ALJDEC

99F-0924-ROC · Registrar of Contractors · 1999-03-26

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: March 8, 1999. APPEARANCES: APPELLANT: by Sharon Thomas, as authorized representative; RESPONDENT: by Ron Wince, with representation by Lyndon Steimel, Esq.

ADMINISTRATIVE LAW JUDGE: Anthony Halas _____________________________________________________________________ This matter proceeded to hearing on March 9, 1999, for the purpose of determining whether Respondent violated state law as alleged by Complainant and as cited by the Registrar of Contractors (Registrar). Based on the evidence presented at that time, as well as administrative notice of certain records relative to the procedural history herein, the following Findings of Fact, Conclusions of Law, and Recommended Decision are made and submitted to the Director of the Registrar of Contractors:

FINDINGS OF FACT

1. Administrative notice is taken of certain documents comprising the record of the complaint herein and the response and answer made: the complaint was filed with the Registrar of Contractors on September 15, 1998, by Complainant Mesa Insulation Specialists, Inc. (Mesa) alleging that Respondent Sun Alta Construction, Inc., License No. 108414, Class B-1(Sun Alta) had failed to pay Mesa for insulation work contracted for and a materials sale made. 2. The complaint indicated that the contract was “verbal” and the date of the contract was “7-23-97”, with the date work last performed indicated as “12-30-97”. 3. The complaint itemized the amounts owed as follows: Marriott Camelback $4,363.00 Inv. #7386 & #11364 Oshmans at AZ Mills $4,698.00 Inv. #7387 Material Sale $ 185.50 Inv. #6795 ________ $9,246.50

