McCormick v. Aroc ( 2014 )

NOTICE: NOT FOR PUBLICATION.
UNDER ARIZ. R. SUP. CT. 111(c), THIS DECISION DOES NOT CREATE LEGAL PRECEDENT
AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
TIM MCCORMICK, Plaintiff/Appellee,
v.
SONORAN FAMILY COMMUNITIES, LLC, Defendant; ARIZONA
REGISTRAR OF CONTRACTORS, an Arizona governmental agency,
Defendant/Appellant.
No. 1 CA-CV 13-0039
FILED 4-8-2014
Appeal from the Superior Court in Maricopa County
No. LC2011-000565-001
The Honorable Crane McClennen, Judge
VACATED
COUNSEL
Schern Richardson Finter Decker PLC, Phoenix
By Aaron M. Finter
Counsel for Plaintiff/Appellee
Arizona Attorney General’s Office, Phoenix
By Montgomery Lee
Counsel for Defendant/Appellant Arizona Registrar of Contractors
MCCORMICK v. AROC
Decision of the Court
MEMORANDUM DECISION
Judge Samuel A. Thumma delivered the decision of the Court, in which
Presiding Judge Randall M. Howe and Judge Patricia A. Orozco joined.
T H U M M A, Judge:
¶1 This dispute arises out of Sonoran Family Communities,
LLC’s commitment in early 2005 to build a single family residence on a
parcel of land (Lot 4) in Gold Canyon, Arizona. Sonoran went out of
business, lost its contractor’s license, never finished building the home
and appellee Tim McCormick claims he lost a down payment of more
than $35,000. McCormick made a claim against the Arizona Registrar of
Contractor’s (ROC) Residential Contractors Recovery Fund (Fund), which
allows an eligible person injured by a licensed residential contractor’s
violation of applicable law to receive up to $30,000 for such a loss. See
Arizona Revised Statutes (A.R.S.) section 32-1132(A) (2014). 1
¶2 To be eligible for recovery from the Fund, McCormick had to
show he was a “person injured,” which includes a requirement that
McCormick intended to occupy Lot 4 as his residence. A.R.S. § 32-1131(3). 2
After an evidentiary hearing, an Administrative Law Judge (ALJ)
recommended the ROC find McCormick eligible for recovery. The ROC
modified and rejected the ALJ’s recommendations, finding McCormick
failed to show he was eligible. On appeal, the superior court reversed the
ROC’s order, “[b]ased on the authorities and arguments presented by
McCormick” and awarded McCormick attorneys’ fees and costs. The ROC
then timely appealed to this court.
¶3 The narrow issue on appeal is whether the ROC properly
modified and rejected the ALJ’s recommendations. Finding the ROC did
1 Absent material revisions after the relevant dates, statutes cited refer to
the current version unless otherwise indicated.
2 The “person injured” definition also requires that the property be
“classified as class three property under [A.R.S.] § 42-12003.” A.R.S. § 32-
1131(3). Given the resolution below, it is not necessary to address the
classification of Lot 4.
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not err, the judgment and award of attorneys’ fees and costs is vacated
and the ROC’s order is affirmed.
FACTS AND PROCEDURAL BACKGROUND
¶4 On January 29, 2005, Sonoran entered into a Purchase
Agreement and Receipt for Deposit in which Calypso Investments LLC
agreed to buy and Sonoran agreed to build and sell a home on Lot 4.
McCormick signed on behalf of Calypso. McCormick testified he was the
sole member of Calypso, which apparently held some rental properties,
and he “set [Calypso] up for liability protection if somebody got hurt at
the rental properties and things like that.”
¶5 In the following months, Calypso made an escrow payment
to Chicago Title Insurance Company and Calypso (by McCormick) and
Sonoran signed a Final Purchase Price Addendum. A June 7, 2005
Addendum for Lot 4 states “buyer to be Tim McCormick.” A Special
Warranty Deed, dated July 8, 2005, and recorded on July 28, 2005 with the
Pinal County Recorder and signed by Sonoran, lists McCormick as the
sole grantee for Lot 4.
¶6 An Affidavit of Property Value signed by McCormick and
notarized on July 21, 2005, and recorded with the Pinal County Recorder
on July 28, 2005, lists McCormick as the purchaser of Lot 4. Section 7 of
this Affidavit states that Lot 4 was “[t]o be rented to someone other than a
‘family member’” (as opposed to checking an alternative box indicating
“[t]o be occupied by Owner or ‘family member’”). The keystone to the
resolution of this appeal is the proper force to be given this Affidavit by
McCormick stating that the home on Lot 4 was to be rented to someone
other than a family member, given McCormick’s claim to the contrary
years later.
