ALJDEC

99F-2199-ROC · Registrar of Contractors · 1999-08-18

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARINGS: July 12, 1999 at 9:00 a.m. and August 17, 1999 at 9:00 a.m. APPEARANCES: Complainants appeared through their attorney, Terry Bays Smith, Esq.; Respondent appeared through its attorney, Frederick E. Davidson, Esq. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

The parties presented evidence and testimony concerning whether Respondent violated Arizona law governing licensed contractors by failing to complete a roadway, failing to pay subcontractors pursuant to its contract with Complainants, or failing to complete construction in less than six weeks. Based upon the entire record, the undersigned makes the following Findings of Fact, Conclusions of Law and Recommended Order. FINDINGS OF FACT The Registrar of Contractors issued License No. 135410, Class KB-01, to Respondent, a corporation, on June 1, 1998. Respondent’s business office is located in north Scottsdale. In early 1998 Complainants lived in Chenley Park, Illinois with their adult son. In June 1998, Complainants selected an unimproved 40-acre tract in the Harquahala Valley, a remote area in Maricopa County west of Tonopah, on which they planned to retire on Complainant Mr. Price’s disability and/or retirement pensions from the railroad. Respondent’s president is Complainants’ son’s best friend’s cousin’s husband and played poker with Complainants’ son when visiting Illinois. Because Respondent was the only contractor Complainants knew in Arizona, they asked him to perform site preparation and construct other improvements on the 40-acre tract. Although Respondent’s president was initially reluctant to commit to the project because the distance between his office and the unimproved property was about 100 miles, he agreed to undertake the project and, on or about June 27, 1998, drafted and signed a document entitled “Prime Construction Contract” to memorialize the parties’ agreement. The contract included by reference a separate document entitled “Scope of Work,” which in relevant part provided for the following construction services at the accompanying itemized costs: Site Preparation Grading $3250.00 Culvert $1000.00 Concrete (12’x33’6”, 4” slab) $1250.00 Garage (24’x24’) $10850.00 . . . .

Overhead (10%) $2605.00 Profit (10%) $2605.00

Sub-Total Job (excluding gas and electric service) $31,260.00

Less Agreed reduction -$1,500.00

Additional Grading (240’) $3,875.00 A-B, rock surface . . . . .

The 12’ by 33’6” slab in the contract was for a double-wide manufactured home that Complainants planned to purchase for installation on-grade on the property. Respondent’s president testified that Complainants had requested 240’ of additional grading, which would be covered with A-B fill, to have a place to park their motorhome and other vehicles, which otherwise may have sunk into the silty ground that covered the 40-acre tract when it rained. Respondent’s president understood that the contractual undertaking referred to as “Grading” in the “Site Preparation” section of the parties’ original contract was to “grade and blade” the approximately 400’ roadway to allow utilities to be laid and the two parts of the manufactured home to be delivered and that Complainants would be responsible for maintaining the roadway. Respondent offered into evidence in support of its president’s understanding the Arizona Real Estate Department’s Unsubdivided Lands Public Report for Eagle Ranch II, which included Complainants’ 40-acre tract, which report provided in the section entitled “Roads and Drainage” that access within the development would be on “Bladed and Graded dirt public streets,” whose “[m]aintenance [would be] the responsibility of the individual parcel owners.” Respondent’s Exhibit M at 7. Respondent’s president also testified that he informed Complainants that Maricopa County ordinance requires that 2” of dust-free material be placed on private roadways and driveways used for regular ingress and egress and that, to tie the roadway into Courthouse Road, county ordinance required a permit and an apron of concrete or asphalt to be constructed across the 15’ to 20’ county right-of-way. According to Respondent’s president, Complainant Mr. Price told him that he would not pay to bring the roadway into compliance with county ordinance and that he would “drive on the dirt” to reach his home. The parties’ written contract did not include any costs for permits or surveying or provide for any A-B fill to be used in “site preparation.” Although the parties had added under the “site preparation” section the handwritten notation “Concrete slab with bolts 15x20 workshop,” no additional cost was provided for this item. In addition, although the itemized costs totaled $35,775.00, Respondent’s president had scratched this number out and written the number $35,000.00 as the “Total Job” cost. Respondent’s president testified that he did not include obtaining permits in the its contractual undertakings or the costs of any permits in the itemized costs because he did not know the costs of permits in the remote area where Complainants’ property was located and believed that such costs would be much less than he paid for similar permits in the Phoenix metropolitan area. Because no overhead or profit was added to the cost of permits, Complainants would save money by assuming responsibility for the costs of necessary permits. Complainants testified that they did not discuss the cost of permits with Respondent’s president before he contracted with them and that he had assured him that, in consideration for the $35,000.00 contract price, he would “take care of everything” in preparing the land they planned to purchase for installation of a manufactured residence and that the roadway would be suitable for regular use without extensive maintenance or modification. The contract’s payment terms required Complainants to pay $14,310.00 as a down payment, $14,310.00 at the completion of “site prep.,” and $6,380.00 at completion of the project. On July 3, 1998, Complainants gave Respondent’s president a check for $14,310.00, which he cashed. The parties’ contract further provided that “[w]ork shall commence . . . [u]pon receipt of contract and down payment” and that such work “shall be complete within” 30 working days or 6 weeks. Complainants did not record title to the parcel until late July 1998. On August 15, 1998, Respondent arranged for a grader to be delivered to the property. Respondent’s president spent approximately three of the next four weeks grading once and clearing desert vegetation off the 400’ roadway and leveling the 240’ driveway. Respondent also constructed a culvert at the private roadway’s juncture with Courthouse Road. The grader was picked up from the property on September 15, 1998. In mid-September, Complainants had not yet sold their home in Illinois. On or about September 25, 1998, Complainants signed the final contract to purchase a 3-bedroom manufactured home from dealer Estrella Homes. A manufactured home takes about four weeks to manufacture. On September 26, 1998, Respondent’s president sent Complainants a letter, which informed Complainants in relevant part as follows: With the completion of the site prep and imminent construction of the garage, I am enclosing an invoice for the second payment as agreed in the contract. Please use the enclosed envelope for your convenience.