4. Sun Alta responded to the complaint by correspondence on its letterhead dated September 23, 1998, filed with the Registrar on September 28, 1998, and authored by Ron Wince (Wince), who identified himself as the company’s president. Mr. Wince’s response explained that Merv Giles (Giles) had been Sun Alta’s general manager and “…held the contractor’s license…” during the time in question, and had then been responsible for the negotiation of contracts with the subtrades. Wince further explained that Giles’ position had since been bought out at the end of January 1998 due to his poor management, such that Giles had left the firm in dire straits financially, with far from accurate figures. 5. Wince’s response to the complaint further explained that Sun Alta had no subcontracts or any other information concerning the Mesa claims, and that although such information had been requested from Mesa, only the complaint itself had been received by Sun Alta. He stated that “if we can be provided with a contract or something concrete we are certainly willing to pay.” 6. When Mesa subsequently requested administrative hearing, the Registrar then issued Case No. 99-0924 CITATION AND COMPLAINT, alleging possible violations by Sun Alta of A.R.S. §§ 32-1154.A. 7 and .11. 7. Respondent, through counsel, timely filed its answer to the CITATION AND COMPLAINT on December 4, 1998, by denying each allegation in the complaint and stating that: there was no written contract; Sun Alta had no way to verify that the alleged services were performed or materials provided; Sun Alta’s pervious manager, Mervin Giles, was the only one who may have made any type of arrangement, but he had left in January, 1998, without leaving any record of an agreement, or documents or files concerning work or services provided by Mesa; with regard to any violation of A.R.S. § 32-1154.A.7, Sun Alta was not aware of, and therefore denied, any injury [to Mesa; because Sun Alta had no capacity to pay, due to insolvency and the cessation of business before [1998] year end, the complaint failed on the element of “capacity to pay” required under A.R.S. § 32-1154.A.11; and, Mesa had failed to respond to Sun Alta’s request for any documentation supporting the alleged obligation. 8. At hearing, Complainant Mesa Insulation appeared through Sharon Thomas (Thomas), its assistant controller and authorized representative. Thomas testified to describe her particular knowledge of circumstances and events based on her role in providing billing statements and verbal information to Sun Alta regarding the amount due for the services and materials specified in the complaint. She conceded that no written contract or contracts existed, or were ever made, for these transactions, and that her first awareness of the amounts due – and therefore her first effort at billing the amounts to Sun Alta – was consistent with the dates indicated on the various invoices, which she stated were produced and mailed to Sun Alta on the various dates indicated. She confirmed the amounts due on the two installation projects, and the single sale, to be as itemized in the complaint, and on the invoices, and that through the date of the hearing, nothing had been paid by Sun Alta. 9. Brian Kelly (Kelly), a commercial sales representative for Mesa, testified to describe, in general, the company’s work in subcontracting installation and sale of insulation materials, and the company (and industry) practice to often, but not always, enter verbal agreements, depending on the project and the contractor. He also explained Mesa’s procedures, and the documents produced as a result, during the course of any particular installation (or sale), which the company would then rely on to determine the status of the work in progress, its completion, and eventual billing to the contractor. 10. With regard to the Marriott Camelback project, where he understood Sun Alta was doing drywall and framing work, Kelly testified that Giles had called him for a bid on insulation work. Kelly stated that he and Giles reached an agreement, and that Mesa performed the insulation work as agreed, finishing in January, 1998, but that Sun Alta had not paid the amount due. 11. In support of the testimony of Thomas and Kelly regarding the Marriott Camelback project, Complainant offered Exhibit 1, consisting of multiple pages, including the October 15, 1997 hand-written notes made by Kelly during his initial conversation when called by Giles (page 3); the job information sheet then faxed to Kelly by Giles (page 1); Mesa’s “job card” documenting when, where, and what its crews did on the Marriott Camelback project from November 17 through December 30, 1997 (page 2); Mesa’s “takeoff” sheet dated November 12, 1997, containing its own cost information on materials used in the installation (page 4); Mesa’s “batch sheet” specifying materials and prices (page 5); Mesa’s “material submitted” information sent to Sun Alta (pages 6-8); and the invoices dated in December, 1997 (for the work completed to that date), and February, 1998 (sometime after completion of the project). Respondent Sun Alta objected to certain of the documents contained in Exhibit 1, in part based on its lack of opportunity to consider them prior to hearing, but the objections were overruled, and the exhibit was marked and admitted. 