Court Opinion

ID: 4094362
Source: CourtListenerOpinion
Date Created: 2016-11-01 16:02:45.180853+00
Date Added: 2024-06-11T07:45:29.224286
License: Public Domain

IN THE
            ARIZONA COURT OF APPEALS
                            DIVISION ONE

           JO ELLA RAMSEY, an individual, Plaintiff/Appellee,

                                   v.

   ARIZONA REGISTRAR OF CONTRACTORS, Defendant/Appellant.

                         No. 1 CA-CV 15-0355
                           FILED 11-1-2016

          Appeal from the Superior Court in Maricopa County
                         No. CV2010-003331
             The Honorable Katherine M. Cooper, Judge

                    VACATED AND REMANDED

                              COUNSEL

Sanders & Parks, P.C., Phoenix
By G. Gregory Eagleburger, Nicholas A. Bender
Counsel for Plaintiff/Appellee

Arizona Attorney General’s Office, Phoenix
By Michael Raine
Counsel for Defendant/Appellant

                              OPINION

Presiding Judge Kenton D. Jones delivered the Opinion of the Court, in
which Judge Randall M. Howe and Judge Donn Kessler joined.
                           RAMSEY v. AZROC
                           Opinion of the Court

J O N E S, Judge:

¶1            The Arizona Registrar of Contractors (ROC) appeals the trial
court’s order directing the ROC to issue payment from the Arizona
Residential Contractors’ Recovery Fund (the Fund), Ariz. Rev. Stat. (A.R.S.)
§§ 32-1131 to -1140,1 to Jo Ella Ramsey. The ROC argues the court erred by:
(1) granting Ramsey’s application for recovery when it did not contain
evidence required by Arizona Rule of Civil Procedure 56 to support a
motion for summary judgment; (2) interpreting the statutes governing
recovery from the Fund in a manner that did not account for the amount
left unpaid under the underlying contract; (3) declining to hold a hearing
on the ROC’s objection to Ramsey’s application; and (4) finding the ROC
had conceded a minimum amount Ramsey spent to complete the project at
issue.

¶2            For the following reasons, we hold that an application for
recovery from the Fund need not comply with Rule 56. We also adopt the
ROC’s interpretation of “actual damages” and hold that damages for
purposes of A.R.S. § 32-1132(A) are limited to the reasonable cost of
repairing the contractor’s defective work and completing the project, minus
any portion of the contract price still unpaid to the original contractor.
Additionally, we hold that a hearing is unnecessary when the ROC’s
objection presents a purely legal issue which it has had adequate
opportunity to brief, and that, in the immediate case, substantial evidence
supports the trial court’s determination that the ROC conceded Ramsey
spent at least $52,101.29 to complete her residential construction project.
Accordingly, we vacate the court’s order and remand for further
proceedings consistent with this Opinion.

                FACTS AND PROCEDURAL HISTORY

¶3            In May 2010, Ramsey filed a complaint against Michael and
Barbara Edens and Edens Contracting, L.L.C. (collectively, the Edens),
seeking damages for deficiencies in the Edens’ performance of a contract to
build a residence for Ramsey (the Residence). The ROC timely intervened
to address whether Ramsey was eligible to recover from the Fund. See
A.R.S. § 32-1136(A). In June 2013, the trial court entered a $111,000
judgment in Ramsey’s favor against the Edens.

1     Absent material changes from the relevant date, we cite a statute’s
current version.

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                            RAMSEY v. AZROC
                            Opinion of the Court

¶4            In August 2014, the ROC moved to dismiss the case, alleging
Ramsey was not eligible for compensation from the Fund because she had
not suffered any “actual damages” within the meaning of A.R.S. §§ 32-1132
and -1136(E) because the amount she spent to complete the Residence —
$52,101.29 — was significantly less than the approximate $130,000 balance
owed on her contract with the Edens. Ramsey objected to the request for
dismissal and applied for an order directing the ROC to compensate her
from the Fund.

