ALJDEC

99F-1266-ROC · Registrar of Contractors · 1999-07-26

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 13 and June 7, 1999. APPEARANCES: COMPLAINANTS: Bruce and Vickie Kroll, represented by Eric Mark, Esq. RESPONDENT: by Ben Wright, president, with representation by Chris Baniszewski, Esq.

ADMINISTRATIVE LAW JUDGE: Anthony Halas _____________________________________________________________________ This matter proceeded to hearing on April 13 and June 7, 1999, to determine whether Respondent violated state law as alleged by Complainant and as cited by the Registrar of Contractors (Registrar). Based on the testimony and evidence of record, and administrative notice of certain events and documents relative to the procedural history of the case, the following Findings of Fact, Conclusions of Law, and Recommended Decision are made and submitted to the Registrar of Contractors:

FINDINGS OF FACT 1. Respondent Crestmark Construction Co., Inc. (Crestmark) is a corporation and holder of contractor’s license no. 118917, Class B. Ben Wright (Wright) is president of the corporation, and qualifying party on the license. 2. On August 29, 1997, Complainants Bruce and Vickie Kroll (the Krolls) contracted with Crestmark to have a new home constructed at 1550 East Villa Maria, in Phoenix, Arizona (See Complainants’ Exhibit 4, duplicated as Respondent’s Exhibit I). 3. Among other terms, the contract called for completion of the home within 180 days from the date the permit was drawn, or by April 20, 1998. 4. On October 19, 1998, the Krolls filed a complaint with the Registrar of Contractors, alleging that Respondent had failed to complete the contract period of 6 months, and that work continued at an unsatisfactory pace; of the original contract price of $248,972.00, all but the fifth and final draw of $29,884.73 had been paid. 5. The complaint was assigned to the Registrar’s inspector Phil Coscia (Coscia) who conducted a jobsite inspection of the residence under construction on November 16, 1998, in the presence of the Krolls and Wright, as well as the cabinet subcontractor, Dave Fernandez. 6. Based on his findings, inspector Coscia issued a Corrective Work Order (CWO) on December 2, 1998, which stated that: Investigation of complaint finds Crestmark Construction Inc., has exceeded the terms of the written contract that calls for completion of the work within 180 days. Contractor is to complete work for new home in accordance with contractual plans and specifications. All workmanship on construction of the home shall meet industry standards.

Per jobsite agreement, Crestmark is to determine cause and take appropriate action to correct all roof leaks. Contractor shall make necessary repairs to correct all resultant water damage and touch-up or repaint affected areas as needed.

Contractor shall complete the remainder of work to kitchen cabinets ensuring work meets industry standards.

No violation of industry workmanship standards were found by this inspector on the following cabinet issues: a. Color of maple cabinets in kitchen—Pursuant to State of Arizona Minimum Workmanship Standards, “Color can differ with wood grain variations and stain lots”. b. Wood grain for drawers running horizontal rather than vertical. c. Visible MDF on routed finger pulls for doors and drawers. It appeared to this inspector that Mr. Kroll consulted with cabinet contractor and approved of this method.

