Pinnamaneni v. Arizona Registrar of Contractors

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
DR. KRISHNA M. PINNAMANENI, individually, and as Trustee of THE
KRISHNA M. AND BHAVANI K. PINNAMANENI REVOCABLE
LIVING TRUST, Plaintiffs/Appellants,
v.
ARIZONA REGISTRAR OF CONTRACTORS, an Arizona administrative
agency; THE UNTOUCHABLES, INC., an Arizona corporation,
Defendants/Appellees.
No. 1 CA-CV 14-0006
FILED 4-9-2015
Appeal from the Superior Court in Maricopa County
No. LC2013-000147-001
The Honorable Crane McClennen, Judge
REVERSED AND REMANDED
COUNSEL
The Butler Law Firm, Phoenix
By Everett S. Butler, Matthew Williams
Counsel for Appellants
Arizona Attorney General’s Office, Phoenix
By Michael D. Raine
Counsel for Appellee Arizona Registrar of Contractors
PINNAMANENI v. ROC, et al.
Opinion of the Court
OPINION
Judge Kent E. Cattani delivered the opinion of the Court, in which
Presiding Judge Jon W. Thompson and Judge Donn Kessler joined.
C A T T A N I, Judge:
¶1 In this appeal, we construe the statutory requirements for
eligibility to assert a claim for compensation from the Residential
Contractors’ Recovery Fund (“Fund”) as a “person injured” by a residential
contractor’s violation of the rules governing registered contractors. See
Ariz. Rev. Stat. (“A.R.S.”) §§ 32-1132(A), -1131(3).1 The statutes define a
“person injured,” as relevant here, as the owner of residential real property,
who occupies or intends to occupy the residence, and who is damaged by
a residential contractor’s deficient work. A.R.S. § 32-1131(3). We conclude
that an individual who occupies or intends to occupy the residence, and
who is the trustor, trustee, and beneficiary of a revocable trust that owns
the property, meets the statutory owner–occupant requirement of § 32-
1131. We also conclude that the statute does not require contractual privity
between an owner of property and the residential contractor as a
prerequisite to recovery from the Fund. See A.R.S. § 32-1131(3). Finally, we
hold that participation in the underlying complaint to the Arizona Registrar
of Contractors (“ROC”) that established the contractor’s violation is not a
statutory prerequisite to recovery from the Fund. Accordingly, and for
reasons that follow, we reverse the ROC’s denial of the claim.
FACTS AND PROCEDURAL BACKGROUND
¶2 In 2003, Krishna Pinnamaneni (“Pinnamaneni”) began
designing a home for himself and his family to be built on property owned
by the Krishna M. and Bhavani K. Pinnamaneni Revocable Living Trust
(“Trust”). During the home’s construction, Pinnamaneni acted through his
limited liability company, Pioneer Family Investments (“Pioneer”), as his
agent to negotiate all contractual and financial matters, including a contract
with The Untouchables, Inc. (the “Contractor”) on behalf of himself and the
Trust.
1 Absent material revisions after the relevant date, we cite a statute’s
current version.
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PINNAMANENI v. ROC, et al.
Opinion of the Court
¶3 Because of problems caused by the Contractor during
construction, Pinnamaneni—through Pioneer—filed an ROC complaint. In
the section titled “Person Filing the Complaint,” Pinnamaneni checked the
box next to “homeowner” and listed his name. The complaint also included
a line to designate a “Company name (If filing on behalf of a company)”
under which Pinnamaneni listed “Pioneer Family Investments, LLC.”
Before submitting the complaint, Pinnamaneni sought clarification on how
to complete this portion of the form from the ROC, and he asserts that
someone at the ROC advised him that “if Pioneer is your agent, and your
family is the sole owner, you can use Pioneer as the complainant, because
you will be coming as the sole owners, family owner’s agent.” Shortly after
filing the complaint, Pinnamaneni submitted a supplement to request
additional damages, signing the supplement in his capacity as “Managing
Member, Pioneer Family Investments, LLC.”
¶4 Following a hearing on the ROC complaint, an administrative
law judge found that the Contractor had performed deficient work and
recommended revoking the company’s license. The ALJ’s recommended
decision, which listed Pioneer as the complainant, was subsequently
adopted by the ROC.
¶5 After the Contractor filed for bankruptcy, Pinnamaneni (on
his own behalf and as trustee) and Pioneer filed a joint claim to recover
payment from the Fund for damages incurred as a result of the deficient
construction. The ROC denied the claim, however, on the basis that
“[Pinnamaneni, the Trust, and Pioneer] do not meet the legal definition of
a ‘person injured’ as required by § 32-1131.3.”
¶6 Pinnamaneni, the Trust, and Pioneer requested an
administrative hearing to contest the ROC’s eligibility determination.