With the end of the monsoon season and more moderate temperatures, things should be moving rather quickly. I am sure I will be in touch with you by phone. I hope things go well on the marketing of your current home, as you will love it here.

On or about September 29, 1998, Complainants sent Respondent a second check for $14,310.00, which its president also cashed. Respondent’s president testified that, although he knew the dimensions of the manufactured home when he first contracted with Complainants and the location where Complainants wanted it to be set, because the home could not be set exactly but only within ±6”, the pedestal for the home could not be constructed until the home was delivered. Because the home should be aligned with garage and workshop, the slabs for these buildings also could not be poured until the home was delivered and set. Respondent’s president ordered 150 tons of A-B fill to be delivered to the property to perform the contract. He did not spread the A-B fill on the 240' driveway because the area that had been dug out for the pedestal for the manufactured home covered the driveway area. Respondent’s president testified further that, because a ton of fill would provide 2"-thick coverage over 150 square feet and the 240'-long, 20'-wide driveway area was only 4,800 square feet, he had extra fill to spread at the beginning of the private roadway and around the 90 degree turn where the driveway met the roadway to prevent his own vehicles from becoming stuck. The Registrar’s Inspector Mel Purchase testified that, in his opinion, 150 tons would be short if Respondent planned to cover both the driveway and roadway, which were both approximately 20' wide and whose combined length was between 650' and 750'. Complainants arrived at the property in their motorhome on October 28, 1998. They had difficulty getting through the portion of the roadway that joined Courthouse Road and had to purchase a shovel to dig out and fill ruts in the roadway to reach the home site. Respondent’s president agreed to obtain a permit on Complainants’ behalf to set and install the manufactured home. When he applied for the permit, he learned that Complainants’ property was located in an area that Maricopa County had designated a flood plain, which would prevent the manufactured home from being installed on grade, and that the County would not issue a permit without a Flood Plain Certification, which required a survey to establish a benchmark for the elevation at which the home would be above the anticipated 100-year-flood level. Respondent’s president obtained, on October 28, 1998, Complainant Mr. Price’s son’s signature and, on December 26, 1998, Mr. Price’s signature on a Warning and Disclaimer of Liability with respect to the location of Complainants’ property in the flood plain. On Complainants’ behalf, Respondent obtained a permit to install a multisectional manufactured home on November 2, 1998 and a permit to construct a detached garage and pour a slab for future shed on December 31, 1998. On November 3, 1998, the manufactured home was delivered to Complainants’ property over the roadway and driveway that Respondent had cut without incident. At some point prior to delivery of the manufactured home, Arizona Public Service had installed power lines along the driveway. Respondent prepared a change order to include the $900.00 cost for the survey to establish the benchmark when he learned that the County would require a survey. Complainants did not agree to the change order for the cost of the survey until January 18, 1999.[1] The Flood Plain Certification was prepared on January 11, 1999. Estrella Homes, the manufactured home dealer which had sold Complainants their manufactured home, hired Gravity Lee Griffith to set the home. Mr. Griffith is the owner and qualifying party for Griffith Mobile Home Services, to whom the Registrar had issued License No. 064251, Class C-03, for construction of awnings and canopies, and License No. 122052, Class C- 05, for utility trenching and construction of electric pedestals. When Mr. Griffith set the home, he developed a relationship with Complainants and they asked Respondent to subcontract with him. Mr. Griffith told Respondent that he possessed a contractor’s license that would allow him to pour the slabs for the workshop, garage and patio, including raising the level of these outbuildings to comply with the county’s benchmark, to build the garage, to test the septic system, and to run conduits for electrical service from the main panel to the outbuildings. Although some of this work was within the scope of Mr. Griffith’s licenses, most was not. Respondent’s president agreed to subcontract these jobs to Mr. Griffith after he pointed out similar buildings that he claimed to have constructed for others, but Respondent’s president requested him as a condition of being awarded the subcontract to furnish license information, certificates of insurance, and tax information. Although Mr. Griffith never provided the requested information and documentation, he started working on the construction contemplated by the subcontract. Mr. Griffith used substantial portions of the A-B fill that Respondent had delivered to the jobsite to build up the pads of the workshop and garage and for landscaping around the manufactured residence. Respondent also subcontracted portions of the contract to Rainbow Drilling and to Laveen Pump Co., which both possessed appropriate licenses to perform their subcontracts. At some point in January or early February, Complainants also became dissatisfied with Respondent’s and its subcontractors’ performance. At about this time, Mr. Griffith, Laveen Pump Co., and Rainbow Drilling threatened to lien Complainants’ property unless they received payment. At some point, Complainants hired and directly paid Mr. Griffith to install and lay line to install a propane tank and to build the workshop. These jobs were also beyond the scope of Mr. Griffith’s two licenses. Mr. Griffith testified on Complainants’ behalf at the hearing. On February 4, 1999, Complainants made the complaint at issue to the Registrar, as follows: Contractor has not paid the people that have done work on property. These people have all threatened us with putting leans [sic] on our land. He also is refusing to finish the contract. The road is not completed. No rock surface and no grading has been done. Also job was supposed to be completed in weeks.

