ALJDEC

99F-L0111-ROC · Registrar of Contractors · 1999-09-07

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: August 31, 1999; 8:30 A.M.; Lake Havasu City, Arizona APPEARANCES: Complainants: John Maston O’Neil, Esq. Respondent: No Appearance ADMINISTRATIVE LAW JUDGE: George A. Schade, Jr.

Based upon the evidence presented at the hearing, Administrative Law Judge George A. Schade, Jr. submits this Recommended Decision and Order to the Director of the Arizona Registrar of Contractors (“Registrar”). FINDINGS OF FACT PROCEDURAL BACKGROUND 1. Respondent Emerald Shores, L. L. C. (“Emerald Shores”), a corporation, holds License No. 119071, Class B, issued by the Registrar on November 29, 1996. Mr. Alfredo Benjamin Schmidt is the qualifying party. 2. License No. 119071, Class B, has been suspended by operation of law (delinquent) since July 17, 1999, for lack of a residential contractor’s bond. 3. On December 28, 1998, Mrs. Cindy A. Noll filed this complaint with the Registrar alleging that Emerald Shores had constructed a house in an unworkmanlike manner. 4. On January 26, 1999, Messrs. James M. Boyett and Barry Billings, the Registrar’s inspectors assigned to this matter, made a jobsite inspection of Mr. and Mrs. Noll’s house. Mr. Noll, Mrs. Noll and Mr. Schmidt attended the inspection. 5. On February 1, 1999, Mr. Billings issued a Corrective Work Order directing Emerald Shores to complete fifteen corrective items related to the workmanship and failure to complete issues alleged in Mr. and Mrs. Noll’s complaint. 6. On February 16, 1999, Mrs. Noll requested an administrative hearing. 7. On March 16, 1999, the Registrar issued to Emerald Shores Citation and Complaint No. L99-0111 alleging violations of Arizona Revised Statutes (“A.R.S.”) §§ 32-1154(A)(3), namely Registrar’s Rule R4-9-108, Ariz. Admin. Code, -(A)(7), and -(A)(23). 8. On March 26, 1999, Emerald Shores answered the citation and complaint. 9. On June 10, 1999, the Registrar issued a Notice of Hearing scheduling a hearing in Lake Havasu City, Arizona, on August 31, 1999. Pursuant to A.R.S. § 41-1092.01, the hearing was assigned to the Office of Administrative Hearings. 10. On August 24, 1999, Emerald Shores filed with the Registrar a motion to continue the hearing for the reason that Mr. Schmidt had scheduled an appointment with a noted heart specialist on August 31, 1999. The Office of Administrative Hearings received a copy of the motion on August 25, 1999. Previously, on August 23, 1999, Mr. and Mrs. Noll had filed an objection to the request for a continuance. After reviewing the file, on August 24, 1999, the Administrative Law Judge denied the request. The denial was reiterated to the parties on August 25, 1999. 11. On August 30, 1999, Mr. Schmidt and his attorney Mr. Jeffrey J. Hegberg, Esq., informed the Office of Administrative Hearings that neither of them would appear at the hearing scheduled for the following day. 12. On August 30, 1999, Mr. Boyett made a prehearing inspection of Mr. and Mrs. Noll’s house. No representatives of Emerald Shores attended this inspection. 13. On August 31, 1999, a hearing lasting two hours was held. Mrs. Noll testified, and she presented 21 exhibits. The Administrative Law Judge took official notice of the Registrar’s disciplinary record of Emerald Shores. THE CONTRACT 14. In early October, 1997, Mr. and Mrs. Noll and Emerald Shores negotiated for the purchase of a lot in a subdivision along the Colorado River, near Ehrenberg, Arizona, and for the construction of a single family residence on the lot. Emerald Shores was acting both as the developer of the subdivision and as a residential contractor. 15. On October 10, 1997, the Nolls and Emerald Shores executed a contract for the purchase of Lot 15 of the Emerald Springs subdivision and the construction of a single family residence on the lot. 16. Lot 15 is located along the immediate edge or banks of the Colorado River. 17. The amount of the contract was $164,000.00, of which $99,900.00 was for the lot, and the balance was for the construction of the house. Close of escrow was set on December 1, 1997. 18. Two separate escrows (with two different title companies) were opened, one for the purchase of the lot and the other escrow for the construction of the house. 