ALJDEC

99F-RF0155-ROC · Registrar of Contractors · 2000-05-08

STATE OF ARIZONA IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: May 8, 2000.

APPEARANCES: The Plaintiffs appeared in their own behalf.

The Defendant failed to appear.

The Residential Contractor’s Recovery Fund ((herein called the “Recovery Fund” or the “Fund”), was represented by Assistant Attorney General, Montgomery Lee, Esq.

ADMINISTRATIVE LAW JUDGE: Robert I. Worth _____________________________________________________________________

Evidence and testimony were presented, and based upon the entire record, the following Findings of Fact, Conclusions of Law and Recommended Order are made.

FINDINGS OF FACT

1. Plaintiffs, as the owners and occupants of their residence, qualify as an “injured person” as that term is defined in the statute, and they are entitled to receive payment from the Residential Contractor’s Recovery Fund (herein called the “Fund”) for proven damages sustained as a result of Defendant’s acts or omissions.

2. Defendant’s contracting license has been previously revoked by separate Order of the Registrar as a result of a disciplinary complaint filed in an unrelated matter involving different persons and property. The license revocation is determined to render this Defendant statutorily unable to remedy the violations of the State’s contracting laws which gave rise to the instant claim for damages.

3. Both the Defendant and the Registrar were given advance notice of the existence and amount of the above-named Plaintiffs’ claim for an administrative payout of $20,000.00 from the Recovery Fund. The Registrar requested to intervene in this proceeding, thereby effectively objecting to the payment of the claimed amount from the Fund, but the Defendant did not request any hearing or otherwise communicate objections to the claimed payout amount.

4. The instant claim by Plaintiff was based upon prior dealings with Defendant involving the construction of a custom residence pursuant to a written contract incorporating agreed plans and specifications.

5. Plaintiff’s original disciplinary complaint, under Case Number 98- 2481, was filed with the Registrar on April 2, 1998 and was based upon construction work that had been performed in late 1997 and early 1998. The primary basis for the complaint was an alleged abandonment of the project by Defendant and also the failure to pay the legitimate charges from subcontractors and/or materialmen.

6. Prior to the time that the underlying disciplinary complaint could be processed for hearing, the Class B license of Defendant was revoked in July, 1998 under cases unrelated to Plaintiff’s case (Case Nos. M98-0542 and M98-1186).

7. During the course of presenting documentary evidence and sworn testimony at the scheduled hearing, the Registrar expressly modified its position as to Plaintiffs’ entitlement to a Fund award in this case. The State’s initial position was that only the sum of $1,106.05 should be allowed and paid. However, this total sum was increased to $5,386.05 following the Fund’s reconsideration at the hearing of several pending claim items relating (a) to the value of 14 recessed can lights never installed ($1,190.00), (b) to an unused kitchen appliance allowance ($210.00), (c) to an intercom system specified but not installed ($1,280.00) plus (d) to 16 separate doors that were less than 8-feet high, as specified, for which the Registrar expressed a willingness to allow, towards the calculation of damages, the sum of $100.00 per door, representing the approximate difference in the materials value from the doors actually provided by Defendant ($1,600.00).[1]

8. The evidence was unclear with respect to the exact amount of money not recognized as valid portions of the within claim based upon payments directed to unlicensed entities or individuals. An analysis of the documentary evidence tended to indicate that certain disallowed sums had been paid out of the loan proceeds directly to the painter (Jeff Doering) and to the tile subcontractor (Robert Tod), neither of whom possessed a valid contractor’s license. Plaintiffs were not aware nor reasonably should have been aware of such unlicensed status of these individuals hired by Defendant, but merely acted as a conduit in authorizing direct payment of balances otherwise payable to Defendant, as the project’s general contractor, from the construction loan proceeds held by and paid by the lender. Consequently, these amounts should not have been

excluded from the Fund award. However, as to several direct payments made to these same unlicensed individuals by Plaintiffs from their own individual funds, no reimbursement from the Recovery Fund is appropriate. Stated alternatively, these direct payments must not be counted as part of the overall payments against the contract price when calculating the monetary amount of damages or losses sustained by the homeowner/occupants.

9. It is found and determined that the single payment amount of $2,269.50 paid to Jeff Doering, plus the total amount of $6,600,41 (combining separate checks of $2,799.21 and $3801,20) paid to Robert Tod, all by the lender pursuant to Plaintiff’s authorization in the aggregate sum of $8,869.91, should not be excluded from the overall Fund award hereunder. Conversely, the sum of $2,269.50 (combining separate checks of $1,000.00; $269.50; and $1,000.00) paid to Doering, plus another amount of $2,034.59 (combining separate checks of $1,934.59 and $100.00) paid to Tod, all directly from Plaintiffs’ own personal funds, must be excluded from any award.

10. Plaintiffs were unable to sustain their burden of proving their entitlement to amounts based upon the Defendant’s alleged double charging for a master bathroom bathtub and for kitchen countertops. To the extent that the language of the contract specifications may have been ambiguous with respect to whether or not the inserted total amount for these upgraded items included or was separate from the basic item allowance, such ambiguity must be construed against Plaintiffs who admittedly were the authors of the language contained in such specifications. Similarly, no entitlement was sufficiently proven to receive added monetary sums for exceeding a stated allowance for grading and site preparation. As stated previously, no award may be made to reimburse monies paid directly by Plaintiffs ($1,247.76) to an unlicensed bathroom tile installer.

