Flanigan v. Arizona registrar/r&c

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
BRIAN THOMAS FLANIGAN, Plaintiff/Appellant,
v.
ARIZONA REGISTRAR OF CONTRACTORS, Defendant/Appellee.
R&C DEVELOPMENT, LLC, Appellee.
No. 1 CA-CV 21-0536
FILED 8-11-2022
Appeal from the Superior Court in Maricopa County
No. LC 2020-000262-001
The Honorable Julie A. LaFave, Judge Pro Tempore
REVERSED AND REMANDED
COUNSEL
Kozub Kloberdanz, Scottsdale
By Daniel L. Kloberdanz
Counsel for Plaintiff/Appellant
Arizona Attorney General’s Office, Phoenix
By Justin J. Larson
Counsel for Defendant/Appellee, Arizona Registrar of Contractors
FLANIGAN v. ARIZONA REGISTRAR/R&C
Decision of the Court
MEMORANDUM DECISION
Judge Michael J. Brown delivered the decision of the Court, in which
Presiding Judge Maria Elena Cruz and Judge Samuel A. Thumma joined.
B R O W N, Judge:
¶1 Brian Flanigan appeals the superior court’s order affirming a
decision of the Arizona Registrar of Contractors (the “ROC”), which denied
his administrative claim for compensation from the Residential
Contractor’s Recovery Fund (“Recovery Fund”). He argues the court erred
when it decided that a 2019 statutory amendment changing the Recovery
Fund’s eligibility requirements did not apply to his claim. Because Flanigan
filed his claim for compensation after the amendment went into effect, and
the amendment does not suggest it was inapplicable to his claim, we reverse
and remand for further proceedings.
BACKGROUND
¶2 Flanigan is a trustee and a beneficiary of The Flanigan Family
Trust (the “Trust”). In 2018, the Trust acquired title to a single-family
residence in Phoenix (the “Home”) after foreclosing on a defaulted loan. At
the time, the Home was classified as “non-primary” property by Maricopa
County and had previously been classified as rental property. Flanigan
entered into a contract with R&C Development, LLC (“R&C”) to remodel
the Home, and he later testified that he intended to live there after the
remodeling.
¶3 Unsatisfied with R&C’s work, Flanigan filed an
administrative complaint with the ROC. After an investigation, the ROC
found that the work did not meet minimum standards and directed R&C
to correct specified deficiencies. When R&C failed to do so, the ROC issued
a formal citation. On July 25, 2019, after R&C failed to respond to the
citation, the ROC issued a final administrative decision and order
temporarily suspending R&C’s contractor’s license and imposing a civil
penalty.
¶4 Flanigan made a demand against the contractor license bond
issued by R&C’s surety, and the surety settled with Flanigan, paying him
$9,000. On October 21, 2019, Flanigan submitted an administrative claim,
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Decision of the Court
on an approved ROC form, seeking recovery of his additional losses from
the Recovery Fund. The form stated in bold print: “IMPORTANT: Failure
to answer all questions or provide all required documentation will prevent
the fund from processing your claim.” The form listed the required
documents, including “documentation from the contractor’s bonding
company showing the final disposition of your claim.” Meanwhile,
effective August 27, 2019, after the ROC suspended R&C’s license and
Flanigan sent his demand to the surety, but before Flanigan submitted his
administrative claim, the legislature amended the Recovery Fund’s
eligibility requirements by removing references to property tax
classification status. See 2019 Ariz. Sess. Laws ch. 145, § 16 (1st Reg. Sess.)
(S.B. 1397); see also A.R.S. § 32-1132 (residential contractor’s recovery fund).
¶5 Applying the pre-August 27, 2019 version of the statute, the
ROC denied Flanigan’s claim because the Home was not classified as either
“noncommercial historic property” under A.R.S. § 42-12101(2), or “class
three property” under A.R.S. § 42-12003 (defining tax classifications for real
and personal property). Flanigan contested the denial and requested an
administrative hearing, asserting he submitted his claim after the 2019
amendment removed the tax classification requirements. After a hearing,
an administrative law judge (“ALJ”) recommended that the ROC affirm its
order denying eligibility. As relevant here, the ROC adopted the ALJ’s
decision. Flanigan appealed to the superior court, which found the 2019
amendment did not apply. The court therefore affirmed the ROC’s denial
and Flanigan timely appealed to this court. We have jurisdiction under
A.R.S. § 12-913.
DISCUSSION
¶6 The superior court must affirm an agency action unless it is
“contrary to law, is not supported by substantial evidence, is arbitrary and
capricious or is an abuse of discretion.” A.R.S. § 12-910(F). The superior
court reviews questions of law “without deference to any previous
determination that may have been made on the question by the agency.”
