ALJDEC

97F-M1863-ROC · Registrar of Contractors · 1998-01-16

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: December 11, 1997

APPEARANCES: Justin and Cynthia Evans appeared on their own behalf; Tom Brown, President and Qualifying Party, appeared on behalf of JTM Development, Inc.

ADMINISTRATIVE LAW JUDGE: Eric A. Bryant _____________________________________________________________________

This case concerns the application of the two year statutory time limitation for filing a complaint regarding a home built by Respondent JTM Development, Inc., sold to a first buyer, bought back by Respondent, then re-sold as a spec home to Complainants. The parties presented evidence and testimony at the hearing and, based upon the entire record, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law, and Recommended Order that Respondent make corrections to the property or have its license suspended. FINDINGS OF FACT 1. Some time at the end of April 1996, Complainants looked at a townhouse built by Respondent in Stonegate, a subdivision in Tempe, Arizona. The home (hereinafter “Lot 37”) was presented to Complainants as a spec home that had been used as a model. Lot 37 is between the subdivision sales office and other model homes. Lots 38 and 39. Complainants liked the home and put down earnest money. Eventually, they bought the home and later learned that it had been owned by another person, not Respondent, prior to their ownership. 2. On May 10, 1996, Complainants went through a “pre-walk-through” with Respondent’s construction superintendent at the time, Jim Phillips. Several items were noted for correction. (Exhibit 2.) Also, some time during the last week of May 1996, another walk-through occurred (the “main walk-through”). Because there is no documentation available from the main walk-through, the evidence does not show which items were noted for correction at that walk-through. But, it is uncontested that Respondent performed some repairs before, during, and after Complainants moved into the home on June 1, 1996. Not all items were repaired, however, to the satisfaction of Complainants. Complainants continued to make verbal requests from Respondent’s construction superintendent, Jim Phillips, who was later replaced by Jim Berline. These employees of Respondent continued to assure Complainants that the work would be done. 3. After a year of trying to get all items corrected, Complainants filed this complaint with the Registrar of Contractors (ROC), noting 13 items that were not satisfactory. On July 16, 1997, ROC Inspector Ron Lamp visited the site and found that 10 of the items needed to be repaired. These items were as follows: Item 1: Concrete in the garage--entry to the home has cracked and honeycomb areas that need repair; south end of raised floor edges need to be smoothed. Item 2: Exposed drywall under sinks in kitchen and bathrooms needs to be painted. Item 3: Repair overspray on kitchen cabinets. Item 4: Three ceramic floor tiles in the office bath have chips and need to be replaced. Item 5: Repair front entry door that is bowed and does not seal properly. Item 6: Repair south side entry door that has water leak. Item 7: Drywall problems: (A) Second bath by ceiling register was previously repaired, but done poorly and needs to be re-done; (B) Living room register needs caulk and paint; (C) Second bedroom window beads need to be repaired. Item 8: Repair west wall by sliding door that leaks. Item 9: Repair master closet shelf. Item 10: No action (sink in floor). Item 11: Southeast section of driveway moves when driven over; needs repair. Item 12: No action (carpet replacement). Item 13: No action (roof).