11. It did appear that the Registrar’s original computations for allowed expense items representing the adjusted costs to compete the project or to correct deficiencies, before the higher modified amounts agreed to during the hearing, had already included sums of $60.00 and $143.76 expended for hardware and other building supplies. Such computations also included in the allowed total award a low bid of $5,000.00 for a foam roof replacement. Consequently, no separate additional claims by Plaintiffs for these items may or should be recognized.

12. Notwithstanding the potential or the likelihood of a successful civil recovery against the corporate Defendant or its individual owners based upon the breach of an express written promise to reimburse Plaintiffs for certain identified losses attributable to a delay in completing the structure, such as added construction loan interest, storage expenses and the cost of interim lodging, as well as attorneys fees incurred, the statutory provisions applicable to Recovery Fund awards do not encompass the inclusion of these items of financial injury which, although genuine, are consequential in nature. This result is unchanged even when, as opposed to forming a separate item of claimed damage or loss, it is asserted that the purported agreement for reimbursement of these consequential loss items has effectively reduced the overall contract price, thereby generating either a contractual overpayment or a reduction of any unpaid balance.

13. In summary, the award entitlement found to have been adequately established at the administrative hearing consisted of the modified sum of $5,386.05, agreed to by or on behalf of the Registrar, plus the aggregate sums totaling $8,869.91 authorized by Plaintiffs to be disbursed from the lender to unlicensed individuals instead of to Defendant. These component elements result in a combined total award of $14,255.96.

14. It is probable, if not a certainty, that even a maximum Fund award of $20,000.00 would not generate a windfall benefit to Plaintiffs. To the contrary, the overall costs of remedial or completion work, considered together with the above-described consequential losses caused by Defendant’s delayed completion of the residence, appear to far exceed such maximum allowable amount, thereby further exceeding the lesser amount determined properly to be awarded based upon the evidentiary presentations at the hearing.

15. Based upon the credible evidence of record, as presented at the hearing, it is found and determined that the sum of $14,255.96 constitutes a reasonable and proper amount of allowable damages sustained by Plaintiffs, which sum should be awarded from the Recovery Fund.

CONCLUSIONS OF LAW

1. Under the facts and circumstances of this case, the Registrar is empowered to determine and award proper payment to Plaintiffs from the Residential Contractor’s Recovery Fund pursuant to A.R.S. § 32-1154 (E).

2. The entire case record hereunder supports an award to Plaintiffs in the amount of $14,255.96, all of which shall be appropriately chargeable against Defendant and/or persons on the license as set forth in A.R.S. § 32- 1139(B).

3. Additional reimbursement of other realistic financial detriments of a consequential nature as distinguished from a direct construction- related nature are neither contemplated nor authorized by the recovery fund provisions of the applicable statute.

4. It must be recognized that the very State agency charged with enforcing the State’s licensing laws should not participate in giving any hint of validity to the activities of or to the monetary charges by any unlicensed person. However, whenever a homeowner/occupant does not know and has no reason to know that the now revoked or suspended licensed general contractor with whom a construction agreement had been concluded has, in addition to violating the law by performing poor or incomplete work, further violated the law by utilizing unlicensed individuals or entities, a claim for losses should not be reduced and valid contractually required payments should not be ignored or minimized in computing the amount of monetary entitlement to a Fund award. No reason is perceived to protect the chargeable fund account of the offending contractor against whom a fund award is sought by lessening the amount of the applicable replenishment duty, especially when any purported reduction is traceable to such contractor’s own additional wrongdoing in hiring the unlicensed person. Only when such owner/occupant directly selects and/or compensates the unlicensed person would any deductions be appropriate and warranted.

5. Plaintiffs in this case contracted with a licensed general contractor and, for a portion of the payments transmitted to unlicensed individuals, merely authorized releases of progress draws as construction went forward. The construction loan was the source of all such payments, and irrespective of whether the payment checks are made payable to and transmitted to the general contractor, the specialty contractor or jointly to both, the impact and treatment should not be different.

RECOMMENDED ORDER

In view of the foregoing it is recommended that, on the effective date of the Order in this matter, the Registrar of Contractors shall commence and finalize payment

procedures from the Residential Contractor’s Recovery Fund to Plaintiff in the amount of $14,255.96 for damages.

Dated: May 22, 2000.

OFFICE OF ADMINISTRATIVE HEARINGS

____________________________________ Robert I. Worth Administrative Law Judge

Original transmitted on _____________________

by: _____________________________ , to:

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

Attn: Joyce Armijo ----------------------- [1] It was apparent that the cost of installation of the larger doors at this time when the structure is complete is far greater, but a showing that Complainants subsequently ratified, albeit reluctantly, the lower size doors so as to avoid further construction delays would and should limit the instant claim for damages to only the cost difference between the specified and the installed doors.

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