¶7 There are some significant gaps in the record about what
happened next. A February 2007 letter from Sonoran to McCormick states
the home on Lot 4 “is nearing completion. This is a courtesy 60 day notice
of your Target Close Date.” In April 2007, however, McCormick filed a
Consumer Complaint with the Arizona Attorney General, alleging
Sonoran had “not finished both houses” that he purchased from Sonoran. 3
3Although Calypso purchased Lot 38 in the same development as Lot 4,
McCormick did not make a claim against the Fund for losses regarding
Lot 38.
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This Consumer Complaint alleged a January 16, 2005 “Date of
Transaction” and noted that it was supposed to have taken six to eight
months to build the home. The record does not reveal the resolution of
this Consumer Complaint.
¶8 A May 2007 letter from Sonoran to McCormick states
Sonoran had lost its contractor’s license, was out of business and was
unable to complete the home on Lot 4. Noting the “difficult construction
and real estate economic time,” the letter adds that Sonoran’s parent
company was in bankruptcy and “[y]ou are free to contract with
whomever you chose to complete your home.” The ROC later notified
McCormick that Sonoran’s contractor’s license was revoked in August
2007.
¶9 In May 2009, McCormick filed a verified Complaint against
Sonoran with the ROC. That Complaint listed July 22, 2005 as the date of
contract for the purchase of Lot 4; lists August 2005 as the completion,
close of escrow and move-in date and states the last work was performed
on June 10, 2007. McCormick alleged abandonment by Sonoran and
sought recovery of $35,305.85. McCormick added that he had “signed over
the . . . house” to an investor “in a ‘deed in lieu’” a year after work
stopped at the property (i.e. mid-2008) and he “no longer owe[d] any $ on
the house” but “never got my down payment back.” In January 2010, the
ROC issued a Decision and Order finding Sonoran abandoned the
construction contract in violation of A.R.S. § 32-1154(A)(1) and taking
further discipline against Sonoran’s contractor’s license.
¶10 McCormick also filed a timely claim against the Fund
regarding Lot 4. 4 In February 2011, “[a]fter a review of the claim and all
supporting documentation,” the ROC issued a Notice to Claimant of
Recovery Fund Ineligibility. The ROC found McCormick was ineligible for
payment from the Fund because, among other things, McCormick did not
intend Lot 4 to be owner-occupied under A.R.S. § 42-12004. The ROC
noted:
4To the extent the claim against the Fund was separate from McCormick’s
May 2009 Complaint, it is not in the record on appeal. The ROC, however,
does not dispute that McCormick filed a timely claim against the Fund
regarding Lot 4.
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Research at the Pinal County Assessor’s office
and the Arizona Department of Revenue
support the conclusion that Mr. McCormick
held this property as investment property. The
[ROC] has a copy of a signed and notarized
[Affidavit of Property Value] executed by
Complainant McCormick, dated 7/21/2005,
which states the Complainant’s intended use
for this property was to rent it as a commercial
property to someone other than [a] “family
member.”
Complainant cannot therefore be classified as a
‘person injured’ under § 32-1131 as it was not
intended to be owner-occupied by
Complainant's own sworn statement.
McCormick timely challenged this determination, including requesting an
evidentiary hearing at the Office of Administrative Hearings (OAH),
which was held in June 2011. Between the February 2011 ineligibility
finding and the June 2011 administrative hearing, McCormick took
various actions of note.
¶11 In an April 25, 2011 letter to the ROC, McCormick claimed
the July 21, 2005 Affidavit of Property Value stating Lot 4 “[t]o be rented
to someone other than [a] ‘family member’” was a mistake. McCormick
attached a notarized letter, with a handwritten “4/20/2011” date, from
the Sonoran sales agent stating McCormick “wrote a contract to purchase
Lot 4 on February 18, 2005. Mr. McCormick’s intent was to occupy this
home. He put in many upgrades to make it his own special home.”