On February 16, 1999, the Registrar’s inspector Mel Purchase performed a jobsite inspection. Inspector Purchase informed the parties that Mr. Griffith did not possess an appropriate contractor’s license to have allowed him to perform his subcontract with Respondent. Respondent agreed at the inspection to pay the two subcontractors who did possess appropriate licenses. Finally, Inspector Purchase informed the parties that, in his opinion, the entire approximately 240’ driveway and the 400’ or 500’ roadway were deficient in that less than 2” of A-B fill covered these surfaces, in violation of Maricopa County ordinance. On or about February 18, 1999, Respondent paid Laveen Pump Co. $2,275.91 and Rainbow Drilling $1,835.00, the full amounts that these subcontractors alleged were owed. Although Mr. Griffith had presented an invoice to Respondent in the amount of $20,150.00 for work allegedly done pursuant to the subcontract, Respondent did not pay him because Mr. Griffith had contracted beyond the scope of his license, the invoice referenced work not included in the subcontract, Complainants had not formally accepted or paid for the work Mr. Griffith performed, and, since he learned Mr. Griffith was not licensed to perform the construction he performed, Respondent must pay workers’ compensation insurance for Mr. Griffith and warranty Mr. Griffith’s work under its own license. Although Respondent’s president has offered to pay Mr. Griffith some money, as of the date of the hearing Mr. Griffith had refused to negotiate or accept any amount less than the full amount invoiced. On February 22, 1999, Inspector Purchase on behalf of the Registrar directed Respondent to pay Laveen Pump Co. and Rainbow Drilling to comply with its jobsite agreement and to take the following action with respect to the driveway and roadway: Drive should be installed as per contract. Contractor to install 240 feet long and 20 feet wide drive of A-B material in front of the garage and mobile home. Contractor to install drive from the paved road to the A-B drive. Drive to be [constructed] according to the Maricopa [County] requirements.

