ALJDEC

99F-2541-ROC · Registrar of Contractors · 1999-08-05

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: July 29, 1999. APPEARANCES: APPELLANT: by Steven Johnson, president and authorized representative. RESPONDENT: by Marc Swanner, president, with representation by James Csontos, Esq.

ADMINISTRATIVE LAW JUDGE: Anthony Halas _____________________________________________________________________ This matter proceeded to hearing on July 29, 1999, to determine whether Respondent violated state law as alleged by Complainant per CITATION AND COMPLAINT issued 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. Complainant Prestige Southwest, Inc. (PSI), is a corporation doing business in Arizona as a residential drywall contractor, license no. 107031, Class B. Steven Johnson (Johnson) is the president, authorized representative, and qualifying party. 2. Respondent Swanner, Inc., is a corporation doing business in Arizona as a residential contractor, license no. 068691, Class R. Marc Swanner (Swanner) is president and qualifying party. 3. PSI and Swanner, Inc. entered into an agreement by written contract executed on December 3, 1998, that for $19,100.00 PSI would drywall a custom 5000 square foot “spec” home then being built by Swanner, Inc. at 24200 North Scottsdale Road, No. 23, in Scottsdale , Arizona. 4. Subsequently, Johnson filed a complaint for PSI against Swanner, Inc. with the Registrar of Contractors on March 4, 1999, alleging non- payment of $8166.00 on the total contract price of $19,450.00 (including a change order for $350.00), and indicating that work had last been performed when completed on January 27, 1999. In addition to the standard form complaint, Johnson submitted his written explanation of the circumstances and events he deemed relevant to the complaint. 5. In correspondence to the Registrar dated March 23, 1999, counsel for Respondent asserted that 50 per cent of the original contract price, or $9550.00, had been paid to PSI at the completion of drywall hanging, and that after calculation of a contract penalty for delay, and for estimated costs necessary to complete and repair Complainant's work, an additional amount of $1734.00 had been tendered PSI in early February, 1999, as payment in full pursuant to the contract (including the $350.00 change order). 6. When the matter was not resolved administratively, the Registrar then issued CITATION AND COMPLAINT in Case no. 99-2541 on April 20, 1999, charging Respondent Swanner, Inc. with possible violations of A.R.S. § 32- 1154.A.7 and .11. 7. On April 30, 1999, Swanner, Inc., through counsel, timely filed its answer to the CITATION AND COMPLAINT, denying violation of either statutory section, and asserting that Complainant had been paid in full according to the provisions of the contract, despite Complainant's failure to honor the contract terms. 8. With the issue thus joined, hearing was duly scheduled and convened, at which time Johnson appeared and testified as the authorized representative for PSI, and offered Exhibit 1, consisting of multiple documents relative to the contract, its terms and performance by the parties. Exhibit 1 also included Johnson’s itemized calculation and listing of the total contract price; total amount paid (consisting of $9550.00 and then $1734.00 paid PSI by Swanner, Inc., for an undisputed total of $11,284.00); agreed date for completion; actual date of completion; basis for and extrapolation of penalty for delay; and net balance owed PSI of $5239.00 (modifying the complaint amount of $8166.00). Exhibit 1 was marked and admitted, without objection. 9. Swanner testified for Respondent, which through counsel offered Exhibits A through I, which were marked and admitted without objection. 10. In consideration of the contract at issue, and based on the testimony and evidence of record, it is found to be of some interest that all negotiations occurred within a matter of hours on the same date the contract was executed, December 3, 1998, with no prior dealings between the two parties: A. Johnson, in the area on behalf of PSI’s work on a project nearby, had observed Swanner, Inc.’s work in progress on the residence in question, and left his business card (as part of his usual informal marketing plan), to which some days later Swanner had responded with a telephone call to Johnson on December 3, 1998 asking for a bid because Swanner, Inc.’s original drywall subcontractor could not begin work to meet Swanner, Inc.’s schedule. B. Within an hour and a half of the telephone call, Johnson made an on- site inspection of the project for purposes of his bid, which was then reduced to writing and faxed to Swanner that same day, to be incorporated as “Exhibit A “ to the SUBCONTRACTOR / SUPPLIER AGREEMENT (the contract; see Exhibit B) signed by Johnson and Swanner that same day. 11. The contract was on a standard form provided by Swanner, Inc., and both it and the PSI bid attached as Exhibit A to the contract contain hand-written insertions and deletions initialed by Swanner and Johnson for their respective companies. 12. On the record made, it is apparent and so found that Swanner was in something of a bind to get the drywalling done based on both his financing interest costs, and his scheduling concerns and commitments already made to and from subcontractors whose work could only follow completion of the drywall, and Swanner was therefore willing to pay more to PSI than to the drywall company he had originally contracted. 13. It is also apparent, and so found, that besides being a standard pre-printed contract term, time was of the essence to Swanner, Inc., and the subject of a hand-written addition to the Contract: “100% Complete by Jan. 1, 99.” 14. On his part, Johnson, interested in gaining a new contractor to provide additional work for PSI, was willing to very quickly bid, negotiate the contract, and begin work to meet the completion date specified, despite his misgivings about whether the deadline of 4 weeks (from 12/3/98 to 1/1/99) was reasonable, misgivings which may have been verbally communicated to Swanner, but which were never reduced to writing. 