ALJDEC

97F-2783-ROC · Registrar of Contractors · 1997-12-31

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: December 16, 1997; 9:15 A.M.; Phoenix, Arizona APPEARANCES: Complainants: Thomas M. Quigley, Esq. Respondent: David Burnell Smith, Esq. ADMINISTRATIVE LAW JUDGE: George A. Schade, Jr.

Based upon the evidence presented at the hearing, Administrative Law Judge George A. Schade, Jr. submits this Recommended Decision and Order to the Director of the Arizona Registrar of Contractors (“Registrar”). FINDINGS OF FACT PROCEDURAL BACKGROUND 1. Respondent Karik Construction Company, Inc. dba Aunt Javelina’s Wonderful Pools (“Karik”) holds License No. 109007, Class B-05, issued by the Registrar on August 21, 1995. Mr. Richard Marshall Nelsen was the qualifying party, and Mrs. Karyn Elizabeth Klaus (Nelsen) was a principal. 2. Karik’s License No. 109007, Class B-05, is currently delinquent because it was not renewed in 1997. The decision not to renew was a voluntary business decision. 3. On May 19, 1997, Mr. and Mrs. Joseph Zizzi filed a complaint alleging that Karik had deviated from the building plans and had failed to complete the construction of a swimming pool within the contracted time. 4. On June 13, 1997, Mr. Richard K. North, the Registrar’s inspector, made a jobsite inspection. Mr. Nelsen attended the inspection. 5. On June 17, 1997, Mr. North issued a letter determining that “No further action required of the contractor at this time.” Official notice was taken of this letter. The grounds for this determination were that Karik had, days before, corrected the items complained, and secondly, Mr. North concluded that this was a case of “a disputed money amount problem at this time” and not a matter within “the Registrar of Contractors’ jurisdiction.” The evidence presented at the hearing showed Mr. North, when he visited on June 13, 1997, correctly determined the complained items had been corrected. The items which became the focus of the hearing, however, did not become known to Mr. and Mrs. Zizzi until August, 1997, thereby casting a different light on Mr. North’s “no action” letter. 6. On August 15, 1997, the Registrar issued to Karik Citation and Complaint No. 97-2783 alleging a violation of Arizona Revised Statutes (“A.R.S.”) ' 32-1154(A)(7). 7. On August 27, 1997, Karik answered the citation. 8. On November 14, 1997, the Registrar issued a Notice of Hearing. Under the authority of A.R.S. ' 41-1092.02, the hearing was assigned to the Office of Administrative Hearings. 9. On December 16, 1997, a hearing lasting 4.5 hours was held. Both parties presented testimony, and each party presented 17 exhibits. At the hearing, Mr. and Mrs. Zizzi narrowed the contested issues to three, namely (1) the spa steps were installed improperly as no rebar was used, (2) the custom water feature was completed without the required footing, and (3) Karik improperly terminated the contract. THE CONTRACT 10. On August 28, 1996, Mr. and Mrs. Zizzi and Karik entered into a written contract for the construction of a swimming pool at the Zizzi’s new house which would be concurrently under construction. 11. Karik prepared the building plans for the construction of the pool. Mr. Michael Winn, then an associate of Karik, prepared the plans. 12. The amount of the contract was $20,796.27. 13. By October 16, 1996, Karik had shotcreted the pool. 14. Between September 4, 1996, and October 28, 1996, Mr. and Mrs. Zizzi paid Karik a total of $14,557.38 (in payments of $6,238.88, $4,159.25, and $4,159.25). 15. After credits of $500.00 for boulders and $1,444.00 for the deck, the amount currently due Karik under the original contract is $4,294.89. 16. Mr. and Mrs. Zizzi retained another swimming pool contractor, Pinnacle Pools, Inc. (“Pinnacle”), who completed the construction of the swimming pool for $16,029.00. While this amount stands in contrast to Karik’s contract, this amount includes some upgrades not contained in the Karik-Zizzi contract, for example, Pebble Tech rather than plaster and an additional 3" shotcrete overlay. As the pool is finished, there is no need (or wish by Mr. and Mrs. Zizzi) for Karik to undertake corrective actions. THE SPA STEPS 17. After the plumber slightly overrotated the spa jets, it became necessary to add a small step or bench on the floor of the spa and to extend one of the upper steps in order to allow easier access. These additional steps were not in the original plans Karik had prepared. Karik constructed the steps. 18. On August 14, 1996, the City of Scottsdale inspected the swimming pool, including the spa steps Karik had built. Item No. 7 of the inspector’s report stated, “Provide steps at spa as per plan # 4 rear 12" [on center].” See, Complainants’ Exhibit No. 10. 19. Mrs. Zizzi testified she videotaped the removal of the spa steps Karik had built, and she did not see any rebar in the steps. The videotape was not presented at the hearing. 20. Mr. Nelsen testified he personally had installed # 4 rebar but 8" on center when he built the steps. He testified he remembered well installing the rebar. THE CUSTOM WATER FEATURE 21. The plans called for the installation of a custom water feature on the side of the pool. The contract specified the following: “27) 10 SELECT BOULDERS