7. When the matter was not resolved administratively, the Registrar then issued CITATION AND COMPLAINT in Case No. 99-1266 on January 8, 1999, charging Respondent with possible violations of A.R.S. §§ 32-1154.A.1, .3 (A.A.C. R4-9-108), .7, and .23. 8. Respondent timely filed its written answer to the CITATION AND COMPLAINT. 9. Subsequently, the Krolls filed correspondence with the Registrar on February 16, 1999, requesting amendments to the complaint, alleging additional defects in framing, drywall, painting, millwork, countertops, stucco, and doors and windows, and raising additional issues relative to insurance claims, errors in the original bid, and payment made for undelivered materials. 10. On February 25, 1999, the undersigned issued ORDER AMENDING COMPLAINT. 11. At hearing, Complainants both appeared and testified, and offered Exhibits 1 through 43, as well as a number of photographs of cabinetry and drywall. Respondent’s objections to Exhibits 1, 2, and 3 were sustained, with Complainants’ counsel providing offers of proof. The remainder of the exhibits and photographs were admitted, and given due consideration by the undersigned. 12. Respondent appeared, through counsel, and presented the testimony of Mr. Wright, its president and qualifying party, as well as Dave Fernandez, the cabinet maker, and David Terry Bruson, the drywaller. 13. Through counsel, Respondent submitted a Hearing Memorandum containing Exhibits A through J, admitted without objection, with Exhibits K through Z individually offered. Complainants’ objection to Exhibit P was overruled, and all the Exhibits were marked, admitted, and duly considered. 14. The substance of the Krolls’ complaint, as amended, and based upon additional correspondence made a matter of record (See, Exhibits 43, 27, and 30) was that Crestmark failed to complete its contract in a timely manner, with such failure not waived by the Krolls since time was of the essence. The Krolls’ allege that the ongoing delay was the result of Crestmark having underbid the project, with errors made in the cost to build, such that Crestmark got “upside down” financially, despite monies advanced to the contractor for materials Crestmark had not paid for or provided. The Krolls assert that of the work actually begun and/or completed, particular items and aspects were of poor quality and not to workmanship standards, with their knowledge of such deficiencies, to a certain extent, gained only after Crestmark had abandoned the project in December, 1998, necessitating arrangements by the Krolls for others to complete and repair the residence, and for them to amend the complaint. The Krolls contend that any termination of the contract by Crestmark for want of signed and paid-for change orders was contrived in response to their complaint with the Registrar, and only subsequent to material breach by Crestmark. 15. The basis of Crestmark’s position is that any failure to complete the project within the 180 day contract term was not the result of its conceded underbidding, and in any event, not a violation of the Registrar’s law and rules. Even if it were, Crestmark contends that any undue delay must be excused due to the Krolls’ failure, particularly given Mr. Kroll’s expertise as an architect, to provide necessary specifications, approval and payment of change orders, and/or money owed to Crestmark in a timely manner, such that Crestmark’s termination of the contract in December, 1998 was with cause for the Krolls’ breach, and therefore not abandonment. Crestmark asserts that even after, and notwithstanding, termination of the contract, it remained committed to providing warranty work for any defects or deficiencies, and to taking the corrective action deemed necessary by the Registrar’s inspector, but that the Krolls’ actions, or inaction, in failing to provide the necessary cooperation, effectively precluded Crestmark from further repair or completion. 16. Consistent with their amendments to the original complaint, the Krolls testified and submitted documents to address the following workmanship concerns: A. FRAMING: Interior walls: Excessive warping of interior wall surfaces, soffitts, and studs, resulting from the time elapsed between the framing and the drywalling. To correct the most severe areas, the drywall/sheet rock had to be removed to plumb the walls, level the soffitts, and furr the studs. Stair treads: Due to the size of the gap between the tread and the wall, seven of the stair treads had to be replaced, and the first five risers had to be altered because no allowance was made for the thickness of the stone flooring at the base of the stairs. B. DRYWALL: Due to water damage from roof leaks, repair was necessary in the living room, family room, master bedroom, master bath, and garage. Due to damage around almost all outlet and switch locations, repair was necessary to each so damaged. Due to poor quality sanding and taping, repair was required to skim, float, and