ALJDEC

99F-1661-ROC · Registrar of Contractors · 2000-01-18

STATE OF ARIZONA IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Pursuant to notice, a formal hearing was held in this case commencing on July 23, 1999 with further hearings held on October 21, 1999 and January 13, 2000, in Phoenix, Arizona, before Neal H. Jordan, Administrative Law Judge of the Office of Administrative Hearings. APPEARANCES For Complainant: G. Peter Spiess, Esq., and Tyler Q. Swensen, Esq. Spiess & Short, P.C. Two Renaissance Square N. Central Ave., Suite 1600 Phoenix, AZ 85004-4449

For Respondent: Richard C. Gramlich, Esq. Carmichael & Powell, P.C. 7301 N. 16th Street Phoenix, AZ 85020-5297

FINDINGS OF FACT Based upon all the evidence of record, the following findings of fact are determined: On or about October 31, 1998, Complainants entered into a contract with Respondent for the installation of plants, crushed granite rock for ground cover, certain trees, concrete pads, flagstone walkways, retaining walls, planter boxes, an irrigation system and other associated improvements to be furnished and installed at Complainants’ residence at 7192 W. Trails Drive, Glendale, Arizona (the “Contract”). Complainants’ Ex. 1. At all times relevant to these proceedings Respondent was operating in the name of Bobbi Jo Grunert, dba, Virtual Landscapes of Arizona under license number 127274, a Class C-21 license. Although a dispute exists as to what is included in the contract price, it is found that the price stated in the Contract is $8,250.00. Id. Complainants’ Exhibit 1 entered into evidence is a pink copy of a proposal submitted by Respondent which contains carbon writing and original ink writing. It is undisputed that all the writing on Exhibit 1 is that of Respondent’s authorized representative/employee, James Grunert. Bobbi Jo Grunert is the qualifying party for Respondent. Bobbi Jo Grunert is not actively engaged in the business of Respondent and does not supervise the work performed by the Respondent licensee. It is undisputed that Bobbi Jo Grunert is a full time school teacher. It is found that the price of $8,250.00 set forth in the Contract includes all work written on the face of Complainants’ Exhibit 1, including both the cabon copy writing and the original ink writing. Specifically, the Contract is found to include within the price stated the BBQ Frame with a square yard patio, the pillars for the lights, six (6) lights to be installed in the flagstone steps, and five (5) boulders. The contract price of $8,250.00 was to be paid in three installments, the first in the amount of $2,375.00, the second in a like amount, and the third in the amount of $3,500.00. The Contract is silent as to when the installments are to be paid. Complainants paid the first installment by a personal check dated October 31, 1998, in the amount of $2,375.00. Respondent commenced the work specified in the Contract on November 3, 1998. The second installment called for under the Contract was paid by Complainants’ personal check dated November 6, 1998, in the amount of $2,375.00. At the time the Contract was being performed, Complainants and Respondent entered into a separate oral agreement whereby Complainants agreed to pay for the purchase and installation of a BBQ grill, three (3) 15 gallon Queen palm trees, and two (2) 24 inch box Queen palm trees for a total added cost of $1,179.50. It is found that Complainants paid this added cost separately by using a VISA charge card on November 12, 1998. A dispute arose between Complainants and Respondent as to an interpretation of the Contract concerning precisely what work was included in the contract price. Issues were also raised as to whether Respondent was performing the Contract in accordance with its terms and in a workmanlike manner. This dispute was not resolved and when Complainants refused to make the final payment until these issues were resolved, Respondent stopped work on November 15, 1998. Respondent returned to the jobsite November 16, 1998 to retrieve tools and extra material not incorporated into the work and to take photographs. On this visit Respondent aggressively persuaded the Complainant, Ms. Ladhani- Mukhida, to pay an additional sum toward the final installment due under the Contract. Notwithstanding claims that the work under the Contract was incomplete and performed in an unworkmanlike manner, Complainant, Ms. Ladhani-Mukhida, did make a payment on this date in the amount of $2,750.00 by using a VISA charge card. Respondent aggressively pursued final payment under the Contract by the use of intimidation tactics and by threatening to place a substantial mechanics lien on Complainants home. As of November 16, 1998, Respondent had been paid the sum of $7,500.00 under the Contract leaving a balance due of $750.00, and had been paid the sum of $1,179.50 agreed upon under the separate oral agreement. The balance due Respondent under all agreements as of this date was $750.00. By a document mailed on December 1, 1998, Respondent billed Complainants for the amount