Kost 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NOTICE: NOT FOR PUBLICATION.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
JACOB KOST, a married man, Plaintiff/Appellant,
v.
ARIZONA REGISTRAR OF CONTRACTORS, an agency of the state of
Arizona; WILLIAM MUNDELL, State Registrar of Contractors,
Defendants/Appellees.
No. 1 CA-CV 13-0397
FILED 5-6-2014
Appeal from the Superior Court in Maricopa County
Nos. CV2013-000021, LC2012-000592-001 (Consolidated)
The Honorable Dean M. Fink, Judge
AFFIRMED
COUNSEL
Gust Rosenfeld P.L.C., Phoenix
By Craig L. Keller
Counsel for Plaintiff/Appellant
Arizona Attorney General’s Office, Phoenix
By Michael D. Raine
Counsel for Defendants/Appellees
KOST v. AROC et al.
Decision of the Court
MEMORANDUM DECISION
Judge Lawrence F. Winthrop delivered the decision of the Court, in which
Presiding Judge Patricia A. Orozco and Judge Kenton D. Jones joined.
W I N T H R O P, Judge:
¶1 Plaintiff/Appellant, Jacob Kost, appeals the superior court’s
judgment dismissing his complaint seeking mandamus relief against the
Arizona Registrar of Contractors and William Mundell, the State Registrar
of Contractors (collectively, “the ROC”). Kost raises several arguments
asserting the superior court erred in dismissing his complaint. For the
following reasons, we affirm the entry of judgment in favor of the ROC.
FACTS AND PROCEDURAL HISTORY
¶2 In August 2008, the ROC issued a dual contractor’s license 1
to Thinker Development, Inc. (“Thinker”), a company primarily engaged
in the business of roof repair. In December 2010, Kost became Thinker’s
qualifying party. 2
¶3 Kost eventually sought to disassociate from Thinker’s
contractor’s license, purportedly due to concerns about Thinker’s business
practices. On July 26, 2011, Kost submitted a “Notice of
Disassociation/Resignation” form to the ROC for this purpose. Ten days
later, on August 5, 2011, the ROC rejected the form as submitted,
apparently because Thinker’s articles of incorporation filed with the
1 In general, a “dual licensed contractor” is a person or organization
licensed to undertake both commercial and residential contracting. See
Ariz. Rev. Stat. (“A.R.S.”) § 32-1101(A)(4) (West 2014). We cite the current
version of the applicable statutes throughout this decision unless revisions
material to our analysis have occurred since the relevant date.
2 The term “qualifying party” is synonymous with the term
“responsible managing employee,” and means “an employee who is
regularly employed by the licensee and is actively engaged in the
classification of work for which such responsible managing employee
qualifies in behalf of the licensee.” A.R.S. § 32-1127.
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Arizona Corporation Commission listed Kost as an officer, and an
amendment to those articles of incorporation was required to complete
the disassociation. 3 Although not cited by the ROC as an additional basis
for rejecting the form, Kost also had checked three boxes on the form that,
together, gave the ROC inconsistent instructions regarding the processing
of Kost’s form. 4
¶4 An amendment to Thinker’s articles of incorporation
removing Kost as an officer was filed on October 27, 2011. Kost, however,
remained on Thinker’s license as a qualifying party. On January 20, 2012,
the ROC revoked Thinker’s license, ostensibly due to the lack of a surety
bond. At some point, Kost became aware multiple persons had filed
complaints with the ROC against Thinker, alleging Thinker had failed to
perform work for which it had been paid. 5
¶5 On October 26, 2012, Kost filed a “Verified Special Action
Complaint” and an “Application for Order to Show Cause Re: Writ of
Mandamus” (“OSC”) against the ROC. The complaint sought “a writ of
mandamus requiring the ROC to retro-actively disassociate Kost from
Thinker’s license as of July 26, 2011.” The OSC sought the additional
relief, not requested in the complaint, of a writ compelling the ROC to
“immediately initiate a fraud investigation against those involved in
Thinker’s fraudulent actions.”
3 The ROC’s letter included a checked box, which indicated Kost’s
Notice of Disassociation had been rejected for the following reason:
“Parties requesting to be removed from a license must provide proof that
they are no longer listed with the AZ Corporation Commission. The
stamped amendment that was supplied to ACC will be proof enough. Re:
Jacob Kost.”
4 The Notice of Disassociation form provided to the public was
revised in December 2012. The new form specifically instructs the person
completing the form that amended articles of incorporation or other
documentation “should be provided” with the form. Additionally, rather
than three boxes with mutually exclusive instructions available for a
person to check, the form now has only two boxes, with options that are
not mutually exclusive.
