McMURREN v. JMC BUILDERS

• Court: Court of Appeals of Arizona
• Decided: February 25, 2003
• Docket: 2 CA-CV 2002-0022
• Status: Published

Opinion

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