McMURREN v. JMC BUILDERS ( 2003 )

IN THE COURT OF APPEALS
STATE OF ARIZONA
DIVISION TWO
THOMAS McMURREN, a single man, ) 2 CA-CV 2002-0022
) DEPARTMENT A
Plaintiff/Appellee, )
) OPINION
v. )
)
JMC BUILDERS, INC. , an Ar izona )
corporation, )
)
Defendant/Appellant. )
)
APPEAL FROM THE SUPERIOR COURT OF PIMA COUNTY
Cause No. C-20011552
Honorable Lina S. Rodriguez, Judge
AFFIRMED
Russo, Cox & Russo, P.C.
By Karl MacOmber Tucson
Attorneys for Plaintiff/Appellee
Jack L. Lansdale, Jr. Tucson
Attorney for Defendant/Appellant
B R A M M E R, Pr esiding Judge.
¶1 JMC Builders, Inc., appeals from the superior court’ s reversal of an administrative
law judge’ s (ALJ) interpretation of whether Thomas McMurren 1 qualified as a person injured
1
Thomas Orville McMurren died on December 6, 2001. Thomas William McMurren, his
son and the personal representative of his estate, has been substituted in his place. Accordingly,
and eligible to make a claim against the Arizona Residential Contractors’ Recovery Fund. In this
issue of first impression, we concur with the superior cour t’ s ruling and conclude that an owner
of a residential structur e qualifies as a person injured under A.R. S. § 32-1131(3), who is eligible
to make a claim against the Fund, if the owner occupies or intends to occupy the home as a
residence when the contract with the residential contractor is entered into or when a claim resulting
from a violation of A.R. S. § 32-1154 accrues. Accordingly, we affirm the superior court’ s
order.
Factual and Procedural Background
¶2 McMurren’ s home was damaged by fire while he was on vacation in July 1997. 2
At the administrative hearing, McMurren stated that, at the time of the fire, he had been living in
the home at least “ part time. ” Because the dwelling was uninhabitable after the fire, McMurren
lived temporarily in a motor home parked in his driveway. He hired JMC in January 1998 to
rehabilitate the damaged property. Dissatisfied with JMC’ s performance, he filed an
administrative complaint against JMC with the Arizona Registrar of Contractors in July 1998 and
moved back into his home in August. The registrar found thirty-one instances of “ unacceptable
workmanship requiring pr oper corr ective action by [JMC]” and issued an order requiring JMC
to correct the deficiencies. After JMC failed to comply with the order, the registrar revoked its
contracting license. In December 1999, McMur ren filed a claim against the Fund pursuant to
we use “ McMurren” interchangeably.
2
Although the transcript of the administrative hearing is not part of the record on appeal,
the parties do not appear to dispute the basic facts of the case.
2
A. R.S. § 32-1154(E). The registrar denied McMurren’ s claim, and McMur ren requested a
hearing.
¶3 At the administrative hearing held in February 2001, the ALJ considered a report
from a registrar ’ s investigator that stated McMurren’ s property had been occupied as a group
home since October 1999. Relying on this report, and referring to § 32-1131(3), the ALJ
reasoned that McMurr en had not been “ an occupant of the residence . . . when [his] claim for
damages [had been] filed and [had not been] an occupant of the residence on the date of the
hearing. ” 3 Section 32-1131(3) provides that a “ [p]erson injured” is an owner of residential real
property who actually occupied or intended to occupy the property as a r esidence and who is
damaged by the failure of a residential contractor to adequately build or improve that residence.
The ALJ then concluded that McMurren was not a “ [p]erson injured” as defined in § 32-1131(3)
and, accordingly, was not eligible to make a claim against the Fund. McMurren appealed the
ALJ’ s decision to the superior court pursuant to the Administr ative Review Act, A. R.S. §§ 12-
905 through 12-914. See § 32-1154(E).
¶4 In reviewing the ALJ’ s decision, the super ior court r uled that “ the relevant time
period in determining whether a claimant qualifies as a ‘per son injured’ is when the contract is
entered into and/or the time that the claim arises” and not, as the ALJ had found, when the claim
is filed or at the time of the administrative hearing. The superior cour t found that the ALJ had
misinterpreted the meaning of “ [p]erson injured” and remanded the case for the ALJ to determine
whether “ McMurren [had been] occupying his home at the time the . . . contract was entered into
3
Implicit in this finding is a finding that McMurren had not intended to occupy the
residence on either date. See A.R. S. § 32-1131(3).
3
and/or the time that the claim [arose].” 4 JMC has appealed, arguing that the superior court abused
its discretion in rever sing the ALJ’ s interpretation of § 32-1131(3). We disagree.
Superior Court Review of the ALJ’ s Decision
¶5 Preliminarily, JMC argues that the superior court abused its discretion in
interpreting § 32-1131(3) differently from the ALJ, asserting that the court was limited to
determining only whether substantial evidence in the record supported the ALJ’ s decision.
