ALJDEC

99F-O989138S-BFS · Department of Building and Fire Safety · 1999-08-04

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: July 16, 1999. APPEARANCES: COMPLAINANT: Department of Building and Fire Safety, by Victoria Mangiapane, Assistant Attorney General. RESPONDENT: Thomas Zatkalik, on his own behalf.

ADMINISTRATIVE LAW JUDGE: Anthony Halas _____________________________________________________________________ Hearing was convened on July 16, 1999, to determine if there were grounds for disciplinary action by the Department of Building and Fire Safety (Department) against salesperson’s license S05531 held by Thomas J. Zatkalik. Based on the testimony and evidence presented, and administrative notice of certain matters of record, the following Findings of Fact, Conclusions of Law and Recommended Decision are made to the Director of the Department:

FINDINGS OF FACT

1. On April 2, 1999, the Office of Administration, Department of Building and Fire Safety, directed CITATION AND COMPLAINT in Case No. 98-9/138S to Thomas J. Zatkalik (Zatkalik), holder of salesperson’s license S05531, issued on November 26, 1990. 2. Count I of the CITATION AND COMPLAINT alleged that Zatkalik, while employed as a licensed salesperson for dealer Busbee’s Mobile Home Sales, Inc. at Valley Manufactured Homes, did aid and abet unlicensed persons and did act as an agent, partner or associate of unlicensed persons, Jerry Thomas (Thomas) and Rick Cromley (Cromley) dba Septic Southwest, Inc. (SSI), in the sale of a 1999 Schult manufactured home (the home), serial no. SA290934A/B to Harry and Bernie Bell (the Bells), in violation of A.R.S. §§ 41-2186.1, .4, and .6. 3. Count II of the CITATION AND COMPLAINT alleged that Zatkalik failed to work only within the scope of the license he held, in that while he was an incorporator of SSI, that corporation sold the manufactured home to the Bells, in violation of A.R.S. §§ 41-2186.1, .6, and .21. 4. The CITATION AND COMPLAINT asserted that for the violations alleged, Zatkalik’s license should be revoked or suspended, or that Zatkalik be placed on probation; and that an administrative penalty of $1000.00 be imposed for each violation. 5. By correspondence dated April 15, 1999, Zatkalik answered the CITATION AND COMPLAINT, providing an explanation of circumstances and events and an assertion that his license should not be revoked, suspended, and/or fined. 6. Hearing was therefore scheduled and convened, at which time the Department, bearing the burden of proof, appeared through counsel and presented the testimony of Harry Bell (Bell), the purchaser of the manufactured home, and Donna Grant (Grant), the Department’s investigator, and offered Exhibits 1 through 8, which were marked and admitted, without objection. 7. Harry Bell credibly testified to explain that he and his wife Bernie had been interested in buying a home in the Flagstaff area, but were limited in their ability to put money down or qualify for financing, so that they had responded, by calling the telephone number provided, to an advertisement in a Flagstaff newspaper in about May, 1998, which presented the opportunity of buying a 2 ½ acre land/home package with no money down. 8. The call made by the Bells was to Cromley, and ultimately led to their purchase of a manufactured home, serial no. SA290934A/B, and the real property upon which the home was placed, from Septic Southwest, Inc. (Exhibit 1). 9. Bell’s testimony explaining the chronology and description of the events in question, both before and after the sale, is found to be both reliable and consistent with the narrative history provided in the complaint the Bells filed with the Department on March 25, 1999 (Exhibit 2); and corroborated by the additional evidence contained in Exhibits 1, 4, 5, 7, and 8, as well as the foundational testimony and conclusions of Grant, the Department’s investigator. 10. On the basis of that testimony by Bell and the corroborating evidence, it is found that in May, 1998, Cromley referred the Bells to Zatkalik in his capacity as a manufactured housing salesman for Valley Manufactured Housing, a subsidiary of the dealer. (Of incidental interest, and apparently unknown to Mr. Bell until questioned by Zatkalik at hearing, is that Mrs. Bell had seemingly visited Valley Manufactured Housing on September 2, 1997, but Zatkalik confirmed he had no memory of meeting with her then - she had been logged in by another salesman - and no indication she was doing anything other than window-shopping (see Exhibit A)). 