sand walls in every room. C. PAINTING: Exterior: The exposed foundation of the perimeter of the house, originally inaccessible to the painter because the grading was not timely done, required repainting; many small sections of stucco required repainting as a result of roofers attempting to find leaks; the garage door edges and seams were not properly painted. Interior: Due to the extensive drywall repair, the entire interior needed to be repainted. D. MILLWORK: Kitchen cabinets: After lengthy delays in completion of the kitchen cabinetry, and questions regarding the cabinet-maker’s experience and qualifications, the Krolls told him twice to stop work: first, before and subject to the Registrar’s inspection; second, after that inspection. They itemized a number of cabinetry problems: veneer bubbling and delaminating; flatspotting of the curve of the radius-base section; improper use of MDF where subject to moisture; broken doors and hinges; too- large electric outlet access holes in the back of the cabinets; exposed shims between many of the soffitts and upper cabinets; and most importantly to them, failure to allow sufficient clearance for the specified stone flooring to allow for installation of the various appliances such as the dishwasher and refrigerator in the space available within the cabinetry or under the countertops. The Krolls contend that the extent of those problems makes replacement of the cabinetry, rather than repair, most cost-effective. E. COUNTERTOPS: The premature installation of the granite countertops before completion of the base cabinets, and the temporary bracing necessary, had resulted in seam separation. Then, because the base cabinets did not account for the thickness of the stone flooring, all the granite tops required removal and resetting to achieve the proper height. F. STUCCO: Because most base edges around the perimeter of the house had been inaccessible due to lack of grading when the exterior had originally been stuccoed, those areas required repair. Additionally, there were numerous holes in the parapet walls in need of repair as a result of the efforts by the roofers to determine the source of leaks. G. DOORS AND WINDOWS: Two north side windows and the interior garage door, damaged in a break-in while Crestmark remained on site, required repair or replacement. All first floor doors required re-cutting to fit the clearance required, but not previously allowed for, by the stone flooring. 17. Beyond those workmanship items, the Krolls alleged Crestmark was responsible or liable for additional costs they had incurred to replace theft of approximately $8000.00 worth of kitchen appliances, ceiling fans, and a hot tub while Crestmark remained the contractor. 18. The Krolls further alleged that Crestmark’s underbidding had resulted in an additional approximate cost of $12,000.00 over contract plans and specifications to complete the interior and exterior railings with spiral staircase; and an additional cost of $4020.00 over contract to complete the stone flooring. 19. Finally, the Krolls alleged that Crestmark had taken a draw for $10,500.00 to be used as a deposit on the stone flooring, but that the deposit was never made, nor flooring ever purchased or delivered. 20. In contrast, Crestmark contended that its willingness and ability to complete or repair a number of workmanship items, both before and after the CWO was issued, was precluded by the Krolls’ interference and lack of cooperation: A. CABINETS: An impasse was reached, according to Crestmark and consistent with the testimony of Fernandez, the cabinet builder, because the Krolls stopped his work prior to the Registrar’s inspection, and again subsequent to the CWO, although he was qualified by experience, and ready and willing to complete the cabinetry. Fernandez conceded certain defects and aesthetic concerns, such as veneer bubbling, oversize access holes in the rear of the cabinets, and the radius-base, but related them to the work being in progress with such problems due to be corrected or addressed in due course, which he was prevented by the Krolls from accomplishing. B. STAIR RAILINGS: Because Kroll did not provide Crestmark with the necessary detailed drawings until November 2, 1998, Crestmark was unable to find a subcontractor to submit a proposal until December 7, 1998, and since the Krolls never signed the proposed subcontract prior to filing the complaint later that month, work could not begin. C. TILE: Because the cabinetry work was stopped by the Krolls and work not yet begun on the stair handrailings due to Kroll’s failure to provide details, the tile [stone] flooring could not be set, and a further impasse had been reached because the parties could not agree on a signed and paid for change order, as required by the contract, to increase the square feet required on the flooring, which Crestmark understood to be an allowance item, with additional costs therefore the Krolls’ responsibility.

