ALJDEC

99F-L0113-ROC · Registrar of Contractors · 1999-05-03

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 29, 1999

APPEARANCES: Complainant appeared on her own behalf; Respondent was represented by David Kieler, President and Qualifying Party.

ADMINISTRATIVE LAW JUDGE: Eric A. Bryant _____________________________________________________________________

This case concerns vinyl flooring installed by Respondent Arizona Carpetman, Inc. in a house sold to Complainant Berniece Phillips. Respondent has raised a defense under the complaint-period limitation statute found at A.R.S. § 32-1155(A). In an unusual occurrence, Harold Ullery, a representative of the general contractor who built the house, appeared and testified at the hearing. The parties presented evidence and testimony at the hearing and, based upon the entire record, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law, and Recommended Order of dismissal. FINDINGS OF FACT 1. In October 1996, Respondent was hired as a subcontractor by DBU Construction, Inc., a general contractor who was building a house in Lake Havasu City, Arizona. Respondent installed vinyl flooring in the kitchen, utility room and two bathrooms. The building permit obtained in July 1996 by DBU stated that the owner for which the house was being built was “Ullery.” (Exhibit A.) DBU Construction, Inc. is owned and operated by Harold Ullery and his brother, J. W. Ullery. A certificate of occupancy was issued on November 21, 1996. 2. There is no evidence that the house was sold to the Ullerys by DBU at any time. Instead, the evidence shows that the house was sold to Complainant’s husband by “C. M. Ullery,” Harold Ullery’s wife. Escrow closed on May 22, 1997. Complainant filed her complaint on January 4, 1999, less than two years after she moved in but more than two years after the issuance of the certificate of occupancy and after Respondent had completed his work. 3. Complainant, Respondent, Harold Ullery, and ROC Inspector Barry Billings agreed that the vinyl flooring in the two bathrooms, kitchen, and utility room have discolorations that need to be corrected. The discolorations have been caused, apparently, by some sort of writing on the sub-surface under the vinyl. Letters and numbers are bleeding through the vinyl. Inspector Billings issued a Corrective Work Order to Respondent in January 1999. According to Inspector Billings, the CWO was based on language in Arizona Attorney General Opinion No. I79-119 (R79-071)(April 25, 1979), which interprets the complaint-period limitation statute. 4. The evidence presented shows that, for all practical purposes, the home was built as a spec home. It was put on the market by the Ullerys and remained vacant until May 1997. No one lived in the home before that. Respondent argued strenuously that the house was not a spec home, but this ALJ finds otherwise, and holds that whether the house was a spec home is not relevant to the correct analysis of the complaint-period limitation statute in a complaint against a subcontractor. 5. There is no evidence that Complainant has filed a complaint against the general contractor, DBU. Any such complaint would likely be barred by the limitation statute unless filed before May 22, 1999. CONCLUSIONS OF LAW 1. Complainant bears the burden of showing, by a preponderance of the evidence, that Respondent has violated the statutes cited in the Citation and Complaint. Culpepper v. State, 187 Ariz. 431, 437, 930 P.2d 508, 514 (Ct. App. 1996). In this case, Respondent has raised the statutory two-year limitation period found in A.R.S. § 32-1155(A) as an affirmative defense. 2. Arizona Revised Statutes (A.R.S.) §32-1155(A) states that a complaint may be filed against a licensee “within two years” of “an act which [sic] is cause for suspension or revocation of a license. . . .” Interpreting that language has not always been easy. Based on A. G. Op. I79-119 and Lyon v. Great American Insurance Co., 4 Ariz. App. 576, 422 P.2d 724 (1967), the ROC has generally interpreted the statute to mean that the time begins to run upon occupancy or discovery of the defect, whichever occurs first. Thus, a homeowner may file a complaint within two years of the date that the house is first occupied. In the case of a general contractor filing against a subcontractor, the period would start to run upon the subcontractor’s completion of the work, for that would be the “act” that would start the clock. A. G. Op. I79-119, at p. 2. 3. As an affirmative defense, Respondent has the burden of proving that the complaint-period limitation statue is applicable and that the complaint falls outside the two-year period. Troutman v. Valley Nat’l Bank of Az., 170 Ariz. 513, 826 P.2d 810 (Ct. App. 1992). This is not a favored defense. Third & Catalina Associates v. City of Phoenix, 182 Ariz. 203, 895 P.2d 115 (Ct. App. 1994). Principles of equity and estoppel may limit the use of the statute of limitations as a bar to an action, especially in a consumer protection context such as ROC complaints. See, Hosagai v. Kodota, 145 Ariz. 227, 700 P.2d 1327 (1985)(narrow equitable exceptions to the statute of limitations are warranted under certain circumstances; court recognizes the doctrine of equitable tolling, which stops the running of the limitation period when it would effectuate the policies of the underlying statute and the purposes of the statute of limitations); see also, Freeman v. Wilson, 107 Ariz. 485 P.2d 1161 (1971)(estoppel bars limitations defense when person asserting defense lulls the other into not taking action). On the other hand, the statute purports to create finality to a contractor’s liability for workmanship. These two interests--consumer protection and a definite end to a contractor’s workmanship liability-- compete against each other when interpreting the statute. 