Pinnamaneni testified at the hearing that he used Pioneer as his agent
during the construction, and that he lives in the house, which is owned by
the Trust. Pinnamaneni also indicated that he had filed the original
complaint against the Contractor both on his own behalf and on behalf of
Pioneer.
¶7 Following the eligibility hearing, the ROC ruled that because
only Pioneer (and not the Trust) filed the underlying complaint,
Pinnamaneni did not meet the statutory qualification for obtaining a
recovery from the Fund. The ROC further found that Pinnamaneni’s lack
of contractual privity with the Contractor (because only Pioneer was a party
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PINNAMANENI v. ROC, et al.
Opinion of the Court
to the contract) also rendered Pinnamaneni ineligible to recover from the
Fund.2
¶8 Pinnamaneni, individually and as trustee, appealed the
denial of his claim to the superior court, which affirmed the ROC’s order.
He then timely appealed to this court, and we have jurisdiction under
A.R.S. §§ 12-2101(A)(1) and -913.
DISCUSSION
¶9 Pinnamaneni argues that the superior court erred by
upholding the denial of his claim, arguing in particular that (1) he qualifies
for recovery from the Fund as a “person injured” by the Contractor’s
deficient work, and (2) A.R.S. § 32-1154 does not require the injured party
to have filed the underlying ROC complaint to receive compensation from
the Fund.
¶10 “When reviewing a superior court judgment affirming
administrative action, we will determine whether there is substantial
evidence to support the decision.” Sunpower of Ariz. v. Ariz. State Registrar
of Contractors, 166 Ariz. 437, 439, 803 P.2d 430, 432 (App. 1990). We review
questions of statutory interpretation de novo, looking first to the language
of the statute, then to the Legislature’s intent. Magness v. Ariz. Registrar of
Contractors, 234 Ariz. 428, 432, ¶ 15, 323 P.3d 711, 715 (App. 2014).
¶11 Under A.R.S. § 32-1154(G), “if a contractor’s license has been
revoked or has been suspended as a result of an order to remedy a violation
of this chapter, the registrar may order payment from the residential
contractors’ recovery fund to remedy the violation.” The Fund thus
provides a mechanism to compensate “any person injured” by an act,
representation, transaction, or conduct of a licensed residential contractor
in violation of the rules governing contractors. A.R.S. § 32-1132(A); see also
Shelby v. Ariz. Registrar of Contractors, 172 Ariz. 95, 97–98, 834 P.2d 818, 820–
21 (1992). A person injured by the violation may be awarded up to $30,000
for actual damages suffered as a direct result of the contractor’s violation.
A.R.S. § 32-1132(A).
¶12 Under A.R.S. § 32-1131(3), a “person injured” is defined as:
any owner of residential real property which is classified as
class three property under § 42-12003 and which is actually
2 The ROC also denied Pioneer’s claim to recovery from the Fund;
Pioneer did not appeal that determination.
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PINNAMANENI v. ROC, et al.
Opinion of the Court
occupied or intended to be occupied by the owner as a
residence including community property, tenants in common
or joint tenants who are damaged by the failure of a
residential contractor or a dual licensed contractor to
adequately build or improve a residential structure or
appurtenance on that real property. Included in this
definition are lessees of residential real property who contract
directly with a residential contractor or indirectly with a
subcontractor of that contractor and homeowners’ or unit
owners’ associations after transfer of control from the builder
or developer for damages to the common elements within the
complex.
Thus, to qualify as a “person injured” under § 32-1131(3), the claimant must
(1) be an owner of residential real property; (2) actually occupy or intend to
occupy the property as a residence; and (3) be damaged by the failure of a
residential contractor to adequately build or improve a residential
structure. McMurren v. JMC Builders, Inc., 204 Ariz. 345, 350, ¶ 15, 63 P.3d
1082, 1087 (App. 2003).
¶13 The residential property at issue here is owned by the Trust,
and Pinnamaneni (not the Trust) occupies the property as a residence. The
Trust, however, is revocable, and Pinnamaneni created the Trust and is both
the trustee and a beneficiary. As both the trustor and trustee of a revocable
trust, Pinnamaneni had complete control over the property in the Trust.
See, e.g., A.R.S. § 14-10603(A) (“While a trust is revocable by the settlor, the
rights of the beneficiaries are subject to the control of, and the duties of the
trustee are owed exclusively to, the settlor.”). We therefore conclude that
under these circumstances—where the property is owned by a revocable
trust and the occupant is the trustor, trustee, and beneficiary of that
revocable trust—the trustee acting on behalf of the trust satisfies the owner
and occupant requirements of § 32-1131(3). Accordingly, Pinnamaneni is
entitled to compensation as a “person injured” under § 32-1131.
