLC is the holder of License No. 330554, KB-1 General Commercial Contractor, issued by the Registrar of Contractors (Registrar or ROC) on September 8, 2020.

On July 23, 2024, Inline Electrical Resources Inc. (Complainant) filed two Non-Payment Complaint Forms (Complaint) with the ROC against Respondent alleging that Respondent had failed to pay Complainant for work performed.

One Complaint was designated as 2024-08300. In that Complaint, Complainant alleged that three specific invoices totaling $8,981.00 remained unpaid.

The other Complaint was designated as 2024-08302. In that Complaint, Complainant alleged that six specific invoices totaling $49,488.79 remained unpaid.

On September 4, 2024, ROC issued a Citation in 2024-08302, citing Respondent for alleged violation of Arizona Revised Statute (Ariz. Rev. Stat.) § 32-1154(A)(10), failure to pay monies in excess of $750.00 when due for services rendered.

On September 18, 2024, ROC issued a Citation in 2024-08300, citing Respondent for alleged violation of Arizona Revised Statute (Ariz. Rev. Stat.) § 32-1154(A)(10), failure to pay monies in excess of $750.00 when due for services rendered.

On September 12, 2024, Respondent filed an Answer to the Citation in 2024-08300. Respondent generally indicated that Complainant had been terminated from the project on July 14, 2024 due to multiple breaches of the parties’ Master Subcontract Agreement (MSA) and issues with delays and workmanship. Respondent stated that it had been justified in withholding payment and requested the ROC to dismiss the Complaint.

Due to confusion about two Complaints having been filed the same day by Complainant, Respondent’s Answer for 2024-08302 was delayed but, subsequently, ROC set both matters for hearing. Having been set for two different hearing dates, the matters were later consolidated and a hearing rescheduled to convene on February 21, 2025.

On February 20, 2025, Respondent moved for a stay, indicating that it had filed an action in Superior Court but further indicating that Complainant had not agreed to a stay.

BACKGROUND

On January 31, 2024, Complainant entered into the MSA with Respondent.

In January 2024, Complainant gave an estimate to Respondent for electrical work in the kitchens at Montecito Senior Living. This was a 3-phase estimate for a total of $197,750.00.

In April 2024, Complainant gave an estimate to Respondent for electrical work in the Dining areas and patio at Montecito Senior Living. This was an estimate for a total of $8,900.00 with a $3,400.00 allowance for fixtures.

As work proceeded in January, February, and March, Complainant made Pay Application #1 in the amount of $23,314.50 and Pay Application #2 in the amount of $21,492.00, both of which were paid.

On April 17, 2024, Complainant made Pay Application #3 [Invoice 281005] for $22,905.00 along with the Change Order #1 [Invoice 281006] for $2,948.61 and Change Order #2 [Invoice 281008] for $2,954.93. These invoices were not paid.

On May 20, 2024, Complainant made Pay Application #4 [Invoice 281051] for $9,104.45 along with the Change Order #3 [Invoice 281052C] for $392.40. These invoices were not paid.

On May 20, 2024, Complainant made Pay Application #001 [Invoice 281051A] for $11,183.40 and Invoice #281051B for $5,391.00. These invoices were not paid.

On June 11, 2024, Complainant made Pay Application #5 [Invoice 281092] for $6,614.06 along with Invoice #281092A for a work order for $2,700.00. These invoices were not paid.

On July 21, 2024, Complainant submitted six Retainage Release Invoices: Invoice #281133 for $9,000.00; Invoice # 281134 for $890.00; Invoice #281135 for $320.00; Invoice #281136 for $320.00; Invoice #281137 for $40.00; and, Invoice #281302 (re: pay App #001) for $1,140.00. These invoices were not paid.

The two Complaints were not resolved informally and the ROC subsequently set the matters for hearing.

At hearing, Janine Sharp indicated that the focus of the two Complaints was the invoices that had been submitted for Complainant’s work performed in April and May of 2024, which was work that had not been questioned by Respondent and for which Complainant had not been paid.