5 Ultimately, twenty-seven complaints against Thinker resulted in
discipline being imposed after an administrative hearing or default due to
violations of state contracting law.
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¶6 On November 30, 2012, the ROC removed Kost as the
qualifying party and filed a motion to dismiss Kost’s complaint for failure
to state a claim upon which relief might be granted. See Ariz. R. Civ. P.
12(b)(6). Following briefing and oral argument, the court granted the
motion, concluding that mandamus could not lie for either of Kost’s
requests – retroactive disassociation from Thinker’s license or Kost’s
request for a fraud investigation. 6
¶7 On March 12, 2013, the superior court issued its judgment
dismissing Kost’s mandamus action. Kost filed a motion for new trial,
which the superior court denied.
¶8 On May 23, 2013, Kost filed a timely notice of appeal, and we
have jurisdiction pursuant to A.R.S. § 12-2101(A)(1) and (5)(a).
ANALYSIS
I. Standard of Review
¶9 The ROC attached to its motion to dismiss a portion of an
exhibit not included in Kost’s complaint or OSC, and Kost similarly
attached an additional exhibit to his response to the motion to dismiss. In
general, when matters outside the pleadings are presented to and not
excluded by the superior court, the court should construe a motion to
dismiss as a motion for summary judgment. See Ariz. R. Civ. P. 12(b); Frey
v. Stoneman, 150 Ariz. 106, 108-09, 722 P.2d 274, 276-77 (1986). In this case,
however, the additional documents were public records regarding matters
referenced in the complaint. Consequently, the superior court did not err
in continuing to treat the ROC’s motion as a motion to dismiss. See
Coleman v. City of Mesa, 230 Ariz. 352, 356, ¶ 9, 284 P.3d 863, 867 (2012) (“A
complaint’s exhibits, or public records regarding matters referenced in a
complaint, are not ‘outside the pleading,’ and courts may consider such
documents without converting a Rule 12(b)(6) motion into a summary
judgment motion.”(citation omitted)).
¶10 In deciding a motion to dismiss for failure to state a claim, a
court must determine whether the complaint, construed in the light most
6 On appeal, Kost raises no argument regarding his request for a writ
compelling the ROC to initiate a fraud investigation. He has therefore
abandoned this issue on appeal. See City of Tucson v. Clear Channel
Outdoor, Inc., 218 Ariz. 172, 193 n.10, ¶ 80, 181 P.3d 219, 240 n.10 (App.
2008) (recognizing that issues not raised in an opening brief are waived).
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favorable to the plaintiff, adequately sets forth a valid claim. Aldabbagh v.
Ariz. Dep’t of Liquor Licenses & Control, 162 Ariz. 415, 417-18, 783 P.2d 1207,
1209-10 (App. 1989). In our review of the dismissal of a complaint for
failure to state a claim, we take as admitted the well-pled material
allegations of the complaint, but not unwarranted deductions of fact or
conclusions of law. Id. at 417, 783 P.2d at 1209. We review de novo
questions of law decided by the superior court, including the court’s
decision to grant the motion to dismiss pursuant to Rule 12(b)(6). Id. at
418, 783 P.2d at 1210; Blankenbaker v. Marks, 231 Ariz. 575, 577, ¶ 6, 299
P.3d 747, 749 (App. 2013). We will affirm the superior court’s ruling if the
result was legally correct for any reason. See State v. Perez, 141 Ariz. 459,
464, 687 P.2d 1214, 1219 (1984).
II. Kost’s Lack of Entitlement to Mandamus Relief
¶11 Kost argues the superior court erred in dismissing his
mandamus action because the ROC abused its discretion in rejecting his
Notice of Disassociation form. We conclude that the superior court did
not err in dismissing Kost’s mandamus action.
¶12 Mandamus is an extraordinary remedy issued by a court
that compels a public officer to perform an act the law specifically imposes
as a duty. Blankenbaker, 231 Ariz. at 577, ¶ 7, 299 P.3d at 749 (citations
omitted). If the act of the public officer is discretionary, mandamus is not
available. Id.; accord Sears v. Hull, 192 Ariz. 65, 68, ¶ 11, 961 P.2d 1013,
1016 (1998) (“Mandamus ‘does not lie if the public officer is not
specifically required by law to perform the act.’” (citation omitted)).