McCormick also attached an unsigned, unverified April 20, 2011 email
from a Chicago Title representative who wrote the title insurance policy
for Lot 4, stating:
Chicago Title only issues the Homeowner’s
Title Policy when the purchaser is going to
reside in the property as their principal
residence. We do not issue this policy to
landlords as it gives a great deal of extra
coverage that is afforded to the insured since
this would be their own home.
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To address the issue of the Affidavit of
Property Value that was recorded with your
deed, at the time of this closing in 2005, Escrow
was marking the box in Section 7 in our
computer system. The Escrow Officer who did
this – or the assistant who prepared the
document made an assumption that this was to
be an investment property and they were
incorrect. This clearly should have been
marked “To be occupied by Owner. . . . We
apologize for this error.”
On May 23, 2011, McCormick also recorded a Special Warranty Deed for
Lot 4 stating, with reference to the July 21, 2005 Affidavit: “THIS
DOCUMENT IS BEING RE-RECORDED TO CHANGE THE INTENDED
USE ON THE AFFIDAVIT OF PROPERTY VALUE TO OWNER
OCCUPIED.”
¶12 At the June 2011 administrative hearing, the ALJ received in
evidence various documents (including those identified above) and heard
testimony from McCormick and ROC representative Doug Ulmer. Along
with going through many of the exhibits, Ulmer testified the ROC was
“concerned” about McCormick’s intent to be an owner-occupier because
Lot 4 was “owned initially by Calypso.” Ulmer also expressed concern
about the July 21, 2005 Affidavit, stating that Lot 4 was “[t]o be rented to
someone other than [a] family member.” Ulmer testified that McCormick’s
May 2009 Complaint was the first documentation of any kind where
McCormick expressed an intent to personally occupy Lot 4.
¶13 McCormick testified that the purchase contract for Lot 4
initially referenced Calypso as the buyer because the agent insisted
“everything . . . has to be as it appears on the check” and he had the
Calypso “checkbook with me.” A later addendum “Buyer to be changed
to Tim McCormick” was designed to correct that issue. McCormick
testified that Section 7 of the Affidavit “was marked in error. And
although my responsibility, as I read over all these, I’m supposed to read
over all the documents as you buy a house, but as we all know, it’s kind of
a blur, and yes, it was signed, but it was, it was done in error.”
McCormick testified that he never occupied any home on Lot 4 because it
was never completed.
¶14 In July 2011, the ALJ issued a decision including proposed
findings that McCormick obtained ownership of the property in July 2005
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and, at that time, signed the Affidavit of Property Value stating the
intended use of Lot 4 “was for rental use and not to be occupied by the
owner.” The ALJ’s proposed findings continued:
At hearing, [McCormick] submitted
credible evidence showing that the Affidavit
was erroneous with respect to the intended use
of the property. This evidence includes a
notarized letter from the sales agent stating
that [McCormick] intended to live in the home
and an e-mail from [McCormick’s] title
insurance carrier showing that the policy that
was issued for the home was for an owner-
occupier and not an owner-renter. It also
includes a recorded document from a title
company stating that the Affidavit should have
shown the property to be owner-occupied.
The ALJ concluded that “[t]he evidence shows that [McCormick] intended
to occupy the property for which he is seeking recovery” and
recommended that the ROC “find that Tim McCormick is eligible for
recovery from the Fund.”
¶15 Although adopting many of the ALJ’s recommendations, in
an August 12, 2011 Order, the ROC found McCormick had not submitted
credible evidence showing that the Affidavit of Property Value was in
error; rejected the ALJ’s finding that the evidence showed McCormick
intended to occupy Lot 4 and, instead, found “that the evidence presented
and the record of the [ROC] shows that [McCormick] did not carry his
burden to establish that he intended to occupy” Lot 4. The ROC provided
the following rationale for these conclusions:
Justification: The [ROC] does not find
the evidence presented by [McCormick],
including the Affidavit, notarized letter from
the sales agent and an email from
[McCormick’s] title insurance carrier, to be
credible. This evidence was only created and
presented by [McCormick] after [McCormick]
found out that he would be deemed ineligible
for recovery from the . . . Fund. As such, the
[ROC] does not give weight to these
documents. Further, [McCormick] is no longer
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Decision of the Court
the “owner” of [Lot 4] and the [ROC] finds
Complainant’s attempt to re-write the history
of his previous ownership of [Lot 4] property
suspect.
It is significant that the contract
executed as a basis of this claim was entered
into between [Sonoran] and [McCormick’s]
business entity, Calypso Investments LLC.