Ms. Sharp reviewed the overall work, indicating that there had been no complaints from Respondent regarding the work. As to Pay Applications #3, #4, and the change orders submitted in April and May, Ms. Sharp agreed that, at times, there was work on the Montecito project (not within their contract scope) that could not proceed until the work on their change order work was completed. Ms. Sharp noted that the three change orders had been approved by Respondent’s project manager for that very reason. Ms. Sharp noted that, as to Change Order #1, Respondent hired laborers to dig the necessary trenches so that Complainant could perform the work on Change Order #1. Ms. Sharp noted that the rough-in electrical was approved and certified prior to other contractors performing the drywall work.

Ms. Sharp noted that at the end of June, Complainant was questioned by Respondent about whether Complainant was coming back on the project site and, although Complainant indicated to Respondent they wanted to be paid on the unpaid invoices to that point, Complainant did come to the project on July 3, 5, 8, 9, 10 and 11 for work. Ms. Sharp indicated that, during that time period, there had been verbal assurances from Respondent that Pay Applications #3 and #4 would be paid.

At or about that time at the end of June, Respondent requested that Complainant make revisions to the Change Orders, which was done so that the invoices could be paid.

On June 7, 2024, Denis Koval, Respondent’s Supervisor, emailed Complainant regarding Complainant coming onto site two times and causing delay through cutting holes in the new ceiling after the rough-in work had been completed. In that letter, he demanded that Complainant make repairs and he further questioned the changes made to the approved “can lights.”

On June 9, 2024, Complainant’s Troy Newport responded to Mr. Koval with a detailed explanation regarding the issues that had arisen as the location of the lighting fixtures and the ceiling holes that had to be made. Further, he noted that, on cutting the holes for the lighting and other holes that were necessary and approved by Respondent’s personnel, Complainant discovered that other contractors had caused damage, pinching, of the electrical lines Complainant had previously installed, and that Complainant had performed extra work thereat at no cost to Respondent.

On July 2, 2024, Respondent emailed Complainant regarding work scheduled for July 3, 2024, pursuant to a previously revised schedule.

At hearing, Ms. Sharp testified that, as of July 3, 2024, the site was not ready for Complainant’s next scheduled work to be performed, and that Complainant was back on site on July 5, 8, 9, 10, and 11.

On July 4, 2024, Respondent issued a Default Notice to Complainant raising multiple issues: failure to follow the June 19, 2024 revised schedule and delays; failure to use the approved light fixtures; poor communication; lack of clarity in the submitted invoices; unreasonable delays with the cutting of ceiling holes without authorization; and demands to cure those alleged breaches within 48 hours. Mr. Koval subsequently reminded Complainant to be on site on July 8, 2024 to avoid further action.

At hearing, Ms. Sharp noted that they had confirmed back to Respondent that Complainant would be on site and performing its work.

Between July 8 through 12, 2024, the parties exchanged multiple emails with multiple details regarding various aspects of work questioned, explained, and to be completed.

On July 14, 2024, Respondent issued a termination notice to Complainant, alleging instances of “non-performance, breach of contract, delays, and significant concerns regarding your company’s workmanship, knowledge, and professionalism.”

Todd Daugherty was a Site Supervisor for Respondent during Complainant’s work; he left the project after Complainant was terminated. Mr. Daugherty testified that the initially approved can lights/fixtures could not be mounted/installed at the locations originally planned based on the trusses; further, that he had approved the change in location and the need to cut into the ceiling. Mr. Daugherty indicated the row of lights had to be relocated/moved back about 11⁄2 feet, that Complainant arranged for drywall repairs to the ceiling, and that these changes had not delayed the project. Mr. Daugherty indicated that Troy Newport was at the site religiously to make sure Complainant’s scope was being completed and that Mr. Newport would accommodate other fixes on the project, mentioning repairing the electrical wires that other contractors had damaged. Mr. Daugherty testified that the change orders in question had to be done or the project could not proceed and, further, that Complainant’s work passed the requisite inspections.