¶5            The trial court treated the ROC’s motion as an objection to
Ramsey’s application and, after the matter was fully briefed, entered an
order directing the ROC to pay Ramsey $30,000, the maximum allowable
amount, from the Fund. See A.R.S. § 32-1132(A). The court rejected the
ROC’s interpretation of the applicable statutes and held no hearing was
necessary because the ROC had conceded Ramsey spent more than $30,000
to complete the Residence. The ROC timely appealed, and we have
jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1) and -2101(A)(1).

                               DISCUSSION

I.     Arizona Rule of Civil Procedure 56 Does Not Apply to an
       Application for Recovery from the Fund.

¶6            The ROC first argues the trial court erred in granting
Ramsey’s application without an evidentiary hearing because she did not
provide evidence within the application to prove the facts supporting her
entitlement to payment from the Fund. The interpretation and application
of statutes present questions of law, which we review de novo. See First Fin.
Bank, N.A. v. Claassen, 238 Ariz. 160, 162, ¶ 8 (App. 2015) (citing Schwarz v.
City of Glendale, 190 Ariz. 508, 510 (App. 1997)). When a statute is
unambiguous, we apply its terms as written. Berndt v. Ariz. Dep’t of Corr.,
238 Ariz. 524, 528, ¶ 11 (App. 2015) (quoting Fleming v. Dep’t of Pub. Safety,
237 Ariz. 414, 417, ¶ 12 (2015)).

¶7             Pursuant to A.R.S. § 32-1136(B), a homeowner who obtains a
valid judgment against a residential contractor for misconduct in violation
of Title 32, Chapter 10, of the Arizona Revised Statutes, may apply to the
trial court for an order directing payment out of the Fund for the amount
unpaid on the judgment, up to $30,000. The ROC contends summary
adjudication of a request for payment from the Fund is appropriate only if
the applicant complies with Arizona Rule of Civil Procedure 56(c)(3), which
requires a motion for summary judgment be accompanied by a statement
of the “specific facts relied upon in support of the motion” and “refer[ence]

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                            RAMSEY v. AZROC
                            Opinion of the Court

to the specific portion of the record where the fact may be found.” No such
requirement appears in the statute. Instead, A.R.S. § 32-1136(B) provides
that the application for an order directing payment from the Fund should
be granted “either on receipt of a consent to payment . . . or, in the absence
of any written consent, after the notice period required by this subsection.”
If the ROC objects to payment, it is entitled to an opportunity to present and
support its objections. A.R.S. § 32-1136(B). Thus, the statute contemplates
the application will be granted — without any testimony, evidence, proof,
or hearing — if there is no objection.

¶8             It necessarily follows that testimony, documentary evidence,
or other proof is required only as to those portions of the application to
which the ROC has objected. This interpretation is consistent with the
direction that the application be addressed without delay. See A.R.S. § 32-
1136(D) (“The court shall proceed on an application [for recovery from the
Fund] in a summary manner . . . .”); Chaffin v. Comm’r of Ariz. Dep’t of Real
Estate, 164 Ariz. 474, 477 (App. 1990) (defining the phrase “summary
manner” within statutes governing the Real Estate Recovery Fund “to mean
that the court must proceed on the application without delay or formality
and in a short, concise and immediate proceeding”) (citation omitted).
Indeed, this Court has already determined the trial court may limit the
scope of a hearing on the applicant’s eligibility to recover from the Fund
after consideration of the ROC’s specific challenges and the need to
expedite its review. See Magness v. Ariz. Registrar of Contractors, 234 Ariz.
428, 433 n.3, ¶ 18 (App. 2014). Because the requirements of Arizona Rule of
Civil Procedure 56 do not apply to an application for recovery from the
Fund, there was no error in the procedure used by the court here.

II.    The Proper Measure of Damages Under A.R.S. § 32-1132(A) is the
       Cost of Completion of the Project Less the Unpaid Portion of the
       Original Contract Price.