of $4,140.00. This billing acknowledged the foregoing payments found to have been made by Complainants, but claimed a charge of $3,500.00 under the Contract, plus $800.00 for “Flag Facing”, $200.00 for “Plants - Irrigation,” $100.00 for “Mulch,” and issued a credit for $460.00 for granite rock not purchased or installed. Complainants’ Ex. 17 A and B. As already found, Respondent has received $2,750.00 against the charge of $3,500.00 due under the Contract. Respondent’s claim to a balance due under the Contract in the amount of $4,140.00 is unfounded and not supported by the evidence. The balance due Respondent under all agreements is the sum of $750.00. Notwithstanding this minor sum being due under the Contract, Respondent mailed a Preliminary 20 Day Notice on December 5, 1998 claiming an estimated total price of $25,000.00. On January 13, 1999, Respondent caused to be filed in the Maricopa County Recorder’s Office a Notice and Claim of Mechanic’s Professional Services, Materialman’s Lien for the amount of $4,140.00. By a stipulation of the parties and by an order of the Maricopa County Superior Court in a separate proceeding, the Mechanic’s Lien was ordered to be released. See Respondent’s Exs. AA and BB. A release of lien was executed on September 30, 1999. Respondent’s Ex. Z. As a result of the complaint being filed in this matter, a jobsite inspection was conducted by an assigned inspector for the Registrar of Contractors, which led to the issuance of a corrective work order letter, dated February 15, 1999, (“CWO”) being sent to Respondent requiring that certain corrective or remedial work to be performed within a period of fifteen (15) calendar days. See Complainants Ex. 35. Respondent failed to perform any of the corrective work listed on the CWO as being necessary or required within the fifteen (15) calendar days. The first response to the CWO was by a letter from counsel for Respondent to counsel for Complainants, dated March 4, 1999, stating that Respondent was ready to perform the corrective work provided Complainants pay the claimed balance of $4,140.00 into an escrow fund. Respondent’s Ex. H. No response was forthcoming to the March 4, 1999 letter (Respondent’s Ex. H) and counsel for Respondent sent another letter dated March 24, 1999 indicating that Respondent had tried to contact Complainants to schedule a time to make the corrections specified in the CWO. Respondent’s Ex. I. After the March 24, 1999 letter (Respondent’s Ex. I) the matter spiraled into a contest that remained unresolved as of the date of the hearing in this matter. It is found on the basis of all the credible evidence of record that the CWO fairly and accurately addresses the workmanship issues alleged in the complaint and each and every item of correction or repair is found to be necessary and required on the basis that the Contract had not been properly complied with and that the workmanship was below acceptable industry standards. Respondent presented to Complainants, prior to contracting, a portfolio of photographs depicting the quality and character of work performed on other projects. Further, the testimony of a salesman, who then worked for Respondent, was elicited to establish that he personally escorted Complainants to a neighbors house to view a flagstone and landscaping installation in an effort to satisfy any lingering concerns Complainants may have had regarding Respondent’s ability to perform the landscaping services they were desirous of obtaining. Complainants dispute that such a visit took place. Although the evidence in this regard is conflicting, it is not necessary for the purposes of this case to determine whose testimony is true or more true since the point being stressed only goes to the weight of the evidence relative to Respondent’s ability to perform such work, not whether Complainants’ work was actually performed in accordance with established standards or some other benchmark agreed upon. In this case, the flagstone walkway, retaining wall and planter boxes were of particular concern to the Complainants. Flagstone work of the nature to be performed for Complainants can be installed in a myriad of ways depending upon the talents of the installer and the budget of the owner. Here, numerous references were made to oversized grout lines as being excessive and the fact that many small sized flagstone pieces were incorporated into the walk, with claims that such workmanship was well below acceptable minimum industry standards. The evidence fails to establish whether there is an industry standard for grout lines or for sizing the flagstone pieces before placing in a walkway. The Contract is silent as to any standard by which the work on this project was to be judged. Notwithstanding finding number 25, it is expressly found on the basis of all the evidence of record that Respondent was taken on a tour of the rear yard of the Complainants home and viewed an existing flagstone installation around the pool area. It was the intention of Complainants that this existing flagstone installation