Both parties requested a hearing. On April 1, 1999, the Registrar issued a Citation and Complaint in this matter, charging Respondent with violations of A.R.S. § 32-1154(A)(1), (7), (23), and (3), which Respondent timely answered. On May 4, 1999, Complainants filed suit against Respondent and Respondent’s president, among others, in Maricopa County Superior Court No. CV99-07871 for breach of contract based on Respondent’s failure to pay Mr. Griffith; unjust enrichment, again based on failure to pay Mr. Griffith; conversion of certain personal property; and breach of contract in construction of the well. Respondent filed a counterclaim for nonpayment, including the $6,380.00 still owed under the original contract and additional monies based on Complainants’ alleged verbal agreement to the unsigned change orders under a breach-of-contract or quantum meruit theory. That litigation was still pending at the time of the hearing. On or about April 6, 1999, Complainants paid Eric Andersen $3,450.00 to regrade the 240’ driveway and approximately 400’ to 500’ roadway and to cover each with 2” of natural granite rock. Mr. Andersen did not possess a contractor’s license at the times the contract was made and performed but, on June 28, 1999, the Registrar issued License No. 145582, Class A for general engineering to Bluepoint Contracting, Inc., in which Mr. Andersen is a corporate officer. On June 21, 1999, Complainants filed a second complaint against Respondent to the Registrar, which was designated Case No. 99-3554, concerning the well. At the time of hearing in this matter, the Registrar had not concluded his investigation or referred Case No. 99-3554 to the Office of Administrative Hearings for a recommended resolution. Therefore, no evidence was admitted concerning the well. In addition, Complainants attempted to complain that Mr. Griffith had buried the concrete used initially for the garage slab before Respondent learned that the property was located on a flood plain, which concrete had to be broken up, removed, and repoured to raise it to the level of the benchmark. Because the buried concrete was not included in the original complaint and Inspector Purchase was not asked to investigate this alleged deficiency, no evidence was admitted concerning it. The Citation and Complaint issued by the Registrar advised Respondent that, if it were found in violation of any contracting law, its prior disciplinary record of final Registrar of Contractors’ orders might be considered in mitigation or aggravation. Accordingly, notice is taken of official records of the Registrar of Contractors, which reveal that, if the Registrar accepts this recommended decision, it will be the only final agency order against Respondent on the Registrar’s current record. Therefore, Respondent’s prior record is deemed to be excellent and, thus, is viewed as a matter in mitigation for any disciplinary penalties to be imposed as a direct result of this case. CONCLUSIONS OF LAW In this administrative proceeding, Complainants bear the burden of proof and must establish statutory violations by a preponderance of the evidence. See A.A.C. R2-19-119; see also Culpepper v. State, 187 Ariz. 431, 438, 930 P.2d 508, 515 (App. 1996). “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” Morris K. Udall, Arizona Law of Evidence § 5 (1960). A preponderance of the evidence is “evidence which is of greater weight or more convincing than 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 at page 1064 (6th ed. 1990). Complainants did not establish that Respondent violated any statute with respect to his failure to complete the construction work in six weeks. Most of the delay was occasioned by Complainants’ delay in taking title to the real property, delay in purchasing a manufactured home, ignorance about the property’s location in a flood plain, and refusal to agree to pay any increased costs occasioned by the location of the property. Complainants also did not establish at the hearing that Respondent violated A.R.S. § 32-1154(A)(1)[2] or (7).[3] Rather, the evidence shows that neither party contemplated that the property was located on a flood plain when they entered into the contract, that the location of property made the contract substantially more expensive to perform, and that, although Respondent did contract to cover the 240’ driveway with 2” of A-B fill, Mr. Griffith had used most of the fill Respondent had delivered to the property to raise the level of the slabs for the garage and workshop, Complainants refused to pay Respondent, including amounts owed under the original contract and additional costs associated with raising the levels of the slabs, to complete the project. The evidence also shows that the parties’ original contract did not require Respondent to cover the 700’ driveway with A-B fill, to perform additional grading, or to maintain the roadway. Respondent was contractually obligated neither to perform work not contemplated in the contract nor to continue to perform work in the face of Complainants’ refusal to comply with their own contractual obligations. It therefore did not abandon the contract without legal excuse or commit a wrongful or fraudulent act that resulted in substantial injury to Complainants. Complainants did establish that Respondent violated A.R.S. § 32- 1154(A)(3)[4] and (23)[5] with respect to failing to cover the 240’ driveway and the 400’ to 500’ roadway with 2” of A-B fill. As noted by Inspector Purchase and admitted by Respondent’s president, Maricopa County ordinance requires 2” of dust-free material on private driveways, which is a more stringent requirement that the “grade and blade” access roads that the Arizona Real Estate Department requires for developments statewide. The Registrar’s regulations require that licensed contractors comply with county ordinances, even if their customers balk at paying the cost of compliance. If prospective customers refuse to agree to pay the cost of complying with applicable ordinances, Arizona law as well as good business practice requires licensed contractors to refuse to contract with them. Although the legislature has not empowered either the Office of Administrative Hearings or the Registrar to adjudicate or award money damages, which must be recovered, if at all, through civil court action, the legislature has empowered the Registrar to impose reasonable conditions that may serve to reduce or eliminate any otherwise appropriate disciplinary penalties for proven violations of contracting laws if the performance of corrective or remedial measures on a jobsite is no longer possible. See Sunpower of Arizona v. Arizona State Registrar of Contractors, 166 Ariz. 437, 440-41, 803 P.2d 430, 433-34 (App. 1990). An award of restitution in an administrative action allows a licensed contractor to control, at least to some extent, the severity of a disciplinary penalty and any amounts paid in satisfaction of a condition in the nature of restitution affecting licensing should be credited or offset against any civil judgment ultimately granted in favor of either party. Requiring Respondent to pay Complainants the $3,450.00 they paid Mr. Andersen to complete the job is somewhat problematic because they still owe Respondent under the original contract, Mr. Griffith used much of the A-B fill that Respondent originally brought to the jobsite to raise the garage and workshop slabs, for which extra work and materials Complainants refuse to pay, the original contract did not require A-B fill on the 400’ to 500’ roadway, and it appears Mr. Andersen used crushed granite, an upgrade from the A-B fill specified on the contract addendum for the 240’ driveway. Nonetheless, since Respondent’s statutory violation is serious and it is too late for Respondent to comply with the Registrar’s directive or Maricopa County ordinance, restitution is the disciplinary alternative to an unconditional suspension, which would effectively put Respondent out of business. Although Mr. Andersen’s lack of a contractor’s license at the time he entered into and performed his contract with Complainants is also somewhat problematic, the fact that he shortly thereafter obtained an appropriate license provides Complainant with statutory warranties and justifies restitution in the amount of Mr. Andersen’s contract. Even if Respondent has obtained a windfall by not being legally required to pay Mr. Griffith, requiring Respondent to return to Complainants money that would have been due Mr. Griffith had he possessed an appropriate license and had no dispute existed about his work merely shifts the direction of the windfall. Such result would not further the legislative purposes of the statutes creating the office of the Registrar and governing licensed contractors in Arizona.[6] It also would be potentially unfair since neither party appears to have come to the hearing with entirely clean hands with respect to Mr. Griffith. Although it appears that both parties may have various claims for damages against each other and one or the other may have a stronger claim to the money that was not paid Mr. Griffith, given the piecemeal nature of the Complainants’ various complaints to the Registrar and Mr. Griffith’s status as a non-party to this complaint,[7] the pending civil action is a better forum to decide what, if any, relief is appropriate between these two parties for Respondent’s failure to pay Mr. Griffith. RECOMMENDED ORDER In view of the foregoing, it is recommended that the Registrar suspend Respondent’s Class KB-01 license, No. 135410, on the effective date of his decision in this matter, thirty five days after the date of mailing. It is further recommended that if, on or before the effective date of the Registrar’s order, Respondent furnishes written proof that it has paid Complainants $3,450.00 as restitution for its proven contracting law violations, no suspension take place and the Registrar may close Case No. 99-2199. Done this day, September 1, 1999.

