ALJDEC

99F-M0626-ROC · Registrar of Contractors · 1999-04-08

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 8, 1999 at 9:00 a.m. APPEARANCES: Complainant appeared on his own behalf; Respondent appeared through its attorney, William E. Morga, Esq. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

At the beginning of the scheduled hearing, the administrative law judge briefly explained, in light of the relief Complainant requested in his complaint to the Registrar of Contractors and Respondent’s motion to dismiss, the nature of this administrative proceeding, the issues raised by the complaint and response, and the relief available in this forum as compared to the relief available in a judicial forum. At the conclusion of the administrative law judge’s explanation, Complainant asked to withdraw his complaint. Based upon the entire record, the undersigned makes the following Findings of Fact, Conclusions of Law and Recommended Order. FINDINGS OF FACT Respondent, a corporation, possesses License No. 108007, Class B, which the Registrar of Contractors issued on July 3, 1995. On November 10, 1998, Complainant made a complaint to the Registrar, alleging among other things that Respondent’s qualifying party William Ferrara’s father-in-law, Jim Banks, had induced Complainant to enter into a contract with Respondent for certain remodeling of Complainant’s residence. Mr. Banks allegedly told Complainant that he could obtain a home improvement loan through a federally funded program. Complainant applied for a loan and allegedly provided all requested information to Mr. Banks, including that he had two mortgages on his residence. Within the three days allowed by federal law, Complainant canceled the loan application because he was concerned about taking on additional debt. Complainant never got a copy of the first loan application, which allegedly set forth the accurate information he had provided. Complainant later reconsidered and, on or about June 23, 1998, Mr. Banks made out a second loan application based on the information Complainant had previously provided. According to Complainant, Mr. Banks deliberately omitted from the second loan application the second mortgage on the residence, even though Respondent had told him about the mortgage, and misrepresented Complainant’s income and other matters. After Mr. Banks or Respondent’s qualifying party allegedly told Complainant that the loan had been approved, Respondent commenced and completed some $12,000 worth of remodeling work on Complainant’s residence. When no bank or other lending institution actually approved the loan, however, Respondent recorded a deed of trust on Complainant’s residence for the amount owed for remodeling. This deed or trust allegedly has prevented Complainant from obtaining a debt consolidation loan secured by his residence, whose terms would be more favorable that those of the present two mortgages and lien or deed of trust. According to Complainant’s complaint to the Registrar, because “all of the hassle and loss of work Casa Blanca has cost me[,] I feel that we should in return receive some kind of compensation.” On December 31, 1998, the Registrar issued his Citation and complaint in this matter, charging a violation of A.R.S. § 32-1154(A)(7). On or about January 6, 1999, the Registrar received Respondent’s response to the Citation and Complaint. According to Respondent, in addition to being a licensed contractor, it is an approved dealer that may obtain home improvement loans for homeowners from Norwest Home Improvement, an FHA lender, and The Money Store and Lyon Financial, both conventional lenders. Respondent hires commissioned canvassers to obtain loan applications and remodeling contracts. According to Respondent, Complainant did not disclose the existence of the second mortgage and misrepresented other relevant information on both loan applications. After Norwest Bank allegedly had issued preliminary approval of Complainant’s second loan application based on the information he had provided, it discovered the existence of the second mortgage and denied the loan. Respondent was unable to obtain other financing for Complainant’s remodeling and eventually recorded a deed of trust on Complainant’s residence to protect its right to payment. Respondent asserts that it has not attempted to enforce its retail installment contract with Complainant, hoping that Complainant would be able to pay down his debt and, perhaps, refinance one or both of the mortgages. In any event, according to Respondent, Complainant is in no worse position than it would have been had financing been obtained for the home improvement loan because the amount of the loan and terms of repayment are the same. The only difference is that Respondent holds the note, rather than Norwest or another lending institution. On or about February 1, 1999, the Registrar set a hearing in this matter for April 8, 1999 before the Office of Administrative Hearings . On or about March 12, 1999, Respondent filed a “Motion to Dismiss for Lack of Jurisdiction,” which argued that the Registrar could not consider Complainant’s complaint because it did not allege any workmanship or construction-related misconduct, but instead alleged misconduct in the procurement of the home-improvement loan. According to the motion, when Respondent provided the financing for the home improvements to Complainant’s residence, it was not acting as a contractor. In the alternative, Respondent argued that Complainant had failed to allege a violation of A.R.S. § 32-1154(A)(7) because he had not alleged any “substantial violation” because the improvements were worth the approximately $12,000 contract amount. Complainant did not respond to the motion. On April 7, 1999, the day before the scheduled hearing in this matter, a hearing was held in Case No. 99F-M0157-ROC before Administrative Law Judge Mark Silver. This complaint had been made against Respondent by Complainant’s daughter, Crystal