D. PLUMBING FIXTURES: Because the Krolls exceeded their allowance on plumbing fixtures but would not sign a change order and pay the increased cost, the supplier would not deliver the fixtures, thereby impeding Crestmark’s ability to complete construction. E. GRADING SIDE BACKYARD WALL AND PUNCH LIST ITEMS: Because Kroll did not provide Crestmark with the footings specifications for the side backyard wall, the final grading could not be accomplished prior to exterior painting and stuccoing, even though Crestmark had a subcontractor prepared to do the grading in December, 1998. So, to the extent that additional painting, stuccoing, and drywall repair could be accomplished only after grading and completion of the house, Crestmark asserted it had notified the Krolls of the company’s willingness to do so as a punch list item, or under warranty (even after termination of the contract). 21. Inspector Coscia testified to describe his findings and conclusions as a result of his jobsite inspection on November 16, 1998, noting that the residence remained under construction such that some determinations regarding workmanship issues would likely be premature since a number of items such as drywall repair and final painting would be expected to be addressed upon completion as “punchlist” items; and other items had not yet been done, such as the flooring to be laid over the bare concrete apparent at his inspection. 22. Coscia explained that failure to meet the “15 day” deadline provided in the CWO he issued on December 2, 1998, might constitute a technical violation, but that the deadline would be subject to extension upon reasonable progress continuing toward completion of construction. His recollection was that at the time of inspection (his only direct observation of the jobsite), the parties’ consensus was that about 4 weeks would suffice to complete. 23. Coscia confirmed that progress toward completion would require continued reasonable effort by the contractor, and continued reasonable access by the homeowner. 24. With regard to the workmanship of the kitchen cabinetry, Coscia’s testimony was consistent with the terms of his Corrective Work Order: he explained that additional work remained to be done, but that particular aspects of the Krolls’ complaint - first raised at the time of the inspection, and not in the original complaint - were subjective in nature and not subject to specific workmanship standards. Other items, not apparent at the time of his inspection, but presented in hypothetical questioning, such as bubbled veneer or pulled-out hinges (or leaks in the roof), would reasonably require access for appropriate corrective action . 25. Bruce Kroll provided additional testimony to explain he was an architect and had drawn the plans for the custom home in question, although his area of practice was in designing commercial office interiors, rather than residences, such that he was familiar with building materials, procedures, and costs in a general sense, but not with the specifics of new home construction. 26. Kroll stated that Wright, for Crestmark, provided the basic contract form, and that over the course of several weeks, he (and his wife) and Wright drew up the plans and specifications for the home, and negotiated the contract terms, one of which was that time was of the essence, for a number of reasons, both financial (cost of the mortgage loan) and practical (he and his wife and their infant child were living in a one-bedroom apartment). The home was therefore to be completed within 180 days from the date the permit was drawn. (See Exhibits 4 and 5). 27. Kroll explained his understanding of the distinction between “allowance” items (if actual cost was over estimated cost, the difference would be the homeowner’s responsibility) and those which were “fixed fee” items (such difference would be assumed by the contractor), and why that distinction had resulted in confusion and delay in determining cost and responsibility for particular items such as the actual square footage of stone flooring necessary as the “installed amount.” (See Exhibits 5 and 26). 28. Kroll stated that initially construction progress proceeded well but in March 1998, Wright expressed financial difficulties regarding framing labor and material costs, and sought modifications of the contract, but the Krolls determined Crestmark should be responsible. 29. Kroll described the dates and amounts of draws provided to Wright and Crestmark, and in particular the draw taken in September 1998, which included $10,500.00 for the tile/stone flooring, but which Kroll believed had never been ordered or paid for, and which he knew had never been delivered or installed by Crestmark. (See Exhibits 7-10). He confirmed that the final draw of $29,884.73 remained unpaid at the time and since Crestmark’s termination of the contract. 30. Kroll described concerns over time, between May 1998, and the November 1998 Registrar’s inspection, with the failure of Dave Fernandez to progress to the Kroll’s satisfaction on the quality and pace of the cabinetry installation, stating these concerns were addressed to Wright, whose promised completion date was not met (Exhibits 20-22). 31. Kroll denied telling Fernandez to stop work prior to the jobsite inspection, but only asking him to hold off in the week or so before the inspection in order to have the inspector’s recommendations before completing the cabinets. 32. Kroll stated that even after the inspection, he did not tell Fernandez to stop, but when he called Fernandez two or three weeks later to ask why he wasn’t working, Fernandez told him Wright had said to slow down; then, only after Crestmark stopped any further work but Fernandez offered to continue, did Kroll decline his offer. 33. Kroll referenced a number of photographs submitted to explain why he considered the cabinetry did not meet workmanship standards, and his particular concerns that the appliances did not fit because Fernandez had not taken into consideration the thickness of the stone flooring to be later installed. 34. Kroll also referenced a number of photographs to demonstrate and support his allegations of poor drywall workmanship throughout the house, and water damage, increasing after each rain, despite the roofer’s efforts to find and repair leaks. 