ORDER

2025A-04296-NPC-ROC · Registrar of Contractors · 2025-08-22

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Empire Construction LLC,

COMPLAINANT

v.

Lavender Landscape Design Co. LLC

License No. ROC 334560 and 326465,

RESPONDENT

No. 2025A-04296-NPC-ROC

ORDER

On August 21, 2025, Respondent notified the Tribunal that it had filed for bankruptcy and that the stay was in effect. On August 22, 2025, Respondent submitted a brief explaining why the stay applies in this proceeding.

Respondent cited to a portion of In re Dunbar, 235 B.R. 465 (9th Cir. BAP 1999). A full recitation of the automatic stay portions of In re Dunbar is as follows:

The automatic stay is immediately triggered upon the filing of a bankruptcy petition. 11 U.S.C. § 362(a). The scope of the automatic stay is quite broad, In re Stringer, 847 F.2d 549, 551 (9th Cir.1988), and is designed to immediately maintain the status quo by precluding and nullifying postpetition actions, whether judicial or nonjudicial, in nonbankruptcy forums against the debtor and property of the estate. I.C.C. v. Holmes Transp., Inc., 931 F.2d 984, 987 (1st Cir.1991). Exceptions to the automatic stay are read narrowly, Hillis Motors, Inc. v. Hawaii Auto. Dealers' Ass'n, 997 F.2d 581, 590 (9th Cir. 1993), and actions taken in violation of the stay are void rather than voidable. Schwartz, 954 F.2d at 571.

An exception to the automatic stay appears in § 362(b)(4) for "the commencement or continuation of an action or proceedings by the governmental unit to enforce such governmental units' police or regulatory powers." 11 U.S.C. § 362(b)(4). This exception is intended to allow governmental units to sue a debtor "to prevent or stop violation of fraud, environmental protection, consumer protection, safety, or similar police or regulatory laws, or attempting to fix damages for violation of such a law. . . ." House and Senate Reports (Reform Act of 1978) (H.Rep. No. 595, 95th Cong., 1st Sess. 343 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 52 (1978)).

The application of § 362(b)(4), however, is not automatic. State or local governments cannot, by the exercise of their police or regulatory powers, subvert the relief afforded by the bankruptcy laws. In re Thomassen, 15 B.R. 907, 909 (9th Cir. BAP 1981); In re Sam Daily Realty, Inc., 57 B.R. 83, 86 (Bankr.D.Hawai'i 1985).

Two tests for determining whether a state agency's administrative actions fall within the scope of § 362(b)(4) exist: the "pecuniary purpose" test and the "public policy" test. Under the "pecuniary purpose" test, the court must determine whether the government action relates "primarily to the protection of the government's pecuniary interest in the debtors' property or to matters of public safety and welfare." In re Universal Life Church. Inc., 128 F.3d 1294, 1297 (9th Cir.1997), cert. denied, ___ U.S. ___, 118 S.Ct. 2367, 141 L.Ed.2d 736 (1998) (citing N.L.R.B. v. Continental Hagen Corp., 932 F.2d 828, 833 (9th Cir.1991)). "Indeed, most government actions which fall under § 362(b)(4) have some pecuniary component, particularly those associated with fraud detection. This does not abrogate their police power function. Only if the action is pursued `solely to advance a pecuniary interest of the governmental unit' will the automatic stay bar it." Universal Life Church, 128 F.3d at 1299 (9th Cir. 1997) (quoting Thomassen, 15 B.R. at 909).

The "public policy" test distinguishes between those proceedings that effectuate public policy and those that adjudicate private rights. Universal Life, 128 F.3d at 1297; In re Charter First Mortg., Inc., 42 B.R. 380, 383 (Bankr.D.Or. 1984). Under the latter test, the court considers whether the administrative agency is exercising legislative, executive, or judicial functions. In re Poule, 91 B.R. 83, 86 (9th Cir. BAP 1988). "Where the agency's action affects only the parties immediately involved in the proceedings, it is exercising a judicial function and the debtor is entitled to the same protection from the automatic stay as if the proceeding were being conducted in a judicial form." Id.

The Stay Does Not Apply Here

A Non-Payment Complaint proceeding is a license discipline proceeding, where the agency’s primary interest is not pecuniary and public policy supports disciplining a contractor’s license when that contractor has violated their governing statues and rules.

Pursuant to A.R.S. § 32-1154(A)(10),

The holder of a license or any person named on a license pursuant to this chapter may not commit any of the following acts or omissions: . . . 10. Failure 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.

The issue for hearing is whether a contractor violated this statute based on the conduct at issue.

If a contractor is found to have violated the statute, the resulting Decision cannot require payment of the unpaid monies. It may, however, suspend a contractor’s license until money owed is paid. As part of the proceeding, a contractor may request that if the ALJ finds against them the recommended order includes an option for the contractor to prove full payment pursuant to a bankruptcy order.

The agency does not have a material pecuniary interest in the outcome of this administrative proceeding. Discipline is public information to inform property owners and other contractors about with whom they are working.

IT IS ORDERED the automatic stay does not apply to an administrative proceeding about a violation

Done this day, August 22, 2025.

/s/ Samuel Fox

Administrative Law Judge

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

Tom Cole

Director

Registrar of Contractors

c/o Legal Department

1700 W. Washington Street, Suite 105

Phoenix, AZ 85007

[email redacted]

ELLETT LAW OFFICES, P.C.

Ronald J. Ellett (Bar No. 012697)

ELLETT LAW OFFICES, P.C.

2999 North 44th Street, Suite 330

Phoenix, Arizona 85018

[email redacted]

Lavender Landscape Design Co. LLC

1872 E Broadway Rd

Tempe, AZ 85282

[email redacted]

Empire Construction LLC

953 S. Mesa Dr.

Mesa, AZ 85210

Email [email redacted]

By: OAH Staff