would set the standard by which the workmanship of Respondent would be judged relative to the walkways, retaining wall and planter boxes. Based upon this standard it is found that Respondent has failed to comply with the Contract. Further, the flagstone planter boxes have not been properly waterproofed; the light pillars fail to comply with acceptable workmanship standards; the lighting set in the steps of the flagstone walkway was incorrectly done; and, all the other items addressed in the CWO where workmanship was in question are found to be valid complaints. It is found that Respondent failed to properly address the need for and the correct installation of a ground fault electrical outlet when installing the irrigation timer and backflow assembly. Such work required a building permit that was not obtained until after the installation, a circumstance that should have been worked out with the Complainants. See Complainants Ex. 15; Respondent’s Ex. N. Complainants introduced evidence in an attempt to establish a value by which a finding could be made fixing the amount of damages they have sustained due to Respondent’s poor workmanship and failure to complete the Contract. This evidence was in the form of competing contract proposals, one from Desert Visions Landscaping Services, a licensed contractor, which provided in many respects for a demolition and removal of Respondent’s work and a correction or repair of the remaining work for a contract price of $18,150.30. The other proposal was from Stockton Landscaping, also a licensed contractor, to perform essentially the same work and was in the amount of $15,318.10. See Complainants’ Exs. 33 and 37, respectively.

CONCLUSIONS OF LAW The Office of Administrative Hearings has jurisdiction over the subject matter and the parties hereto pursuant to A.R.S. §41-1092 - 1092.12 (1998). The Complainants have brought this complaint and accordingly bear the burden of proving by a preponderance of the evidence that the allegations contained therein are true. Culpepper v. State, 187 Ariz. 431, 930 P.2d 508 (Ct. App. 1996); Smith v. Arizona Department of Transportation, 146 Ariz. 430, 706 P.2d 756 (App. 1985), (the standard of proof is that of the “preponderance of evidence.”) The Citation and Complaint in this case charges that Respondent has violated A.R.S. §32-1154(A)(7), (17), (23), and (3), namely A.A.C. R9-4- 108. It is found on the basis of a preponderance of all the evidence of record that Respondent has violated each provision of the statutes so cited, with the exception of A.R.S. §32-1154(A)(17). Each violation will be discussed below. The charge of A.R.S. §32-1154(A)(17) emanates from a determination made by the inspector for the Registrar of Contractors that a Class 21 license does not authorize the installation of flagstone walkways and amended the CWO to reflect that any repair or corrective work to the flagstone walkways must be done by a properly licensed contractor. On this basis it was determined by the Registrar of Contractors that when Respondent installed the flagstone walkways it was knowingly contracting beyond the scope of the license of Respondent. It is common knowledge in the industry, and has been accepted by the Registrar of Contractors for many years, that the installation of flagstone walkways are nonload bearing walks when installed to and from the entry and exit points of a home. The fact that Respondent now possesses a Class K-5 license is not evidence of a scope violation particularly when the description of such a license classification is “[A]s Restricted by Registrar.” A Class K-5 license, which is of recent vintage, merely eliminates any confusion or question as to whether the Class C-21 license includes the installation of flagstone walkways. Accordingly, no violation of the statute is found to exist. The interpretation of a contract must be made, if it is at all possible, from the plain and unambiguous words used in the contract. Once a contract has been determined to be ambiguous on its face, it is then necessary to turn to outside or parole evidence to ascertain the intention of the parties. Such evidence is to be admitted only to learn the intent of the parties, not to alter or otherwise vary the terms of a contract to satisfy latent desires of dissatisfied parties. See Taylor v. State Farm Mutual, 175 Ariz. 148, 854 P.2d 1134 (1993); also see Fairway Builders, Inc. v. Malouf Towers Rental Co., Inc. 124 Ariz. 242, 603 P.2d 513 (App. 1979). This case demonstrates a flagrant example of the difficulties endemic when properly detailed and specific language is not used to complete contracts for work to be performed by contractors. Clearly, if Respondent had taken the time to use appropriate wording to outline the intentions and expectations of the parties, then complaints of the nature presented in this case would occur with much less frequency. It is axiomatic that when contractors inartfully draft contracts, even when just filling in words or phrases, such wording will be construed against them as the party