Rob Miller was Respondent’s Senior Project Manager from January 9th to April 5th or 6th of 2024 and testified at hearing regarding his contacts and communications with Complainant’s personnel on site at the project, complimenting Complainant’s work ethic, workmanship, and professionalism. Mr. Miller testified regarding several changes in the Complainant’s work that arose: a set of circuits that had to be moved with laborers having to dig a trench in order for Complainant to proceed; after soffits were removed, multiple issues arose regarding electrical rerouting to be done; and the K-panel in the kitchen having to be upgraded, which he noted he had verbally approved. Mr. Miller attributed some of the project delay issues to the Montecito owners and specified that, while he was on the project, there had not been any delays caused by Complainant.

Ryan Cervantes was Respondent’s Senior Project Manager from March 6, 2024 and for about three months. At hearing, Mr. Cervantes indicated that he transitioned to the project with the prior manager and that his job was to “audit” on the budget for the project. Mr. Cervantes testified that the Complainant’s change orders had been approved and he was unaware of any reason why Complainant would not be paid for the work it had performed. Mr. Cervantes further indicated that, after Complainant redid the invoices, he had approved them and turned them in to Rebecca, and that he had approved the change orders and gave them to Denis and “Ashley” for approval.

John Gosney of G4 Electric gave an estimate of $11,202.00 on June 21, 2024 to Respondent regarding trouble-shooting and completing electrical work on the Independent Living portion of the Montecito project. Some items noted were installation of exit signs, switches, outlet covers, pulling some wire, and installing new up-to-code breakers in existing panels. At hearing, Mr. Gosney testified that he began work on July 15, 2024. Mr. Gosney testified that there had not been any significant workmanship issues on Complainant’s work but only some simple mistakes. Mr. Gosney opined that most of Complainant’s work was done except for some finishing work that he performed; however, he noted that the plans had called for 40Amp/2Pole but the project actually needed 50Amp/2 Pole for the MAU-1.

On behalf of Respondent, Denis Koval testified that, pursuant to the contract, Respondent is able to set-off liquidated damages against Complainant’s invoices and that liquidated damages or financial losses of the Owners have been, and are being, discussed with the Owners. Mr. Koval indicated that Respondent was concerned with Complainant being capable of doing the work towards the end of the project, which caused Respondent to terminate Complainant. While Mr. Koval was not certain when the entire Montecito project was scheduled to be done, he attributed some but not all delays to Complainant; he indicated the specific delays of Complainant had been set forth in the July 4, 2024 Default notice.

Mr. Koval recalled that the invoice clarity issues had been mentioned in the Default notice and were also discussed with Mr. Newport on the phone. Mr. Koval indicated that on Respondent’s Pay Applications to the Owner, Respondent had included Complainant’s Applications #3 and #4, and he acknowledged that Respondent had been paid on Complainant’s Applications #3 and #4, but he was not certain about #5 or whether Respondent had received the full amounts.

Respondent’s position is that Complainant breached the MSA through non-performance of scope of work, delays causing additional costs, and breach of contract. Respondent noted that there is currently a civil action between the parties wherein Respondent is seeking damages against Complainant for breach of contract and that Complainant has not been paid because Respondent does not yet have an amount certain of damages to be set off. Respondent argued that Complainant should not get a windfall as it agreed to the MSA terms under which Respondent may withhold payment.

Complainant’s position is that it completed work for Respondent for which it has not been paid. Complainant argued that Respondent has failed to pay on the submitted invoices, for which Respondent is in violation of Ariz. Rev. Stat. § 32-1154(A)(10).

CONCLUSIONS OF LAW

This matter lies within the Registrar’s jurisdiction and has been properly brought before OAH for adjudication.

The purpose of the Registrar’s licensing statutes is to protect the public from unscrupulous, unqualified, and financially irresponsible contractors.

