ALJDEC

98F-421-ROC · Registrar of Contractors · 1998-11-10

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: October 22, 1998 APPEARANCES: PLAINTIFF: Thomas Piccolo, DDS, on his own behalf; DEFENDANT: No appearance; INTERVENOR: Registrar of Contractors Recovery Fund, by Assistant Attorney General Mary DeLaat Williams

ADMINISTRATIVE LAW JUDGE: Anthony Halas _____________________________________________________________________

This matter came to hearing on October 22, 1998, for the purpose of determining the extent of Plaintiffs’ entitlement to recovery from the Residential Contractors’ Recovery Fund ( “Fund” ) pursuant to A.R.S. § 32- 1132. Evidence and testimony were presented, and based on the entire record, the following Findings of Fact, Conclusions of Law, and Recommended Decision are made:

FINDINGS OF FACT 1. In January, 1996, Plaintiffs contracted with Defendant for construction of their new home at 12164 North 100th Way, in Scottsdale , Arizona. Defendant was paid in full, and Plaintiffs moved in on about July 2, 1997, after substantial completion of the construction. 2. Notwithstanding full payment to Defendant, and substantial completion of the work, there existed a number of construction deficiencies, not corrected by Defendant, which formed the subject matter of formal complaints (Nos. 97-2780 and 98-1394) filed by Plaintiffs with the Registrar of Contractors. 3. On the basis of those complaints and subsequent final determinations by the Registrar of Contractors, Plaintiffs are deemed to be “persons injured” by the acts and

conduct of Defendant as a “residential contractor” during the construction of that new home, as those terms are defined in A.R.S. §§ 32-1131 and 32- 1132. 4. Defendant’s license was initially suspended after it failed to file an answer to the Citation and Complaint in No. 97-2780. The license was revoked on another matter (No. R97-1177) on April 7, 1998. 5. The Registrar of Contractors has received advance notification of Plaintiffs’ claim for an administrative payout from the Recovery Fund, for the statutory maximum amount of $20,000. 6. As a basis for Plaintiffs’ good faith claim in that amount, they provided the Registrar three estimates by licensed contractors, itemized (to varying degrees of specificity) for correction of Defendant’s construction deficiencies, all in excess of the statutory maximum, and ranging from $23,190.45 ( “K&M Custom Inc.” ), to $26,230.00 ( “Galle Development Co.” ), and to $26,978.67 ( “DanCor Development Corp.” ). Administrative notice is taken of those several estimates, which Thomas Piccolo ( “Piccolo” ) testified were difficult to obtain, and which he understood might reflect a premium or higher rate for repair than original construction, given the estimators’ apparent reluctance to assume the risk of attempting to correct the original contractor’s deficient work.