JMC’ s focus is on the wrong issue. Generally, “ [w]hen reviewing an administrative decision,
[the superior court is] limited to determining whether the administrative action was illegal,
arbitrar y, capricious, or involved an abuse of discretion. ” Schade v. Department of Transp., 175
Ariz. 460, 461, 857 P.2d 1314, 1315 (App. 1993). When the issue involves an interpretation of
law, however, “ the [superior] court . . . [is] fr ee to draw [its] own legal conclusions and
determine whether the agency erred in its interpretation of the law. ” Eshelman v. Blubaum, 114
Ariz. 376, 378, 560 P.2d 1283, 1285 (App. 1977).
¶6 Because the issue before the superior court was the legal interpretation of
§ 32-1131(3), the cour t’ s scope of review on that issue was de novo, and it owed no deference
to the ALJ’ s interpretation of the law. See Lavidas v. Smith, 195 Ar iz. 250, 987 P.2d 212 (App.
1999). The court concluded that the ALJ had made his only factual findings based on an
erroneous interpretation of § 32-1131(3). Because the ALJ failed to make any factual findings on
whether McMurren had been occupying, or had intended to occupy, the property either when he
4
We infer that the court also contemplated that the ALJ would consider all statutory
elements, including whether McMurren had intended to occupy the residence on the critical dates.
See § 32-1131(3).
4
entered into the contract with JMC or when the claim accrued, ther e were no pertinent findings
for the superior cour t to deferentially review. See Howard v. Nicholls, 127 Ar iz. 383, 621 P.2d
292 (App. 1980) (in reviewing administrative decision, court must affirm if substantial evidence
supports it). Accordingly, the superior court did not err in reviewing de novo the applicable law.
Court of Appeals Standard of Review
¶7 We likewise review the record to determine “ whether the administrative action was
illegal, arbitrar y, capr icious or involved an abuse of discretion. ” Havasu Heights Ranch & Dev.
Corp. v. Desert Valley Wood Prods. , Inc. , 167 Ar iz. 383, 386, 807 P.2d 1119, 1122 (App. 1990).
Because the ALJ based his decision on legal conclusions, we review that decision “ for legal error,
and are free to draw our own conclusions regarding the law.” Schade, 175 Ar iz. at 461, 857 P.2d
at 1315. Our de novo review, accordingly, focuses on when a person making a claim against the
Fund qualifies as a “ [p]erson injured” under § 32-1131(3).
¶8 Section 32-1131(3) defines a “ [p]erson injured” as
any owner of residential real property which is classified as class
three property under [a section of the tax code] and which is
actually occupied or intended to be occupied by the owner as a
residence . . . who [is] damaged by the failure of a residential
contractor . . . to adequately build or improve a residential structure
or appurtenance on that real property.
The statute does not state when the person injured must have occupied or intended to occupy the
damaged premises as a residence. The parties have not pointed us to any Arizona cases, nor have
we found any, that r esolve this issue.
Statutory Scheme
5
¶9 The Fund was established in 1981 as part of a broad scheme regulating the
construction industry. See 1981 Ariz. Sess. Laws, ch. 221, §§ 1-38. In part, the purpose of the
Fund is “ to provide improved pr otection for owners and lessees of property who contract for the
construction or alteration of r esidential structures. ” 1981 Ariz. Sess. Laws, ch. 221, § 1. Section
32-1132(A), A.R. S., provides in pertinent part:
The residential contractors’ recovery fund is established, to
be administered by the registrar, from which any person injured by
an act, r epresentation, transaction or conduct of a residential
contractor that is in violation of this chapter or the r ules adopted
pursuant to this chapter may be awarded in the county where the
violation occurred an amount of not more than twenty thousand
dollars5 for damages sustained by the act, representation, transaction
or conduct.
¶ 10 There are two methods by which one whose residence has been damaged may
obtain compensation from the Fund. One, found in A.R. S. § 32-1136(B), provides that, “ [w]hen
any injured person r ecovers a valid judgment against any residential contractor for such act,
representation, transaction or conduct which is in violation of this chapter, . . . the injured person
may on twenty days’ written notice to the registrar apply to the court for an order directing
payment out of the fund.” This section contemplates a civil action by the injured person against
the contractor, resulting in a judgment in favor of the injured person. The injured person may
then apply for a court order directing the r egistrar to pay the judgment from the Fund, up to the
statutory limit in § 32-1132(A). See Shelby v. Arizona Registrar of Contractors, 172 Ariz. 95,
834 P.2d 818 (1992).
5
The amount a person injured can collect from the F und has since been increased to thirty
thousand dollars. See 2002 Ariz. Sess. Laws, ch. 179, § 1.