“Thus, the requested relief in a mandamus action must be the
performance of an act and such act must be non-discretionary.” Sears, 192
Ariz. at 68, ¶ 11, 961 P.2d at 1016. Mandamus applies if the act sought to
be compelled is ministerial. Blankenbaker, 231 Ariz. at 577, ¶ 7, 299 P.3d at
749. “A ministerial act permits a public officer ‘only one course of action
on an admitted state of facts.’” Id. (citation omitted).
¶13 In this case, the superior court found that Kost could not
maintain his mandamus action, in part because he could not show the
ROC had a non-discretionary duty to disassociate him from Thinker’s
license as of July 26, 2011:
Attached to both the Complaint and the Application as
exhibit B is a copy of the Notice of Disassociation/
Resignation turned in by Mr. Kost. Contrary to his assertion
that he filled out the Notice correctly, the document on its
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Decision of the Court
face gives contradictory instructions: disassociate as
qualifying party ONLY (capitals in original), resign as
corporate officer/member/partner ONLY, and disassociate
as qualifying party AND resign as corporate officer/
member/partner. To simplify slightly, Mr. Kost instructed
the ROC to simultaneously do A and do not do B, do B and
do not do A, and do both A and B. This is obviously an
impossibility, and the Court cannot order it to be done any
more than it could order the ROC to square the circle. By the
time [Kost’s original counsel] clarified Mr. Kost’s intention
in February 2012, Thinker’s license had already been
revoked, making the issue moot. Mr. Kost does not allege
that he clarified his intention before that, or even that he
checked Thinker’s record to make sure his name had been
removed. Under the circumstances, the Court cannot find
that the ROC had a duty to remove Mr. Kost’s name from
Thinker’s license at any time before that license was
revoked. Mandamus does not lie.
¶14 We agree with the reasoning of the superior court. Even
assuming the ROC had a non-discretionary duty to act had Kost
submitted a properly completed form, see generally A.R.S. § 32-1104(A),
Kost’s failure to submit such a form or timely correct the error is fatal to
his mandamus action. 7
¶15 Kost maintains he “totally complied with all of the ROC’s
requirements.” He is incorrect, however, because his Notice of
Disassociation form was, at best, ambiguous, and at worst, contradictory,
7 As the ROC notes, Kost has failed to cite any relevant legal
authority imposing a duty on the ROC to independently determine he
was disassociated from Thinker’s license, and we find none. Although
Kost notes that, under A.R.S. § 32-1167(A), a qualifying party is required
to notify the ROC within fifteen days of disassociation from a licensee, this
section only imposes a duty on the qualifying party (and licensee), and
does not specifically impose a duty on the ROC. Further, although A.R.S.
§ 32-1104(A)(2) imposes a ministerial duty on the ROC to maintain
licensing records, that statute does not require the ROC to disassociate a
qualifying party from a license without proper instructions. Accordingly,
mandamus was unavailable and the ROC retained discretion to decide
whether to accept Kost’s defective Notice of Disassociation form. See
Blankenbaker, 231 Ariz. at 577, ¶ 7, 299 P.3d at 749.
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KOST v. AROC et al.
Decision of the Court
and thus defective on its face. Although the form states the effective date
of disassociation is the date the “form is received,” the ROC did not have a
duty to accept Kost’s Notice of Disassociation because it simultaneously
asked the ROC to take three mutually exclusive courses of action. As the
superior court recognized, the form permitted Kost to be removed as a
qualifying party “only,” as a member of the licensed entity “only,” or as
both a qualifying party and a member of the entity, and Kost checked all
three options, rendering his notice defective. The ROC had the option of
accepting or rejecting the form as submitted, and it chose the latter option.
Mandamus will not lie when a public official has discretion over whether
or how to act; instead, it applies to ministerial acts that permit only one
course of action. See Blankenbaker, 231 Ariz. at 577, ¶ 7, 299 P.3d at 749.
¶16 Relying on Aesthetic Property Maintenance, Inc. v. Capitol
Indemnity Corp., 183 Ariz. 74, 900 P.2d 1210 (1995), Kost argues that, even
if he did not fully comply with the ROC’s requirements for disassociation,
the ROC was obligated to disassociate him from Thinker’s license because
he “substantially complied.” In Aesthetic Property Maintenance, our
supreme court found that substantial compliance with A.R.S. § 32-1152,
which prevents a contractor from recovering for unpaid work if the
contractor was unlicensed at the time the work was performed, could be
adequate if certain requirements designed to protect the public are
nonetheless met. Id. at 78, 900 P.2d at 1214.