¶9            The ROC argues the trial court erred in interpreting the
governing statutes to prevent the ROC from offsetting the cost to complete
a project by the amount left unpaid to the original contractor, an issue we
review de novo. See supra ¶ 6.

¶10           By statute, “[a]n award from the [F]und is limited to the actual
damages suffered by the claimant as a direct result of the contractor’s
violation but shall not exceed an amount necessary to complete or repair a

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                             RAMSEY v. AZROC
                             Opinion of the Court

residential structure.” A.R.S. § 32-1132(A).2 The phrase “actual damages”
is not defined; therefore, we defer to the implementing agency’s
interpretation so long as it is “based on a permissible construction of the
statute.” Kobold v. Aetna Life Ins., 239 Ariz. 259, 262, ¶ 9 (App. 2016) (quoting
Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843 (1984)).
“The relevant inquiry is whether the agency’s interpretation is reasonable.”
Id. (citing United States v. Mead Corp., 533 U.S. 218, 229 (2001)). In addition,
if the literal interpretation of a statute would lead to an absurd result, it is
this Court’s duty to construe it, if possible, so it is readable and workable.
Pendergast v. Ariz. State Ret. Sys., 234 Ariz. 535, 541, ¶ 18 (App. 2014)
(quoting State Farm Auto Ins. v. Dressler, 153 Ariz. 527, 531 (App. 1987), and
citing A.R.S. § 1-211(B) (“Statutes shall be liberally construed to effect[uate]
their objects and to promote justice.”)).

¶11             The ROC interprets “actual damages” to mean the reasonable
cost of completing the contract and repairing the contractor’s defective
performance “less the part of the contract price still unpaid.”3 This
interpretation comports with both Arizona law and the Restatement of
Contracts. See Maricopa Cty. v. Walsh & Oberg Architects, Inc., 16 Ariz. App.
439, 441 (1972); Sorensen v. Robert N. Ewing, Gen. Contractor, 8 Ariz. App.
540, 544 (1968) (citing Green Manor Constr. Co. v. Highland Painting Serv., Inc.,
345 F.2d 657, 661 (1st Cir. 1965)); Restatement (First) of Contracts
§ 346(1)(a)(i), illus. 1, 4, 5 (1932) (“For a breach by one who has contracted

2      Although not applicable here, there is an exception to this rule when
“the claimant has paid a deposit or down payment and no actual work is
performed or materials are delivered.” A.R.S. § 32-1132(A). Under those
circumstances, the award from the Fund “shall not exceed the exact dollar
amount of the deposit or down payment plus interest at the rate of ten per
cent a year from the date the deposit or down payment is made or not more
than thirty thousand dollars, whichever is less.” Id.

3      The ROC also argues the amounts unpaid under the original contract
constitute recovery from an “other source,” which may be deducted from
the amount recovered from the Fund pursuant to A.R.S. § 32-1136(E).
Section 32-1136(E) states: “If the injured person has recovered a portion of
his loss from sources other than the fund, the registrar . . . or the court shall
deduct the amount recovered from other sources from the amount of actual
damages suffered pursuant to [A.R.S.] § 32-1132, subsection A.” Here,
however, the amount due under the original contract has not been
“recovered” by the homeowner and is not a “payment” within the plain
meaning of the word, but rather, as explained herein, a factor in
determining the homeowner’s actual damages under A.R.S. § 32-1132(A).

                                       5
                             RAMSEY v. AZROC
                             Opinion of the Court

to construct a specified product, the other party[] can get judgment for
compensatory damages for all unavoidable harm that the builder had
reason to foresee when the contract was made, less such part of the contract
price as has not been paid and is not still payable . . . .”), adopted by Blecick
v. Sch. Dist. No. 18 of Cochise Cty., 2 Ariz. App. 115, 122-23 (1965), overruled
on other grounds by Donnelly Constr. Co. v. Oberg/Hunt/Gilleland, 139 Ariz.
184, 187 (1984); cf. Restatement (Second) of Contracts § 348(2), illus. 2 (1981)
(stating a party may recover damages from defective or unfinished
construction for the diminution in value, or, if difficult to ascertain, “the
reasonable cost of completing performance or of remedying the defects if
that cost is not clearly disproportionate to the probable loss in value to
him”).