drafting the contract, relying upon the presumption that contractors know or should know their business, as well as the parties’ intent and expectations in contracting for the described work. See United Cal. Bank v. Prudential Ins. Co. of Am., 140 Ariz. 238, 260, 681 P.2d 390, __ (App. 1983). Respondent would have this tribunal believe that the Contract items added in original ink were a change order requiring a written document with an extra charge. Respondent’s argument in this respect is not persuasive when addressing the “add-on” items to the Complainants’ pink copy. Complainants’ Ex. 1. The very fact that Respondent chose to write the “add- ons” into the existing Contract, and did so in ink which distinctly defines them as separate from the original proposal, qualifies this writing as being that type of change contemplated by the Contract. This is particularly so when the pricing originally proposed was also completely revised, not only in its total contract price, but also in the amount of each of the installment payments. The changes written in the Contract in the handwriting of Respondent’s own authorized person establishes an intent that the changes were to be included in the new pricing structure and creating an integrated contract for all agreements, understandings and discussions. The Respondent can not now be heard to complain of its own dereliction when in comes to construing a contract drafted and modified by its own hand. The existing flagstone installation in the rear yard of Complainants’ home was viewed by Respondent before writing the Contract and the credibility of the evidence establishes that this existing method and style of installing flagstone became the model or example by which Respondent’s workmanship in constructing the flagstone walkways, patio, retaining wall and planter under the Contract would be judged. Although the Contract language on this issue is ambiguous, if not silent, parole or extrinsic evidence is admissible to establish the intent of the parties in this regard. See Conclusions of Law No. 5 and 6. Here, Complainants did have an expectation demonstrable by external evidence to establish just what that intent was at that time, an intent clearly relayed to Respondent. By failing to adhere to the character and quality of the existing flagstone installations, it is held that Respondent has breached the Contract in this regard. Respondent has alluded to a legal precept that to remove the entire flagstone installations would be economic waste citing Fairway Builders, Inc. v. Malouf Towers Rental Co., Inc., 124 Ariz. 242, 603 P.2d 513 (App. 1979). It is clear from this case that economic waste exists only when the cost of repairs as a measure of damages would result in unreasonable duplication of effort. “[E]conomic waste is not present and the difference in value measure cannot be used unless the building would be substantially destroyed by completely remedying the defects.” Id. at 254. It is important to note, however, that Fairway Builders also stands for the proposition that if a contractor is contending that the cost of repairs would result in economic waste, then that contractor has the burden of affirmatively proving such a contention. Id. In this case, Respondent has offered no such evidence, whereas, Complainants have presented evidence that the cost to remove and replace the flagstone installations would be $7,300.00 to $7,550.00. See Complainants’ Exs. 33 and 37. Complainants in this case are seeking restitutionary damages. The Registrar of Contractors’ authority in matters such as presented in this case, includes the power to order remedial restitutionary damages in order to compensate an injured party for those amounts of money suffered as a loss due to a respondent’s violation of laws. Based upon the weight and credibility of the evidence of record, it is appropriate and reasonable to render an award of restitutionary damages in this case consisting of the payment by Respondent to Complainants of a sum of money. The Registrar may order a “restitutionary remedy … as part of the Registrar’s regulatory authority to take appropriate disciplinary action against those who violate the licensing … “ laws set forth in A.R.S. § 32-1154A (1) through (24), inclusive. An administrative award of damages is not an unconstitutional exercise of administrative authority where due process procedural rights are protected, where the authority to prohibit conduct has been well defined as in A.R.S. § 32-1154, and where judicial review is available as provided in A.R.S. § 12-901 - 914. Sunpower of Arizona v. Arizona State Registrar of Contractors, 166 Ariz. 437, 803 P.2nd 430 (App. 1990). Restitutionary damages are defined as quantifiable amounts of money that may be due an injured party to compensate for pecuniary loss resulting from another person’s violation of laws. Cactus Wren Partners v. Department of Building and Safety, 177 Ariz. 559, 869 P.2d 1212 (App. 1993). Such damages will only be awarded when it is established that a contractor has precipitated