4. Inspector Billings issued the CWO in this case because of the language in A. G. Op. I79-119. On page 2 of that Opinion, just after stating that the time starts running at the earlier instance of occupancy or discovery of the defect, the Attorney General states: “This standard remains the same regardless of whether it is the general contractor or a subcontractor against whom the complaint is made.” The Opinion does not state the reason for that conclusion. This ALJ finds that statement to be unsupported by the Opinion and by an analysis of the statute, and recommends that the ROC not follow it. Opinions of the Attorney General are advisory and not binding. Green v. Osborne, 157 Ariz. 363, 758 P.2d 138 (1988). Moreover, a well-reasoned analysis leads to a different conclusion in the case of a homeowner complaining against a subcontractor rather than the general contractor. 5. As noted above, the two-year period generally begins to run upon occupancy. Usually, physical occupancy will coincide with the issuance of a certificate of occupancy by the local authorities. Thus, issuance of a certificate of occupancy is generally a good benchmark for determining the start of the period. However, when a general contractor builds a spec home (one that has not been sold before its construction), holds it for six months, then sells it to a buyer (the “homeowner”), the complaint- limitation period against the general contractor begins to run at the transfer of possession from the general contractor to the homeowner, not from the date of the certificate of occupancy. This is consistent with the language of the statute and a fair result because the “act” by the general contractor is the tendering of a house with poor workmanship and a general contractor would not be expected to file a complaint against itself. Thus, the limitation period against the general contractor will not begin on model homes until transferred from the builder’s possession. 6. But there is no good reason to also toll the period against the subcontractors in a spec home situation. The last “act” for which a subcontractor could be charged with a violation would be the date on which the subcontractor’s work is completed. The subcontractor has no control over the use or transfer of a spec home. It would not be a fair reading of the statute, nor an equitable one, to hold that the general contractor may “sit on” the house for many years while using it as a model or trying to sell it and thereby keep the subcontractor’s workmanship liability extended beyond two years after the subcontractor has completed the work. Unlike the general contractor, there would be no “act” by the subcontractor after completion of the subcontractor’s work upon which to hinge a charge against the subcontractor. 7. It could be argued that, if the subcontractor knows that he is working on a spec or model home, then he is on notice that he may be workmanship-liable for longer than two years. However, such an argument is not persuasive because it places the emphasis on the subcontractor’s knowledge instead of his actions. The limitation statute refers to actions. Furthermore, allowing the general contractor’s actions to extend the period for a homeowner to file a complaint against a subcontractor does not encourage the general contractor to diligently monitor the work of subcontractors and make sure that there are no workmanship problems within two years of the subcontractor’s completion of the work. Due diligence in monitoring the subcontractor’s work is more greatly encouraged by strictly adhering to the two years when a homeowner files against the subcontractor because the general contractor may find himself without ROC recourse against the subcontractor. 8. It is this ALJ’s understanding that the Registrar has long held the position, consistent with A. G. Op. I79-119, that the period begins to run against a subcontractor the same time that it begins to run against the general contractor, usually at physical occupancy by the buyer, which coincides with or is near enough to the certificate of occupancy date. In a non-spec home case, that position would seem to be reasonable. It is not consistent with the “act” language of the statute because most or all of the subcontractors have completed their work by then. But, it does provide a bright line for determining when the period begins, and is easier to administer than multiple periods based on completion of the various tradesmen. In a spec home case, it would be reasonable to proclaim certificate of occupancy date as the date that the period begins to run. Again, it is not completely consistent with the statutory language, but provides a bright line. It would not be reasonable in a spec home case, however, to find that the time starts running on a date later than the certificate of occupancy date. Such a rule would balance too far against certainty and finality for the subcontractor’s workmanship liability period. 9. In summary, this ALJ advocates the following interpretation of the complaint-period limitation statute, A.R.S. § 32-1155(A). In a complaint by the buyer of a spec or model home against a subcontractor, the two year period in which to make the complaint to the ROC begins on the date that the certificate of occupancy issues. In this regard, one could say that the general contractor is the first “occupant” since the general contractor is using the structure and has “constructive occupancy” if not actual occupancy. However, if the same complaint is filed against the general contractor, the period does not begin until the close of escrow on the sale from the general contractor to the homeowner. This is because the general contractor has “acted” when it sells the house. 10. In Complainant’s case, the two-year period began when the certificate of occupancy issued in November 1996, giving Complainant until November 1998 to file a complaint against subcontractors. Her complaint filed against the Respondent subcontractor in January 1999, is therefore too late and is barred by A.R.S. § 32-1155(A). The complaint should be dismissed. RECOMMENDED ORDER Considering the above findings and conclusions, it is hereby recommended that the Citation and Complaint in Case No. L99-0113 against Arizona Carpetman, Inc. be dismissed.

Done this 4th day of May 1999.

OFFICE OF ADMINISTRATIVE HEARINGS

______________________________________ Eric A. Bryant Administrative Law Judge

Original mailed this ___ day of May 1999, to:

Michael P. Goldwater ATTN: Joyce Armijo Registrar of Contractors 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