¶12             This construction of the statute is also consistent with the
general purpose of making a homeowner who suffers from a contractor’s
misdeeds “whole.” This can be best understood based upon the principle
of expectation damages, which are intended to put the injured party “to the
extent possible . . . in as good a position as he would have been in had the
contract been performed.” Restatement (Second) of Contracts § 347 cmt. a,
cited favorably by AROK Constr. Co. v. Indian Constr. Servs., 174 Ariz. 291, 298
(App. 1993); cf. John Munic Enters., Inc. v. Laos, 235 Ariz. 12, 18, ¶ 18 (App.
2014) (“Enforcing the expectation interests of the parties is one of the
principal goals of remedying a breach of contract.”). The calculation of
expectation damages necessarily includes a deduction for “any cost or other
loss that [the injured party] has avoided by not having to perform.”
Restatement (Second) of Contracts § 347(c).

¶13            Two hypotheticals underscore this principle. For example,
consider a homeowner who agrees to pay $100,000 to contractor A to build
a garage. Contractor A then stops work and breaches the contract while
$90,000 of the original contract price remains unpaid. The homeowner then
agrees to pay contractor B $50,000 to both correct contractor A’s mistakes
and complete the garage, thereby obtaining the completed garage for
$40,000 less than it would have cost under the original contract. Under our
holding, the homeowner would not be eligible to collect from the Fund
because the amount remaining owed on the initial contract ($90,000)
exceeds the amount it ultimately costs the homeowner to complete the
garage ($60,000). In other words, she has not suffered any “loss” where she
has received a garage worth, to her, $100,000, after paying only $60,000 for
its construction. Allowing the homeowner additional recovery under the
Fund would exceed what is proper as expectation damages.

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                            RAMSEY v. AZROC
                            Opinion of the Court

¶14            If, on the other hand, the initial cost of the contract remains
$100,000 and the amount paid to contractor A remains $10,000 but the
reasonable cost for contractor B to correct contractor A’s mistakes and
complete the garage is $120,000, the homeowner may be eligible to recover
from the Fund because, as a result of contractor A’s breach, homeowner has
to pay $130,000 for a garage worth $100,000. Under these circumstances,
the homeowner can recover the amount of the difference left owing on the
first contract ($90,000) and what it ultimately cost him to complete the
garage ($120,000), or $30,000. The homeowner requires additional funds to
be made “whole” because she has to pay more than originally anticipated
to obtain the contracted-for product.

¶15           Ramsey argues the ROC’s interpretation fails to account for
the unscrupulous contractor, who inflates the cost of completing a project,
performs poorly, and walks away. However, the Fund is not and was never
intended to serve as a panacea for every ill-advised construction contract.
To the extent a contractor breaches an unscrupulously inflated construction
contract, the homeowner is in no worse shape as to her contracted-for
expectations. Indeed, it can be argued the homeowner is actually in better
shape upon breach because she ultimately received the desired result for
less than anticipated, and further payout from the Fund is not required by
A.R.S. § 32-1232(A).

¶16            Moreover, the agency’s interpretation need not account for
every contingency, nor be the most reasonable construction, to warrant
deference. Kobold, 239 Ariz. at 262, ¶ 9 (citing Mead, 533 U.S. at 229, and
Entergy Corp. v. Riverkeeper, Inc., 556 U.S. 208, 218 (2009)). The ROC’s
interpretation of the statute eliminates the risk that a homeowner will
receive a windfall as a result of the residential contractor’s misconduct at
the expense of the licensed contractors who contribute to the Fund. See
A.R.S. § 32-1132(B). This notion is consistent with Arizona law, see A
Tumbling-T Ranches v. Flood Control Dist. of Maricopa Cty., 222 Ariz. 515, 535-
36, ¶ 61 (App. 2009) (approving a jury instruction on the available measure
of damages that “reflected the true economic loss” of the injured
landowners and rejecting an alternate theory that would result in a windfall
at the defendants’ expense) (citation omitted); Restatement (First) of
Contracts § 346 cmt. b (prohibiting an award of damages that would result
in economic waste, or “cost[s] that would be imprudent and
unreasonable”), and the statute’s own limiting language, see A.R.S. § 32-
1132(A) (“[D]amages . . . shall not exceed an amount necessary to complete
or repair a residential structure or appurtenance within residential property
lines.”).

