ALJDEC

99F-M0159-ROC · Registrar of Contractors · 1999-03-23

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: March 23, 1999 at 9:00 a.m. APPEARANCES: Complainant appeared through its Project Manager, Quinten Merrill; Respondent appeared through its Qualifying Party, Raul Valenzuela, Jr. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

The parties presented evidence and testimony and, at the conclusion of the hearing, agreed to settle Complainant’s complaint against Respondent’s license. Based on 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. 096962, Class C-09, to Respondent, a partnership, on April 8, 1993. The Registrar’s records also show that, on February 2, 1998, this license was canceled and License No. 131496, Class C-09 was issued to Valenzuela Concrete, Inc., a corporation. The same individuals are listed on License No. 0131496 as were listed on License No. 096962 and, it appears, Respondent was operating under the later issued license when the events giving rise to Complainant’s complaint occurred. Complainant is a licensed general contractor that, sometime in 1997, contracted to build a house for an individual who had purchased a lot from the developer in the Val Vista Lakes subdivision in Gilbert after the land had been subdivided (“the original owner”). On or about July 30, 1997, Respondent contracted with Complainant to perform the concrete work for the house. Complainant was the general contractor only for construction of the single house on the isolated lot in the Val Vista Lakes subdivision. It did not commission or obtain a soils report for the lot from the original owner or from the developer who had prepared the subdivision for development. Because some areas near Gilbert have expansive soils, the work order that Complainant gave Respondent required use of crushed rock rather than AB fill. The work order did not require that the driveway slab, front entrance, back patio, or sidewalk be poured to any specific thickness or that any additional precautionary measures be taken. When Respondent poured the sidewalk, front entrance, back patio, and driveway, such concrete work complied with terms of the work order and the Registrar’s Minimum Workmanship Standards for Licensed Contractors. After the residence was constructed, including the concrete work, the original owner sold it to Bob Lawyer. Respondent contracted separately with Mr. Lawyer to construct a retaining wall and gazebo in back of the residence and to bring in some fill dirt. At some point thereafter, the soil surrounding the residence heaved. As a result, the patio cracked, the outside edge of the front entrance and patio lifted, which caused water to drain toward the residence, and the driveway and sidewalk lifted unevenly, which caused vertical deflection of between 4½” and 5½” between the sidewalk and driveway that Respondent had poured and the city sidewalk located across the outside edge of the house’s front yard. Mr. Lawyer complained to Complainant and threatened to file a complaint to the Registrar. Complainant contacted the Registrar’s office, which sent the Registrar’s inspector Van Bagley to perform a courtesy inspection of Respondent’s front yard. The parties were unable to resolve their dispute and, on July 29, 1998, Complainant made a formal complaint to the Registrar. On October 15, 1998, Inspector Bagley performed a jobsite inspection, which both parties attended. As a result of that inspection, on October 29, 1998, the Registrar directed Respondent to correct the problems noted above in Statement of Fact No. 6 within fifteen days of the date of the order. Inspector Bagley testified at the hearing that, apart from the problems noted in the Registrar’s directive, the drainage of the site appeared adequate and that the retaining wall, additional fill dirt, and gazebo that Respondent had built pursuant to its contract with Mr. Lawyer did not cause or exacerbate the problems noted. Respondent did not dispute that the problems with the concrete work needed to be corrected, but disputed whether it was responsible for performing the corrective work, since it had complied with Complainant’s work order and had never been given a soils report. In addition, if the Registrar determined Respondent was responsible for performing the corrective work, it wanted to obtain a soils report because, without one, it could not be sure that corrective work was appropriate and that the problems would not reoccur. On November 12, 1998, Respondent requested an administrative hearing to resolve the dispute. On November 16, 1998, Complainant also requested an administrative hearing. On January 6, 1999, Respondent asked Complainant for a soils report for the Lawyer residence. As noted above in Statement of Fact No. 4, Complainant did not possess a soils report and, therefore, did not provide one when Respondent requested it. Respondent also attempted to contract with Nasario Sanchez of CIT Soil Testing Co. to obtain a soils report, but Mr. Lawyer would not allow Mr. Sanchez on the property. Mr. Sanchez testified at the hearing pursuant to a subpoena that Respondent had caused to be issued. Because a developer or owner cannot obtain financing without a soils report, Mr. Sanchez was certain that the original owner of the lot, who had financed construction of the residence, must have had a soils report. Once a report is obtained, however, the only part of the lot that is usually processed is the “pad,” or area where the structure will be located, and approximately 5’ beyond its perimeter, or the “pad envelope.” Because other areas of the lot likely will be used for landscaping and processing adversely affects the soil’s capacity to aerate, entire lots are not processed. According to Mr. Sanchez, the soils report would have identified whether the soil at the lot was expansive and, if so, would have contained recommendations about how concrete should be poured outside the pad envelope to avoid problems. For example, in areas having expansive soils, crushed rock rather than AB fill generally is used, slabs for driveways, sidewalks, and patios are usually at least 5” thick, rather than 3½” or 4” thick, and ancillary slabs may be tied to the main slab with rebar or some other material. Mr. Sanchez also testified that soils reports are considered proprietary and confidential and cannot be released to third parties without the permission or consent of the individual or organization that commissioned the reports. Thus, although the original owner of the lot presumably possessed or had access to the soils report, neither Complainant nor Respondent could have obtained it without his permission or consent. Since the residence apparently was sold to Mr. Lawyer before any problems manifested, the report was never obtained. To placate Mr. Lawyer, Complainant contracted with Compass Point Development Co., an appropriately licensed contractor, to perform the corrective concrete work. On January 8, 1999, Complainant paid $5,670.00 to Compass Point Development Co. pursuant to this contract. At the conclusion of presentation of evidence, the parties agreed to settle their dispute at the hearing. Respondent agreed to pay or tender, and Complainant agreed to accept, a specified total monetary amount in full satisfaction of the complaint presently pending before the Registrar. Complainant also agreed to withdraw its complaint and to consent to the entry of an Order closing the within Citation without prejudice to the reopening of same or the filing of a new complaint in the event of any breach by Respondent of the payment terms of the agreement. The parties finally agreed that the settlement is without prejudice to a civil action by Respondent against Complainant for breach of contract or negligence in failing to obtain or provide the soils report. This administrative disciplinary proceeding is effectively cut short by the parties’ entry into the above-described settlement agreement, which this recommended decision presents to the Registrar for his approval and adoption. Respondent is advised that any future breach of the payment terms of the settlement agreement will not only constitute grounds for the filing of a new complaint but also shall warrant treatment as a circumstance in aggravation. All rights and defenses of the respective parties are deemed to have been merged into the settlement agreement, and if any timely petition for rehearing of this matter is filed, or if any new complaint is filed in the future, the sole issue for determination shall be whether Respondent has performed its obligations under the terms of the settlement agreement. The terms of the settlement agreement appeared to be fair and reasonable under all the circumstances, and the agreement was determined to be the product of knowing and voluntary action on the part of each party. CONCLUSIONS OF LAW “The Registrar’s power is limited to suspending or revoking a contractor’s license, or attaching conditions to the license. Money damages may not be awarded.” J.W. Hancock Enterprises, Inc. v. Arizona State Registrar of Contractors, 142 Ariz. 400, 406, 690 P.2d 119, 125 (App. 1984) (quoted in Sunpower of Arizona v. Arizona State Registrar of Contractors, 166 Ariz. 437, 440, 803 P.2d 430, 433 (App. 1990)). At most, the Registrar may impose reasonable conditions that may serve to reduce or eliminate any otherwise appropriate disciplinary penalties for proven violations of the state’s contracting laws and, if performance of corrective or remedial measures on a jobsite is no longer warranted or possible, the inclusion of a condition in the nature of restitution, total or partial, may be appropriate and equitably justified.[1] See Sunpower, 166 Ariz. at 441, 803 P.2d at 434. Respondent may have reasonably relied on Complainant to provide a soils report and to incorporate any recommendations from the report into the work order if conditions at the jobsite were unusual. Under the common law of contracts, Respondent’s reasonable reliance on the work order may constitute a legal excuse and may reduce any civil breach-of-contract damages for which it otherwise would be liable. Arguably, as a matter of general civil contract or tort law, Complainant may be more responsible than Respondent for the concrete work’s failure since, at the time Respondent poured the concrete, Complainant was in privity with the original owner and had better access to the soils report than Respondent. As was discussed at the hearing, the primary purpose of the contractor licensing statutes is to protect the public, not to resolve disputes between contractors equitably. In this licensing proceeding, Respondent’s reasonable reliance can only be a factor in mitigation to be considered in determining the appropriate penalty to be imposed in the event a statutory violation is found, because the legislature has not empowered the Registrar to award civil damages or to apportion civil damages between contractors under principles of comparative fault. Had the parties not settled, the evidence may have supported a conclusion that Respondent violated A.R.S. § 32-1154(A)(7),[2] (23)[3] and (3)[4] in its construction of patio, front entrance, sidewalk, and driveway. This is because, absent an unequivocal contract term or waiver that required Complainant to take responsibility for inadequate compaction of the underlying soil, under the standards the Registrar has adopted, Respondent arguably assumed responsibility for possible failures once he accepted the lot’s surface by pouring concrete on it.[5] The policy of the law favors settlements of disputes, and adverse parties should be free to adjust their differences by entry into agreement or stipulations which should be recognized and given effect by all tribunals. The parties’ presentation of evidence demonstrated that both sides proceeded in good faith and adopted reasonable positions throughout this proceeding. The parties’ failure to resolve their dispute prior to hearing can be attributed to a reasonable misunderstanding about what law should be applied to resolve the dispute in this particular forum. The settlement reached and submitted during the hearing of this matter, having been found to be reasonable and voluntarily made, warrants the termination of the hearing and the closing of the charges contained in the Citation and Complaint. RECOMMENDED ORDER In view of the foregoing, it is recommended that the entire Citation and Complaint in Case No. M99-0159 be closed.