15. However, it is undisputed that the actual completion due date was verbally modified by the parties from 1/1/99 to either 1/8/99 (per Johnson) or 1/7/99 (per Swanner) based on subsequent recognition by the parties that Johnson had reasonably assumed Saturdays would be work days, but with the opposite true (based on community restrictions). 16. It is further apparent, and so found, that the design elements of the new home presented complexities over and above the “square house” norm, by reason of the “Santa Fe“ finish required, and the extensive lineal feet of curved walls, both of which would add to the labor necessary to drywall. 17. However, these design elements were, or should have been, known to Johnson, and therefore PSI, as a result of his on-site inspection, and any questioning necessary of Swanner, to be factored into his bid, both in terms of the time to complete and contract price. 18. Johnson concedes that PSI did not complete the contract according to its term, even as that completion deadline was modified to January 8 (or 7), 1999, and concedes that a certain reduction in the contract price was therefore appropriate. 19. Johnson’s calculation as to that penalty amount (contractually defined in paragraph 2 of the General Terms and Conditions of the contract; see Exhibit B) presumed that calculation would be based on a completion date of January 27, 1999 (and therefore a 20 day delay), and 1/30th of 1% per day of $644,264.00 (the amount of Swanner, Inc.’s construction loan, rather than the value of the project), or $214.75 per day, based on his recollection of a conversation he had with Swanner on about January 9, 1999, and his interpretation of certain terms of a letter dated February 1, 1999 (Exhibit 1; duplicated in Exhibit E), authored by Swanner and presented to Johnson in a meeting the two had on or about February 4, 1999. 20. Johnson concedes that he refused to sign the letter based on its overall content, and the substance of their conversation, and Swanner’s refusal to address “disputed amounts” in addressing lien waivers, and concerns over how the letter might affect his company’s legal rights. Nevertheless, Johnson asserts that he understood that the original contract term defining the delay penalty calculation was to be modified and reduced by the statement in the letter providing that “Three weeks delay (contract calls for 2,333,33 per week) reduced as agreed [reduces the contract price by] -$4,494.00.” 21. Swanner disputes Johnson’s interpretation, asserting that the letter was an offer to modify and settle various disputed terms of the contract, not just the delay penalty calculation, and that when Johnson refused to sign the letter, it was void in its entirety, and not something Johnson could pick and choose from to allege contract modifications, particularly since Johnson had provided no consideration for any such changes in the original contract. 22. For that reason, Swanner contends the delay penalty calculation, per the original contract, would be calculated as a percentage of the “…value of the complete job, including land and all improvements”, which value he deemed to be $1,040,000.00, based on the subsequent sales price of the residence. 23. In addition, Swanner asserts that since the contract had not been 100% complete by the deadline date as extended to 1/7/99, or even by the 27th of that month (when the job was about 90% done), after which Johnson refused to have PSI perform any further work, the delay period continued to run until Swanner, Inc. could have all items (as identified in the 2/1/99 letter (Exhibit E) and in photographs (Exhibit H)) properly completed and repaired as of February 28, 1999 by a replacement drywaller, such that the delay penalty should be calculated as 50 days, rather than the 20 days he had estimated in his letter to PSI on 2/8/99 (Exhibit F). 24. Swanner further asserts that the actual cost to complete and repair was $2200.00 (Exhibit G), rather than the $1500.00 he had estimated in his 2/8/99 letter, and upon which he had calculated and paid $1734.00 as the balance due PSI). 25. Swanner therefore concludes that PSI had been overpaid based on the estimated cost to complete (rather than the actual cost), and the actual delay to complete. 26. Johnson argues that as a result of his communications with Swanner, he understood that the work was completed sufficiently by January 27, 199, to meet the contract, with any additional work necessary only to finish “punch list” or warranty type items, which in the normal course of a contract his company would readily do. 27. In this instance, however, once he was presented with the verbal demands made by Swanner on January 28, 1999, and the terms of Swanner’s February 1, 1999 letter, Johnson determined that PSI should not continue any additional work. 28. In further testimony, Swanner also alleges that PSI’s actions evidenced additional material breach of particular terms of the contract, specifically the requirements that: • PSI would employ sufficient men to complete its work according to Swanner, Inc.’s working schedule (Clause IV of the contract, see Exhibit B); • PSI would supply lien waivers for the amount of any payment made, with the failure to do so negating any request for additional payment (Clause III b of the contract, see Exhibit B). 29. Swanner states that in his experience, the crews run by PSI were smaller than the industry norm, often consisting of only 2 or 3 men, with Johnson repeatedly assuring more workers would be available. 30. Swanner also states that PSI had yet to provide Swanner, Inc. with any lien waivers, complete or partial, and had, in fact, filed a lien against the property, as had one of PSI’s suppliers, despite Swanner, Inc.’s initial payment of $9550.00 having been made by check jointly payable to PSI and that supplier. 31. Johnson, while conceding labor difficulties to some extent, particularly as a result of the holidays, denies that the PSI crews were insufficient to meet the contract requirements, noting that while he generally worked to administer and manage PSI contracts, on this one he himself spent many hours laboring to provide finish and detail work. 32. Johnson also disputed Swanner’s contention that PSI’s refusal to provide lien waivers was a failure to meet the contract requirement, but instead explained that PSI’s actions regarding the liens were taken only to protect the legal rights of PSI and its suppliers.

