Court Opinion

ID: 4396441
Source: CourtListenerOpinion
Date Created: 2019-05-14 15:02:00.915974+00
Date Added: 2024-06-11T14:29:25.039252
License: Public Domain

NOTICE: NOT FOR OFFICIAL PUBLICATION.
 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
                 AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

                                    IN THE
             ARIZONA COURT OF APPEALS
                                DIVISION ONE

          ROBERT AND DANIELLE KNOX, Plaintiffs/Appellees,

                                        v.

                RAVENCREST BUILDERS LLC, Defendant.

                   __________________________________

   ARIZONA REGISTRAR OF CONTRACTORS, Intervenor/Appellant.

                             No. 1 CA-CV 18-0438
                               FILED 5-14-2019

           Appeal from the Superior Court in Yavapai County
                       No. P1300CV201600944
               The Honorable David L. Mackey, Judge

                         REVERSED; REMANDED

                                   COUNSEL

Koeller, Nebeker, Carlson, Haluck, LLP, Phoenix
By Kirk H. Hays
Counsel for Plaintiffs/Appellees

Arizona Attorney General's Office, Phoenix
By John R. Tellier, Michael Raine
Counsel for Intervenor/Appellant
                       KNOX v. RAVENCREST/ROC
                          Decision of the Court

                       MEMORANDUM DECISION

Presiding Judge Diane M. Johnsen delivered the decision of the Court, in
which Judge Michael J. Brown and Judge Jennifer M. Perkins joined.

J O H N S E N, Judge:

¶1            The Arizona Registrar of Contractors (the "ROC") appeals the
superior court's entry of judgment in favor of Robert and Danielle Knox
awarding them $30,000 from the Residential Contractors Recovery Fund
(the "Fund"). See Ariz. Rev. Stat. ("A.R.S.") §§ 32-1131 (2019) to -1140 (2019).1
For the reasons stated below, we reverse and remand.

              FACTS AND PROCEDURAL BACKGROUND

¶2            On January 28, 2016, the Knoxes contracted with Ravencrest
Builders, LLC, for the construction of a new home in Yavapai County. The
Knoxes intended to live full time in the home upon its completion. They
first paid Ravencrest a $5,000 retainer, then made a $50,000 down payment.

¶3            On February 1, 2016, the Knoxes' financing fell through. They
immediately contacted Ravencrest, told the contractor their lender had
denied their loan and instructed Ravencrest not to perform any work under
the contract.      Acknowledging their initial $5,000 deposit was
nonrefundable, the Knoxes then demanded the company return their
$50,000 down payment. Ravencrest returned $10,000 but kept the
remaining $40,000.

¶4            The Knoxes then sued Ravencrest to recover the remaining
$40,000 and notified the ROC of their claim against the contractor. The ROC
intervened and moved for a determination that the Knoxes did not satisfy
the statutory requirements for recovery from the Fund. See A.R.S. § 32-
1136(A) (2019) (establishing the ROC's right to intervene in an action that
may result in collection from the Fund); A.R.S. § 32-1131(3) (defining a

1      As we issue this decision, a package of "omnibus" amendments to
the ROC statutes just has been signed into law. S.B. 1397, 2019 Ariz. Sess.
Laws, ch. 145, §§ 15-16 (1st Reg. Sess.) This decision cites the versions of
applicable statutes that were in effect at the time of the events at issue on
appeal.

                                       2
                       KNOX v. RAVENCREST/ROC
                          Decision of the Court

"person injured"); A.R.S. § 32-1132(A) (2019) (requiring "actual damages"
for recovery).

¶5            Meanwhile, Ravencrest failed to answer the complaint, and
the Knoxes obtained a default judgment against the company for $40,000,
plus attorney's fees, costs and interest. The ROC did not object to entry of
default but preserved its objections to payout from the Fund. Thereafter,
the superior court denied the ROC's motion without prejudice, subject to
"further determinations" regarding the factual basis of the Knoxes' claim.
The parties then filed cross motions for summary judgment to determine
whether the Knoxes could recover from the Fund.

¶6            The superior court granted the Knoxes' motion, denied the
ROC's cross-motion, and ordered a $30,000 payout. The ROC timely
appealed from the final judgment, and we have jurisdiction pursuant to
Article 6, Section 9, of the Arizona Constitution, and A.R.S. §§ 12-
120.21(A)(1) (2019) and -2101(A)(1) (2019).

                               DISCUSSION

¶7            We review the superior court's grant of summary judgment
and its interpretation of the applicable statutes de novo. See Ramsey v. Ariz.
Registrar of Contractors, 241 Ariz. 102, 105, ¶ 6 (App. 2016); Tierra Ranchos
Homeowners Ass'n v. Kitchukov, 216 Ariz. 195, 199, ¶ 15 (App. 2007).

¶8           Under the statute then in effect, to recover from the Fund, a
claimant needed to establish that he or she was a "person injured" by an
"act, representation, transaction or conduct" of a licensed residential
contractor. See A.R.S. § 32-1132(A). "Person injured" was defined as

       any owner of residential real property that is . . . classified as
       class three property under § 42-12003. The property must also
       be actually occupied or intended to be occupied by the owner as
       a residence including community property, tenants in
       common or joint tenants who are damaged by the failure of a
       residential contractor or a dual licensed contractor to
       adequately build or improve a residential structure or
       appurtenance on that real property.

A.R.S. § 32-1131(3) (emphases added).

