ALJDEC

97F-2537-ROC · Registrar of Contractors · 1997-11-20

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

A portion of the above-entitled matter came on for an initial session of hearing on November 18, 1997 and the balance of the issues came on for further hearing on November 20, 1997. The Homeowner/Complainants appeared in their own behalf at both sessions of hearing. The Co-Complainant, Registrar of Contractors (herein called the "Registrar"), was represented by Assistant Attorney General, Montgomery Lee, at the first hearing session but not at the second session. Respondent was represented by its attorney, Andrew H. Friend, at the first hearing session but voluntarily absented itself from the second session. Evidence and testimony were presented, and based upon the entire record, the following Findings of Fact, Conclusions of Law and Recommended Order are made.

FINDINGS OF FACT

1. By way of affording all interested parties an opportunity to address a critical issue common to four separate pending matters, an initial session of hearing, limited to the consolidated presentation of evidence in support of and in opposition to the responsibility, if any, of Respondent for the construction deficiencies in several homes ultimately purchased by the above-named Complainants and by others, was scheduled immediately prior to the first of the semi-related matters. The separate homeowners were all invited to attend and to participate in the initial hearing session at which both the Registrar and the Respondent were represented.

2. Respondent, a sole proprietorship owned and operated by Willie Beverly Ham (herein called "Mr. Ham") who also serves as its qualifying party, was and still is the holder of an Arizona Class B residential general contractor's license number 60698 issued by the Registrar. Such license has been suspended by operation of law since June 30, 1997 for non-renewal.

3. It was not disputed that on or about June 14, 1994, Respondent had entered into an agreement with Simon Grasland, doing business as Promotional Materials, Inc., otherwise known as "P.M.I.," pursuant to which Respondent's owner and qualifying party, Willie Ham, effectively loaned or rented his sole proprietorship license to Mr. Grasland for the latter's use in constructing several residential structures.

4. Neither Mr. Grasland nor his corporate entity were shown to have possessed any contracting license in Arizona, a fact of which Mr. Ham was at all times fully aware. The above-described agreement was further evidenced by a written document, admittedly prepared by Mr. Ham, purporting to outline some of the contemplated arrangements, and additionally by a form of proxy and a power of attorney, prepared by Mr. Grasland, serving to confirm certain specifically authorized activities by P.M.I. under Respondent's license. The intended impact of these documents and of the overall arrangement was to expressly authorize and enable the use by Mr. Grasland of Respondent's contractor's license not only to obtain building permits from local authorities for contemplated home construction but also to build such structures. Although Respondent reserved the right to inspect the jobsite of any project in progress, this right was shown to have been rarely, if ever, exercised by Mr. Ham.

5. Although both the proxy and the power of attorney documents were unlimited as to duration unless expressly revoked, the basic agreement had loosely specified a one year time period without mention of renewal, continuation, cancellation or termination conditions. Such basic agreement was also silent as to the manner, amount and timing of payments to Respondent from P.M.I. However, the testimony indicated that Respondent was to have received $1,000.00 for each residence to be constructed, payable on or soon after the obtaining of a building permit.

6. Credible documentary and testimonial evidence tended to indicate that no less that eight separate residences, including that of Complainants, had been built or started by P.M.I. utilizing Respondent's license number, all of which followed the application for and obtaining of building permits both prior to and subsequent to the one year time period referenced in the basic agreement. It also appeared that Respondent never communicated to P.M.I. or to Mr. Grasland any express notice of revocation, termination or demand to cease and desist further construction activity, although counsel for Respondent did send written notice to the Registrar in June, 1997, three years after the start of the impermissible arrangements and long after Complainants had purchased and occupied their home, that no further construction projects were authorized.

7. It was admitted that payments were made to and accepted by Mr. Ham under the license transfer arrangement, in cash and by check, and the evidence further tended to establish that after the specified one year period some payments transmitted from P.M.I. were received and deposited by Mr. Ham which were applicable to permits issued and to projects commenced after such one-year period. Additionally and somewhat suspiciously, at least for income tax purposes, one payment check combining the agreed amounts payable for two separate homes was shown to have been made payable to Respondent's proprietorship business entity but deposited into Mr. Ham's personal account.

