ALJDEC

99F-M1233-ROC · Registrar of Contractors · 2001-01-08

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: November 6 & 7, 2000, January 8, 2001. The record closed on January 26, 2001. APPEARANCES: James R. Hart, II, Esq. (of Martin, Hart & Fullerton) represented Ambassador Plumbing, Inc. James L. Tanner, Esq. (of Jackson White Gardner Weech & Walker) represented Better Homes Construction, Inc. ADMINISTRATIVE LAW JUDGE: Daniel G. Martin _____________________________________________________________________ The issue presented by this consolidated matter is whether Ambassador Plumbing, Inc. and/or Better Homes Construction, Inc. is subject to discipline for acts or omissions in violation of A.R.S. § 32-1154. Based on the evidence of record, and post-hearing memoranda submitted by the parties, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law and Recommended Order: FINDINGS OF FACT 1. Ambassador Plumbing, Inc. (“Ambassador”) is the holder of a Class C-37 license (No. 098766) issued by the Registrar of Contractors (“ROC”). Mike Messersmith is Ambassador’s qualifying party. 2. Better Homes Construction, Inc. (“Better Homes”) is the holder of a Class B license (No. 111628) issued by the ROC. Tammy Freeman is Better Homes’ qualifying party. However, Ms. Freeman’s husband, C.R. “Bobby” Freeman, is the person principally responsible for Better Homes’ day-to-day operations. Also involved in Better Homes’ business is the Freemans’ son, Robert. Neither Bobby nor Robert Freeman is listed on Better Homes’ ROC license. 3. Between June 1998 and February 1999, Ambassador entered into a series of contracts with Better Homes to install plumbing lines and fixtures in eleven homes that Better Homes was constructing. The majority of these agreements were verbal; however, three of the agreements were memorialized in written proposals prepared by Ambassador and accepted by Better Homes. 4. The eleven homes in issue, identified by the names of the persons for whom they were built, are as follows: Cobb, Griggs, Henry, Huhn, Khoo, Mlcak, Pierce, Scott, Walker, Watson and Woolverton. 5. According to Ambassador, Better Homes agreed to pay Ambassador $500.00 “per hole” for plumbing at each of the foregoing homes. This price included underground (i.e., piping under the foundation), rough- in (i.e., piping and related plumbing above the foundation) and trim set (i.e., installing fixtures upon completion of drywall). Ambassador’s price included the cost of fixtures, but, according to Ambassador, it was obligated only to use standard “tract home” fixtures (i.e., the least expensive plumbing fixtures that could be provided). To the extent upgraded fixtures were requested, Ambassador asserted that the agreement between the parties contemplated that an additional charge would be paid. 6. The Administrative Law Judge finds the foregoing to be an accurate statement of the agreement between the parties, with one exception: The evidence demonstrated that the $500.00 “per hole” figure was, at best, a “not to be exceeded” price that Ambassador used to prepare quotes for the plumbing cost of each of the eleven homes. The actual contract price for each of the homes was, in most instances, based on specific Ambassador proposals (both oral and in writing). The Administrative Law Judge finds those prices to be as follows: |Home | |Price | | | | | |Cobb | |$ 6,892.00 | |Griggs | |$ 5,250.00 | |Henry | |$ 8,736.72 | |Huhn | |$ 6,500.00 | |Khoo | |$ 8,018.22 | |Mlcak | |$ 9,500.00 | |Pierce | |$ 5,738.20 | |Scott | |$ 8,100.00 | |Walker | |$ 6,892.00 | |Watson | |$ 6,000.00 | |Woolverton | |$11,366.00 |