¶17 Kost, however, offers no support for the position that
substantial, but less than full, procedural compliance strips a public
official of discretion to accept or reject a defective form containing
internally inconsistent instructions. Consequently, even assuming
arguendo the ROC knew or should have known what Kost meant when he
submitted the defective form, the ROC had discretion as to how to handle
that form. Thus, whether Kost substantially complied is irrelevant
because there remained no duty for the ROC to disassociate Kost or to
make his disassociation retroactive. Cf. Adams v. Bolin, 77 Ariz. 316, 322-
23, 271 P.2d 472, 476 (1954) (finding mandamus unavailable to require a
state officer to accept and hold prematurely submitted nomination papers
in an election case). Kost was not entitled to madamus relief because the
ROC did not have a non-discretionary duty to retroactively disassociate
Kost from Thinker’s license.
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III. The Superior Court’s Factual Findings
¶18 Kost argues the superior court erred by finding he filled out
the Notice of Disassociation form incorrectly. More specifically, he
maintains that, because the superior court was required to treat all factual
allegations in the complaint as true, see McDonald v. City of Prescott, 197
Ariz. 566, 567, ¶ 5, 5 P.3d 900, 901 (App. 2000), the court was required to
presume he had properly completed the Notice of Disassociation form
and was precluded from considering the inconsistencies in the completed
form. We disagree.
¶19 Because Kost attached the Notice of Disassociation as Exhibit
B to his complaint, the court properly considered it in ruling on the
motion to dismiss. See Coleman, 230 Ariz. at 356, ¶ 9, 284 P.3d at 867. The
complaint did not specifically allege that Kost properly filled out the
Notice of Disassociation, but even if it had, the superior court was not
bound to accept such a legal conclusion. See, e.g., Grand v. Nacchio, 225
Ariz. 171, 175 n.1, ¶ 20, 236 P.3d 398, 402 n.1 (2010); see also Aldabbagh, 162
Ariz. at 417, 783 P.2d at 1209 (recognizing that a court need not accept
unwarranted deductions of fact or conclusions of law).
¶20 Kost further argues the superior court was precluded from
considering that he improperly completed the Notice of Disassociation
form because neither he nor the ROC raised the issue before the court.
The record belies his argument. The ROC’s motion to dismiss and its
reply in support of that motion both identified Kost’s mistake of selecting
multiple, conflicting boxes regarding the nature of the disassociation on
the form. Additionally, in denying Kost’s motion for new trial, the
superior court addressed this argument by noting that “the Court very
plainly remembers the incorrectness argument being raised by the
Registrar.” 8 Moreover, because the Notice of Disassociation was attached
to the complaint, the superior court was not required to ignore that it was
defective on its face. The superior court appropriately considered
8 Kost has not provided this court with a transcript of the oral
argument on the motion to dismiss. As the appellant, Kost had the
burden to provide this court with all transcripts or other documents
necessary to the resolution of this appeal. See ARCAP 11(b)(1). Because
he did not do so, we assume the transcript supports the superior court’s
findings and conclusions. See Baker v. Baker, 183 Ariz. 70, 73, 900 P.2d 764,
767 (App. 1995).
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whether Kost properly completed the form and reached the correct
conclusion that he did not. 9
IV. The Superior Court’s “Legal Conclusion”
¶21 Kost also argues that the superior court “erred in making
improper legal conclusions regarding Kost’s personal liability.” We find
no error.
¶22 Kost alleged he faces personal liability for Thinker’s
fraudulent actions because he was named on Thinker’s license at the time
Thinker’s employees defrauded customers. In granting the motion to
dismiss, the superior court concluded as follows:
That Mr. Kost faces liability for Thinker’s allegedly
fraudulent actions because he was named on ROC records is
a legal conclusion, and not necessarily a valid one: he does
not argue that ROC records are conclusive proof of what
they purport to evidence, either positively (Kost is liable
because he is named on them, even if mistakenly) or
negatively (if Kost is not named on them, he is not liable).
¶23 Kost argues the court’s conclusion was error because, under
A.R.S. § 32-1139(B), he is “personally liable to repay the recovery fund or
his other [contracting] license will be suspended.” Section 32-1139(B)
provides as follows:
If any amount is paid from the fund in settlement of a
claim arising from the act, representation, transaction or
conduct of a residential contractor, the license of the
contractor shall be automatically suspended by operation of
law until the amount paid from the fund is repaid in full, plus
interest at the rate of ten per cent a year. Any person who is
or was, at the time of the act or omission, named on a license
that has been suspended because of a payment from the
9 Kost also notes the ROC attached to its motion to dismiss an
amendment to Thinker’s articles of incorporation listing Kost as an officer
and purportedly signed by Kost, which Kost maintained was a “forgery.”