¶14 The ROC and the superior court alternatively concluded that,
under § 32-1131, Pinnamaneni’s lack of contractual privity with the
Contractor precludes him from asserting a claim for recovery from the
Fund. Although that statute does not include any reference to a contract
between a property owner and the contractor alleged to have caused the
damage, the ROC asserts that a contractual privity requirement is
evidenced by the legislative history of § 32-1131, which noted that the Fund
was established as part of a broad scheme “to provide improved protection
for owners and lessees of property who contract for the construction or
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PINNAMANENI v. ROC, et al.
Opinion of the Court
alteration of residential structures.” 1981 Ariz. Sess. Laws, ch. 221, § 1
(emphasis added). But the definition of “person injured” has changed since
the statute was initially enacted in 1981. The 1981 version of § 32-1131
defined “person injured” as:
any owner of real property or his successor in interest or
lessee who contracts directly with a licensed contractor or
indirectly with a licensed subcontractor of such contractor for
the construction of or improvements or alterations to a
residential structure and appurtenances thereto.
In contrast, as set forth above, the current version of § 32-1131 includes no
such reference to contractual privity between a property owner whose
property is damaged and the contractor alleged to have caused the damage
(although the statute retains such a requirement for a lessee). In light of this
change removing the contractual privity requirement for property owners
seeking recovery from the Fund, the legislative history does not support the
ROC’s interpretation of the current version of the statute.
¶15 The ROC further asserts that, although there is no express
statutory requirement that an injured property owner have had a
contractual relationship with the contractor, the contrary interpretation
improperly “isolates one part of the entire recovery fund scheme.” The
ROC references “other Fund statutes” that “expressly require a contractual
relationship,” and concludes that such provisions suggest an overall
requirement that there be a contractual relationship. But the statute that
contains such a requirement, § 32-1131(3), includes in the definition of
“person injured” “lessees of residential real property who contract directly
with a residential contractor or indirectly with a subcontractor of that
contractor.” A contractual privity requirement for lessees who seek
recovery from the Fund is logical because faulty construction on a residence
presumably damages the owner of the residence, rather than the lessee,
unless the lessee is the person who contracted for the work at issue.
¶16 Moreover, the fact that the Legislature imposed a contractual
privity requirement for one category of persons injured while leaving out
such a requirement for another category supports the conclusion that the
requirement does not apply to the other category. See Luchanski v. Congrove,
193 Ariz. 176, 179, ¶ 14, 971 P.2d 636, 639 (App. 1998) (“When the legislature
has specifically included a term in some places within a statute and
excluded it in other places, courts will not read that term into the sections
from which it was excluded.”). Thus, we conclude that the contractual
privity requirement applies only to lessees, and not to property owners.
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PINNAMANENI v. ROC, et al.
Opinion of the Court
¶17 Finally, the ROC argues that Pinnamaneni is not eligible for
recovery from the Fund because he was not a party to the ROC complaint
against the Contractor. The ROC acknowledges that the statutory scheme
is silent as to whether recovery is contingent on participation in the
underlying complaint against a contractor, but asserts that “[i]t is axiomatic
that to recover under a complaint, one must be a party to the action in which
the complaint is filed.” We disagree. In this context, resolution of a
complaint simply establishes a violation, which is a question independent
of who was damaged by the violation.
¶18 Furthermore, A.R.S. § 32-1154(G) provides that recovery
funds are available “to remedy the violation.” Subsection (G) is not
contingent on who files a complaint, and, significantly, A.R.S. § 32-1154(B)
permits investigation and punishment of a violation on the ROC’s own
motion. The ROC’s interpretation would frustrate § 32-1154(G)’s intended
compensatory purpose in any case in which the ROC initiated proceedings
on its own motion. Given the absence of an express requirement that a
“person injured” have taken part in the underlying complaint against the
contractor, and interpreting the statutory scheme as a whole, we conclude
that a “person injured” as defined in § 32-1131 is entitled to recover from
the Fund even if not a party to the underlying ROC complaint.
¶19 Because Pinnamaneni, as trustee of the Trust and occupant of
the residence, qualifies for recovery from the Fund as a “person injured,”
the superior court erred by upholding the ROC’s denial of Pinnamaneni’s
claim for recovery from the Fund under A.R.S. § 32-1132. Pinnamaneni has
requested attorney’s fees on appeal under A.R.S. § 12-348. As the prevailing
party, Pinnamaneni is entitled to an award of reasonable attorney’s fees and
costs upon compliance with ARCAP 21.
CONCLUSION
¶20 For the forgoing reasons, we reverse the superior court’s
judgment affirming the ROC order and remand for further proceedings
consistent with this opinion.
:ama
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