29) WATER FEATURE PER PLAN (HEIGHT +18").” See, Complainants’ Exhibit No. 1.

22. Karik did not install a footing underneath the water feature it built. The boulders were set in sand along the pool wall, and from appearance of photographs (see, Complainants’ Exhibits No.5A and 5B ) on some supporting bricks. Karik used five (real not fake) boulders for the water feature, and the other five boulders were scattered around the pool area. The weight of the water feature as designed in the building plans was between 1,000 and 1,500 lbs. 23. The August 14, 1996, inspection report of the City of Scottsdale stated in Item No. 6, “Provide engineering on water features with steel details (work done without inspection).” See, Complainants’ Exhibit No. 10. 24. Thereafter, Pinnacle retained a swimming pool structural engineer, Lanny D. Porter, P.E., who according to Mr. Nelsen specializes in this kind of engineering work. Porter Engineering prepared a structural engineering report dated and sealed August 22, 1997. 25. Pinnacle tore down and removed Karik’s water feature and replaced it with a new feature using about eleven boulders. Pinnacle installed a footing approximately 6.5" deep, with # 3 steel rear 6" on center, underneath the water feature. 26. Mr. Nelsen testified the water feature specified in the plans Mr. Winn had prepared was smaller than the one Pinnacle installed, had only five boulders, and was shorter (in Mr. Nelsen’s words, Pinnacle “upgraded the water feature” as desired by Mr. and Mrs. Zizzi), and secondly, he testified that when he inquired, he was told the City of Scottsdale did not require a footing underneath the type of water feature he was planning to install, but he also was told “that [the City’s building regulation] was changing.” 27. Karik submitted the pool building plans to the City of Scottsdale, which did not disapprove or redline the plans. 28. Karik presented an Inspection Record of an inspection done by the City of Scottsdale on October 11, 1996, in support of its claim the City had “approved” its water feature. This report indicates it was a “Pool Pre Gunite” inspection. The blank for “Miscellaneous Footings - All Footings Other Than Those Listed” was not completed. Neither was any other blank filled on the Inspection Record. See, Respondent’s Exhibit No 3. 29. The legend of the plans stated there would be a “water feature,” and showed the feature with five boulders, but did not show anything more regarding the proposed water feature, particularly, a footing. 30. Although the original plans prepared by Karik might have specified a smaller water feature than Mr. and Mrs. Zizzi finally installed through their second contractor, a photograph, dated June 1, 1997, shows the water feature Karik installed. See, Complainants’ Exhibit No. 5A. This water feature is appreciably larger than was specified in the plans and taller than 18 inches.[1] Complainants’ Exhibit No. 5B, a photograph of Pinnacle’s workers removing Karik’s water feature, also shows a much larger water feature than appears on the original plans Mr. Winn had prepared for Karik. THE TERMINATION OF THE CONTRACT 31. After the parties signed their contract on August 28, 1996, Karik began working and by October 16, 1996, had shotcreted the pool. Thereafter, Mr. and Mrs. Zizzi encountered problems with the general contractor building their house, and consequently, work stopped on the house. Work also necessarily stopped on the swimming pool because Karik could not proceed until other items were completed. The stoppage of work in the Fall of 1996 was not due to Karik. 32. Karik did not return to the jobsite until late January, 1997, when he assisted Mrs. Zizzi with the purchase and placing of boulders in and about the pool area. 33. Between early February and mid-May, 1997, Mr. and Mrs. Zizzi and Karik discussed several changes, namely, credits to the Zizzis for $500.00 for boulders and $1,444.00 for the deck and estimates for a pool and spa upgrades from plaster to Pebble Tech and an upgraded spa heater. Discussions also occurred regarding the corrective actions for the spa steps and problems with the jets and the umbrella sleeves. 34. On February 16, 1997, Karik prepared a Change Order regarding the credits for the boulders and the deck and sent it to Mr. and Mrs. Zizzi. Mrs. Zizzi testified she signed this Change Order and returned it to Karik by fax. Mrs. Karyn E. Klaus, Karik’s Business Manager and the person who dealt with Mrs. Zizzi, testified Karik never received this Change Order, or any other Change Order, signed by Mr. and Mrs. Zizzi. 