ALJDEC

98F-2703-ROC · Registrar of Contractors · 1998-09-28

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: September 28, 1998

APPEARANCES: Complainant, A A A Asphalt, Inc. was represented by its attorney, Kathleen Coughenour, Esq.

Respondent, Agate, Inc., was represented by its attorney, Carmen A. Chenal, Esq.

ADMINISTRATIVE LAW JUDGE: Robert. I. Worth _____________________________________________________________________

Based upon the entire case record, including the oral presentations and avowals at the hearing from counsel for both parties, the following Findings, Conclusions and Recommendations are made.

FINDINGS 1. At the outset of the scheduled hearing both counsel confirmed that Complainant’s corporate entity had recently filed a Chapter 11 bankruptcy proceeding which is presently pending. It further appeared that no trustee has been appointed and that Complainant continues to operate its business activities as a debtor in possession. The Administrative Law Judge determined that the automatic stay provisions applicable upon the filing of a petition in bankruptcy do not, of themselves, preclude Complainant from initiating and pursuing the instant administrative action.

2. The complaint filed by Complainant with the Registrar of Contractors related to and encompassed the alleged failure by Respondent to pay monies when due for

services and materials provided by Complainant as a subcontractor on three projects. Although two of the projects had been the subjects of verbal arrangements, the third and largest project was the result of a written contract.

3. The amount of $775.00 presently claimed payable on the first project, identified as the General Motors jobsite, has admittedly not been paid by Respondent. Another portion of Complainant’s complaint claims that the sum of $5,543.52 remains past due and unpaid with respect to the second project, identified as the Semflex jobsite. Lastly, the complaint asserted that the amount of $14,743.09 was and is still owing on the third project, identified as the Talking Stick jobsite.

4. Shortly after the formal opening of the scheduled hearing, and upon reconvening after a brief recess, Complainant effectively withdrew that portion of its complaint relating to the third project (“Talking Stick”) which was further shown to be the subject matter of a presently pending civil lawsuit initiated by Respondent.[1] Immediately thereafter, counsel for Respondent avowed that payment of the $775.00 representing the full balance claimed payable on the first project (“General Motors”) would be promptly tendered to Complainant by Respondent.

5. A significant counterclaim was asserted by Respondent as part of its formal answer to the within Citation that had been issued by the Registrar based upon the filed complaint. The merits of such counterclaim may not properly be considered under the Citation issued against Respondent in this case with respect to any charge of wrongdoing on the part of Complainant, but instead must be asserted as part of a timely filed separate complaint. However, the same underlying basis for any counterclaim, if valid, may properly be interposed by way of a defense to the non-payment violations charged herein against Respondent. Moreover, it was deemed fully appropriate for this tribunal to treat the potential counterclaim, re-asserted at the hearing, as being in the nature of and tantamount to a “motion” by Respondent to dismiss the Citation and Complaint in this case.

6. Counsels’ avowals further tended to indicate that conflicting evidence and testimony would be presented to this tribunal on the issue of whether or not Complainant had been afforded sufficient notice and an adequate opportunity to rectify any reportedly deficient workmanship by Complainant on the second and sole remaining project in issue (“Semflex”). Also forming a substantial part of the parties’ controversy was the right, if any, for Respondent to view the three projects as a single course of dealings and to withhold funds otherwise payable on one project by way of recouping additional expenses incurred on another project that may be shown traceable to any deficient, substandard or incomplete work by the same subcontractor.

7. Nothing in the case record serves to dispel that fact that a dispute had existed and still exists between the parties, nor can it be reasonably held or inferred that Respondent’s position in disputing its liability under the parties’ contract arrangements for tendering any claimed unpaid balances was arbitrary, unreasonable or asserted other than in good faith on the part of Respondent.

8. The Registrar of Contractors is not statutorily empowered to adjudicate and award money damages for subcontractual breaches which must more appropriately recovered, if at all, by initiating and pursuing available remedies before a civil court of competent jurisdiction. Based upon the demonstrated bona fide dispute as to the monetary amount, if any, claimed past due and owing to Complainant by Respondent, the instant claim filed with the Registrar, as subsequently modified so as to exclude the portions attributable to the Talking Stick and the General Motors projects, must be held not to constitute a liquidated sum which is an essential element for any finding that Respondent failed to pay monies when due within the purview of the State’s contracting laws. Even if the basis of Respondent's dispute is ultimately determined to be without merit, the existence of the above-described good faith monetary dispute results in an inability for Complainant to establish an essential element of the charged contracting law offense.

9. After it had become evident that this tribunal was the inappropriate forum in which to determine the parties’ respective rights and liabilities, the hearing was

thereupon recessed to enable the submission of a recommendation to the Registrar to grant the motion and to dismiss this action.

10. Nothing in this decision or ruling is intended to constitute a determination as to the validity of the respective claims under the subcontract arrangements, including possibly legitimate set-offs, justifiable back-charges, recoupments or counterclaims. Nor is any determination made with respect to whether the parties’ contractual relationship enabled Respondent to withhold payment on one project and to apply the amount so withheld to assertedly chargeable expenses incurred on a different project. These determinations must be made by the civil tribunal either as part of the already-commenced civil lawsuit or as part of a new civil action commenced by Complainant. Stated alternatively, the termination of this administrative proceeding shall be expressly without prejudice to the civil pursuit by the parties of their respective rights, defenses, set-offs and/or counterclaims.

CONCLUSIONS OF LAW

1. The showing that a good faith dispute exists as to all or a substantial portion of the claimed indebtedness of Respondent under the parties’ contractual agreement precludes the making of any supportable finding that a liquidated sum is past due and owing by Respondent to Complainant. Consequently, unless or until the claimed obligation is reduced to judgment by a civil court of competent jurisdiction, no violations by Respondent of any of the charged subsections of A.R.S. §32- 1154A can be adequately established.

2. A granting of Respondent’s motion to dismiss is warranted at this time under all the circumstances. However, any dismissal of the instant administrative proceeding must be and is expressly without prejudice to Complainant’s potential rights to pursue available civil remedies for the collection of provable damages for any breach of contract that may be sufficiently established. Any future failure by Respondent to promptly satisfy a court judgment in favor of Complainant, if obtained, would provide a valid basis for a new, separate disciplinary action leading to the imposition of potential penalties against Respondent’s license.

RECOMMENDED ORDER

In view of the foregoing, it is recommended that Respondent’s motion to dismiss, taken under advisement, be granted and that the entire Citation and Complaint in Case Number 98-2703 be dismissed without prejudice to the rights of the named parties to continue to assert and pursue their respective claims, counterclaims and set-offs in another, more appropriate forum.

Dated: October 5, 1998.

OFFICE OF ADMINISTRATIVE HEARINGS

_________________________________ Robert. I. Worth Administrative Law Judge

Original transmitted on _____________________

by: _____________________________ , to:

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

ATTN: Joyce Armijo ----------------------- [1]Since Complainant in this action is the Defendant in the concurrently pending civil lawsuit, it is probable that the automatic stay provisions of the Bankruptcy Court’s Order will impact upon the ability of Respondent, who is the named Plaintiff in the civil action, to continue pursuing such remedy unless relief from the stay is sought and obtained.

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