8. Mr. Ham on behalf of Respondent was informed of the existence of numerous complaints prior to their formal filing by several past purchasers of homes from P.M.I. as a result of Mr. Grasland’s consistently unresponsive course of conduct in failing to timely and properly rectify reported construction deficiencies. However, in a highly puzzling and seemingly incomprehensible exercise of rationalization, Mr. Ham maintained that his reason for not acting to immediately terminate the ongoing construction in progress of which he was fully aware was that he did not wish to hurt future purchasers by halting the unlicensed entity's efforts towards completing several already- started residences. Little or no reasonable basis is found to exist for any possible belief by Mr. Ham that similar construction-related complaints would be treated any differently by Mr. Grasland or by P.M.I. with respect to the subsequently built homes. In any event, Mr. Ham on behalf of Respondent is found not to have effectively disassociated himself from the unlicensed person who was allowed to continue its contracting activities, armed with paperwork signed by Respondent which generated and purportedly confirmed the apparent authority that induced and resulted in reasonable reliance by others.

9. By participating in an arrangement under which P.M.I. and/or Mr. Grasland were ostensibly authorized to pursue contracting activities utilizing Respondent's license, Respondent has set a force in motion that ultimately led to significant harm to individuals dealing with P.M.I. Consequently, any and all obligations or responsibilities for work improperly performed or omitted are found and determined to necessarily follow Respondent who must be deemed at all times to have been a general contractor jointly with P.M.I. on all these construction projects and home sales. Any potential rights of indemnity which Respondent may have under its impermissible written or verbal agreements with the unlicensed person, would not and should not serve to relieve or eliminate any of Mr. Ham's contracting law responsibilities to individuals or entities dealing with P.M.I.

10. Persons dealing with P.M.I. in good faith had no way of knowing about any private uncommunicated limitations on the license lending scheme. After having vested the unlicensed person with all the trappings of proper authority to start and to complete dwellings for eventual sale to third parties, Respondent is effectively estopped to assert a lack of responsibility for future wrongdoing based upon a possible exceeding or extending of such authority as well as other asserted breaches of the arrangement by the unlicensed individual or entity. Stated alternatively, the purported license transfer under a patently illegal agreement does not operate to transfer all or any of the licensee’s liability for the unlicensed entity’s substandard work performed or for its non-performance of purchase contract obligations owed to the ultimate homeowners.

11. The testimony of Respondent's owner that he did not know or realize the illegality or impropriety of license lending agreements and had no intent to circumvent the State's contracting laws strains credibility. To the extent that any genuine mistaken belief existed, such mistake is further found to be one of law and, therefore, not a valid defense to the violations charged hereunder. Moreover, at the very minimum, Respondent's overall conduct is found to reflect a reckless or wanton disregard of or indifference to the applicable prohibitions against the transfer or improper use of an issued license.

12. Although the permit for the home ultimately purchased by Complainant was obtained more than one year after the impermissible arrangements had commenced with respect to the lending of Respondent's contractor's license to the unlicensed person, Complainant is not precluded from properly pursuing this administrative action against Respondent in light of Mr. Ham's ongoing receipt of payments and, more significantly, the conscious indifference on the part of Mr. Ham to the known continuing construction activities of the unlicensed entity subsequent to such one-year period.

13. The following items of complaint, each fully established by Complainants' uncontroverted evidence presented at the second hearing session, are determined to have sufficiently been proven to constitute workmanship deficiencies or contractual breaches by the unlicensed person, all of which are attributable to and the responsibility of Respondent under all the circumstances.