Id. We apply the same principles when we review the superior court’s
ruling. See Gaveck v. Ariz. State Bd. of Podiatry Exam’rs, 222 Ariz. 433, 436,
¶ 12 (App. 2009). We review the superior court’s interpretation of statutes
de novo. Tornabene v. Bonine ex rel. Ariz. Highway Dep’t., 203 Ariz. 326, 332,
¶ 12 (App. 2002). In doing so, we apply the statute as written if it is
unambiguous. Ariz. Citizens Clean Elections Comm’n v. Brain, 234 Ariz. 322,
325, ¶ 11 (2014).
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Decision of the Court
A. 2019 Amendment
¶7 Decades ago, the legislature established the Recovery Fund
“to provide improved protection for owners and lessees of property who
contract for the construction or alteration of residential structures.”
McMurren v. JMC Builders, Inc., 204 Ariz. 345, 349, ¶ 9 (App. 2003) (quoting
1981 Ariz. Sess. Laws, ch. 221, § 1). Before the 2019 amendment, access to
the Recovery Fund was limited to “[p]ersons injured,” defined by statute
as:
[A]ny owner of residential real property that is either
noncommercial historic property as defined in section 42-12101 or
classified as class three property under section 42-12003. The
property must also be actually occupied or intended to be
occupied by the owner as a residence. . . .
A.R.S. § 32-1131(3)(a) (2017) (emphasis added). Because the Home did not
fall within this definition, Flanigan could not access the Recovery Fund if §
32-1131(3)(a) (2017) applied to his administrative claim. The 2019
amendment, however, removed the requirement that the property have
specific tax classifications such that it now includes an individual who
(a) [o]wns residential real property that is damaged by the
failure of a residential contractor to adequately build or
improve a residential structure or appurtenance. [and]
(b) [a]ctually occupies or intends to occupy the residential real
property described in subdivision (a) of this paragraph as the
individual’s primary residence.
A.R.S. § 32-1132(B)(1). Thus, if the 2019 amendment applies to Flanigan’s
claim, the Home’s tax classification would not prohibit payment from the
Recovery Fund.
B. A.R.S. § 32-1133.01
¶8 A claimant that files a complaint with the ROC resulting in
either the suspension or revocation of the contractor’s licenses can access
the Recovery Fund through an administrative process and does not have to
file a civil suit against the contractor. Compare A.R.S. § 32-1133.01
(administrative recovery), with A.R.S. § 32-1133 (civil recovery). Regardless
of which path the claimant follows, as soon as the license is suspended or
revoked, the ROC may unilaterally disburse payment from the Recovery
Fund for the beneficiary of the residential claimant:
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Notwithstanding any other provision in this chapter, if a
contractor license has been revoked or 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.
A.R.S. § 32-1133.01(A). If the ROC does not disburse payment, however,
and the claimant pursues the administrative path, the claimant must timely
file a claim with the ROC. See A.R.S. § 32-1133.01(G) (“A claim for payment
from the [Recovery Fund] must be submitted within two years after all
proceedings, reviews and appeals connected with the registrar’s final order
terminate.” (emphasis added)). The claimant must also show, among other
requirements, that he has “proceeded against any existing bond covering
the residential contractor.” A.R.S. § 32-1133.01(F).1
¶9 Here, the ROC did not unilaterally order disbursement from
the Recovery Fund under § 32-1133.01(A). Thus, Flanigan had to proceed
against the bond, submit his administrative claim, and prove his eligibility
for recovery before the ROC would be obligated to make a payment. See
A.R.S. § 32-1133.01(F).
C. Prospective Application
¶10 The ROC determined that the 2019 amendment did not
govern Flanigan’s claim, a conclusion the superior court affirmed. The
court reasoned that the 2019 amendment, as it applied to § 32-1133.01, only
governed cases where the ROC revoked or suspended a contractor’s license
after the amendment’s effective date. Flanigan’s primary argument on
appeal is that the 2019 amendment applies to all § 32-1133.01 claims
1 The order suspending R&C’s license issued July 25, 2019. Section 32-
1133.01 did not become effective until August 27, 2019. Laws 2019, Ch. 145,
§ 17. However, the predecessor to § 32-1133.01, A.R.S. § 32-1154(G) (2018),
contained substantially identical language, stating that: “Notwithstanding
any other provisions in this chapter, 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. . . . An applicant to the
residential contractors’ recovery fund pursuant to this subsection must
show that the applicant has proceeded against any existing bond . . . .”