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                             RAMSEY v. AZROC
                             Opinion of the Court

¶17          We cannot say the agency’s interpretation is either incorrect
or unreasonable. Accordingly, we adopt the ROC’s interpretation of
“actual damages” under A.R.S. § 32-1132(A) and remand for
reconsideration of Ramsey’s application for recovery from the Fund.

III.   Where the ROC’s Objection Presents a Purely Legal Question, No
       Hearing Is Required.

¶18          The ROC also argues it is entitled to an evidentiary hearing
pursuant to A.R.S. § 32-1136(B) upon the lodging of any objection to a
homeowner’s application for recovery from the Fund. Resolution of this
question requires further consideration of the statute, which we again
undertake de novo. See supra ¶ 6.

¶19            Section 32-1136(B) states that upon “recei[pt of] written
objections by the registrar, the court shall not direct payment from the fund
without affording the registrar a reasonable opportunity to present and
support his objections.” This section establishes the ROC’s procedural
rights relative to a claim against the Fund — “notice and an opportunity to
be heard in a meaningful manner.” Magness, 234 Ariz. at 431, ¶ 11.
Although a reasonable opportunity to be heard is often equated with a
hearing, the terms are not synonymous; what is reasonable will depend
upon the circumstances of the case. See Mathews v. Eldridge, 424 U.S. 319,
333-34 (1976) (“Due process is flexible and calls for such procedural
protections as the particular situation demands.”) (quoting Morrissey v.
Brewer, 408 U.S. 471, 481 (1972)); see also Carlson v. Ariz. State Pers. Bd., 214
Ariz. 426, 430-31, ¶ 15 (App. 2007) (noting the flexible nature of due process
does not require elaborate administrative hearings as long as there is notice
and opportunity to be heard) (citing Cleveland Bd. of Educ. v. Loudermill, 470
U.S. 532, 545 (1985)).

¶20            Section 32-1136(B) does not, by its plain terms, require a
hearing, but rather an opportunity to be heard. Although the ROC relies
upon Magness in arguing an absolute right to a hearing, Magness is
distinguishable. There, this Court rejected the applicant’s argument that no
hearing was required because the ROC did not contest the eligibility
requirements outlined in A.R.S. § 32-1136(D), holding instead that a hearing
is required where the ROC challenges an applicant’s lack of compliance
with requirements set forth anywhere in the statutory scheme. Magness,
234 Ariz. at 432-33, ¶¶ 16-18. This principle is sound. However, when the
ROC’s objection presents a purely legal question, fully briefed before the
trial court, an evidentiary hearing would serve no purpose. See Bills v. Ariz.
State Bd. of Educ., 169 Ariz. 366, 370 (App. 1991) (concluding no remand was

                                       8
                             RAMSEY v. AZROC
                             Opinion of the Court

necessary where issues could be disposed of through summary judgment
because they presented “only questions of law which we are able to resolve
by statutory interpretation”).

¶21            Forcing a hearing under such circumstances is contrary to
both principles of judicial efficiency and the legislature’s direction that
applications for recovery from the Fund be addressed without delay. See
Ariz. R. Civ. P. 7.1(c)(2) (“To expedite its business, the court may make
provision by rule or order for the submission and determination of motions
without oral hearing upon brief written statements of reasons in support
and opposition.”); Cristall v. Cristall, 225 Ariz. 591, 597, ¶ 29 (App. 2010)
(“[T]he trial court has discretion to grant or deny a request for oral
argument.”); see also supra ¶ 8 (discussing requirement that an application
for recovery from the Fund should be addressed in a summary manner).
We therefore hold the ROC’s opportunity to present and support its
objections identified with A.R.S. § 32-1136(B) may be satisfied without a
hearing if no factual matters are in dispute and the ROC’s objection presents
a legal matter appropriate for resolution by the trial court. Because the
ROC’s objection here was based upon the statutory definition of damages,
no hearing was required.