a clear breach of contract by conduct that is considered egregious, and, further, only after it has been determined that such contractor cannot or will not reasonably comply with the contract requirements in a good and workmanlike manner and in compliance with minimum workmanship standards. Such considerations are for the trier of fact and can only be adjudicated on a case by case basis. The allegations of Complainants in this case have been proven by a fair preponderance of all the evidence. It is therefore determined that an order of restitutionary damages is warranted, as opposed to an order requiring the Respondent to return to the scene when it has been determined that Respondent’s conduct toward the Complainants has been aggressive, intimidating, threatening and coercive and that a clear and intentional breach of contract has occurred. This tribunal has concerns regarding the apparent but significant cost to remedy the deficient performance of Respondent. While it is a reasonable inference to conclude that Respondent purposely underbid the Contract with the intention of installing the work in a low cost effort to make a quick job profitable, the question is raised as to whether the cost to remove and replace this work truly is a sum that ought to be more than twice the original cost. The evidence in this regard lacks that element of credibility so necessary to predicate an award of restitutionary damages on those estimates as a whole. Accordingly, while this tribunal does not reject such evidence out of hand, it is unwilling to formulate any award based thereon. The price of the Contract in this matter is $8,250.00, plus the extras agreed to verbally amounting to $1,179.50. The evidence establishes that Complainants have derived some value from the work installed, primarily with the plants and trees and with a large part of the irrigation system. Complainants have also derived value from the placement of the rock cover actually installed, the delivery of the actual BBQ grill and queen palm trees, and other plants of differing variety. While it is not the function of the Registrar of Contractors to adjudicate and award true money damages, the Registrar is empowered to impose conditions which may serve to reduce or eliminate any otherwise appropriate disciplinary penalties for proven violations of the state’s contractor licensing laws. In cases such as presented herein, Complainants who have sustained the burden of proving a violation of applicable laws in an administrative contested case should not be required to await the results of protracted and costly civil litigation in order to recover a reasonable portion of demonstrated losses. Conversely, Respondent in such cases is given an opportunity to control, to some extent, the severity of any disciplinary penalty. In cases where restitutionary damages are ordered as a disciplinary condition, any amounts paid in satisfaction thereof should appropriately be credited toward any civil judgment that ultimately may be obtained, if any. A.R.S. §32-1127 requires that the qualifying party of a licensee be an “[e]mployee who is regularly employed by the licensee and is actively engaged in the classification of work for which such responsible managing employee qualifies in behalf of the licensee.” Further, this statute also requires that the qualifying party be able to “adequately supervise the work performed by the licensee.” The qualifying party of Respondent is Bobbi Jo Grunert, who admittedly is a full time school teacher. James Grunert, the employee, so-called, who supervised the work under the Contract is the husband of Bobbi Jo Grunert. There is no evidence that establishes that Bobbi Jo Grunert ever visited the work being performed for Complainants under the Contract, a function required of every qualifying party. While this factual circumstance is not addressed as a charge in the Citation and Complaint, it nevertheless represents a violation of A.R.S. §32-1154(A)(13). Consequently, while no violation per se can be found, it does respresent a circumstance to be properly considered when determining any appropriate disciplinary penalty to be assessed when other violations have been found to exist.

RECOMMENDED ORDER In view of the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED commencing on the effective date of the Order entered in this matter, that the Class C-21 license of Respondent shall be suspended until the Registrar of Contractors receives written proof that Respondent has paid or tendered the sum of $7,200.00 as restitutionary damages to Complainants. It is further recommended that if Respondent makes full and complete payment or tender to Complainants of said amount on or before the effective date of the Order entered in this matter, then the said license suspension shall not take place. ENTERED this day, January 24, 2000.

______________________________________ Neal H. Jordan Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 2000, to:

Registrar of Contractors 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