4. At the jobsite inspection Respondent for the first time raised the defense that Complainants were the second owners of Lot 37 and that there was no warranty. This raised the question of whether the complaint had been filed within the time allowed by statute. A.R.S. § 32-1155(A) allows two years to file a complaint. 5. In furtherance of this defense, Respondent sent Lamp documentation that shows the following facts. Lot 37 was sold by Respondent to Ralph Bohnet in June 1994. Bohnet never planned to occupy the home himself. Instead, he planned to use it as part of a timeshare program that was being run with some of the Stonegate units. The home was completed on March 10, 1995. The evidence is not clear, but apparently the home was periodically used as a weekly timeshare and as a model home for the next six months. After that, Bohnet sold Lot 37 back to Respondent so that Respondent could sell it outright. Respondent owned it from November 22, 1995, through April 26, 1996, when it was sold to Complainants, who moved in on June 1, 1996. Since Complainants made their complaint on June 10, 1997, two years and three months after the completion date of the home, Lamp concluded that the two years had run and that ROC had no jurisdiction. He issued a letter saying so and Complainants requested a hearing. 6. The evidence shows that Complainants were never aware that Lot 37 had been owned by anyone other than Respondent. The salesman who sold Lot 37 to Complainants, Mike Pfau, credibly testified in favor of Complainants at the hearing. Mr. Pfau explained that he worked for GCI Homefinders, who had been hired by Respondent to sell the homes in Stonegate. He stated that he was not aware that Lot 37 had been previously owned or used for anything other than a model. He stated that he presented Lot 37 as a spec home and told Complainants that a two year warranty applied to it. Indeed, page four of the contract between Respondent and Complainants, line 201, clearly sets forth warranty provisions. (Exhibit B-10; however, page four is missing from B-10, so see complaint file for copy of Complainants’ purchase contract submitted by Respondent to Lamp by fax on 7/16/97.) Furthermore, nowhere does the contract disclose that Lot 37 was previously owned. It is entitled “Purchase Contract for New Home (With Lot).” CONCLUSIONS OF LAW 1. There was much discussion and argument at the hearing regarding whether there was a warranty for Complainants home. The word “warranty” was thrown around indiscriminately. However, this case is not about “warranty.” Warranty is a contractual matter that need not be decided in this tribunal. The only questions in this case are whether the complaint was within the 2 year limitation period and, if so, whether the work done on the home meets workmanship standards. STATUTE OF LIMITATIONS 2. Respondent’s defense is that Complainants have waited too long and the complaint falls outside the two year limitation period. Generally, a homeowner’s complaint against a licensed contractor is timely if filed within two years of occupancy or discovery of the defect, whichever occurs first. A.R.S. § 32-1155; Op. Atty. Gen. No. I79-119, relying on Lyon v. Great American Insurance Co., .4 Ariz. App. 596, 422 P.2d 724 (1967). In this case, occupancy occurred when Bohnet took constructive possession of the completed home on March 10, 1995. Thus, assuming that the time runs uninterrupted, the two years were over on March 10, 1997, three months before the complaint. However, the statute of limitations is not a favored defense. Third & Catalina Associates v. City of Phoenix, 182 Ariz. 203, 895 P.2d 115 (Ct. App. 1994). Since it is an affirmative defense, the Respondent has the burden of proving that it is applicable. Troutman v. Valley Nat’l Bank of Az., 170 Ariz. 513, 826 P.2d 810 (Ct. App. 1992). Furthermore, principles of equity and estoppel may limit the use of the statute of limitations as a bar to an action, especially in a consumer protection context such as the ROC. See, Hosagai v. Kodota, 145 Ariz. 227, 700 P.2d 1327 (1985) (stating that narrow equitable exceptions to the statute of limitations are warranted under certain circumstances and describing the doctrine of equitable tolling, which stops the running of the limitation period when it would effectuate the policies of the underlying statute and the purposes of the statute of limitations); see also, Freeman v. Wilson, 107 Ariz. 485 P.2d 1161 (1971)(estoppel bars limitations defense when person asserting defense lulls the other into not taking action). In Complainants case, equity demands that the limitations period be tolled for five months because of Respondent’s re-ownership of the property and Respondent’s failure to disclose previous ownership. The five-month period that Respondent had legal possession of the home, November 22, 1995 through June 1, 1996, will not be counted toward the two year limitations period. The purpose of the ROC is to protect the public health, safety, and