35. With regard to the stair railings, Kroll explained why the original square railing design was not feasible due to production difficulties and expense, such that he re-designed, with the stair subcontractor, round railings, for which he was willing to sign a change order, but for which he thought the increased cost was to be Crestmark’s, as a fixed fee item. 36. Kroll stated that the dispute over the plumbing fixtures, which were an allowance item, was not a reason for Crestmark to terminate the contract, but arose when the fixtures turned out to cost substantially less than expected, and they were willing to pay, but only if the fixtures were delivered directly to the residence, which was eventually arranged directly with the plumbing subcontractor after Crestmark was gone. Kroll stated the direct delivery was based on the cost overruns to that point and his growing distrust of Wright’s ability to complete the contract at price. 37. Kroll stated a break-in and burglary had occurred, for which the contract required Crestmark to provide theft insurance, but that to date, Kroll had been given no information that any claim for insurance reimbursement had been made, nor had any reimbursement been provided to the Krolls’ for the stolen hot tub, microwave, cooktop/oven, and 5 ceiling fans (separately purchased by the Krolls). 38. Kroll referenced the Construction Cost Statement he had produced (Exhibit 11), in conjunction with Exhibits 33 and 6, to explain his calculations that he and his wife were out-of-pocket approximately $89,000.00 over and above the contract amount, even considering the last unpaid draw of greater than $29,000.00. He explained that this significant financial overextension was of great concern, but that despite his documented efforts to resolve the cost overruns, he was unable to get Wright to agree to credit that last draw to costs already incurred. 39. Kroll conceded that the complaint initially alleged only a failure to timely complete the project, and that even as amended, did not allege roof leaks, which he agreed should be covered under Crestmark’s warranty, but which he was forced to have repaired directly by the roofing subcontractor to prevent further damage once Crestmark ceased work. 40. With regard to the issue of the exterior footing specifications requested by Crestmark, Kroll thought he had provided those, but in any event did not think much was required for what was only a landscape detail, to be addressed only after the grading, done eventually but only after Crestmark was gone from the site. (See Exhibit 28). 41. With regard to additional costs for elastomeric paint (approx. $3000.00) and granite counter tops (upgraded from cultured marble, with increased square footage, for $3031.50), Kroll conceded these amounts had not been paid, but asserted that he had never been provided the required change order. 42. Kroll conceded he had not complained of warped framing initially or at the time of the Registrar’s inspection, even though he had done a walk-through with Wright after the framing had been completed. He explained that the framing had been satisfactorily done, but that the framing warped over time and exposure to the elements while the remainder of the walls remained unfinished and the roof leaked. 43. Kroll conceded that he never had been pleased with the appearance of the cabinetry in question, but that was not the basis for his interest in replacing it; given the extent of defects, two new cabinet contractors had recommended replacement as less expensive than repair. 44. Kroll explained that the first change order request made by Crestmark, one of several eventually used as a reason to terminate the contract, had been made only after the Registrar’s Corrective Work Order had been issued, but that even despite what he considered to be questionable timing, he would have been willing to sign them if they had been specific in form and content. 45. In his testimony, David Fernandez described, in general, his experience in residential cabinetry construction, and then more specifically his installation of the Krolls’ cabinets. 46. Fernandez noted they had wanted upgrades, but since the upgrades were not part of the contract, they were not done, although several changes were made: to enlarge the kitchen island; to enlarge the sink radius; and to reduce the master bath center drawer. 47. Fernandez described his recollection of how and why the Krolls told him to stop work prior to the jobsite inspection: because they wanted him to upgrade his techniques, it was agreed to let the Registrar’s inspector determine what was acceptable. Fernandez confirmed that at that point in time, additional work remained necessary to complete the radius base (by removing and replacing), for door and drawer alignment, trim work, and a few veneer defects, all of which he stated he intended to and was capable of completing. 48. Fernandez stated that he returned to complete the job, but was unable to finish because he was told by the Krolls not to come back. He concluded they did not think his work was up to their standard, and that they wanted more than they had paid for. He also denied that anyone had ever told him to slow down his work. 49. Fernandez, upon consideration of the various cabinetry workmanship concerns expressed by the Krolls, acknowledged that some might indicate workmanship problems (hinges pulled out, veneer delaminating), while others meant the installation simply hadn’t been completed (shims in place until final adjustment), and others were within industry standard (use of MDF). 50. Fernandez concluded that all deficiencies and completion items could be addressed with good result by repair, as necessary, without replacing the entire installation (although the dishwasher model might have to be changed to fit the opening left by the higher-than-standard flooring height). 51. Relative to his understanding of the thickness of the flooring to be installed, Fernandez explained that he thought the floor height was to be standard, and he calculated the cabinetry dimensions on that basis. When initially testifying, he could not recall who had provided that information. In subsequent testimony, after reviewing his notes, he stated that he had relied on information about the upstairs bathroom flooring height in relation to the cabinetry there, and explanations from both Wright and the Krolls that the kitchen flooring downstairs would be the same. 52. David Terry Bruson (Bruson) testified to describe, in general, his experience in drywall installation, texturing and painting, and then more specifically, his drywall work as Crestmark’s subcontractor on the Krolls’ residence. 