Gomez, for Respondent’s misconduct in performance of a contract it had made with Ms. Gomez at about the same time it performed its remodeling contract with Complainant. Although the two matters could not be appropriately consolidated, Complainant was a witness at the hearing of Ms.Gomez’ complaint. Following the hearing in Case No. 99F-M0157-ROC, Complainant filed a request to continue the hearing that had been scheduled for the next morning in this matter “based on my desire to hire legal counsel to represent my interest at the hearing.” The motion was denied as untimely. For various reasons, at least some of which were discussed at the hearing and are summarized herein, Complainant elected to withdraw his complaint against Complainant’s license, without prejudice to Complainant’s assertion of this complaint in a court of competent civil jurisdiction. CONCLUSIONS OF LAW If Complainant had not withdrawn his complaint, a hearing would have been necessary to resolve it. Even if Respondent was not actually performing construction work when it took Complainant’s loan application, since Respondent would receive the proceeds of the loan as compensation for contracting work, if the evidence established that Respondent had misrepresented the availability or terms of financing, such evidence would also have established fraud in the inducement of the parties’ contract for remodeling work. Thus, if the evidence had substantiated Complainant’s complaint allegations, he would have established “a wrongful or fraudulent act by [Respondent] as a contractor resulting in another person being substantially injured.” See A.R.S. § 32-1154(A)(7). Moreover, even if the remodeling work was worth the price Respondent charged, if Respondent’s misrepresentation caused Complainant to take on more debt than he could afford or to take out a loan at less favorable terms than he could have obtained elsewhere, Complainant may have been able to establish “substantial injury.” Although the Registrar has jurisdiction to consider the complaint, however, the legislature has not empowered him to compensate Complainant for aggravation, lost time, or other consequential damages. “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. See Sunpower, 166 Ariz. at 441, 803 P.2d at 434. However, tort or breach-of-contract damages may only be awarded by a court having appropriate civil jurisdiction. In this case, therefore, if Complainant proved a contracting law violating, the only relief available to him may have been a sanction against Respondent’s license, not any monetary compensation. The legislature also has not authorized the Registrar or the Office of Administrative Hearings to award attorneys’ fees for complainants’ successful prosecution of claims against contractors under A.R.S. §§ 12- 341.01(A) or (C) or 12-349 because such authority is only given to a “court,” not an administrative agency. Cf. Columbia v. Arizona Department of Transportation, 1 CA-CV 97-0552 (Ct. App. Div. One January 19, 1999) at ¶ 22 (construing A.R.S. § 12-348(A)(2)). Similarly, the rules of procedure before the Office of Administrative Hearings are fairly rudimentary and do not provide for the kind of extensive discovery and disclosure that the Arizona Rules of Civil Procedure provide in court actions. Although the Registrar’s hearing process provides a simple and inexpensive forum where homeowners’ claims against contractors concerning contract performance may be resolved, the process is less well suited to determine and remedy disputes about contract formation, like Complainant’s. Complainant’s decision to withdraw his complaint against Respondent is deemed to be voluntary and knowing. RECOMMENDED ORDER In view of the foregoing, it is recommended that the Registrar dismiss Case No. M99-0626 against Respondent. Done this day, April 8, 1999.

______________________________________ Diane Mihalsky Administrative Law Judge

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

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

ATTN: Joyce Armijo

By ___________________________

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

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