Payments on this contract were rendered by
Calypso Investments LLC, not by [McCormick]
individually. [McCormick] also used Calypso
Investments LLC to buy at least one other
property, in the same subdivision as the subject
property, that was admitted to be a commercial
venture by [McCormick].
Intent to occupy, as with all eligibility
hurdles that must be overcome by
[McCormick], must be evaluated at the time of
the contract and/or at the time of if injury. The
weight of the evidence in the record over the
relevant time frame does not support that
[McCormick’s] intent was to occupy the subject
property.
Accordingly, the ROC found that McCormick “is ineligible for recovery
from the” Fund.
¶16 McCormick filed a timely complaint for judicial review in
superior court arguing the ROC’s decision was not based on substantial
evidence and sought attorneys’ fees. See A.R.S. §§ 12-901 to -914, 32-
1154(F). “Based on the authorities and arguments presented by
McCormick,” the superior court found the record supported the ALJ’s
findings and conclusions that McCormick was eligible for recovery from
the Fund, reversed the ROC’s decision to the contrary and remanded for
the ROC to determine the proper award amount. The superior court also
granted McCormick’s request for attorneys’ fees. This court has
jurisdiction over the ROC’s timely appeal pursuant to Article 6, Section 9,
of the Arizona Constitution and A.R.S. §§ 12-913, -2101(A)(1).
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Decision of the Court
DISCUSSION
¶17 The standard of review on appeal is “whether the agency’s
action was arbitrary, capricious, or an abuse of discretion.” Gaveck v. Ariz.
State Bd. of Podiatry Exam'rs, 222 Ariz. 433, 436, ¶ 11, 215 P.3d 1114, 1117
(App. 2009) (citation omitted). Arbitrary and capricious agency action has
been described as “unreason[ed] action, without consideration and in
disregard for facts and circumstances.” Petras v. Ariz. State Liquor Bd., 129
Ariz. 449, 452, 631 P.2d 1107, 1110 (App. 1981) (quoting Tucson Pub. Sch.,
Dist. No. 1 of Pima Cnty. v. Green, 17 Ariz. App. 91, 94, 495 P.2d 861, 864
(App. 1972)). “The court must defer to the agency’s factual findings and
affirm them if supported by substantial evidence. If an agency’s decision
is supported by the record, substantial evidence exists to support the
decision even if the record also supports a different conclusion.” Gaveck,
222 Ariz. at 436, ¶ 11, 215 P.3d at 1117 (citations omitted).
¶18 Whether McCormick intended to occupy Lot 4 “as a
residence” under A.R.S. § 32-1131(3) is determined by looking at his intent
(1) when the contract was entered into or (2) when the claim accrued.
McMurren v. JMC Builders, Inc., 204 Ariz. 345, 347, ¶ 1, 63 P.3d 1082, 1084
(App. 2003). The evidence considered by the ROC admittedly was in
conflict. The contract was entered into either when McCormick was
designated the buyer in an Addendum dated June 7, 2005, or when the
property transferred pursuant to the Special Warranty Deed dated July 21,
2005 and recorded July 28, 2005. Viewed most favorably to McCormick,
his claim accrued at some point prior to when he filed his May 2009
Complaint with the ROC. Accordingly, the relevant inquiry focuses on
McCormick’s intent in June/July 2005 and in or before May 2009.
¶19 In July 2005, McCormick filed a notarized Affidavit of
Property Value with Pinal County stating that Lot 4 was to be rental
property and “[t]o be rented to someone other than [a] ‘family member.’”
That Affidavit was not changed or withdrawn prior to McCormick filing
his ROC Complaint in May 2009. That Affidavit is consistent with the
ROC’s finding that McCormick did not show he intended to occupy Lot 4
as a residence. McCormick did not attempt to alter this recorded Affidavit
until after the ROC relied on the filing in finding him ineligible to recover
from the Fund in February 2011. The ROC was not required to ignore the
representation by McCormick in this Affidavit or this substantial passage
of time.
¶20 McCormick’s May 2009 Complaint with the ROC alleges that
Sonoran “was to build me a house to move into.” This allegation is
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consistent with McCormick’s argument that he intended to occupy Lot 4
as a residence at some point, as the ROC acknowledged. McCormick,
however, “signed over the . . . house” to an investor “in a ‘deed in lieu’”
sometime in mid-2008, meaning he had not owned Lot 4 for nearly a year
before filing his ROC Complaint. The ROC was not required to accept
without question the allegations in McCormick’s Complaint.