12. Kelly provided further testimony to explain the verbal agreement he had reached when called by Giles to have Mesa bid on insulation work for Sun Alta on the Oshmans at Arizona Mills project. This was actually the first of the two projects at issue. Kelly stated that because Mesa had previously worked for Sun Alta through a “handshake” agreement with Giles (on a Robb & Stuckey furniture store in Scottsdale), and received full payment, he was willing to verbally agree to have Mesa do insulation work when Giles called for a bid on this project. Consistent with his testimony regarding the Marriott Camelback project, Kelly stated that he had reached an agreement with Giles, and that Mesa had performed the work agreed to, but had not been paid. 13. In support of Kelly’s testimony, and that of Thomas, regarding the Oshmans project, Complainant offered Exhibit 2, consisting of documents related to that project, including a “QUOTATION - CONTRACT” Kelly stated he sent to Giles, dated July 23, 1997, (page 1); the “takeoff” (page 2); the “batch” (page 3); the “job card” indicating work performed from September 15 through October 31, 1997 (page 4); and invoices in December, 1997 (pages 5-6). Respondent objected to several of the documents, for reasons the same as and similar to its objections to Exhibit 1. The objections were overruled, and the documents were marked and admitted. 14. Kelly then testified that at Giles’ telephoned request for the sale of specific insulation materials, he had Mesa deliver “firesafing” material to Sun Alta at the Oshmans’ job site (Kelly understood the material was to be used elsewhere, but that site was much closer for Mesa’s delivery). He stated that Sun Alta had not yet paid for that materials sale. 15. Complainant offered Exhibit 3 in support of the testimony of Kelly and Thomas regarding the sale of the firesafing material: the three pages of that exhibit consist of invoice no. 6795, dated November 3, 1997 (page 1); delivery ticket 12049, dated November 3, 1997, indicating a “date shipped” of November 4, 1997 (page 2); and an undated hand-written note (page 3). 16. Ron Wince testified as the authorized representative for Respondent Sun Alta. He stated that as of January, 1998, he was a shareholder in Sun Alta, and its president, and had been for about 2 ½ years, with his duties in the field, while Giles, the other shareholder, was the company’s manager responsible for financial matters, including all negotiations with subcontractors such as Mesa Insulation. 17. He described the framing and drywall work done by Sun Alta on the Marriott Camelback project, noting that it included insulation work that Sun Alta would typically sub out, but that he was not aware of Mesa’s alleged involvement until first contacted by the company in early 1998, after which he was unable to find any documents verifying work done by or a contract with Mesa, and that despite his request, Mesa never provided any such documentation. He stated that Giles provided no information to him of any matters related to Mesa, but on the record made, it is unclear whether Giles was ever asked for such information, and it is reasonably inferred by the undersigned that the parting of the ways between Giles and Wince was perhaps much less than amicable. 18. Wince also confirmed the work done by Sun Alta on the Oshmans at Arizona Mills, which included stucco, and again conceded no knowledge of any contractual arrangement with Mesa until contacted early in 1998, but again, was unable to find, and was not provided, any documentation of such an arrangement, nor was he ever able to confirm the material sale of the firesafing insulation. 19. He testified that at about the time he became aware of Mesa’s claims, or shortly before, in December, 1997, he had become aware of significant tax liabilities ($279,000.00) asserted against Sun Alta for Giles’ failure to pay payroll taxes, as well as other financial irregularities, and that after discussing concerns with the company's accountant, he arranged to purchase Giles’ interest in the company and then attempted to determine and address the company’s finances, and keep it operational, but that by the end of 1998, the company could no longer obtain credit, and so was essentially dissolved, by an agreement that transferred Sun Alta’s assets to a new company, Grand State Construction, L.L.C., of which Wince was a principal. 20. Respondent offered three exhibits, all consistent with and corroborating Wince’s testimony. Exhibit A consists of federal and state tax lien and tax due statements (4 pages), which confirm significant tax liabilities. Exhibit B is an AGREEMENT FOR SALE AND PURCHASE OF CORPORATE STOCK (4 pages) dated February 3, 1998, between Mervin Giles as the Seller, and Ron Wince as the Buyer, which transfers Giles’ interest in Sun Alta to Wince. Exhibit C is the MINUTES of the THIRD MEETING OF THE BOARD OF DIRECTORS AND STOCKHOLDERS of SUN ALTA CONSTRUCTION, INC., dated February 10, 1999, which document a meeting on December 31, 1998, at which time authorization and approval of “…the sale of substantially [sic] of Sun Alta’s assets to Grand State Construction, L.L.C.” was resolved. 21. Reference to the public records maintained in the Registrar of Contractors’ computerized database confirms, and adds to, the substance of Wince’s testimony about his involvement in the two entities doing business as licensed contractors: License No. 108414 Class B-01, General Commercial Contractor, was issued to Sun Alta Construction Inc., 2153 E. Cedar Street, Tempe AZ, on July 26, 1995, with Mervin Giles as qualifying party, and he and Ron Wince as principals in the company. Giles resigned on February 6, 1998, and by operation of law, the license was then suspended 60 days later, from April 6, 1998, through May 6, 1998, when Cory E. Wince became qualifying party. The license then was canceled on February 1, 1999. License No. 142279 Class B-01, General Commercial Contractor, was issued to Grand State Construction L.L.C., 2153 E. Cedar Street, Tempe, AZ, on February 1, 1999, with Cory E. Wince as qualifying party, and Ronald E. Wince as principle and manager. That license remains in good standing through March 24, 1999.