APPLICABLE LAW

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

A. The holder of a license or any person listed on a license pursuant to this chapter shall not commit any of the following acts or omissions: . . . . .

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

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

CONCLUSIONS OF LAW

1. The Registrar of Contractors has jurisdiction over this matter, pursuant to A.R.S. § 32-1101, et seq., which authorizes the Registrar to impose disciplinary sanctions against licenses for violations of A.R.S. § 32-1154. 2. To warrant action by the Registrar pursuant to the statutes above, Complainant must demonstrate by a preponderance of the evidence that Respondent violated either or both of the statutory sections cited. Culpepper v. State of Arizona, 187 Ariz. 431, 437-38, 930 P.2d 508 (Ariz. App. 1996). A “preponderance of the evidence” means that the evidence is sufficient to persuade the finder of fact that the proposition is “more likely true than not.” In re Arnold and Baker Farms, 177 B.R. 648, 654 (9th Cir. BAP (Ariz.) 1994). It “is evidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not.” Black’s Law Dictionary 1182 (rev. 6th ed. 1990). 3. The compelling weight of the evidence in this matter, as found hereinabove, demonstrates significant disagreement, by the otherwise credible principals of the respective parties involved, relative to the meaning and interpretation of the several contract terms (and whether, and to what extent, any were subsequently modified or amended) defining performance, completion, penalty for delay, payment, and lien rights. 4. Given the existence of such a bona fide dispute regarding Respondent’s obligation to pay, the undersigned deems the evidence insufficient to sustain Complainant's burden of proof. 5. Therefore, Complainant fails to demonstrate any fraudulent or wrongful conduct on the part of Respondent pursuant to A.R.S. § 32- 1154.A.7. 6. Complainant fails to demonstrate Respondent’s failure to pay pursuant to A.R.S. § 32-1154.A.11.

RECOMMENDED DECISION

On the basis of the foregoing, IT IS RECOMMENDED that CITATION AND COMPLAINT in Case No. 99-2541 be dismissed. Done this day, August 5, 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 ___________________________

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

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