53. Bruson explained the subcontract called for a “smooth wall” finish, which was an unusual finish significantly more labor and material intensive than any of the more common textured finishes. For that reason it was generally his company policy not to do smooth wall finishes, but as a favor to help Crestmark, he made an on-site bid on the project, thinking it unlikely it would be accepted. 54. When the bid was accepted, Bruson stated that he put in the many hours necessary to do a good and workmanlike job. 55. During the course of his work, Bruson had occasion to consider the quality of the wood framing to which he was drywalling, and it was his conclusion that the framing was much better than normal. 56. Bruson understood that the Krolls were happy with his work upon completion, after some minor adjustments high on the wall above the fireplace. 57. Vickie Kroll testified to confirm her authorship of certain letters (Exhibits 35-38), she had written in the summer and fall of 1998 to give notice to their landlord, delayed several times, of the date they intended to vacate their apartment, and a storage facility, based on representations made by Wright for Crestmark regarding anticipated completion dates never met. 58. Mrs. Kroll described the additional expenses necessary to attempt to finish construction, and their efforts to find insurance and contractors once Crestmark left the job. 59. Ben Wright testified to describe his education, and 10 years experience in the construction trades, and his three years as president and CEO of Crestmark, a company he had formed to build custom homes. 60. Wright explained the circumstances leading to the contract to build the Krolls’ residence, which was to be a single family dwelling of 3200 square feet, with a two car garage. Originally, he and Mr. Kroll met with another architect, although Kroll himself eventually became the architect for the project. 61. The design for the residence, per Wright, was based on several meetings with the Krolls resulting in “scope of work” plans: the original bid he made was for $280,000.00, but with further negotiations and fine-tuning, he was able to reduce the bid to fit within the Krolls’ budget. 62. Wright referenced Exhibit 5 to explain that the items for which an exact cost couldn’t be known, or which were matters of taste, were calculated as an allowance item, such that actual cost over the allowance would be the Krolls’ responsibility; other items would be fixed cost, and if actual cost exceeded the contract amount, Crestmark would be responsible, unless a change order was made. 63. Wright conceded that he had underbid the project because the estimator he had relied on had simply used square feet in his calculations, instead of using actual subcontractor proposals. 64. Wright stated that when he realized he had underbid, and stood to lose $50,000.00, he met with the Krolls and offered them two options: to terminate the contract, file a complaint, and hire another contractor; or to continue the project but to allow Crestmark to proceed as it gained the money necessary to continue (since it was already in the hole on another project). 65. Their decision was to continue, according to Wright, who conceded the choice was never written down. He stated he had his company do everything in his power to finish, but because of the financial shortfall, the job couldn’t be completed within the 6 month contract term. 66. Wright described a number of other factors which he contended had significantly added to the delay: • Changing to a granite retaining wall added 3 weeks while arranging for a subcontractor; • A change in framing subcontractors caused a 2 – 3 week delay; • A 2 – 4 week delay for a change in window plans (preventing completion of the interior); • Additional delay addressing exposed pipes in the garage; • Changing to Sub-Zero kitchen appliances; • Adding 2 and changing the location of 6 lights, with additional sheetrocking necessary; • Undoing “pop-outs” caused a week’s delay; • 3 weeks to finalize the elastomeric and exterior paint; • Several weeks to implement a number of changes in the cabinetry, with Wright eventually telling Dave Fernandez to deal directly with Kroll. 67. Wright estimated that the various delays out of his control added an unforeseen 20 to 22 weeks to the project, with Crestmark’s actions adding perhaps an additional 4 to 8 weeks, all before the Registrar’s inspection. 68. Wright stated that he understood the Registrar’s CWO provided the 15 day deadline to ensure reasonable progress was being made to completion, not that the home be completed in that time; that the roof leaks needed to be fixed; and that the cabinets needed to be finished, but otherwise met workmanship standards. 69. With regard to the roof leaks, Wright explained that he had the roofers on-site within a week after the inspection, that they returned two or three times, and that he thought the problem had been corrected. 70. Wright stated that the original specifications for the stair railings had been sufficient to bid on (as a fixed cost item as he later realized), but not to build on, and that he got the additional specs just one week before the jobsite inspection, and after the stair subcontractor discussed them with the Krolls, they realized the railings would be too expensive as designed, so adjustments were made and a change order signed, but the subcontractor did not return a proposal until late November or early December, 1998. (See Exhibits 22-24). 71. All in all, Wright felt Crestmark was in a dilemma about the stair railings, since by the time the Krolls responded on December 7, 1998, his sub was advising that the railings would take 6 to 8 weeks to complete, while the Krolls were demanding completion of the entire house within a month or have the contract terminated. 72. In addition, Wright said the sub required that no flooring be laid or drywall work be done while the stairs were installed. 