Over the approximately nine month period of its working relationship with Better Homes, from June 1998 through April 2, 1999, Ambassador worked at each of the homes in issue. However, Ambassador’s progress was slow, and by the Spring of 1999, Better Homes was demanding that Ambassador complete its work. The Administrative Law Judge finds that for the most part, Ambassador’s slow pace was attributable to ordinary construction issues beyond its control (including, for example, delays caused by other trades). The tension between the parties came to a head when, by letter dated April 2, 1999 (Exhibit BHC63-65), C.R. Freeman wrote to Mike Messersmith, expressed his concerns with Ambassador’s progress, and insisted that Ambassador complete its work. As of this time, Ambassador was still working on Better Homes’ projects (although admittedly not as quickly as Better Homes wanted). The Administrative Law Judge finds that as of April 2, 1999, the homes in issue were in the following stages of construction: |Home | |Percent Completed | | | | | |Cobb | |99% | |Griggs | |66% | |Henry | |99% | |Huhn | |33% | |Khoo | |Complete | |Mlcak | |33% | |Pierce | |66% | |Scott | |66% | |Walker | |Complete | |Watson | |66% | |Woolverton | |66% |

There is no evidence of record that Ambassador refused to acknowledge Mr. Freeman’s April 2, 1999 letter, or that Ambassador advised Better Homes that it was no longer going to perform under its contracts with Better Homes. Yet, by letter dated April 5, 1999, Better Homes, through Robert Freeman, advised Ambassador “I am sorry that our relationship has come to this but affective [sic] Tue. April 6, 1999 I have a different plumbing company completing all of Better Homes Construction Inc. jobs.” [Exhibit BHC71] The Administrative Law Judge finds that the most reasonable inference to be drawn from the evidence presented at hearing is that Better Homes terminated Ambassador because it believed it could obtain better results from a separate subcontractor. And in fact, subsequent to its April 5, 1999 termination of Ambassador, Better Homes hired two other plumbing contractors, AK Plumbing and Jesco Plumbing, to complete the remaining work at the homes still under construction. As of April 5, 1999, when Better Homes terminated Ambassador, the following amounts remained due and owing to Ambassador for the work that it had then completed: |Home | |Amount Due | | | | | |Cobb | |$ 2,392.00 | |Griggs | |$ 2,500.00 | |Henry | |$ 3,936.72 | |Huhn | |$ 0.00 | |Khoo | |$ 0.00 | |Mlcak | |$ 0.00 | |Pierce | |$ 2,000.00 | |Scott | |$ 5,000.00 | |Walker | |$ 2,461.50 | |Watson | |$ 0.00 | |Woolverton | |$ 2,915.12 | | | | | |TOTAL: | |$21,205.34 |

At the hearing, Better Homes presented evidence of the costs it incurred to complete the homes in question following its termination of Ambassador, and urged that to the extent it was found to owe any money to Ambassador, that debt should be offset against such costs. For the reasons set forth in Conclusions of Law Nos. 14, 15 & 16, below, the Administrative Law Judge finds that Better Homes is not entitled to such an offset. Therefore, the Administrative Law Judge does not address Better Homes’ offset claim in any more detail. On April 6, 1999, Ambassador filed a complaint against Better Homes with the ROC alleging non-payment. On April 8, 1999, Better Homes filed a number of complaints against Ambassador with the ROC alleging abandonment, delay and breach of contract. On May 28, 1999, the ROC issued a Citation and Complaint charging Better Homes with violations of A.R.S. § 32-1154(A)(11) (failure to pay monies in excess of seven hundred fifty dollars when due for materials or services rendered) and (A)(7) (wrongful act resulting in substantial injury). By written notice dated June 30, 1999, the ROC amended its May 28, 1999 Citation and Complaint against Better Homes to include an additional charge that Better Homes violated A.R.S. § 32-1154(A)(21) (having a person named on the license who is named on any other license in this or another state that is under suspension or revocation). On December 15, 1999, the ROC issued a Citation and Complaint charging Ambassador with violations of A.R.S. § 32-1154(A)(1) (abandonment of contract or refusal to perform without legal excuse) and (A)(7) (wrongful act resulting in substantial injury). Facts Relating to the ROC’s Charge that Better Homes Violated A.R.S. § 32-1154(A)(21)