11. At that initial meeting with Zatkalik in May, 1998, which involved about an hour and a walk-through presentation of the various home models on site, Bell stated that he and his wife made a number of choices about the model, options, and colors they desired, and believed as a result that they were in the process of ordering a home to their specifications. 12. Eventually, after attempting for a number of months to meet the terms presented by Cromley and then Thomas to gain financing, provide the $4000.00 down payment (by check to Septic Southwest, Inc.), and pick a parcel of land, the Bells were able to gain financing. During that time, they were led to believe by Cromley that Septic Southwest, Inc. was in the business of assisting buyers with poor credit such as themselves, and they also received money, from Thomas by means of a promissory note, by allowing Thomas to assert in writing he was a relative of Mrs. Bell, although he was not. Bell stated that this was all part of the “creative financing” with which Cromley had originally promised to assist them. 13. Finally, when told their home had been delivered to Valley Manufactured Housing, the Bells observed that although it was the model they thought they had ordered, it was significantly different in terms of options and colors (i.e., no skylights, different carpet, window coverings, tile colors, etc.). 14. Bell stated that he and his wife were advised by Cromley and Zatkalik that Cromley had made all choices regarding the options, to save them money and fit within their budget, and although they were displeased, they understood they couldn’t dispute the choices, since they knew that Septic Southwest, Inc. was selling the house to them, and they might not otherwise be able to buy any home. 15. In addition, according to Bell, they also believed that if they didn’t accept the home as is, they would lose their down payment, finding out only later that the circumstances of the sales transaction in buying the home from Septic Southwest, Inc. rather than a licensed dealer precluded them from even receiving the benefit of the manufacturer’s warranty. 16. Based on the testimony of Bell, and all other evidence – including and not significantly contravened by Zatkalik’s testimony – it must be found that the sale of the home and property was premised on a complex and continuing series of misrepresentations to the Bells, primarily by Cromley and later, Thomas, but with at least the tacit, albeit necessary, involvement of Zatkalik, all of whom were acting explicitly or implicitly under the color of, and for the benefit of, their corporate entity, Septic Southwest, Inc. 17. Those misrepresentations significantly jeopardized – at least as reasonably understood by the Bells - monies they provided as down payment for the purchase, and resulted in a home without the options of their choosing, which home was poorly-installed on-site, without a manufacturer’s warranty, and with numerous workmanship and code violations, all of which problems and defects are found to be the responsibility of Septic Southwest, Inc., as a result of the actions taken, and representations made, by Cromley, Thomas, and to a lesser extent, Zatkalik. 18. Those representations are found to have been intended to rid the corporation of the manufactured home, an asset turned liability which no longer fit the “employee housing” plans of the failing company, which had not yet received approval for the system from the state’s environmental agency, and which in September, 1998 lost its distributorship from MicroSeptic, the manufacturer of the system Septic Southwest, Inc. had been organized to sell. 19. Zatkalik appeared and testified on his own behalf, and offered Exhibits A through G, all of which were marked and admitted, over the Department’s objections to Exhibits B, C, and D. The undersigned finds the objections go to the weight of the several Exhibits, rather than admissibility. 20. Consistent with Zatkalik’s testimony, and confirmed by the other evidence of record, it is undisputed, and therefore so found, that Septic Southwest, Inc., was a corporation formed by incorporators Thomas, Cromley, and Zatkalik, in October, 1997, “to engage in retail sales of alternate septic systems and related products” (as defined in the Articles of Incorporation, Exhibit 5). 21. Although also holding itself out as a dealer in conventional septic systems (see Yellow Pages ad, Exhibit G), at no time did the company hold a dealer’s license for the sale of manufactured housing. 