73. Using the change from cultured marble to tile (stone) in the flooring of the upstairs bathroom as an example, Wright explained why it was only well into the contract that he had begun demanding signed and paid- for change orders: early on, the Krolls paid as due; later, Crestmark could not afford to float the amount of money needed, so it chose to enforce the contract term on change orders. 74. Wright stated that because the tile flooring square footage figure of 1292 was an allowance figure calculated by Kroll, it was simply plugged into the overall equation, since the ultimate amount (and cost) necessary was of no particular concern to Crestmark. (See Exhibit Q). 75. Wright had 4 flooring subcontractors bid, but all were for over $12,000.00, so he submitted a change order which Kroll refused to sign. 76. For the plumbing fixtures in dispute, Wright stated that these were an allowance item of $3500.00, and that the plumbing subcontractor delivered some, but refused to deliver more without the money due, which Kroll agreed to pay, but never did, contrary to Wright’s understanding of the contract. 77. With regard to the south-side retaining wall, Wright stated he told Kroll that an engineering consultation was necessary to determine a proper footing, since Kroll’s suggestion to extend by two feet was unacceptable, in that neither subcontractor considering bidding on the work was willing to assume the liability for extending the wall into the neighbor’s property, nor was Crestmark. 78. So, as a result of Kroll’s failure to sign, and pay already- signed, change orders, Wright had Crestmark’s attorney send a letter on December 21, 1998 (Exhibit 5), specifying why the contract was to be terminated. He conceded that the first such change order that Crestmark required Kroll’s signature on was dated December 10, 1998, since prior to that time Kroll had been paying on invoices; only when such payments weren’t being made did Wright decide to enforce the contract term. 79. Wright stated that the concerns raised by the Krolls’ in their letter dated February 15 (and filed February 16), 1998, amending the original complaint, had not been previously raised, and to the extent further work was needed, it would be addressed as punch-list or warranty work, which his company was willing to do even after terminating the contract. Wright addressed each item as amended, and whether he believed further work was necessary. 80. Wright demonstrated a piece of “Torian” stone tile to explain its thickness, which he estimated at ½”, and explained that thickness was what the job was bid on, and that Crestmark had then reserved that stone with the distributor (Exhibit U), based on the $10,500.00 advanced by the Krolls. 81. With regard to the loss due to the break-in and theft, Wright asserted that everything listed on the police report (which did not include broken windows, about which he had never been told), was covered by Crestmark’s insurance, and that he had received payment in the amount of $6704.89 (Exhibit T), although that did not yet cover the appliances or ceiling fans. 82. Wright calculated the total of those two amounts to be $17,204.89, or less than the $17,637.74 he had paid for particular materials/work provided by his countertop, painting, door, and plumbing suppliers/subcontractors (Exhibits V, W, X, and Y), stating that he had paid additional amounts totaling approximately $2000.00 to other subcontractors, with other subs to be paid for work completed when the final draw was released. He asserted his first priority was to his subs, rather than to apply those monies as a credit to the Krolls. 83. Wright stated that although Kroll stressed that his contract was with Crestmark, Kroll went ahead and dealt directly with Fernandez, the cabinetry sub, and with the masonry sub, when it was to his advantage. 84. In rebuttal, Kroll stated that early on in his discussions with Wright he had specifically requested that all credits be used as they occurred, rather than held for a final accounting. He referenced Exhibit Z to explain, as an example, how the elastomeric paint was to be credited, and his uncertainty about why he no longer was to receive a $3000.00 credit for “miscellaneous metals”, since he had never been provided any documentation that such an item was to be considered part of the cost of framing. 85. The undersigned observes, on the record as a whole, and given a certain amount of hindsight, what nevertheless must be seen as a particularly uneasy and frustrating contractual relationship: an experienced architect, but not in residential building and design, contracting with an individual with significant experience in the construction trades, but with limited experience in the business of contracting, and with the project significantly underbid from the very beginning. 86. The end result presents the sense of a sibling feud in which it eventually becomes impossible to determine who originally started which aspect of the argument. 87. In any event, in this matter to consider the Registrar’s disciplinary authority, it is found by the undersigned that Respondent Crestmark’s actions constituted abandonment of the contract, and although the abandonment was couched in language purported to terminate that contract, Crestmark’s actions were nevertheless without sufficient legal excuse, given the dealings of the parties to that point, to justify such abandonment. 88. It is further found that by so abandoning the contract, Crestmark’s actions caused the Krolls to reasonably seek assistance from other contractors for the necessary completion and repair of their residence, such that Crestmark essentially distanced itself from any ability to substantially comply with the corrective action directed by the Registrar, or to question the extent of additional complaint items, as amended. 89. The undersigned also finds that the abandonment of the contract resulted in substantial injury to Complainants, and that the abandonment was therefore wrongful. 90. Reference by the undersigned to the public record maintained on the Registrar’s computerized database indicates this matter to be the only unresolved complaint or other adverse matter on record against Respondent Crestmark.