¶9            The ROC argues the Knoxes were not "persons injured" under
§ 32-1131(3) because their property was not classified as class three under

                                       3
                      KNOX v. RAVENCREST/ROC
                         Decision of the Court

the Tax Code. See A.R.S. § 42-12003(A)(1) (2019) (defining class three
property).

¶10           As relevant, the referenced tax statute defines class three as
"[r]eal and personal property and improvements to the property that are
used as the owner's primary residence." A.R.S. § 42-12003(A)(1). In its brief,
the ROC asserted this definition excludes vacant land or a home under
construction because neither can be occupied. This requirement was the
premise of the ROC's contention that the Knoxes were not "persons injured"
under § 32-1131(3): Because the Knoxes' home was never completed, it was
never occupied ("used"), it never became a class three property for tax
purposes, and, as a result, it could not be the basis of a claim for recovery
under § 32-1131(3).

¶11           Section 32-1131(3), however, allowed a claim concerning
property that was either "actually occupied or intended to be occupied by the
owner as a residence." A.R.S. § 32-1131(3) (emphasis added). The language
allowing a claim by an owner who did not currently occupy the home, but
who intended to occupy it at some point in the future, seems inconsistent
with a requirement in the Tax Code that a home must be currently
occupied. The ROC's view of § 32-1131(3) would give primacy to the actual-
occupancy requirement, so that, as here, when a construction contract was
canceled after the owner pays a deposit but before work begins, the owner
would not be able to recover from the Fund because the owner did not
occupy the home (as his primary residence or otherwise). See A.R.S. §§ 32-
1131(A), 42-12003(A)(1).

¶12            That reasoning, however, arguably renders superfluous the
provision in § 32-1131(3) that allowed a claim by an owner who only
"intended to occupy" a home. Ordinarily, we will not construe a statute to
render portions of the text superfluous. Grand v. Nacchio, 225 Ariz. 171, 175,
¶ 22 (2010). We are reluctant to do so here, particularly when the legislature
has specifically provided for recovery when a contractor performs no work
and delivers no materials after receiving the owner's deposit. A.R.S. § 32-
1132(A) (when otherwise-qualified owner has paid a "deposit or down
payment and no actual work is performed or materials are delivered,"
owner may recover from the Fund an amount equal to the deposit, plus
interest, up to $30,000).

¶13           Citing Hayden Partners Ltd. P'ship v. Maricopa County, 166 Ariz.
121, 123 (App. 1990), the ROC suggested at oral argument that owners like
the Knoxes might be able to win a class-three classification for their lot
before their home is ready for occupancy. The current version of the statute

                                      4
                      KNOX v. RAVENCREST/ROC
                         Decision of the Court

at issue in Hayden Properties is A.R.S. § 42-12051 (2019), which, as relevant
here, provides:

      A. For the purposes of classifying property under article 1 of
      this chapter, partially completed or vacant improvements on
      the land . . . shall be classified according to their intended use
      as demonstrated by objective evidence.

      B. For property that is not valued by the department, an
      improvement on the land is considered to be partially
      completed when the foundation of the structure or structures
      to be located on the property is in place.

Under § 42-12051, a class-three tax classification seemingly would not hinge
solely on whether a new home has an occupancy permit or is used as a
residence. Instead, a "partially completed" new home could be eligible for
class-three designation based on "objective evidence" of the owner's intent
to occupy the home. And, under subpart (B) of the statute, a new home
would be considered "partially completed when the foundation" of the
home "is in place."

¶14            As applied here, § 42-12051 allows us to reconcile the
language in § 32-1131(3) that on the one hand required a class-three
classification (as relevant, given only to property "used as the owner's
primary residence") but at the same time allowed recovery upon proof that
the owner merely "intended" to occupy the home. Read together with § 42-
12051, owners like the Knoxes who claimed their contractor absconded with
their down payment did not need not wait to seek recovery from the Fund
until they could afford to pay another contractor to complete their home.
When construction was only "partially completed," owners could satisfy the
occupancy requirements of the Tax Code and § 32-1131(3) by showing they
intended to occupy the home when it was finished.2

¶15          The Knoxes point to § 32-1132(A), which, as noted, allows
recovery by a "person injured" who has paid a deposit to a contractor who

2      We invited the Knoxes to file a supplemental brief addressing the
argument the ROC made for the first time at argument. In their brief, the
Knoxes argue A.R.S. § 42-12051 cannot trump a statutory requirement in
the Tax Code that an owner "actually occupy the home." But "actually
occupy" was a requirement imposed by § 32-1131(3), not the Tax Code. And
§ 32-1131(3) allowed a claim by a qualifying owner who merely intends to
occupy the home.

                                      5
                      KNOX v. RAVENCREST/ROC
                         Decision of the Court

abandons the project without doing any work. The Knoxes contend that
provision demonstrates the legislature's intent to allow a remedy in a
situation such as theirs. We agree that in a case such as this, a contractor's
wrongful refusal to return a down payment may constitute "damage" for
which a qualified owner may recover from the Fund. But we cannot
disregard the explicit language in § 32-1131(3) that establishes as a
prerequisite to recovery that the property must have a class-three tax
classification. There is no question that the Knoxes' property lacks such a
classification. Accordingly, they are not entitled to recover from the Fund.

                               CONCLUSION

¶16           We reverse the judgment of the superior court and remand
for any additional necessary proceedings consistent with this decision.

                         AMY M. WOOD • Clerk of the Court
                          FILED: AA

                                        6