35. On May 9, 1997, Karik sent a second Change Order reiterating the items in the first Change Order and adding the upgraded Pebble Tech and spa heater. Mr. and Mrs. Zizzi did not sign this Change Order. 36. On May 19, 1997, Karik prepared and submitted to Mr. and Mrs. Zizzi a third Change Order including all the prior items and requesting an adjustment to the contract price of $944.88 due to construction delays. This additional cost request was made pursuant to the terms of the parties’ contract which permitted Karik to account for price changes due to delays “because of reasons given or requests made by the Owner.” See, Complainants’ Exhibit No. 1 (Delays). Mr. and Mrs. Zizzi did not sign this Change Order. 37. On June 30, 1997, Karik prepared and submitted to Mr. and Mrs. Zizzi a series of four Change Orders, which incorporated all the prior change orders and adjusted the contract price by a revised $1,574.88 (an amendment to the $944.88). Mr. and Mrs. Zizzi did not sign any of these Change Orders. 38. On June 20, 1997, Karik wrote a letter to Mr. and Mrs. Zizzi asking them to confirm they were “completely satisfied with all phases of the construction of the pool to date,” agree that “footings for water feature, if done,...will be considered a change and an additional charge,” and agree that the contract’s 90-days time of completion clause “is null and void.” Mr. and Mrs. Zizzi did not sign this letter. See, Respondent’s Exhibit No. 11. 39. On July 3, 1997, Karik’s attorney wrote a letter to Mr. and Mrs. Zizzi advising that if they did not sign the Change Orders and state they were satisfied with Karik’s work up to that time (presumably, complete Karik’s June 20, 1997, letter), Karik “will take no further action on your pool.” See, Complainants’ Exhibit No. 7. 40. On July 29, 1997, and on August 7, 1997, Karik’s attorney advised Mr. and Mrs. Zizzi that Karik’s contractor’s License No. 09007, Class B-05, had “expired,” and Karik would wait for the outcome of this hearing and “proceed based on the Registrar’s decision [July 29, 1997].” See, Complainants’ Exhibits No. 8 and 9. 41. On August 6, 1997, according to Karik’s Prehearing Statement (page 6, lines 8-9), Mr. and Mrs. Zizzi’s attorney informed Karik that the contract had been terminated. KARIK=S PRIOR DISCIPLINARY RECORD 42. The Registrar’s public records show that during the past two years only one confirmed complaint has been filed against Karik, and that is this complaint. CONCLUSIONS OF LAW A.R.S. ' 32-1154(A)(7) A.R.S. ' 32-1154(A)(7) states: “A. The holder of a license or any person listed on a license pursuant to this chapter shall not commit any of the following acts or omissions: *** 7. The doing of a wrongful or fraudulent act by the licensee as a contractor resulting in another person being substantially injured.” CONCLUSIONS OF LAW 1. The Registrar has authority to enter an appropriate order in this matter. The suspension of a license “by operation of law,” such as non- renewal of a license, “shall not deprive the Registrar of jurisdiction to proceed with any investigation of or action or disciplinary proceeding against such licensee, or to render a decision suspending or revoking such a license, or denying the renewal or right of renewal of such license.” A.R.S. ' 32-1154(C). 2. In these administrative cases, the complainants have the burden of proof, and the standard of proof on all issues is by a preponderance of the evidence. See, Culpepper v. State, 187 Ariz. 431, 930 P.2d 508 (App. 1996), rev. denied (1997); Troutman v. Valley Nat. Bank of Arizona, 170 Ariz. 513, 826 P.2d 810 (App. 1992). “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” Morris K. Udall, Arizona Law of Evidence, ' 5 (1960). 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 (6th ed., 1990). 3. The preponderance of the evidence does not establish Karik violated A.R.S.' 32-1154(A)(7) in the installation of the spa steps. The testimony regarding the installation of rebar in the bottom spa step and in the bench extension was disputed such that it is not reasonably possible to conclude Karik did not install rebar. Mr. Nelsen testified he personally installed rebar, which Mr. and Mrs. Zizzi just as strongly, contended was not installed. There is a conflict in the evidence on this issue. 