welfare. Laws 1994, Ch 7, § 3. The Legislature has provided that protection for a uniform, definite period -- two years. This means a full two years. Under the circumstances of Complainants’ case, Respondent owned its own construction project for part of the period. Assuming, quite reasonably, that Respondent would not file a complaint against itself during this time, there was no person that could file a complaint regarding any defect in the construction. This is inequitable. Tolling the statute for the time that Respondent owned the home is equitable, because it gives the subsequent homeowners, Complainants, the full protection of the law. Therefore, the limitations period began on March 10, 1995 and ran until November 22, 1995, when Respondent bought back Lot 37. The time stopped running until June 1, 1996. Thus, the limitation period for Complainants did not end until about August 10, 1997-- approximately two years and five months after March 10, 1995. 3. Complainants filed their complaint within the limitations period. WORKMANSHIP STANDARDS 4. Complainants bear the burden of showing, by a preponderance of the evidence, that Respondent has violated the statutes cited in the Citation and Complaint. Culpepper v. State, 187 Ariz. 431, 437, 930 P.2d 508, 514 (Ct. App. 1996). 5. Respondent did not contest any of Lamp’s findings regarding the corrections that were needed. The evidence supports a conclusion that the ten items that need repair as noted in Finding of Fact 3 are not within workmanship standards and are a violation of A.R.S. § 32-1154(A)(3), namely A.A.C. R4-9-108. 6. Complainants argued at hearing that the northeast section of the driveway had a teeter-totter effect, just like the southeast section. They testified that they had offered to show this to Lamp after he observed the southeast section of the driveway (Item 10), but that he said he would take their word for it. Lamp did not recall this at the hearing. However, this ALJ finds Complainants testimony on this point to be credible and therefore recommends that the northeast section of the driveway be repaired as well as the southeast section. 7. Complainants also raised an issue regarding the carpet. In the complaint, they said that the carpet was heavily worn and was to be replaced. Lamp found that there was no wear pattern or worn spot and that no action was required. Complainants did not submit sufficient evidence to overcome the testimony of Lamp as to the carpet. Thus, no repair or replacement of the carpet is recommended. 8. As noticed in the Citation and Complaint issued by the ROC in this matter, Respondent’s prior disciplinary record may be considered in aggravation or mitigation when determining an appropriate outcome of this case. Therefore, notice is taken of official records of the ROC that show that Respondent was recently placed on 180 days probation (ended 1/15/98) and fined $225 for previous violations. The record shows that Respondent has complied with that order, but Respondent’s record is nevertheless poor and should be considered in aggravation. RECOMMENDED ORDER Based on the findings and conclusions above, IT IS RECOMMENDED License 088786, the Class B license of JTM Development, Inc., shall be suspended until the ROC receives written proof that Respondent has accomplished the remedial work set forth in Finding of Fact 3, excluding Items 10, 12, and 13, and including the northeast section of Complainant’s driveway as stated in Conclusion of Law 6. IT IS FURTHER RECOMMENDED that if Respondent accomplishes the corrective work on or before the effective date of the Registrar’s Order in this matter, then the license suspension shall not take place. IT IS FURTHER RECOMMENDED, in addition to the foregoing license suspension, if any, that Respondent’s license 088786 be placed on disciplinary probation for a period of one year. This probation shall begin on the effective date of the Registrar’s Order or the date on which notice of Respondent’s compliance with the terms of the Order is filed with the Registrar, whichever is later. IT IS FURTHER RECOMMENDED, in addition to the penalties above, that Respondent pay the sum of $500 to the Registrar of Contractors as a civil penalty pursuant to A.R.S. § 32-1154(D). Failure by Respondent to pay the entire amount of the civil penalty on or before 30 days following the effective date of the Order entered in this matter shall result in the automatic revocation of Respondent’s license 088786, effective on the deadline date. No future license shall be issued to any entity consisting of persons associated with Respondent, as defined in A.R.S. § 32- 1101(A)(5), unless payment of any outstanding prior civil penalty is made.

Done this 4th day of February 1998.

OFFICE OF ADMINISTRATIVE HEARINGS

______________________________________ Eric A. Bryant Administrative Law Judge

Original mailed this ___ day of January 1998, to:

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

By ___________________________