Shea v. Az Registrar ( 2020 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
SHEA CONNELLY DEVELOPMENT LLC, Plaintiff/Appellant,
v.
ARIZONA REGISTRAR OF CONTRACTORS, et al., Defendants/Appellees.
No. 1 CA-CV 19-0718
FILED 11-3-2020
Appeal from the Superior Court in Maricopa County
No. LC2019-000048-001
The Honorable Douglas Gerlach, Judge
AFFIRMED
COUNSEL
DKL Law PLLC, Tempe
By David W. Lunn
Counsel for Plaintiff/Appellant
Arizona Attorney General’s Office, Phoenix
By John R. Tellier
Counsel for Defendant/Appellee AZ Registrar
Fidelis V. Garcia Attorney at Law, Chandler
By Fidelis V. Garcia
Counsel for Defendant/Appellee Revive
SHEA v. AZ REGISTRAR, et al.
Decision of the Court
MEMORANDUM DECISION
Presiding Judge Randall M. Howe delivered the decision of the Court, in
which Judge Kent E. Cattani and Judge Cynthia J. Bailey joined.
H O W E, Judge:
¶1 Shea-Connelly Development, LLC (“SCD”) appeals the
Arizona Registrar of Contractor’s (“ROC”) suspension of SCD’s
contractor’s license for violations of Arizona’s Prompt Pay Act and
associated statutes, namely A.R.S. § 32–1183.1 SCD argues that the
administrative law judge (“ALJ”) was required to consider offset, accord
and satisfaction, and recoupment in making its disciplinary determination
to the ROC. For the foregoing reasons, we affirm.
FACTS AND PROCEDURAL HISTORY
¶2 SCD and Revive Construction and Cleaning, LLC (“Revive”)
entered construction subcontracts for two different large-scale construction
projects. In one, SCD subcontracted Revive to frame the Morningstar
Glendale Project (“Glendale Project”) in Glendale. In the other, SCD hired
Revive to fix the framing done by a prior sub-contractor at two buildings at
the Park Place I Project located in Fountain Hills, Arizona (the “Park Place
Project”) The Glendale Project subcontract provided that if Revive
defaulted on any contract or subcontract with SCD, it would be deemed to
have defaulted on all contracts or subcontracts with SCD. In anticipation of
its work at the Glendale Project, Revive submitted an application for
payment, SCD paid Revive $58,641.57, and Revive signed a “Conditional
Waiver and Release on Progress Payment.” Revive did not, however,
perform any work at the Glendale Project.
¶3 The relationship between SCD and Revive deteriorated due
to Revive’s work on the Park Place Project. What was initially a $300,000
bid by Revive, turned into invoices totaling over $800,000. SCD sent
superintendents to review Revive’s work since Revive was well over
budget and the work failed inspections. SCD continued to pay Revive’s
weekly invoices until late January, when Revive submitted an invoice for
1 The operative statutes have been redesignated and renumbered
from A.R.S. §§ 32–1129 to 32–1129.07 as A.R.S. §§ 32–1181 to 32–1188.
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SHEA v. AZ REGISTRAR, et al.
Decision of the Court
work done solely on things that failed inspection. SCD did not object to that
invoice or any subsequent invoices in writing but considered both the Park
Place and Glendale Projects subcontracts terminated. At the time of
termination, SCD owed Revive for four outstanding invoices from the Park
Place Project, #97, #100, #101, and #102, totaling $68,783.25.
¶4 Revive filed a complaint with the ROC claiming SCD owed
$68,783.25 for the outstanding invoices. The ROC notified SCD that a
complaint had been filed against it, explaining that SCD was “free to raise
any issues or affirmative defenses to this complaint . . . .” SCD timely replied
that it did not owe Revive because it had made an accord and satisfaction
with Revive that mitigated Revive’s damages.