22. Notwithstanding that Respondent Sun Alta’s license was canceled on February 1, 1999, the Registrar retains jurisdiction over this matter, to determine whether disciplinary penalties are appropriate. 23. The undersigned finds the testimony of all three witnesses, Thomas, Kelly, and Wince, to be credible, with Wince essentially conceding that Giles’ financial mismanagement., of which he was ignorant, at least until after the fact of the matters at hand, left him unaware and unable to verify those matters. 24. However, based on the testimony of Thomas and Kelly, as corroborated by Exhibits 1 - 3, and not significantly contravened by Wince’s testimony and Respondent’s exhibits, the undersigned further finds that greater than a preponderance of the evidence of record supports the determination that Complainant Mesa Insulation Specialists, through its representative Kelly, and Respondent Sun Alta Construction, through it representative Giles, entered into valid and enforceable verbal contracts for Complainant to provide Respondent insulation installation services on the Marriott Camelback and Oshmans at Arizona Mills projects, and to provide a materials sale of firesafing insulation, all as alleged. 25. Additionally, it is found that Complainant satisfactorily performed in each instance, but that Respondent has failed to pay Complainant in the sum total of $9,246.50, again as alleged and itemized in the complaint.

APPLICABLE LAW A.R.S. § 32-1154.A provides, in pertinent part, as follows:

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. . . . . .

11. Failure by a licensee or agent or official of a licensee to pay monies in excess of seven hundred fifty dollars when due for materials or services rendered in connection with the licensee's operations as a contractor when the licensee has the capacity to pay or, if the licensee lacks the capacity to pay, when the licensee has received sufficient monies as payment for the particular construction work project or operation for which the services or materials were rendered or purchased.

CONCLUSIONS OF LAW

1. To warrant action by the Registrar pursuant to the statutes above, Complainant must demonstrate by a preponderance of the evidence that Respondent violated either one, or both, of the statutory sections cited. Culpepper v. State of Arizona, 187 Ariz. 431, 437-38, 930 P.2d 508 (Ariz. App. 1996). A “preponderance of the evidence” means that the evidence is sufficient to persuade the finder of fact that the proposition is “more likely true than not.” In re Arnold and Baker Farms, 177 B.R. 648, 654 (9th Cir. BAP (Ariz.) 1994). 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 (rev. 6th ed. 1990). 2. Complainant fails to demonstrate any fraudulent conduct on the part of Respondent. 3. However, with respect to Respondent’s alleged wrongful conduct and failure to pay, Complainant has sustained its burden of demonstrating violations of A.R.S. §§ 32-1154.A.7 and .11. 4. It is further found and concluded that Respondent’s wrongful act in failing to pay the several amounts owed resulted in substantial injury to Complainant, for its loss of the time value of those monies. This is so, notwithstanding Mr. Wince’s otherwise reasonable desire to be provided documentation of the three matters, since it is concluded herein that the actions of Giles - or his failure to act in a responsible manner - on behalf of Sun Alta, left that company’s records insufficient to confirm the work done or sale made, by Mesa for and to Sun Alta. 5. In its answer to the CITATION AND COMPLAINT, Respondent asserted a lack of capacity to pay as a defense to the violation now found of A.R.S. § 32-154.A.11. However, pursuant to the language of that statutory subsection, that defense becomes moot if and “…when the licensee has received sufficient monies as payment for the particular construction work project or operation for which the services or materials were rendered or purchased.” In this case, while there is little doubt that Sun Alta may lack the ready capacity to pay at present, there has been no showing by Sun Alta that it was not paid for the particular projects for which it contracted Mesa’s services and materials, so it is concluded that its present lack of capacity to pay is not a defense to the violation proven.

RECOMMENDED DECISION

On the basis of the foregoing, IT IS RECOMMENDED that should the Registrar receive proof that Respondent Sun Alta Construction Inc., has paid the total sum owed of $9,246.50 to Complainant Mesa Insulation Specialists Inc., on or before the effective date (thirty-five days after issuance) of the Registrar’s Order in this matter, then canceled License No. 108414, Class B-01 shall be terminated in good standing. In the alternative, IT IS FURTHER RECOMMENDED that should the Registrar not receive such proof by the effective date of the Order, then canceled License No. 108414, Class B-01 shall be revoked. Done this day, March 26, 1999.

______________________________________ Anthony Halas Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 1999, to:

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

ATTN: Joyce Armijo

By ___________________________

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Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826