The Registrar may resolve contractual disputes if such resolution is ancillary to its regulatory mission and may penalize a contractor’s license by ordering payment of restitution if a proven statutory violation was not remedied by corrective action.

Unless otherwise provided by law, a party asserting a claim, right, or entitlement bears the burden of proof; a party asserting an affirmative defense has the burden of establishing the affirmative defense. The standard of proof on all issues in this matter is that of 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 preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”

Ariz. Rev. Stat. § 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.

Ariz. Rev. Stat. § 32-1156.01 states, in pertinent part, that after a hearing an Administrative Law Judge may provide restitution to any person who is injured by an action of a licensee.

While there is evidence that, in June of 2024, Respondent was concerned with scheduling and assuring that Complainant was meeting project timelines, there is no evidence that Respondent ever questioned the work Complainant performed in April, May, and June prior to its submissions of Pay Applications #3, #4, and #5.

There is no evidence that Respondent ever filed a workmanship complaint with the ROC against Complainant.

The evidence of record demonstrated that Respondent owed monies to Complainant that were not yet paid to Complainant at the time Complainant filed the two Complaints; further, that Respondent owed monies to Complainant that were not yet paid to Complainant at the time of the administrative hearing.

Therefore, the only issue remaining is whether Respondent raised a sufficient justification for failing to tender payment to Complainant. Respondent bears the burden to establish a sufficient justification. Mr. Koval gave sworn testimony that Respondent has been paid by Owner on Respondent’s Pay Applications which had included Complainant’s Pay Applications #3 and #4, and possibly #5. While Respondent opines it does not have to pay Complainant at this time based on the parties’ MSA, the hearing record demonstrates that Respondent has been paid on Complainant’s work. Therefore, Respondent cannot demonstrate justification under the applicable statute for failing to tender payment to Complainant at the time that payment was due.

Complainant has established by a preponderance of the evidence that Respondent violated Ariz. Rev. Stat. § 32-1154(A)(10); therefore, Complainant also established cause for the Registrar to discipline Respondent’s ROC License No. 330554 KB-1 General Commercial Contractor License.

Complainant filed Complaint 2024-08300 indicating that three specific invoices totaling $8,981.00 remained unpaid. Complainant filed Complaint 2024-08302 indicating that six specific invoices totaling $49,488.79 remained unpaid. Together, the two Complaints allege an amount due of $58,469.79.

While Ms. Sharp testified that “total” amount owed to Complainant was $76,653.85 plus interest at 5% (through February of 2025), the hearing record does not reflect any amendments to the two Complaints regarding amounts Respondent is alleged to have failed to pay. Because A.R.S. § 32-1154(A)(10) only includes a licensee’s failure to pay for materials or services rendered in connection with the licensee’s operations as a contractor, not late fees, interest, or other consequential or contractual damages, the Administrative Law Judge will not recommend that Respondent be required to pay interest as a condition of keeping its contractor’s license in good standing.

RECOMMENDed order

Based on the foregoing,

IT IS RECOMMENDED that fifteen (15) calendar days from the effective date of the Registrar’s Final Order in this matter, Respondent Kapella Group LLC’s ROC License No. 330554 shall be suspended until Respondent provides the Registrar with sufficient proof that $58,469.79 has been tendered to Complainant in certified funds.

IT IS FURTHER RECOMMENDED that, after the Registrar has received Respondent’s proof of payment to Complainant, Complaint 2024-008300 and Complaint 2024-08302 may be closed.

Pursuant to Ariz. Rev. Stat. § 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 15, 2025.

/s/ Kay A. Abramsohn

Administrative Law Judge

Transmitted electronically to:

Tom Cole, Director

Registrar of Contractors

Eugene M. Kadish, Esq.

Kadish Associates Law Group

[email redacted]

[email redacted]

Richard Noel Esq.

[email redacted]

[email redacted]

By: OAH Staff