¶5 At the subsequent administrative hearing, SCD’s owner, Bart
Shea testified that SCD had terminated the Park Place Project subcontract
because of Revive’s inadequate workmanship, which SCD deemed a
material default. Because of the cross-default provision in the Glendale
Project subcontract, SCD considered Revive in default on the Glendale
Project and terminated that subcontract as well. SCD then requested Revive
return the Glendale Project payment. Revive refused, and Shea considered
those funds payment for the outstanding invoices from January and
February in the Park Place Project. Shea further testified that to make the
Park Place Project pass inspection, SCD hired another subcontractor to fix
Revive’s work. Shea argued that any amount required to fix Revive’s work
would offset, or be deducted from, the invoice amount. Therefore, SCD did
not owe Revive, but Revive owed SCD.
¶6 Revive’s witness, Rogelio Vazquez, declined to answer
questions about the Glendale Project. He did, however, verify the contracts
and the unpaid Park Place Project invoices. He further testified that SCD
notified Revive that it would not pay the invoices but did not provide any
written explanation.
¶7 The ALJ found that SCD provided no written evidence that it
paid invoices #97, #100, #101, and #102. She further found that SCD
provided no authority to establish that the Registrar considers offsets when
assessing whether a contractor has violated the Prompt Pay Act. She made
no findings, however, whether she found any witnesses credible, nor any
other finding related to offset, recoupment, or accord and satisfaction. The
ALJ consequently found that SCD violated both A.R.S. § 32–1154(A)(10)
and Arizona’s Prompt Pay Act. Pursuant to A.R.S. § 32–1154(B)(3), the ALJ
recommended the ROC suspend SCD’s license until it paid Revive the
amount of the invoices it owed, and the ROC adopted the recommendation.
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Decision of the Court
The superior court affirmed the ROC determination on factual grounds,
inferring the material facts at issue to affirm the ALJ. SCD timely appealed.
DISCUSSION
¶8 SCD appeals the suspension of its license under A.R.S. 32–
1154(B)(3), arguing that the ALJ’s recommendation and ROC’s
determination improperly precluded evidence of offset, recoupment, and
accord and satisfaction. We review an administrative action based on an
interpretation of law de novo. See Forest Guardians v. Wells, 201 Ariz. 255, 259
¶9 (2001).
¶9 We interpret statutes to give effect to the legislature's intent,
looking first to the statutory language itself. Baker v. Univ. Physicians
Healthcare, 231 Ariz. 379, 383 ¶ 8 (2013). When the language is clear and
unambiguous, and thus subject to only one reasonable meaning, we apply
the language without using other means of statutory construction. State v.
Gomez, 212 Ariz. 55, 57 ¶ 11 (2006). Specifically, “[s]tatutory construction
requires that provisions of a statute be read and construed in the context of
related provisions and in light of its place in the statutory scheme.” Id. at
176. In doing so, we give effect to all provisions of a statute and harmonize
those provisions. Sw. Gas Corp. v. Indus. Comm'n, 200 Ariz. 292, 297 ¶ 16
(App. 2001).
I. The ALJ did not abuse her discretion when she rejected SCD’s
claim that it had an accord and satisfaction with Revive.
¶10 SCD argues that the ALJ abused her discretion when she did
not consider evidence that it had an accord and satisfaction agreement with
Revive that constituted payment of the invoices at issue. SCD cannot rely
on accord and satisfaction here, however.
¶11 The Prompt Pay Act requires a contractor to pay the full
amount of an invoice for work done and material supplied within seven
days of the invoice being certified and approved. A.R.S. §§ 32–1183(A), (B);
see also A.R.S. § 32–1182(A), (D). An invoice is deemed certified and
approved 14 days after the contractor receives the invoice if the contractor
does not prepare and issue a written statement detailing the reasons for
withholding payment. A.R.S. §§ 32–1183(A), (B), (E); see also A.R.S. § 32–
1182(A), (D). SCD concedes that it did not provide written objections to the
invoices as A.R.S. § 32–1183(E) required, and the invoices were duly
deemed certified. SCD was therefore required to pay the invoices.