Because the parties agree this statutory change does not alter the analysis
here, we cite the most current statute.
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FLANIGAN v. ARIZONA REGISTRAR/R&C
Decision of the Court
submitted to the ROC after its effective date, regardless of when the
contractor was disciplined.
¶11 To decide whether either suspension of the contractor’s
license or the date of submission of the claim to the ROC determines
applicability of the 2019 amendment, we must first decide whether the 2019
amendment was a substantive or procedural change. “[A] substantive law
creates, defines and regulates rights while a procedural one prescribes the
method of enforcing such rights or obtaining redress.” Allen v. Fisher, 118
Ariz. 95, 96 (App. 1977). A procedural law “does not operate to abridge,
enlarge or modify the rules of decision.” Daou v. Harris, 139 Ariz. 353, 358
(1984) (citation and quotation omitted). Here, the 2019 amendment defined
and regulated rights by changing the class of individuals who can access
the Recovery Fund. Thus, the 2019 amendment removing the classification
requirement is substantive.
¶12 Although neither party directly addresses the issue, we must
consider whether the 2019 amendment, under its plain language, applies to
Flanigan’s administrative claim under § 32-1133.01(F). As a general rule,
substantive amendments do not apply retroactively absent an explicit
retroactivity statement. A.R.S. § 1-244 (“No statute is retroactive unless
expressly declared therein.”); State v. Coconino Cnty. Superior Court, Div. II,
139 Ariz. 422, 427 (1984) (“Unless a statute is expressly declared to be
retroactive, it will not govern events that occurred before its effective
date.”). On the other hand, a substantive amendment can apply to
occurrences that predate its enactment, as long as it does not impair rights
that have already vested. Hall v. A.N.R. Freight Sys., Inc., 149 Ariz. 130, 139–
40 (1986); see also Cohen v. State, 121 Ariz. 6, 9 (1978) (Civil statutes “may not
be applied retroactively in the absence of a specific provision to that effect.
A.R.S. § 1-244. No such prohibition, however, applies to laws that operate
on pre-existing conditions, and such laws are not retrospective by their
mere relation to antecedent conditions.”).
¶13 As noted, the 2019 amendment removed the requirement that
claimant’s property carry certain tax classifications. In essence, this
amendment increased the class of individuals eligible to receive proceeds
from the Recovery Fund. Nothing in the 2019 amendment indicates the
legislature intended to limit recovery only to claims where the contractor’s
license was suspended before the amendment’s effective date. Instead,
except for the classification requirement, the procedure for applying to the
Recovery Fund remained unchanged. Under § 32-1133.01(F), if the
contractor’s license is suspended or revoked, the claimant can access the
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Recovery Fund by first proceeding against the bond and then filing an
administrative claim with the ROC.
¶14 We conclude that the 2019 amendment applies prospectively
to all § 32-1133.01(F) claims submitted after its effective date, regardless of
when the contractor’s license was suspended or revoked. See Harrison v.
Ellis, 146 Ariz. 222, 225 n.1 (App. 1985) (explaining that a statutory
amendment to the Recovery Fund increasing the amount of damages a
claimant could recover prospectively applied to civil claims “arising out of
acts, representations, transactions, or conduct occurring” before the
effective date, but filed with the superior court after the effective date, in
part, because the plain language of the amendment did not prohibit such
application).
D. Vested Rights
¶15 Notwithstanding the plain language of the 2019 amendment,
the ROC argues the old version of the law applies to Flanigan’s
administrative claim because it was in effect when any potential right
Flanigan had to the Recovery Fund vested. According to the ROC,
Flanigan’s rights vested when the contractor’s license was suspended, and
because the contractor’s license was suspended before the 2019
amendment, the 2019 amendment does not apply. Generally, a substantive
right that has vested may not be retroactively impaired. Hall, 149 Ariz. at
139-40. A vested right is “[o]ne which is absolute, complete, and
unconditional to the exercise of which no obstacle exists, and which is
immediate and perfect in itself not dependent upon a contingency.” Chaffin
v. Comm’r of Ariz. Dep’t. of Real Estate, 164 Ariz. 474, 478 (App. 1990) (citation
and quotation omitted). On the other hand, a right is merely contingent,
and therefore not vested, when it remains dependent on the occurrence of
future, uncertain events. Hall, 149 Ariz. at 140.