______________________________________ Diane Mihalsky Administrative Law Judge

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

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

By ___________________________

----------------------- [1]Complainants refused to pay taxes on the survey cost in the amount of $60.75 or any amount to Respondent for overhead or profit on the base cost of the survey. Respondent also alleged that Complainants refused to pay him for or sign change orders agreeing to pay for the permit for setting the house ($300.85), the plans for the garage ($341.88), permits for the garage ($395.21), extra steel for the well ($1,846.13), the septic permit ($458.11), additional concrete ($574.35), painting the garage ($888.88) and raising the level of the garage ($3,911.05). Because none of these matters are implicated in Complainants’ complaint to the Registrar, they are not addressed in this recommended decision.

[2] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license “[a]bandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.”

[3] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license “[t]he doing of a wrongful or fraudulent act by the licensee as a contractor resulting in another person being substantially injured.”

[4] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license “[v]iolation of any rule adopted by the registrar.” The rule violated here was A.A.C. R4-9-108, which requires that “[a]ll work shall be performed in a professional and workmanlike manner” and that “[a]ll work shall be performed in accordance with any applicable building codes and professional industry standards.”

[5] This statutory subsection includes among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license “[f]ailure to take appropriate 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.” [6] Requiring Respondent to pay Mr. Griffith directly would reward Mr. Griffith for knowingly contracting beyond the scope of his licenses, in violation of A.R.S. § 32-1154(A)(17). [7] Mr. Griffith cannot sue Respondent for nonpayment in civil court, at least for the amounts due for work beyond the scope of his license. See A.R.S. § 32-1153. Since he did not make a complaint to the Registrar under A.R.S. § 32-1154(A)(11) for nonpayment, there is no need to address the issue of the effect of his contracting beyond the scope of his license on his ability to do so.

-----------------------

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