22. Zatkalik testified that his interest in the business was for the opportunity to start and build the new company, with its new septic system process particularly suited for use in northern Arizona, by applying certain of his skills in sales and equipment installation for a potentially lucrative financial return. 23. Zatkalik became involved with Septic Southwest, Inc. through his prior knowledge of Cromley, who was known to Zatkalik as an apparently fairly unsuccessful (because his clients rarely seemed to qualify) mortgage broker of manufactured housing for various mortgage companies (see Exhibits C and D), and who had at one time previously held a manufactured housing sales license through the same dealer for whom Zatkalik worked (see also, Exhibit 6). 24. Zatkalik denied knowing Thomas until the two were introduced by Cromley at the time of the planning and formation of Septic Southwest, Inc., in late 1997. 25. Zatkalik testified that his participation in Septic Southwest, Inc., was always secondary to that of Cromley and Thomas, and that he had no decision-making authority and was not privy to company records (including the Cease and Desist Order issued on March 23, 1999 (Exhibit 7) in response to the Bells’ complaint by the Department in Case No. 98- 9/1014), although he conceded that he did have check-signing authority (all of which testimony was consistent with information provided to the Arizona Corporation Commission in his letter of March 29, 1999 resigning from SSI, a copy of which was attached to his answer to the CITATION AND COMPLAINT herein, and of which administrative notice is taken). 26. Zatkalik further stated, again consistent with that attachment, that over time he became unhappy with the operation of Septic Southwest, Inc., and a number of decisions by Cromley and Thomas, and the manner in which those decisions were made, as well as the deviation of the company from its purpose as an alternative septic system provider by branching into real estate, such that he chose to disassociate himself from the company by notifying the Arizona Corporation Commission of his resignation from Septic Southwest, Inc., by certified letter sent on March 29, 1999, shortly before the Department’s April 2, 1999 mailing of the CITATION AND COMPLAINT at issue herein. 27. In providing his recollection of events, Zatkalik confirmed the original sale of the manufactured home in question to Septic Southwest, Inc., on or about September 15, 1998 (Exhibits B and 8), and that it was to be for purposes of providing employee housing, with Cromley the first employee who was meant to be so benefited, since he was about to default on his mortgage (although Cromley never did reside in the home in question due to intervening events). 28. Zatkalik confirmed that the sale to Septic Southwest, Inc. was made without profit to Busbee’s Mobile Home Sales, Inc., asserting that Mr. Busbee himself approved the transaction as a means of encouraging the success of the alternative septic system business (see Exhibit 8). 29. Zatkalik did not dispute certain of his activities in dealing with the Bells prior to his disassociation from Septic Southwest, Inc., conceding they were referred to him by Cromley in about May, 1998, and that he did walk them through a 45 minute - but shorter than the usual 3 to 4 hour - presentation, during which time Mrs. Bell did express particular choices regarding model, options, and colors. 30. Zatkalik also confirmed a number of communications from Mrs. Bell in the many months during which the Bells were seeking financing through Cromley and Thomas. On those occasions, he would essentially placate her, since he knew but apparently did not explain, that until the financing was approved, nothing would be done to finalize her choices, and he thought it quite unlikely that Cromley would actually succeed in finding acceptable financing, since so few of his clients did qualify. 31. Nevertheless, when the home purchased by Septic Southwest, Inc. - for which the corporation no longer had any use, but had already paid for - arrived on the Valley Manufactured Housing lot in about October, 1999, Zatkalik “didn’t have the heart to tell her otherwise”, so he led Mrs. Bell to believe it was the home she [thought she] had ordered, and told her that Cromley had picked all the options to save her money, and then sold her and her husband the home, closing the transaction in February, 1999 (Exhibit 1). // // // // // // APPLICABLE LAW