19. Pursuant to the contract, Emerald Shores agreed to complete construction of the house within ninety days after close of escrow (or after December 1, 1997). 20. Pursuant to the escrow established for the construction of the house, Mr. and Mrs. Noll deposited $100,747.00, the final agreed amount for the construction of the house, which would be disbursed to Emerald Shores in six draws. Emerald Shores was to receive each draw after completing an agreed upon construction schedule. The first draw was for $20,000.00, and the subsequent five draws were for $16,149.00 each. 21. Emerald Shores received five draws totaling $83,998.00. The last draw of $16,149.00 has not been disbursed and is the subject of dispute. 22. Emerald Shores received the first four draws without any site inspections having been done to determine if the draws should be made to Emerald Shores. The draws were paid out at the request of Emerald Shores. 23. When the first four draws were paid, the construction of the house did not correspond with the agreed upon draw schedule. THE CONSTRUCTION OF THE HOUSE 24. Emerald Shores obtained a Certificate of Occupancy on September 11, 1998. According to the contract, Emerald Shores was to complete construction of the house on or before March 1, 1998. Construction was not completed until presumably September, 1998. THE CORRECTIVE WORK ORDER 25. Messrs. Boyett and Billings reported fifteen workmanship deficiencies which needed corrective work. Since the Corrective Work Order was issued, Mr. and Mrs. Noll have completed, at their expense, two items. Other items such as the condition of the outside stairs and concrete cracks have, however, worsened or deteriorated since then. 26. Emerald Shores has not completed any of the items contained in the Corrective Work Order. On February 24 and 25, 1999, different workmen appeared at Mr. and Mrs. Noll’s house, identifying themselves as having been retained by Emerald Shores. These workmen were not licensed contractors, and one of them told Mrs. Noll he was not qualified to do the necessary repairs. As they were not licensed, Mrs. Noll did not permit these workmen to do any corrective work. The workmen left and never returned. 27. The following items contained in the Corrective Work Order (“CWO”) have not been completed: CWO No. 1: The living room window opening needs to be squared, plumbed and leveled, and the window needs to be reinstalled. Mr. and Mrs. Noll purchased a window (to replace the one Emerald Shores broke) and installed it themselves, but the opening needs corrective work. CWO No. 2: Telephone service needs to be installed to the house as required by the construction contract. CWO No. 5: The kitchen and bath cabinets should be of the same quality and style as the samples shown to Mr. and Mrs. Noll. Their quality is inferior to that of the samples originally shown to Mr. and Mrs. Noll. CWO No. 6: The interior basement walls need to be sheetrocked and finished. CWO No. 8: The door in the Master Bathroom needs to be installed properly (it was installed wrong side). CWO No. 9: The continuing and extensive erosion of the lot and loss of soil to the Colorado River must be controlled and further erosion prevented. This is the major problem Mr. and Mrs. Noll are facing. During the past two years, approximately thirty feet of land in the rear of the lot has been lost to the river. Lot 15 is “lowly becoming an island,” as the river’s flow is beginning to reach around the front side of the lot. Mr. and Mrs. Noll have obtained two professional engineering and hydrological studies to determine what can be done to protect their property. Both reports indicate that erosion due to the flows of the Colorado River will continue unless more extensive engineering actions are undertaken. One report concluded: “[t]hat about 28 feet of erosion has occurred since the subdivision was platted in March 1997. Based on these data, the average rate of bank erosion is about 15 feet per year. The edge of your house is located about 40 feet from the existing bank of the river.” Complainants’ Exhibit No. 14, page 2, (February 4, 1999).

