McMurren v. JMC Builders, Inc.

• Decision Date: 25 February 2003
• Docket Number: No. 2 CA-CV 2002-0022.,2 CA-CV 2002-0022.
• Citation: 63 P.3d 1082,204 Ariz. 345
• Parties: Thomas McMURREN, a single man, Plaintiff/Appellee, v. JMC BUILDERS, INC., an Arizona corporation, Defendant/Appellant.
• Court: Arizona Court of Appeals

63 P.3d 1082

204 Ariz. 345

Thomas McMURREN, a single man, Plaintiff/Appellee, v. JMC BUILDERS, INC., an Arizona corporation, Defendant/Appellant.

No. -0022.

Court of Appeals of Arizona. Division 2, Department A.

February 25, 2003.

Russo, Cox & Russo, P.C., By Karl Macomber, Tucson, for Plaintiff/Appellee.

Jack L. Lansdale, Jr., Tucson, for Defendant/Appellant.

OPINION

BRAMMER, Presiding Judge.

¶ 1 JMC Builders, Inc., appeals from the superior court's reversal of an administrative law judge' s(ALJ) interpretation of whether Thomas McMurren¹ qualified as a person injured and eligible to make a claim against the Arizona Residential Contractors' Recovery Fund. In this issue of first impression, we concur with the superior court' s ruling and conclude that an owner of a residential structure 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 proper corrective 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, McMurren filed a claim against the Fund pursuant to A.R.S. § 32-1154(E). The registrar denied McMurren's claim, and McMurren 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 McMurren 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 residence 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 Administrative Review Act, A.R.S. §§ 12-905 through 12-914. See § 32-1154(E).

¶ 4 In reviewing the ALJ's decision, the superior court ruled that "the relevant time period in determining whether a claimant qualifies as a `person 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 court 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 and/or the time that the claim [arose]."⁴ JMC has appealed, arguing that the superior court abused its discretion in reversing 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, arbitrary, 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] free 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 court'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 Ariz. 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 entered into the contract with JMC or when the claim accrued, there were no pertinent findings for the superior court to deferentially review. See Howard v. Nicholls, 127 Ariz. 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, arbitrary, capricious or involved an abuse of discretion." Havasu Heights Ranch & Dev. Corp. v. Desert Valley Wood Prods., Inc., 167 Ariz. 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 Ariz. 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 resolve this issue.

Statutory Scheme

¶ 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 protection for owners and lessees of property who contract for the construction or alteration of residential 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, representation, transaction or conduct of a residential contractor that is in violation of this chapter or the rules 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 recovers 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 registrar 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).

¶ 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). Following an investigation and an opportunity for the contractor 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 order 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...