A.R.S. § 41-2186 defines the particular grounds cited herein for disciplinary action by the Department of Building and Fire Safety against the holder of a salesperson’s license: The assistant director may, upon the assistant director's own motion, and shall, upon the complaint in writing of any person, cause to be investigated by the office the acts of any manufacturer, dealer, broker, salesperson or installer licensed with the office and may temporarily suspend or permanently revoke any license issued under this article, impose an administrative penalty or place on probation any licensee, if the holder of the license, while a licensee, is guilty of or commits any of the following acts or omissions:

1. Failure in any material respect to comply with the provisions of this article or article 2 of this chapter. . . . 4. Aiding or abetting an unlicensed person or knowingly combining or conspiring with an unlicensed person to evade the provisions of this article or article 2 of this chapter, or allowing one's license to be used by an unlicensed person or acting as an agent, partner or associate of an unlicensed person with intent to evade the provisions of this article or article 2 of this chapter. . . . 6. The doing of a wrongful or fraudulent act by a licensee which relates to this article or article 2 of this chapter. . . . 21. Failure of the licensee to work only within the scope of the license held.

CONCLUSIONS OF LAW

1. In this matter the Department of Building and Fire Safety, as Complainant, has the burden of proof, and the standard required of that proof, on all issues, is by a preponderance of the evidence. Culpepper v. State, 187 Ariz. 431, 930 P.2d 508 (App. 1996). A “preponderance” of the evidence is “such proof as convinces the trier of fact that the contention is more probably true than not”, Udall, Arizona Law of Evidence, §5 (1960), or, “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, at 1182, (6th ed. 1990). 2. When considered as a whole, the evidence of record is concluded to reveal, by a preponderance, a wrongful pattern of activity by Zatkalik in acting as the salesman in the sale of the manufactured home owned by Septic Southwest, Inc., to the Bells, resulting in substantial harm to them, in violation of A.R.S. §§ 41-2186.1, and .6. 3. Although Zatkalik’s actions vis-à-vis the Bells were perhaps not as overtly misleading, culpable, and misrepresentative as those actions by Cromley and Thomas, his actions are nonetheless found to have been a necessary and indispensable part of the self-dealing intended to benefit the corporation, even if only to dissolve its assets, and therefore are deemed by the undersigned to have aided and abetted Cromley, Thomas, and Septic Southwest, Inc., none of whom or which was licensed to sell manufactured housing, in the sale of the manufactured home to the Bells, in violation of A.R.S. § 41-2186.4. 4. The undersigned further concludes that a preponderance of the evidence demonstrates that In so doing, Zatkalik’s actions exceeded the scope of the license he then and now holds, in violation of A.R.S. § 41- 2186.21. 5. The undersigned therefore finds and concludes that those violations, as set forth above, provide sufficient grounds to discipline Respondent’s Sales License No. S05531, by a 90 day suspension if a probationary period is not successfully completed, and imposition of an administrative penalty of $250.00 for each statutory subsection violated, for a total penalty of $1000.00. // // // // // // // // RECOMMENDED DECISION

On the basis of the foregoing, IT IS RECOMMENDED that Respondent’s salesperson’s license no. S05531 be suspended for 90 days, with such suspension to be provisionally stayed, and then dismissed, pending his successful completion of one year’s probation, to be audited at Respondent’s expense, with such probation commencing on the date of the Director’s Order to be entered in this matter. IT IS FURTHER RECOMMENDED that Respondent pay an administrative penalty of $1000.00 to the Department of Building and Fire Safety on or before 30 days after the effective date of the Director’s Order, with the failure to pay that penalty within that time constituting grounds for the immediate suspension of the license until the penalty is paid. Done this day, August 4, 1999.

______________________________________ Anthony Halas Administrative Law Judge

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

Department of Building & Fire Safety N. Eric Borg, Director E. Virginia, Suite 100 Phoenix, AZ 85004 ATTN: Michelle M. Castaneda

By ___________________________

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