Meantime, earth and rock have been deposited on the lot on several occasions to stem the erosion. But more extensive and professional actions must be taken, including likely obtaining Federal permits, to control the erosion. The same February 4, 1999, report provided four actions which should be undertaken to comply with Federal requisites and to enhance the stability of the river bank adjacent to Mr. and Mrs. Noll’s property. CWO No. 11: The cracks in the garage slabs and driveway need to be repaired. These cracks have become larger since the Corrective Work Order was issued. CWO No. 12: The approximate ½” gap between the bottom of the front door and the floor must be corrected. CWO No. 13: Gaps between the frames and the windows must be closed, sealed and corrected and all windows improperly installed must be squared, plumbed and leveled. CWO No. 14: The concrete stairs on the side of the house must be completely removed and replaced, if necessary to repair properly the detachment of the stairs from the side of the house. This condition has worsened since the Corrective Work Order was issued in February, 1999. Lack of proper attachment to the structure or soil erosion are most likely the causes of the detachment. CWO No. 15: The sliding glass door in the Basement must be repaired so it can be operated properly, and all gaps between the door frame and the wall must be closed, sealed and repaired. CWO No. 17: All cracks in the rear patio ceiling must be repaired. CWO No. 18: The entire deck must be examined, repaired, sealed and coated. The condition of the deck has worsened since February, 1999, and parts of the deck may have to be removed and replaced as delamination is severe. Coating alone may not be sufficient to correct the deteriorating condition of the deck. 28. Mr. and Mrs. Noll corrected, at their expense, CWO Items No. 10 (soil erosion under the concrete blocks supporting the propane tank system and correct installation of the system) and No. 16 (hole in sheetrock above the mirror in the Basement Bath). 29. In its answer to the civil complaint filed in La Paz County Superior Court, Emerald Shores admitted that the items contained in the Corrective Work Order represented “additional work [that] was needed” and “accurately detail the condition of the home.” Complainants’ Exhibit No. 11, pages 4-5. 30. There are visible cracks in the concrete slab by the front entry sidewalk. 31. Mrs. Noll testified that other contractors have informed her it will cost in excess of $100,000.00 to correct all workmanship deficiencies. LAND ACCESS TO LOT 15 32. When Mr. and Mrs. Noll purchased Lot 15, Emerald Shores and its agents told the Nolls that Lot 15 would have legal public access by an existing roadway. Mr. and Mrs. Noll have since learned that the only convenient roadway access to Lot 15 is a road which is not part of the subdivision, runs across land owned by another person, and that person is expected to begin proceedings to remove the roadway. In short, there is no legal permanent land access to Lot 15. 33. Another roadway offering possible access to Lot 15 is a primitive road for which four-wheel drive vehicles are recommended. 34. The existing roadway which is used to access Lot 15 (the one which may be removed by its owner) appears to be probably a public utility easement. SEWAGE TREATMENT 35. When Mr. and Mrs. Noll purchased Lot 15, Emerald Shores and its agents told the Nolls that a sewage treatment plant would handle the sewage needs of the subdivision. Mr. and Mrs. Noll have since learned that at the time of this representation, Emerald Shores only had a two-year contract with a local sewage treatment operation to handle the sewage, and Emerald Shores has not fulfilled its obligations pursuant to that contract, therefore, the contract is in default.[1] 36. Mr. and Mrs. Noll have had to enter into a separate arrangement with this sewage treatment operation, at the rate of $85.00 per month, to handle their sewage. It is unknown for how long Mr. and Mrs. Noll can continue with this contractual arrangement. EMERALD SHORES’ PRIOR DISCIPLINARY RECORD 37. The Registrar’s public records show that two complaints have been filed against Emerald Shores during the past two years, namely, Mr. and Mrs. Noll’s complaint and a complaint for nonpayment of materials (Banker Insulation, Inc., No. L99-0012). THE LA PAZ COUNTY SUPERIOR COURT LITIGATION 38. In May, 1999, Mr. and Mrs. Noll filed a civil action in the La Paz County Superior Court (Docket No. CV99000061) against Emerald Shores and others associated with the sale of the property and the construction of the house. The matter is pending. CONCLUSIONS OF LAW APPLICABLE STATUTES AND RULES A.R.S. § 32-1154(A) provides in the pertinent subsections: “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: *** 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 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 a written directive from the registrar. The written directive shall set forth the time within which the contractor is to complete the remedial action. The time permitted for compliance shall not be less than fifteen days from the date of issuance of the directive. A license shall not be revoked or suspended nor shall any other penalty be imposed for a violation of this paragraph until after a hearing has been held pursuant to the provisions of this article.”