¶16 The ROC argues that because it could unilaterally disburse
from the Recovery Fund upon suspending or revoking a contractor’s license
under § 32-1133.01(A), all rights under § 32-1133.01 immediately vest when
a contractor’s license is suspended or revoked. To support this argument,
the ROC points out that under § 32-1133.01(A), it may make such
distributions “[n]otwithstanding any other provision of this chapter,”
asserting this language “would include Subsection (F)’s requirement to
proceed against the bond.” Section 32-1133.01(A) grants the ROC authority
to disburse funds from the Recovery Fund, at its sole discretion, upon
revoking or suspending the contractor’s license. That discretion remains
until a claimant proceeds against the bond and files an administrative claim
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under § 32-1133.01(F). Accordingly, a claimant’s right to proceeds from the
Recovery Fund remains contingent until the claimant files an
administrative claim. As noted many times previously, generally, when the
exercise of a statutory right is contingent upon the filing of a claim, the right
does not vest until the claim is actually filed with the appropriate authority.
See, e.g., Chaffin 164 Ariz. at 479 (claimant’s right to recover from the Real
Estate Recovery Fund vests when claimant files a verified complaint in
superior court); Brunet v. Murphy, 212 Ariz. 534, 537–38, ¶ 13 (App. 2006)
(claimant’s right to name a particular defendant under the Adult Protective
Services Act vests when the claim is filed); Newman v. Select Specialty Hosp.
Ariz., Inc., 239 Ariz. 558, 563–64, ¶¶ 20–24 (App. 2016) (plaintiff’s right to
attorney’s fees vested when the complaint is filed).
¶17 Acknowledging this general rule, the ROC argues that a § 32-
1133.01(F) claim is different because it is an administrative, not a civil,
remedy. The ROC asserts that under § 32-1133.01(A), once the ROC
disciplines the contractor, there are no longer material issues related to
eligibility. And because the decision to discipline the contractor comes
from the ROC itself, the ROC cannot relitigate eligibility when the claimant
files an administrative claim under § 32-1133.01(F). As explained by the
ROC, there is no obstacle preventing the claimant from immediately
exercising his rights.
¶18 The ROC, however, has confused the rights at issue. The only
right of the claimant that vests when the contractor’s license is suspended
or revoked is the right to submit an administrative claim with the ROC for
payment under the Recovery Fund; the right to receive payment from the
Recovery Fund does not vest until the administrative claim is actually filed.
See Hall, 149 Ariz. at 140 (“[A] right vests only when it is actually assertable
as a legal cause of action or defense or is so substantially relied upon that
retroactive divestiture would be manifestly unjust.”); cf. Wilson v. Ariz.
Registrar of Contractors, 161 Ariz. 617, 619 (App. 1989) (noting that under the
civil recovery provisions of the Recovery Fund, the right to assert a claim is
different than the right to receive payment).
¶19 Moreover, even though the ROC is responsible for both
disciplining the contractor and administering the Recovery Fund, this does
not change the fact that a claimant’s access to the Recovery Fund remains
contingent upon first proceeding on the bond, and then submitting an
administrative claim under § 32-1133.01(F). Even though both are handled
by the same agency, lodging a complaint against a contractor and filing an
administrative claim are separate proceedings. Further, the revocation or
suspension of the contractor’s license does not guarantee the claimant’s
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administrative claim will ultimately be granted even when a claim is filed.
In the normal case, under either version of the statutes, factual questions
remain regarding eligibility that may prevent payment. A.R.S. §§ 32-
1131(3)(a) (2017); 32-1132(B)(1) (2019).
¶20 The ROC concedes that the claimant will still have to prove
he has “the right type of property under A.R.S. § 32-1132 and the
appropriate amount of the award under A.R.S. § 32-1132.01.” But it
contends these outstanding factual issues are not obstacles to payment
because “homeowners are in the position to resolve the ultimate
qualification or amount-of-recovery issues.” However, the fact the claimant
is more likely to possess the evidence that resolves these issues is
immaterial to the question of whether his rights remain contingent.
CONCLUSION
¶21 We hold that the 2019 amendment governs Flanigan’s
administrative claim, and therefore the prior version of § 32-1131, requiring
the damaged property to carry certain tax classifications, does not preclude
Flanigan from accessing the Recovery Fund. Accordingly, we reverse the
superior court’s order and remand for further proceedings consistent
herewith. Because Flanigan does not demonstrate where in the proceedings
before this appeal he unsuccessfully requested attorneys’ fees, we deny his
request for fees under A.R.S. § 41-1007(E) (authorizing discretionary fee
award “[i]f fees and other costs were denied by the [ALJ] because the party
was not the prevailing party but the party prevails on appeal”). As the
successful party on appeal, Flanigan is awarded taxable costs upon
compliance with ARCAP 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
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