¶21 McCormick’s efforts to show his earlier intent after the ROC
found he was ineligible for Fund recovery in February 2011 warrant close
examination. Although providing an April 2011 notarized letter from the
Sonoran sales agent stating McCormick’s “intent was to occupy the home”
when he “wrote a contract to purchase Lot 4 on February 18, 2005,” the
record reveals no February 18, 2005 purchase contract (although there is
an escrow receipt using that date), and McCormick was not a party to the
contract to purchase Lot 4 until June 2005. Moreover, although admissible
in the administrative hearing, McCormick has not shown that the ROC
was compelled to accept at face value this statement by a sales agent
purporting to describe McCormick’s intent six years earlier. Cf. Ariz. State
Liquor Bd. v. Jacobs, 20 Ariz. App. 166, 169, 511 P.2d 179, 182 (App. 1973)
(noting administrative agency “is the sole judge of the weight to be given
each item of evidence”). Similarly, the ROC was not compelled to accept
the statements in the unsigned, unverified email from a Chicago Title
representative, particularly when compared to a contrary declaration in
the July 2005 notarized Affidavit. Id. at 169, 511 P.2d at 182.
¶22 Finally, although McCormick purported to amend the July
2005 Affidavit by recording a Special Warranty Deed in May 2011, he did
so after the ROC found him ineligible for Fund recovery based on his
statements in the July 2005 Affidavit. Even then, the May 2011 Special
Warranty Deed stated that he was re-recording the July 2005 Affidavit
“TO CHANGE THE INTENDED USE ON THE AFFIDAVIT OF
PROPERTY VALUE TO OWNER OCCUPIED,” not that the July 2005
Affidavit was in error when filed. Moreover, the May 2011 recording came
approximately three years after he “signed over the . . . house” to an
investor “in a ‘deed in lieu’” in mid-2008. In short, the May 2011 recording
(1) did not purport to claim that the July 2005 Affidavit was in error; (2)
changed the stated intent long after the relevant time period and (3)
changed the stated intent years after McCormick had signed away his
ownership interest in Lot 4.
¶23 It is true that McCormick testified at the administrative
hearing that his July 2005 Affidavit “was marked in error.” Given the
conflicting evidence, however, the ROC was not compelled to accept
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McCormick’s testimony. See Jacobs, 20 Ariz. App. at 169, 511 P.2d at 182. If
the record supports two inconsistent factual conclusions, substantial
evidence supports the ROC’s selection of either. Siler v. Ariz. Dep’t of Real
Estate, 193 Ariz. 374, 384, ¶ 56, 972 P.2d 1010, 1020 (App. 1998) (citing
authority). On this record, that is precisely what occurred, meaning the
ROC’s rejecting of McCormick’s view on his intent was supported by
substantial evidence.
¶24 The ROC’s actions also were consistent with Ritland v. Ariz.
State Bd. of Med. Exam’rs, 213 Ariz. 187, 140 P.3d 970 (App. 2006). The ROC
found record evidence for rejecting the ALJ’s credibility findings and
specified the bases for such action, including the substantial time the
recorded July 2005 Affidavit stood without change and that evidence of
the claimed error post-dated the ROC’s initial determination that
McCormick was not eligible for reimbursement. In doing so, the ROC
found and specified factual record support for rejecting the ALJ’s
credibility findings. Nothing more was required. Id. at 191, ¶ 14, 140 P.3d
at 974 (noting agency may reject ALJ credibility findings if the agency (1)
“finds evidence in the record for so doing” and (2) specifies the “factual
support for rejecting the ALJ’s credibility findings”).
¶25 Finding no error in the ROC’s factual determinations based
on disputed evidence of record, and because the ROC correctly applied
the applicable law, the ROC properly determined McCormick failed to
show intent to occupy Lot 4 “as a residence.” A.R.S. § 32-1131(3).
Accordingly, the ROC properly found that McCormick did not qualify for
reimbursement from the Fund. Finally, because McCormick did not
prevail, his request for attorneys’ fees on appeal pursuant to A.R.S. § 12-
348(A) is denied.
CONCLUSION
¶26 The superior court’s judgment and award of attorneys’ fees
and costs is vacated and the ROC’s August 12, 2011 Order is affirmed.
:MJT
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