Done this day, March 25, 1999.

______________________________________ Diane Mihalsky Administrative Law Judge

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

Registrar of Contractors Michael P. Goldwater 800 West Washington, 6th Floor Phoenix, AZ 85007

ATTN: Joyce Armijo

By ___________________________

----------------------- [1] In this way, a Complainant in an administrative action who has sustained the burden of proving contracting law violations does not have to await the outcome of protracted civil litigation in order to recover at least a portion of a demonstrated loss and, of equal or perhaps greater significance, a licensed contractor/Respondent is given the means to control, to some extent, the severity of any disciplinary penalty. Moreover, any amounts paid in satisfaction of a condition affecting licensure may properly be evaluated, credited or applied against any civil judgment ultimately obtained in favor of either party.

[2] 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.”

[3] 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.”

[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] Although the Minimum Workmanship Standards for Licensed Contractors do not make contractors responsible for “[s]ettling and heaving of soils under concrete caused by alteration of grades by owner or owner’s agent,” they do make contractors responsible for “settling or heaving if compaction is not according to the licensed soils engineer’s report and if no alterations have been made after close of escrow.” This standard makes a licensed contractor responsible for obtaining a soils report if there is a possibility that his work may be affected by expansive soils or other conditions that may not be discovered in a visual inspection.

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