7. On behalf of the Fund, Registrar’s inspector Phil Coscia ( “Coscia” ) conducted a jobsite inspection of the residence on May 8, 1998, and then authored an itemized Recovery Fund Inspection Report, dated June 9, 1998, in which he recommended a good faith offer of $8,000 to correct the deficiencies. After gaining further information and clarification, including Coscia’s Amended Recovery Fund Report of June 30, 1998, the Fund’s manager then sent Plaintiffs correspondence dated July 1, 1998, providing a settlement offer totaling $8,850, and advising them of appeal rights. Administrative notice is taken of those several documents. 8. On July 21, 1998, the Registrar issued NOTICE TO CONTRACTOR OF CLAIM FOR ADMINISTRATIVE PAYOUT advising Defendant of the possible consequences of Plaintiffs’ claim against the Fund. 9. Subsequently, timely request for hearing was made, on the basis of the Registrar’s disagreement with the Plaintiffs’ claim for the statutory maximum amount, and Plaintiffs’ disagreement with the Fund’s offer, and the Fund was named as intervenor. 10. Notwithstanding Plaintiffs’ three good faith estimates, it is apparent that Coscia’s itemized Report, and essentially all testimony at hearing, used the specific itemization contained in the $26,230 estimate by the Galle Development Co. ( “Galle” ) as the cross-reference for particular items in need of correction, despite the significant underlying dispute between Plaintiffs and the Fund regarding the nature, extent, and cost of the various deficiencies in need of correction. 11. At hearing, Piccolo testified for the Plaintiffs, and Coscia for the Fund. No exhibits were offered or admitted, although as noted above, administrative notice is taken of certain relevant documents contained in the file, including Corrective Work Orders issued by inspector Mechsner on June 12, 1998 (No. 97-2780) ( “CWO I” ); his follow-up to the same complaint on July 30, 1997 ( “CWO II” ); and by inspector Di Antonio on January 14, 1998 (No. 98-1394) ( “CWO III” ). 12. The most significant deficiency to be corrected, at least in terms of the wide variety, extent, and expense of possible corrective actions, is the (combined) problem of drainage and pooling into an interior section (approximately 4’ by 4’) of the concrete garage floor, and the negative slope (toward the garage) and cracking of the exterior aggregate- finished driveway. Piccolo relies on the Galle bid, items 1, 3, and 4, (see CWO I, item 19; and CWO II, item 13), for his position that: a section (approximately 12’ by 12’) of the garage floor needed to be removed and replaced and painted with two coats of epoxy paint (Galle item 1: $2650); one section of the driveway needed removing and replacing (Galle item 3: $1280); and/or the (entire) driveway needed to be removed and replaced (Galle item 4: $8000). There was some question, but it appeared to the undersigned, and is so found, that the Galle item 4 included item 3, so the cost to correct per Plaintiffs would be either the total of Galle items 1 and 3 ($3930) or 1 and 4 ($10,650). Piccolo opined that other alternative actions would not result in the home he paid for and would be less than pleasing, aesthetically. 13. Coscia described several less-expensive alternatives which he opined would meet minimum workmanship standards, particularly with regard to the interior garage pooling problem: a weep-hole through the stem wall of the garage; or a pool pump and drain; or a rubber threshold under the garage door; or some combination of those. While he didn’t necessarily agree with Piccolo that removing and replacing concrete in the garage was the appropriate remedy, he did concur that if such were done, it would need to be the 12’ by 12’ section, and not just the 4’ by 4’ low spot. He estimated that any such concrete work would cost about $5.00 per square foot (by extrapolation, about $720 for the 12’ by 12’ section inside the garage). Notwithstanding that calculation, in his report Coscia had previously allowed a flat figure of $1250 as sufficient for the recommended alternatives. 14. With regard to the exterior aggregate-finished driveway, Coscia confirmed that removing and replacing sections of that material would cost about $7.00 per square foot, but he further opined that such work was not necessary to address what he determined were essentially acceptable (within 3/32”) cracking problems, in need only of cosmetic repair: he referenced CWO I, item 19, and his own inspection for as the basis for his conclusion that the exterior driveway did not present a drainage or pooling problem. In any event, neither he nor Piccolo provided the square footage of aggregate-finished driveway which might be subject to removal and replacement, so no extrapolation of the $7.00 per square foot can be made. 15. Piccolo disputed that reference to CWO I by Coscia, asserting that it was inapplicable and the correct reference should be to CWO II, item 13, which found that “water runs from driveway into garage at east garage door” and should be corrected. He believed the exterior driveway slope caused the water to run into the interior of the garage, where it pooled, and that for the overall problem to be corrected, both the interior garage and exterior driveway would require corrective work to address the slope, i.e., beyond simple cosmetic repair of cracks. 16. With regard to the exterior driveway, it is found that the evidence presented by Plaintiffs, including the testimony of Piccolo explaining why CWO II, item 13, better addressed the exterior driveway need for repair than did CWO I, item 19, as relied on by Coscia, demonstrates that something more significant than mere cosmetic repair is necessary to remedy the negative slope causing the water to run into the east side garage. However, that same evidence does not demonstrate why anything more than one section of driveway need be removed and replaced for $1280 per Galle item 3, rather than the whole driveway for $8000, per Galle item 4. It is therefore found that $1280 best represents the actual cost to correct the exterior driveway deficiencies. 17. Piccolo described a separate and significant problem with water leaking in the front entryway door, as referenced in CWO III, item 5: “Water coming in at front entry door,” with appropriate corrective action per Galle item 24: “Remove front entry flagstone and cement to lower for proper drainage” at a price of $1000. In additional testimony, Piccolo confirmed that this action had already been accomplished by mid February, 1998, by “Roman Industries” and the workman who had apparently originally laid the flagstone, with the corrective repair costing $1025. 18. In response to this particular entry door leakage problem, Coscia first referenced CWO I, item 1 ( “…flagstone at entry repaired”), and his own inspection (in May, 1998), to conclude that this matter was not in need of corrective action. However, given Piccolo’s assertion that the reference to “flagstone repaired” in CWO I was to correction of an overspray defect, and not to water leakage, Coscia eventually stated that because his inspection had taken place after both the overspray correction and the February, 1998, actual flagstone repair, he could not provide an opinion one way or another, except that the entryway door flagstone did not require corrective action at the time of his inspection. 19. It is found that the actual cost of this repair to the flagstone at the entryway door in the amount of $1025 is reasonable and appropriate. 20. A third significant problem described by Piccolo was the (exterior) pool bath door, as referenced in Galle item 21: “pool bath door to be replaced and painted, scratched glass, etc.” at a cost of $850. This matter was originally referenced in CWO I, item 11: “Pool bath shower: head is missing, door needs stain touch-up, exterior door has scratched glass, split threshold, and door out of plumb.” (emphasis added for clarity). 21. Coscia didn’t observe the door to be out of plumb, and opined that the door was repairable and therefore didn’t need replacement. His cost allowance to “stain and seal bath door” was $200. He considered water leakage at that door to be a weather-stripping defect in need of replacement, rather than a threshold problem. 22. This difference in extent of work and cost for corrective action to the (exterior) pool bath door is resolved in favor of the Galle estimate in the amount of $850, rather than the inspector’s estimate of $200. 23. At the conclusion of the presentation of his case, and in order to clarify his overall position, given the two complaints, the three Corrective Work Orders and the three estimates to repair, Piccolo stated that he would be satisfied with the Fund’s offer of $8850; plus the Galle estimate to repair the interior concrete garage floor and the exterior aggregate driveway (based on Findings 12 and 16 above, this would be $2650 minus the $1250 allowed by Coscia, plus $1280); plus the actual cost incurred to repair the flagstone to stop the water leaking in the front door entryway ($1025 as actually repaired by Roman Industries ($1000 as estimated per Galle item 24 prior to the actual repair) without any allowance by Coscia); plus the Galle item 21 estimate to replace the pool bath door at $850 minus the $200 allowed by Coscia, or net $650. 24. Or, as simplified by omitting the narrative, the calculation acceptable to Plaintiffs would be: $8850 + ((2650 - 1250) + 1280) + 1025 + 650 = $13,205. 25. However, the above calculation does not take into account the testimonial estimate by Coscia that the 12’ by 12’ section of concrete in the garage (encompassing the 4’ by 4’ low spot) could be removed and replaced, and that problem corrected, for $5.00 per square foot, or $720 (See Finding 13), or something less than his original written but unexplained estimate of $1250. 26. It is found that Coscia’s verbal estimate of $720 to remove and replace the garage concrete section in accord with minimum workmanship standards would reasonably and essentially accomplish the same aesthetically-pleasing result for Plaintiffs as the $2650 estimate reached in Galle item 1. This would revise the calculation as follows: $8850 + (720 + 1280) + 1025 + 650 = $12,525. 27. On the basis of the foregoing, it is therefore calculated and found that the reasonable “actual damages” to repair those particular items in dispute, over and above the Fund’s offer of $8850, should be as follows: $8850 + 720 + 1280 + 1025 + 650 = $12,525. APPLICABLE LAW A.R.S. § 32-1132 provides for the residential contractors’ recovery fund, and in pertinent part, states: A. There is established the residential contractors’ recovery fund, to be administered by the registrar, from which any person injured by an act, representation, transaction or conduct of a residential contractor, which is in violation of this chapter or the rules adopted pursuant to this chapter, may be awarded in the county where the violation occurred an amount of not more than twenty thousand dollars for damages sustained by the act, representation, transaction or conduct. An award from the fund is limited to the actual damages suffered by the claimant as a direct result of the residential contractor’s violation but shall not exceed an amount necessary to complete or repair a residential structure or appurtenance within residential property lines,….No more than the maximum individual award from the fund shall be made on any individual residence or to any injured person.