APPLICABLE LAW

Arizona Revised Statutes (“A.R.S.”) §32-1154.A provides, in relevant part, that a holder of a license or a person listed on a license shall not commit the following:

1. Abandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal. …

3. Violation of any rule adopted by the Registrar. …

7. The doing of a wrongful or fraudulent act by the licensee as a contractor resulting in another person being substantially injured. …

23. Failure to take corrective action to comply with this chapter or with rules adopted pursuant to this chapter without valid justification within a reasonable period of time after receiving written directive from the Registrar.

The Citation and Complaint names A.A.C. R4-9-108 as the rule charged pursuant to A.R.S. § 32-1154.A.3. That rule provides that all work shall be done in a professional and workmanlike manner, and in accordance with any applicable building codes and professional industry standards.

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 any one 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. Complainants have sustained their burden, by a preponderance, of demonstrating Respondent’s abandonment, without sufficient legal excuse, of the contract to build their residence. 3. With respect to Respondent’s alleged wrongful conduct, Complainants have sustained their burden of demonstrating their substantial injury from the contractor’s abandonment of the project, which is therefore deemed to be wrongful. 4. Complainants fail to demonstrate any fraudulent conduct on the part of Respondent. 5. It is further concluded that Respondent failed to take sufficient corrective action within a reasonable period of time to comply with the Registrar’s directive, and that such failure was without valid justification, given that the abandonment of the contract was not excused while at the same time that abandonment effectively precluded any reasonable means by which Respondent could address either workmanship defects or completion of the project, notwithstanding the contractor’s express but illusory offer to perform additional work under warranty. 6. “A workmanlike manner means doing the work in an ordinary skilled manner as a skilled workman should do it.” J.W. Hancock Enterprises, Inc. v. Registrar of Contractors, 126 Ariz. 511, 514, 617 P.2d 19 (1980) (quoting Brown v. Eakins, 220 Or. 122, 348 P.2d 1116, 1117 (1960)). Complainant has demonstrated by a preponderance of the evidence Respondent’s failure to complete all aspects of the residence in a workmanlike manner. 7. By standing motion of the Registrar, in the event of any finding of a charged violation, Respondent’s prior disciplinary record of final agency orders, if any, may be considered in mitigation or aggravation when determining an appropriate disposition of this matter. As found hereinabove, there are no other unresolved complaints or other adverse orders on Respondent’s record, such that Crestmark’s record should be considered good, and appropriate for mitigation in determining disposition of this case.

RECOMMENDED DECISION

In light of the foregoing, IT IS RECOMMENDED that, commencing on the effective date of the Order entered in this matter, the Class B license of Respondent shall be suspended for 30 days, and that disciplinary probation be imposed, to run concurrently, for a period of 365 days. IT IS FURTHER RECOMMENDED, in addition to the foregoing penalty, that Respondent’s right to continue contracting, whether or not probationary, shall be subject to a condition that Respondent first post an additional surety bond, cash deposit or alternative deposit for a period of twenty- four months, including future renewal periods, in the amount of $2500.00, such bond or deposit to be for the sole benefit of persons injured as defined in A.R.S. § 32-1131.3 and to be in addition to the required surety bond, cash deposit or recovery fund participation set forth in A.R.S. § 32- 1152.D. Cash or alternative additional deposits, if utilized, shall be returned only after the expiration of an additional two year period following the above-provided twenty-four month period and only if no claims are then pending. Done this day, July 26, 1999.

______________________________________ Anthony Halas Administrative Law Judge

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

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

By ___________________________

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