4. Regarding the custom water feature, the evidence supports a conclusion Karik violated A.R.S. ' 32-1154(A)(7). The evidence shows that neither the water feature installed by Pinnacle nor the feature built by Karik complied with the plans. Karik’s water feature was taller and larger than the one specified in the plans. Moreover, the fact remains the City of Scottsdale inspected Karik’s water feature on August 14, 1997, and concluded a footing was required. Although by then, the parties had terminated their working relationship, Karik’s water feature did not comply with the City of Scottsdale’s footing requirements. It is noted that at least as of June 20, 1997, Karik had knowledge that the water feature might need a footing and, at the minimum, that a footing was an issue in contention. A footing for the water feature was mentioned as a specific item in Karik’s letter of that date to Mr. and Mrs. Zizzi. See, Respondent’s Exhibit No. 11 and Finding of Fact No. 38. 5. These parties have a legitimate legal dispute regarding the circumstances surrounding the termination of their contract. Karik did not wish to proceed until its change orders had been signed (a valid business practice), and Karik relied on the terms of the contract for adjusting prices due to construction delays. On the other side, Mr. and Mrs. Zizzi reasonably believed Karik did not wish to proceed with the contract, and after its contractor’s license was not renewed, could not complete the pool. As much as the Administrative Law Judge would like to resolve not only the issue of the contract’s termination but also this case for the benefit of these parties, any solution to this issue would be impermissibly tantamount to a determination of civil liability and an award of damages, actions outside the Registrar’s regulatory authority. 6. The Registrar does not have authority to award special and compensatory damages, but the Arizona Court of Appeals has interpreted the Registrar’s statutes to include authority to grant a “restitutionary remedy.” Sunpower of Arizona vs. Arizona State Registrar of Contractors, 166 Ariz. 437, 803 P.2d 430 (App. 1990), review denied (1991). This case presents issues of both damages for breach of contract and restitutionary relief for at least the custom water feature. Mr. and Mrs. Zizzi hired and paid a second contractor to finish their swimming pool. They also are parties to a contract under which they owe Karik $4,294.89. Whatever, if any, damages either party obtains should they pursue a legal action, would be up to a court of law. While the termination of the contract issue is outside the Registrar’s purview, a restitutionary remedy exists for the violation of A.R.S. ' 32- 1154(A)(7) regarding the water feature. The Arizona Supreme Court has stated regarding restitution in construction: “[T]he remedy of restitution is not confined to any particular circumstance or set of facts. It is, rather, a flexible, equitable remedy available whenever the court finds that ‘the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity’ to make compensation for benefits received.” Murdock-Bryant Const., Inc. v. Pearson, 146 Ariz. 48, 53, 703 P.2d 1197 (1985); cited with approval in Commercial Cornice & Millwork, Inc. v. Camel Construction Services Corp., 154 Ariz. 34, 39, 739 P.2d 1351 (App. Div. 2 1987).

Karik’s water feature was removed, and a new one, albeit a larger one, was installed at an additional cost. Restitution, being an equitable relief, is proper in this matter to address the issue of the water feature. An equitable restitutionary remedy, for the particular circumstances present in this case, would be a relinquishment of one-half of the amount currently due Karik under the contract, namely, $2,147.44. RECOMMENDED ORDER It is recommended that the Registrar suspend Karik’s License No. 109007, Class B-05, unless and until the Registrar receives written notification that Karik has relinquished its contractual claim for $2,147.44, or half of $4,294.88, as restitution to Mr. and Mrs. Zizzi, for the violation of A.R.S. ' 32-1154(A)(7) regarding the custom water feature. If such notification is received, the Registrar shall dismiss Citation and Complaint No. 97-2783. SUBMITTED this 5th day of January, 1998.

George A. Schade, Jr. Administrative Law Judge

The original Recommended Decision and Order was mailed on January 5, 1998, for distribution to the parties, to:

Michael Goldwater Director Arizona Registrar of Contractors 800 West Washington, 6th Floor Phoenix, Arizona 85007-2940

George A. Schade, Jr. ----------------------- [1] The Administrative Law Judge has carefully viewed these photographs, taking into account the kinds of representations photographs can give.

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