14. Credible evidence tended to establish that severe and potentially harmful grading and drainage problems were experienced on the property near the residential structure, generating a ponding condition against the perimeter of the home and also a realistic overflowing of water directed through an inadequately sized wash constructed by P.M.I. Without even considering the cost of securing expert opinions and professional recommendations for remedial measures or the labor and materials expenses of replacing landscaping items necessarily disturbed during the performance of required work, the minimum expense estimated for corrective action on the grading and drainage deficiencies appeared to exceed $10,000.00. After having waited for responsive action from the unlicensed person which was not forthcoming and by way of mitigating their potential damages from the overflow condition of the inadequate wash, Complainants understandably and prudently undertook and completed necessary work to rectify the problem by enlarging the wash capacity, expending over $8,500.00 to achieve the desired and recommended results. The remaining problem of the standing water against the house has not been corrected.

15. Several deficiencies in the finishing and painting of prior repairs to the interior drywall were shown to exist, all of which reflected adversely upon the workmanship of the unlicensed entity. The locations requiring appropriate touch-up or finishing work were in the kitchen, a bathroom and the bar. The estimated reasonable cost for this corrective work was further shown to be $235.00.

16. The tile in the master bathroom and shower had become unacceptably discolored and mildewed as a result of water leaks in the area and other tile in a bathroom for users of the pool contained excessive lippage on the floor. These tile deficiencies, together with significant failures of the grout in various locations, must be corrected so as to conform to industry standards and tolerances. Complainants were able to and did purchase sufficient matching tile pieces for the corrective work at a cost of $183.87, and have also obtained an estimate for necessary labor in the amount of $275.00.

17. A leaking condition was shown to exist from the valves operating the exterior watering system. This leakage not only was left unrepaired, but also none of the valves were covered in any way so as to afford protection from the elements which was shown to have been a requirement of applicable industry standards. Appropriate corrective work was reasonably estimated at $165.00.

18. The automatic remote gate opener was shown by credible testimony to intermittently fail to function by not fully opening when operated. Additionally, a prior repair on the concrete surrounding the gate stop was performed in a substandard manner, resulting in an unacceptably uneven and unsightly surface appearance. A cost of $100.00 was shown to be reasonably anticipated in order to rectify these problems.

19. The evidence revealed that the perimeter stuccoed block fence, measuring approximately 620 linear feet, contained numerous and scattered defects, including improper grouting of cells, inadequate rebar placement and missing expansion joints, as well as mismatched texture and stairstep cracking throughout the visible surfaces. When considered in combination, these deficiencies, many of which constitute building code violations, are found to warrant the complete removal of the present perimeter fencing and its replacement with a properly constructed and finished block and stucco fence. The reasonable projected cost for such replacement work was shown to exceed $9,400.00.

20. The finish on the wainscoting in the office room was shown to contain observable voids and substantially irregular color tones, thereby resulting in an unworkmanlike construction feature. Additionally, the baseboards within the water closets were inadequately caulked, necessitating appropriate remedial action. The estimated combined costs to correct these deficiencies was shown to be approximately $150.00.

21. An excessive amount of static on the AM radio/intercom system, shown traceable to improper electrical wiring, was experienced and not properly corrected. It was shown that an expense of $123.00 would be incurred in order to eliminate this deficient condition.

22. The travertine countertops near sinks in several bathrooms were shown to contain small voids in the material and also several sealant stains that were not properly removed. These unremedied conditions, reflecting adversely upon the workmanship in the selection and installation of materials, were shown to be capable of correction by Complainants without added cost or expense.

23. No pool alarm provision was in operation when the premises were first occupied by Complainants. The testimony revealed that Mr. Grasland did install an inexpensive alarm system that was sufficient to minimally comply with applicable safety code requirements but thereafter deliberately removed all alarm components after the local inspection was completed. The projected costs to rectify this potentially and actually dangerous condition created by Mr. Grasland’s actions, ranged from a relatively low amount for audible alarm devices at all openings onto the pool area to significantly higher sums for more sophisticated electronic equipment or replacement exterior doors. In any event, by way of a further circumstance in aggravation, Mr. Ham, when learning of this dangerous condition created by the person to whom he had loaned or

rented his contractor’s license, failed and declined even to undertake any inexpensive remedial measures to cause minimal compliance with code requirements.