6
¶ 11 The other method, and the one McMurren chose, allows an injured person to
institute administrative proceedings in which the registrar determines whether the claimant is
entitled to recover from the Fund. The proceeding is begun by a claimant’ s filing a written
complaint with the registrar within two years of the commission of an act constituting cause for
suspension or revocation of the contractor’ s license. A. R.S. § 32-1155(A). F ollowing an
investigation and an opportunity for the contr actor to appear and contest the complaint, the
registrar may suspend or revoke the contractor’ s license and may require the contractor to remedy
any violations disclosed by the investigation. § 32-1154(B), (E). If a contractor’ s license is
revoked or suspended because the contractor fails to comply with an or der to remedy the
violations, the registrar may order payment from the Fund. § 32-1154(E). “ [T]he contractor or
injured person may [then] seek judicial review of the registrar’ s final award pursuant to [the
Administrative Review Act],” id., which vests jur isdiction in the superior cour t to review final
administrative decisions. § 12-905. Under either method, only a “ [p]erson injured” is eligible
to make a claim against and obtain an award from the Fund. § 32-1132. F or the following
reasons, we conclude that at least two legally relevant times when an owner may be a person
injured as defined in § 32-1131(3) by either occupying or intending to occupy the damaged
property are when the contract is entered into or when the claim accrues.
Statutory Interpretation
¶ 12 “ Our primary goal in inter preting statutes is to discern and give effect to legislative
intent.” Hobson v. Mid-Century Ins. Co., 199 Ar iz. 525, ¶ 8, 19 P.3d 1241, ¶ 8 (App. 2001).
“ We first consider the language of the statute and, if it is unclear, turn to other factors, including
‘ the statute’ s context, subject matter, historical background, effects, consequences, spirit, and
7
purpose. ’ ” Norgord v. State ex rel. Berning, 201 Ar iz. 228, ¶ 7, 33 P.3d 1166, ¶ 7 (App.
2001), quoting id.a. Date of contracting
¶ 13 The legislative purpose and plain language of §§ 32-1131(3) and 32-1132 support
the first part of our conclusion that one relevant time for considering whether a claimant is a
person injured is when the owner and contractor enter into the contract for the work. As noted
above, when the legislature created the Fund, its intent was partly to “ protect[] . . . owners and
lessees of property who contract” with residential contractors to build or improve their residences.
1981 Ariz. Sess. Laws, ch. 221, § 1. Section 32-1132(A) provides: “ An award from the fund
shall not be available to persons injured by . . . a residential contractor whose license was in an
inactive status, expired, cancelled, revoked or suspended at the time of the contract.” This
language supports the conclusion that the legislature’ s intent in creating the Fund was to pr otect
those who contract for residential construction by encouraging them to hire properly licensed
residential contractors.
¶ 14 For an owner to recover from the Fund, the contractor must have a valid
contractor’ s license at the time the parties enter into the contract. Further more, § 32-1131(3)
includes in the definition of “ [p]erson injured” “ lessees of residential real property who contract
directly with a residential contractor or indirectly with a subcontractor of that contractor.”
Accordingly, it follows that the date that either an owner or lessee and a contractor enter into a
contract pursuant to which the questioned work is performed is an appropriate time for
8
determining whether the owner or lessee occupied or intended to occupy the property as a
residence and, therefore, whether the owner or lessee may qualify as a person injured. 6
b. Date of injury
¶ 15 The legislative intent to compensate residential owners who are injur ed by
contractors’ acts that violate § 32-1154, as expressed in the plain language of § 32-1131(3), also
supports the second part of our conclusion, that a relevant time for considering whether a claimant
is a person injured is when the right accrues to a residential owner to sue a contractor who has
violated the chapter. Section 32-1131(3) establishes three requirements for a claimant to qualify
as a person injured.
First, the claimant must be an “ owner of residential real property”
as classified under the tax code. Second, the owner must actually
occupy [or intend to occupy] the property “ as a residence . . . .”
Third, the claimant must be “ damaged by the failure of a residential
contractor to adequately build or improve a residential
structure . . . .”
Shelby, 172 Ariz. at 98, 834 P.2d at 821, quoting § 32-1131(3). The legislature further stated its
intent by providing in § 32-1132(A) that the Fund was established to compensate “ any person
injured by an act, representation, transaction or conduct of a residential contractor that is in
violation of this chapter.”
¶ 16 An award from the Fund is limited, ther efore, to damages resulting from a violation
of the chapter. It follows that the legislative intent is satisfied by our interpr etation that an owner
is injured, and the claim accrues, when a contractor inadequately builds or improves the pr operty,
6
We are not presented the issue of whether the statutory remedy provided to owners
claiming against the Fund contemplates contract assignment as a condition precedent to making
a claim and, accordingly, do not address it.