IV.    Substantial Evidence Supports the Trial Court’s Finding that the
       ROC Conceded the Amount Ramsey Spent to Complete the
       Residence.

¶22           The ROC argues the trial court abused its discretion in finding
it had conceded Ramsey spent $52,101.29 to complete the Residence. We
will not set aside the trial court’s factual findings unless they are clearly
erroneous. Ariz. R. Civ. P. 52(a); see also Clark v. Anjackco Inc., 235 Ariz. 452,
456, ¶ 14 (App. 2014) (citing Phx. Newspapers Inc. v. Ariz. Dep’t of Corr., 188
Ariz. 237, 244 (App. 1997)). “A finding of fact is not clearly erroneous if
substantial evidence supports it, even if substantial conflicting evidence
exists.” Kocher v. Dep’t of Revenue of Ariz., 206 Ariz. 480, 482, ¶ 9 (App. 2003)
(citing Moore v. Title Ins. Co. of Minn., 148 Ariz. 408, 413 (App. 1985)).

¶23           The record reflects that, within its notice of rejection, the ROC
identifies the relevant figure, $52,101.29, as both “[t]he amount[] that
[Ramsey] established that she spent repairing or completing her residence,”
and “verified expenditures to complete [the] project.” In its response to
Ramsey’s application, the ROC admits Ramsey provided evidence to
support this figure. Although the ROC’s counsel indicated he “believe[d]
that the ROC still ha[d] some concerns about proofs offered in support of
some payments” and that its final decision would be “based on the

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                            RAMSEY v. AZROC
                            Opinion of the Court

assumption those payments were proven,” these concerns were expressed
three weeks before formal notice of the ROC’s objection to Ramsey’s claim
and are not reflected either in the notice of rejection or the response to
Ramsey’s application. Nor did the ROC ever object to the $52,101.29 figure,
describe it as an approximation or demonstrative figure subject to further
proof, or otherwise express any specific intent to challenge it in this case,
even after Ramsey asserted the ROC made an “on-the-record
acknowledgment of her damages.” Instead, the ROC was clear that its sole
objection to Ramsey’s application was based upon its interpretation of
A.R.S. § 32-1132(A) and not the specific figures to be entered into the
calculation.

¶24            A party is bound by factual admissions or concessions made
in its pleadings. KCI Rest. Mgmt. L.L.C. v. Holm Wright Hyde & Hays P.L.C.,
236 Ariz. 485, 488, ¶ 12 (App. 2014) (citing Bank of Am. Nat’l Tr. & Sav. Ass’n
v. Maricopa Cty., 196 Ariz. 173, 176, ¶ 11 (App. 1999)). Substantial evidence
exists to support the trial court’s determination that the ROC conceded
Ramsey spent $52,101.29 to complete the Residence,4 and we find no abuse
of discretion.

                               CONCLUSION

¶25           We vacate the trial court’s order and remand for
reconsideration of Ramsey’s application for recovery from the Fund. We
leave to the trial court the issue of whether, under our interpretation of
A.R.S. § 32-1132(A), Ramsey’s application and the ROC’s objection present
questions of fact or law for which additional briefing, argument, or
evidence is required.

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

4      We take no position on the significance of this finding in light of the
principles articulated in Part II, supra, but note the trial court made no
finding regarding Ramsey’s assertion that she paid “well over $100,000” to
remedy the deficiencies in the Edens’ performance. Such a finding was
immaterial under the court’s erroneous interpretation of A.R.S. § 32-
1132(A). See supra ¶ 5. These and any remaining factual matters are best
handled on remand.

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