A.R.S. § 32-1131 provides the following definitions: 3. “Person injured” means any owner of residential real property which is classified as class five property under A.R.S. § 42- 162, subsection A, paragraph 5 and which is actually occupied or intended to be occupied by the owner as a residence including community property, tenants in common or joint tenants who are damaged by the failure of a residential contractor or dual licensed contractor to adequately build or improve a residential structure or appurtenance on that real property…. 4. “Residential Contractor” means a contractor as defined in § 32-1101 who is licensed to perform work on residential property pursuant to this chapter and who engages in residential contracting.

CONCLUSIONS OF LAW 1. The statutes providing for the Residential Contractor’s Recovery Fund (A.R.S. §§ 32-1131, et seq.) are clearly remedial in purpose and design, and intended to protect the public against the abuses of unscrupulous and/or incompetent contractors. As such, the law requires a liberal interpretation in favor of those so protected. 2. Under the facts and circumstances of this case, the Registrar of Contractors is empowered to order payment to Plaintiffs from the Fund pursuant to A.R.S. § 32-1154.E. 3. This record supports an award to Plaintiffs in the amount of $12,525.00, all of which shall be appropriately chargeable against Defendant and/or persons on the license as set forth in A.R.S. § 32-1139.B

RECOMMENDED ORDER In view of the foregoing, it is recommended that on the effective date of the Order in this matter, the Registrar of Contractors shall commence and finalize payment procedures from the Residential Contractor’s Recovery Fund in the amount of $12,525.00.

Done this day, November 10, 1998.

_________________________________ Anthony Halas Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 1998, to:

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

By _______________________________

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