9
thereby violating the chapter. If this occurs when the owner actually occupies or intends to occupy
the property as a residence, then the owner qualifies as a person injured.
c. ALJ’ s decision
¶ 17 As noted above, the ALJ decided that the relevant time for an owner’ s occupancy
is either when the owner files a claim or when the hearing is held on the claim. We find this
decision not only impractical and unworkable, but also unsuppor ted by the language of
§ 32-1131(3) and inconsistent with the spirit and purpose of the statutes. First, the plain language
of § 32-1131(3) does not support the ALJ’ s decision. The statute speaks of an owner who is
“ damaged” by a residential contractor but says nothing about when that owner must file a claim
with the registrar or the Fund.
¶ 18 Second, the ALJ’ s decision imposes conditions for recovery from the Fund not
found in the express language of § 32-1131(3). For example, the ALJ’ s decision here would have
required McMurren, who obviously had sustained damage by the time he occupied his property
in August 1998, to nonetheless continue to occupy it for the next year and one-half, through all
the proceedings against JMC before the registrar until he filed a claim against the Fund in
December 1999. The ALJ’ s construction would also prevent McMurren from recovering from
the Fund simply because he converted his property to a commercial use before he filed his claim.
Further, the ALJ’ s interpretation penalizes owners who are damaged but who transfer ownership
of their property before making a claim against the Fund. Such impediments would thwart the
Fund’ s legislative purpose of providing protection for owners whose residences are damaged by
a contractor’ s substandard work. McMurren’ s conversion of the property to a commercial use
10
from a residence before he filed his claim or at the time of the hearing on his claim should not
affect whether he qualified as a “ [p]erson injured” when the damage occurred.
¶ 19 Additionally, the ALJ’ s interpretation would allow a person who purchases a
damaged residence at a discounted price from an owner who hir ed a contractor who caused the
damage to begin occupying that residence and make a claim against the Fund, even though both
parties were aware of the damage before the sale. That interpr etation would permit an otherwise
uninjured but knowledgeable purchaser to orchestrate becoming a “ [p]erson injured,” but would
deny compensation to an owner who knowingly sells a damaged residence at a reduced value
before filing a claim, even though the owner resided, or intended to reside, in the residence at the
time the contractor was hired or when the claim accrued. Because the statute is silent on how long
the occupancy must continue or whether it must be exclusive, our interpr etation avoids the
possibility that an owner will become an occupant long after a claim accrues or only after
becoming cognizant of the occupancy requirement. The ALJ’ s interpretation would encour age
the opposite result by allowing a person to buy a residence; hold it exclusively as a lessor for an
extended period of time, neither occupying nor intending to occupy it; then move into a portion
of it after a claim has accrued and file a claim against the Fund.
Conclusion
¶ 20 After considering the plain language of the statutes, the legislature’ s purpose in
creating the Fund, and the logical consequences of the ALJ’ s interpretation, we agree with the
superior court that the ALJ’ s interpretation of a person injured was legally erroneous. Two
relevant times for determining whether a claimant is a “ [p]erson injured” as defined in
§ 32-1131(3) and eligible to recover from the Fund pursuant to § 32-1132(A) are when the owner
11
and contractor enter into the contract and when the claim accrues. We therefore affirm the
superior court’ s order remanding the case to the ALJ to determine whether McMurren was
occupying or intending to occupy the residence either when he entered into the contract with JMC
or when the claim against JMC accrued. 7
¶ 21 McMurren requests attorney’ s fees from the state pursuant to A. R.S. § 12-348.
Because the state is not a party to this appeal, we have no jurisdiction to award attorney’ s fees
against it. Additionally, McMurren requests attorney’ s fees from JMC pursuant to A. R.S.
§ 12-349, ar guing JMC’ s appeal is frivolous. Because the issue we decide is one of first
impression and not frivolous, in our discretion, we decline to award McMurr en attorney’ s fees
on appeal.
________________________________________
J. WILLIAM BRAMMER, JR., Presiding Judge
CONCURRING:
______________________________________
M. JAN FLÓREZ, Judge
7
McMurren also argues that, on remand, we should direct the ALJ to recognize that the
registrar has waived certain defenses and to order the r egistrar to pay McMurren’ s claim.
Because the registrar has not denied the claim on remand, and we cannot assume that result will
occur, and because the registrar has not raised additional defenses on remand, these issues are not
before us. “ Courts should not render ‘ advisory opinions anticipative of troubles which do not
exist; may never exist; and the precise for m of which, should they ever arise, we cannot
predict.’ ” Citibank v. Miller & Schroeder Fin., Inc., 168 Ariz. 178, 182, 812 P.2d 966, 1000
(App. 1990), quoting Velasco v. Mallory, 5 Ar iz. App. 406, 410-11, 427 P.2d 540, 544-45
(1967). Accordingly, we do not address them.
12
______________________________________
JOSEPH W. HOWARD, Judge
13