On July 6, 1994, the Regulation and Licensing Department of the State of New Mexico issued a contractors license to Diamond Builders, Inc. (“Diamond”). C.R. Freeman served as qualifying party for that license. C.R. Freeman, Tammy Freeman and Robert Freeman were all directors of Diamond. [See Exhibit AP20 (Public Regulation Commission printout)] New Mexico revoked Diamond’s license on June 24, 1997. The evidence demonstrated that New Mexico revoked Diamond’s license following a complaint of poor workmanship to which Diamond failed to respond. [See Exhibit AP20 (complaint records)] When Better Homes obtained its Arizona license, C.R. Freeman was listed on the license as an officer (secretary) of the corporation. Mr. Freeman testified that he resigned when he became aware that New Mexico had revoked Diamond’s license. Tammy Freeman, however, remained on Better Homes’ license as its qualifying party. CONCLUSIONS OF LAW 1. In this proceeding, Ambassador bears the burden to prove, by a preponderance of the evidence, that Better Homes is subject to discipline for violations of A.R.S. § 32-1154(A)(7), (11) and/or (21) as charged by the ROC in its May 28, 1999 Citation and Complaint, and June 30, 1999 amendment to that Citation and Complaint. Better Homes, on the other hand, bears the burden to prove, by a preponderance of the evidence, that Ambassador is subject to discipline for violations of A.R.S. § 32-1154(A)(1) and/or (7) as charged by the ROC in its December 15, 1999 Citation and Complaint. See Arizona Administrative Code (“A.A.C.”) R2-19-119. 2. 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). Ambassador’s Complaint Against Better Homes 3. Under A.R.S. § 32-1154(A)(11), a contractor is subject to discipline for “failure . . . 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 . . . .” 4. The weight of the credible evidence established that Better Homes owes Ambassador not less than $21,205.34 for Ambassador’s services rendered at the eleven homes in issue, and that this amount is currently due and owing. There was no evidence presented that Better Homes lacks capacity to pay. Therefore, the Administrative Law Judge concludes that Better Homes violated A.R.S. § 32-1154(A)(11). 5. Under A.R.S. § 32-1154(A)(7), a contractor is subject to discipline for “the doing of a wrongful or fraudulent act . . . as a contractor resulting in another person being substantially injured.” 6. The evidence established that Better Homes committed a wrongful act when it failed to pay Ambassador for services provided, and that such wrongful act substantially injured Ambassador by depriving Ambassador of a significant amount of money to which Ambassador was lawfully entitled. On this basis, the Administrative Law Judge concludes that Better Homes violated A.R.S. § 32-1154(A)(7). 7. Under A.R.S. § 32-1154(A)(21), a contractor is subject to discipline for “[h]aving a person named on the license who is named on any other license in this or another state that is under suspension or revocation . . . .” 8. A.R.S. § 32-1101(A)(5) defines “person” as “an applicant, an individual, a member of a limited liability company, a qualifying party, any partner of a partnership or limited liability partnership or any officer, director, qualifying party, trustee of a trust, beneficiary of a trust or owner of at least twenty-five percent of the stock or beneficial interest of a corporation” (emphasis added). 9. The evidence demonstrated that Tammy Freeman, Better Homes’ qualifying party, was a director of Diamond, and therefore, by virtue of that position, a person named on Diamond’s license. Based on this finding, the Administrative Law Judge concludes that Better Homes stands in violation of A.R.S. § 32-1154(A)(21) because its qualifying party, Ms. Freeman, is a person named on a license from another state that has been revoked. 10. Based on the foregoing violations, it is appropriate to impose discipline against Better Homes’ Class B license. 11. The ROC’s May 28, 1999 Citation and Complaint advised Better Homes that in the event of a finding of a violation against it, Better Homes’s prior disciplinary record of final Registrar of Contractors’ orders could be considered in mitigation or aggravation. Accordingly, subsequent to the conclusion of the instant hearing, the Administrative Law Judge took notice of prior final disciplinary orders against Better Homes in the ROC’s official records. Those records revealed one prior complaint that had gone into the hearing process. The Administrative Law Judge considered this record in connection with determining the disciplinary penalties to be imposed against Better Homes as a result of this case. 12. The Registrar of Contractors’ authority in disciplinary matters such as the one presented herein includes the ability to impose