He maintains the superior court erred in dismissing his complaint because
a factual dispute exists regarding whether he knew he was listed as a
corporate officer. Kost fails to demonstrate, however, that the factual
dispute is material to our consideration of the motion to dismiss.
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recovery fund is not eligible to receive a new license or retain
another existing license that also shall be suspended by
operation of law, nor shall any suspended license be
reactivated, until the amount paid from the fund is repaid as
provided in this subsection.
¶24 Kost’s complaint included allegations that Thinker was the
subject of various “fully adjudicated” complaints, but it lacked allegations
that the recovery fund had made any payments or, for that matter, that
there were any pending applications. On appeal, however, Kost notes in
his reply brief that recovery fund payments have now been made in the
amount of $51,678.84 against Thinker’s license, and the ROC has filed a
Notice of Supplemental Facts acknowledging that it has indeed made
payments from the recovery fund related to the license of Thinker since
Kost filed his notice of appeal. The ROC assertedly has not, however,
taken any adverse action against Kost related to these payments, and the
record does not indicate whether Thinker and/or others associated with
Thinker have since repaid the fund or made arrangements to do so.
Consequently, for this reason as well as the reasoning of the superior
court, the superior court did not err in concluding Kost’s potential liability
is speculative at this point. 10
10 The ROC argues on appeal that mandamus is unavailable to Kost
because, even if he is harmed by an ROC decision to take adverse action
against him and can demonstrate his legal rights were affected by the
ROC’s decisions to reject his Notice of Disassociation and not give it
retroactive application, he will have adequate remedies at law through an
administrative hearing and judicial review process. See, e.g., A.A.C. R4-9-
120 (providing for rehearing or review of an ROC decision). Neither the
ROC nor Kost previously raised an argument regarding administrative
remedies, and we express no opinion as to the availability and propriety
of such remedies. Nevertheless, we note that, at oral argument, counsel
for the ROC stated that Kost may still be entitled to a remedy under a
cause of action other than mandamus. Specifically, counsel affirmed that,
if the ROC “goes after” Kost, Kost would have the right to an
administrative review hearing and the issue as to when Kost disassociated
would be “subject to dispute” at such a hearing. Counsel for the ROC also
“presume[d]” that Kost could affirmatively raise the issues he had raised
in his mandamus action in a declaratory judgment action.
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V. Mootness
¶25 In its motion to dismiss, the ROC argued that Kost’s request
to compel the ROC to initiate a fraud investigation against Thinker was
moot because Thinker’s license had already been revoked. In his response
to the motion to dismiss, Kost expanded the argument to include whether
his request for retroactive disassociation was moot. In issuing its ruling
granting the ROC’s motion to dismiss, the superior court did not address
the issue of mootness with regard to Kost’s request for a fraud
investigation, but with respect to Kost’s request for retroactive
disassociation, the court stated, “By the time [Kost’s original counsel]
clarified Mr. Kost’s intention in February 2012, Thinker’s license had
already been revoked, making the issue moot.”
¶26 On appeal, Kost challenges the superior court’s ruling. We
conclude that, when viewed in the context of the superior court’s overall
reasoning, the court’s ruling was not error.
¶27 The court’s ruling rests upon its previous reasoning that the
ROC properly rejected Kost’s form because it was incorrectly filled out, as
well as on the fact that the ROC had revoked Thinker’s license on January
20, 2012, for failure to maintain a surety bond. Consequently, by the time
Kost’s counsel clarified Kost’s intentions in February 2012, Thinker had no
license. Because recovery fund claims can only be made for work by a
licensed contractor, see A.R.S. § 32-1132(A), the possibility of further
liability on the part of Kost terminated on January 20, 2012, when
Thinker’s license was revoked, and no recovery fund claims could arise
between this date and the February 2012 clarification by Kost’s counsel.
Kost’s argument that the issue is not moot relies upon his assumption that
the ROC had a duty to accept Kost’s defective form or to retroactively
disassociate him once the matter was clarified - an assumption we have
already rejected.
VI. Attorneys’ Fees
¶28 Kost requests attorneys’ fees on appeal pursuant to A.R.S.
§ 12-2030. Kost is not the prevailing party, and his request is denied. We
award the ROC its reasonable costs, to be determined upon its compliance
with Rule 21, ARCAP.
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CONCLUSION
¶29 The superior court’s judgment dismissing Kost’s mandamus
action is affirmed.
:MJT
12