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Decision of the Court
¶12 SCD could not use its alleged accord and satisfaction with
Revive to escape its obligation to pay the certified invoices. A construction
contract is “a written or oral agreement relating to the construction,
alteration, repair, maintenance, moving or demolition of any building,
structure or improvement or relating to the excavation of or other
development or improvement to land,” A.R.S. § 32–1181(A)(1), and under
the Prompt Pay Act, a construction contract “shall not alter the rights of any
contractor, subcontractor or material supplier to receive prompt and timely
payments as provided under this article,” A.R.S. § 32–1182(P). An “accord
and satisfaction discharges a contractual obligation or cause of action when
the parties agree to exchange something of value in resolution of a claim or
demand and then perform on that agreement.” Abbott v. Banner Health
Network, 239 Ariz. 409, 413 ¶ 11 (2016). By definition, an “accord and
satisfaction” would alter a subcontractor or material supplier’s statutory
right to receive prompt payment under the Prompt Pay Act. Because
recognizing an accord and satisfaction between SCD and Revive would
limit Revive’s ability to receive payment for work done on a construction
contract in contravention of the express language of A.R.S. § 32–1182(P), the
ALJ did not abuse her discretion by not considering evidence of an accord
and satisfaction.
II. The ALJ was not required to consider any offsets or the defense of
recoupment in determining whether the Prompt Pay Act was
violated.
¶13 SCD also argues that the ALJ abused her discretion by not
considering evidence of an offsetting counterclaim or the equitable defense
of recoupment in imposing sanctions under A.R.S. § 32–1154 (B)(3). An
offset is an action or counterclaim a defendant might have brought in a
separate action against the plaintiff and recovered a judgment. W. J. Kroeger
Co. v. Travelers Indem. Co., 112 Ariz. 285, 287 (1975). “[A] recoupment is a
reduction by the defendant of part of the plaintiff's claim because of a right
in the defendant arising out of the same transaction.” Morris v. Achen Constr.
Co., Inc., 155 Ariz. 507, 510 (App. 1986), rev'd and vacated on other grounds,
155 Ariz. at 512.
¶14 Neither offset nor recoupment apply in Prompt Pay Act
proceedings before the ROC. The purpose of the Prompt Pay Act is to
establish a statutory framework for ensuring timely payments from owners
and contractors to subcontractors and suppliers, Stonecreek Bldg. Co., Inc. v.
Shure, 216 Ariz. 36, 39 ¶ 16 (App. 2007), and proceedings before the ALJ are
meant to adjudicate whether payments have been timely made or withheld
for valid statutory objections. The proceedings are not venues for
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comprehensive litigation over contract rights and obligations. See id., 216
Ariz. at 40 ¶ 18 (regardless of obligations under the Prompt Pay Act, civil
remedies for breach of contract or tort claims are unaffected). Allowing a
contractor to bring a counterclaim or some right outside the Prompt Pay
Act against a subcontractor or supplier to reduce the amount owed under
certified invoices would inflate a simple prompt payment proceeding
before an ALJ to full civil litigation better suited to the superior court.
¶15 SCD argues that not allowing it to litigate these matters before
the ALJ in the prompt pay proceeding violates its due process and is
judicially inefficient. But due process is not violated when a party has “the
opportunity to be heard at a meaningful time and in a meaningful manner.”
See Samiuddin v. Nothwehr, 243 Ariz. 204, 211 ¶ 20 (2017). SCD can, if it
chooses, bring any and all claims in civil litigation against Revive. See
Stonecreek, 216 Ariz. at 40. SCD argues it may have to pay now only to have
subsequent relief granted in its favor. But this does not violate due process
because SCD retains full rights to bring its claim in a court of general
jurisdiction. Furthermore, the Legislature has weighed any potential
inefficiency in favor of timely payments to subcontractors and material
suppliers, and we do not second-guess policy decisions. See Kromko v.
Arizona Bd. of Regents, 216 Ariz. 190, 194 ¶ 21 (2007) (we do not substitute
our “subjective judgment of what is reasonable under all the circumstances
for that of the . . . Legislature.”).2
2 SCD requests that this Court award SCD its reasonable
attorneys’ fees and costs, pursuant to A.R.S. §§ 12-341 and 12-341.01, in
connection with this appeal. We deny the request because SCD was not
successful on appeal.
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SHEA v. AZ REGISTRAR, et al.
Decision of the Court
CONCLUSION
¶16 For the reasons stated, we affirm.
AMY M. WOOD • Clerk of the Court
FILED: AA
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