The Registrar’s Rule R4-9-108(A), supra, states “All work shall be performed in a professional and workmanlike manner.” CONCLUSIONS OF LAW 1. In these disciplinary cases, the complainants have the burden of proof, and the standard of proof on all issues is the preponderance of the evidence. Culpepper v. State, 187 Ariz. 431, 930 P.2d 508 (App. 1996), review denied (1997); Troutman v. Valley Nat. Bank of Arizona, 170 Ariz. 513, 826 P.2d 810 (App. 1992). 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). 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 (6th ed. 1990). 2. Emerald Shores violated A.R.S. § 32-1154(A)(3), namely, the Registrar’s Rule R4-9-108, supra. The Registrar of Contractors is charged with determining workmanship of construction, or whether a licensed contractor performed “in a good workmanlike manner and in a manner befitting a skilled contractor.” Reliable Electric Co. v. Clinton Campbell Contractor, Inc., 10 Ariz. App. 371, 374, 459 P.2d 98 (1969); see, J. W. Hancock Enterprises, Inc. v. Registrar of Contractors, 126 Ariz. 511, 514, 617 P.2d 19 (1980); A.R.S. § 32-1154(A)(3); Rule R4-9-108(A), supra. The evidence establishes that the construction of the house was not fully performed in good workmanlike manner. Construction was not completed on time, and serious workmanship deficiencies remain uncorrected. 3. Emerald Shores violated A.R.S. § 32-1154(A)(7). The actions and omissions of Emerald Shores since the beginning of its dealings with Mr. and Mrs. Noll, its failure to complete construction on time, and its failure to perform construction work in “good workmanlike manner” are “wrongful” acts, which have resulted in Mr. and Mrs. Noll being “substantially injured.” Their house is at risk of total loss to the Colorado River. 4. Emerald Shores did not comply with the Registrar’s Corrective Work Order without legal justification, and therefore, violated A.R.S. § 32- 1154(A)(23). Although Emerald Shores indicated to the Registrar it would comply with the Corrective Work Order, it did not. The workmen Emerald Shores sent were not licensed contractors, and one stated he was not qualified to do the repairs. A civil penalty assessed pursuant to A.R.S. § 32-1154(D)[2] is warranted. 5. Emerald Shores’ License No. 119071, Class B, is currently suspended by operation of law due to lack of the required residential contractor’s bond. This suspension “shall not deprive the Registrar of jurisdiction to proceed with any investigation of or action or disciplinary proceeding against [Emerald Shores] or to render a decision suspending or revoking such a license.” A.R.S. § 32-1154(C). 6. The Registrar may suspend or revoke, “with or without imposition of specific conditions,” a residential contractor’s license for violations of any of the provisions of A.R.S. §32-1154(A). A.R.S. § 32-1154(B). The preponderance of the evidence shows that revocation, with imposition of specific conditions, is appropriate. Revocation of a contractor’s license must be a seriously considered sanction and one not to be taken lightly. Emerald Shores acted as the general contractor in this new construction project. Its lack of professional and good workmanship, misrepresentations and lack of cooperation establish that Emerald Shores did not act or perform “in a manner befitting a skilled contractor.” Reliable Electric Co. v. Clinton Campbell Contractor, Inc., 10 Ariz. App. at 374. 