24. Two motion detectors which were contractually specified as included in the purchase of the residence were never furnished and installed by P.M.I. It was shown that the reasonable cost to properly obtain this feature would be $325.00.

25. It appeared from credible evidence and testimony that Mr. Grasland did not perform a proper pre-treatment for termites on the pad below the concrete slab for the residence by utilizing a certified applicator. Moreover, P.M.I. had tendered a false and forged certification form attesting to a purported termite pre- treatment to the Title Company at the time escrow was to close. Although this demonstrated fraudulent intent of Mr. Grasland may not properly be imputed to Mr. Ham, Respondent nevertheless remains responsible for the unworkmanlike and wrongful non- performance of the requisite pre-treatment of the ground prior to the slab being poured by the entity still holding his unrevoked proxy and power of attorney for ongoing construction projects. The fortuitous and fortunate discovery by Complainants of the above-described termite treatment improprieties caused a short delay in the closing of escrow which did take place after Mr. Grasland, in what appears to have been an act of extreme defiance and arrogance, successfully insisted upon the expenses of an appropriate post-construction termite treatment qualifying for warranty protection being fully borne by the Realtors out of their otherwise payable sales commissions.

26. The aggregate costs reasonably anticipated and estimated for Complainants to accomplish necessary corrective work to rectify all proven deficiencies are found and determined to be not less than $21,500.00 and, more probably, substantially greater.

27. Following a jobsite visit, the Registrar's assigned Inspector issued a written directive to Respondent setting forth the need for corrective work or actions on most all of the above- enumerated items of complaint prior to a stated deadline date. However, neither Respondent nor the unlicensed person completed or even commenced remedial measures, and therefore the Inspector's directive was not timely complied with by or on behalf of Respondent.

28. Mitigating factors in this and in related cases were conspicuous by their absence. Instead, the actions by or attributable to Respondent were indicative of a flagrant disregard of its duties as a licensed contractor in this State as well as of the entitlements of all eventual homeowners, including Complainants. Moreover, the demonstrated course of conduct on the part of Respondent is also found to constitute a wrongful act resulting in substantial harm to Complainants and to others within the meaning of another code section charged herein as having been violated by Respondent.

CONCLUSIONS OF LAW

1. Pursuant to the provisions of A.R.S.§32-1124(B), contractor's licenses are nontransferable.

2. The totality of the evidence established that the arrangements allowing an unlicensed person to use Respondent's license were tantamount to a transfer of a non-transferable license as well as constituting the aiding or abetting by Respondent of such unlicensed person to evade the provisions of the State's contracting and licensing laws under circumstances indicative of a reckless disregard or willful indifference to the impermissible nature of such transfer under such applicable laws. Consequently Respondent has violated the provisions of A.R.S.§32-1154A(10).

3. Respondent retains full or at least shared responsibility for all improper acts or omissions of the unlicensed entity to which a prohibited license transfer or authorization was made, thereby supporting determinations that, since such unlicensed entity was proven to have performed substandard work and to have committed wrongful acts to the detriment of Complainants, Respondent has effectively violated the provisions of A.R.S.§32- 1154A(7), and (3); namely, Rule R4-9-108.

4. Respondent, by failing to substantially or even minimally comply with the terms of the written directive issued to Respondent by the Registrar's assigned Inspector, has violated the provisions of A.R.S.§32-1154A(23).

RECOMMENDED ORDER

In view of the foregoing, it is recommended that Respondent's Class B license shall be revoked on the effective date of the Order (thirty-five [35] days after the date of mailing by the Registrar of Contractors).

Dated: December 5, 1997 OFFICE OF ADMINISTRATIVE HEARINGS

______________________________________ Robert. I. Worth Administrative Law Judge

Original transmitted on _______________________

by: ________________________________, To:

Mr. Michael P. Goldwater, Director Registrar of Contractors 800 West Washington, 6th Floor Phoenix, AZ 85007

ATTN: Hearing Department -----------------------

Office of Administrative Hearings 1700 West Washington, Suite 602 Phoenix, Arizona 85007 (602) 542-9826