reasonable conditions that allow the disciplined contractor to reduce the scope of the disciplinary action taken against it. The Administrative Law Judge deems the exercise of such authority to be appropriate in the instant case. Therefore, based upon all the evidence, a reasonable condition in this case would consist of the payment by Better Homes to Ambassador of $21,205.34, the amount Better Homes owes Ambassador for Ambassador’s services rendered. Imposing such a condition is preferable to imposing disciplinary action against Better Homes’ license without providing a condition to reduce or eliminate same. Better Homes’ Complaint Against Ambassador 13. Under A.R.S. § 32-1154(A)(1), a contractor is subject to discipline for “abandonment of a contract or refusal to perform after submitting a bid on work without legal excuse for the abandonment or refusal.” 14. The Administrative Law Judge concludes that Better Homes failed to sustain its burden to prove that Ambassador abandoned any of its contracts with Better Homes, or that Ambassador refused to perform those contracts. The evidence demonstrated that as of April 2, 2000 (a Friday), Ambassador was still working on Better Homes’ projects (albeit not as quickly as Better Homes might have wished), and that on April 5, 2000 (a Monday), Better Homes made a unilateral decision to terminate Ambassador. As noted in Finding of Fact No. 11, the most reasonable inference to be drawn from the evidence is that Better Homes terminated Ambassador because it believed it could obtain better results from a separate subcontractor. While Better Homes may have been correct on this point, it does not establish that Ambassador had either abandoned any of its contracts with Better Homes, or that Ambassador refused to perform. 15. Based on the foregoing, the Administrative Law Judge concludes that Ambassador did not violate A.R.S. § 32-1154(A)(1). 16. Because Ambassador did not abandon any of its contracts with Better Homes, and did not refuse to perform, Better Homes is not entitled to any offset of the amount it owes Ambassador for charges that Better Homes incurred following its termination of Ambassador. 17. The Administrative Law Judge further concludes that because Better Homes failed to sustain its burden to prove that Ambassador abandoned its contracts with Better Homes or refused to perform, Better Homes also failed to sustain its burden to prove that Ambassador committed any wrongful acts in violation of A.R.S. § 32- 1154(A)(7). 18. Because Better Homes failed to prove that Ambassador violated the provisions of A.R.S. § 32-1154(A), no grounds exist to impose discipline against Ambassador’s license. The ROC’s Citation in Case Number M99-1233, and the Complaint upon which it is based, should be dismissed. RECOMMENDED ORDERS Based on the foregoing, the Administrative Law Judge makes the following recommended Orders: With regard to Docket Number No. 99F-M1233-ROC, it is recommended that no discipline be imposed against Ambassador’s license, and that the Citation issued in Case Number M99-1233, together with the Complaint on which it is based, be dismissed. With regard to Docket Number 99F-M1216-ROC-RHG, it is recommended, commencing on the effective date of the Order entered in this matter, that Better Homes’ Class B license be suspended until the ROC receives credible written proof that Better Homes has paid or tendered to Ambassador the sum of $21,205.34. With regard to Docket Number 99F-M1216-ROC-RHG, it is further recommended that if Better Homes pays or tenders to Ambassador the sum of $21,205.34 on or before the effective date of the Order entered in this matter, and provides credible written proof to the ROC of such payment, then the above provided suspension shall not take place. With regard to Docket Number 99F-M1216-ROC-RHG, it is further recommended, in addition to the above provided penalties, if any, that Tammy Freeman be removed as qualifying party from Better Homes’ license and replaced with a qualifying party approved by the ROC. With regard to Docket Number 99F-M1216-ROC-RHG, it is further recommended, commencing sixty (60) days from the effective date of the Order entered in this matter, that if Tammy Freeman has not been removed as qualifying party from Better Homes’ license and replaced with a qualifying party approved by the ROC, that Better Homes’ Class B license be suspended until Tammy Freeman has been removed as qualifying party from Better Homes’ license and replaced with a qualifying party approved by the ROC.

Done this day, February 15, 2001.

______________________________________ Daniel G. Martin Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 2001, to:

Michael P. Goldwater, Director Registrar of Contractors 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