7. The Registrar does not have authority to award attorney’s fees (which were requested) or compensatory damages. Sunpower of Arizona v. Arizona State Registrar of Contractors, 166 Ariz. 437, 803 P.2d 430 (App. 1990), review denied. Claims for compensatory damages, even those arising from a contract, must be brought in a judicial forum of competent jurisdiction or in an appropriate arbitration forum. RECOMMENDED ORDER It is recommended that the Registrar: 1. Revoke Emerald Shores’ License No. 119071, Class B. 2. This revocation shall not occur, if on or before ten days after the effective date of the Registrar’s order of revocation, the Registrar receives written notification that Emerald Shores has completed, or has caused to be completed through other licensed contractors, in a professional and workmanlike manner, the following: A. CWO No. 1: The living room window opening to be squared, plumbed and leveled, and the window to be reinstalled. B. CWO No. 2: Telephone service to be installed to the house as required by the contract. C. CWO No. 5: The kitchen and bath cabinets to be of the same quality and style as the samples shown to Mr. and Mrs. Noll. D. CWO No. 6: The interior basement walls to be sheetrocked and finished. E. CWO No. 8: The door in the Master Bathroom to be installed properly. F. CWO No. 9: The continuing and extensive land erosion of the lot and loss of soil to the Colorado River drainage to be corrected. Emerald Shores shall comply with all applicable State and Federal requisites part of the “Law of the Colorado River.” G. CWO No. 11: All cracks in the garage slabs and driveway to be repaired. H. CWO No. 12: The approximate ½” gap between the bottom of the front door and the floor to be corrected. I. CWO No. 13: Gaps between the frames and the windows, including those in the Basement, to be closed, sealed and corrected, and all windows improperly installed to be squared, plumbed, leveled, and reinstalled. J. CWO No. 14: The concrete stairs at the side of the house to be repaired, and if necessary, be completely removed and replaced, to repair properly the detachment of the stairs from the side of the house. K. CWO No. 15: The sliding glass door in the Basement to be repaired so it can be operated properly and without difficulty, and all gaps between the door frame and the wall to be closed, sealed and repaired. L. CWO No. 17: All cracks in the rear patio ceiling to be repaired. M. CWO No. 18: The entire deck to be examined, repaired, sealed and coated. Any parts of the deck which should be removed and replaced shall be replaced. N. All cracks on the front entry sidewalk to be repaired. O. Inspect the entire house and all sidewalks and repair all cracks found. 3. Impose a civil penalty in the amount of $300.00, payable to the Residential Contractors’ Recovery Fund, on or before the effective date of the Registrar’s order. 4. Close Citation and Complaint No. L99-0111, if these corrective actions are timely completed and the civil penalty is timely paid in full. SUBMITTED this 7th day of September, 1999.

George A. Schade, Jr. Administrative Law Judge

The original Recommended Decision and Order was mailed on September 7, 1999, for distribution to the parties, to:

Michael Goldwater Arizona Registrar of Contractors 800 West Washington, 6th Floor Phoenix, Arizona 85007

George A. Schade, Jr. ----------------------- [1] Partly due to this nonpayment, on March 30, 1999, the Arizona Department of Real Estate advised Emerald Shores that it was no longer authorized to sell lots in Emerald Springs under the subdivision’s public report registration issued by the Department. [2] A licensed residential contractor may be assessed a civil penalty of not more than $500.00 for failure to comply with a Corrective Work Order “without valid justification within a reasonable period of time after receiving a written directive from the Registrar.” A.R.S. § 32-1154(D); A.R.S. § 32-1154(A)(23). The “failure by the licensee to pay any civil penalty imposed under this subsection results in the automatic revocation of the license thirty days after the effective date of the order providing for the civil penalty.” A.R.S. § 32-1154(D).

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

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