vs. ) CASE NO. 78-1552
Respondent. )
A hearing was held in the above captioned matter, after due notice, at Ft.
Lauderdale, Florida, on January 23 and March 28, 1979, before the undersigned Hearing Officer.
For Respondent: Alan C. Brandt, Jr., Esquire
Whether Respondent's general contractor's license No. CG C007282 should be revoked or Respondent otherwise disciplined for alleged violation of Sections 468.112(2)(e), and (h), Florida Statutes, as set forth in the Administrative Complaint dated August 9, 1978.
Respondent Paul McAllister is a certified general contractor and was the qualifying individual for the firm of Garnett-McAllister Associates, Inc., Fort Lauderdale, Florida, in 1977 and until July, 1978. (Stipulation)
On April 8, 1977, Respondent's firm entered into a contract with Ray Borchardt, Westchester, Illinois, for the construction of a four-unit apartment building at Lighthouse Point, Florida. The contract provided for a total price of $139,110.00, payable in five payments or "draws" in various percentages of the contract price at specified stages of construction. However, the contract did not specify a time for performance or completion of the building. It contained a clause stating "Any alteration or deviation from above specifications involving extra costs - will be executed only upon written
orders, and will become an extra charge over and above the estimate." Respondent obtained a building permit for the construction of the building from the building official, City of Lighthouse Point, Florida, on May 8, 1977. (Petitioner's Exhibits 1, 2)
Prior to the commencement of construction, it was determined that foundation pilings for the building were required and therefore Borchardt sent Respondent the sum of $13,519.65 on June 9, 1977, as an additional sum over and above the contract price. At this time, he also sent the first draw in the amount of $20,866.00 even though such payment was not called for until completion of the foundation and "rough in" of plumbing and electric connections. On August 1, 1977, Borchardt paid the second draw of $20,866.00 although the roof was not on, nor had the beam been poured at the time as called for under the contract. Respondent was delayed approximately three weeks by failure of a supplier to provide the second floor concrete planking. On October 24, 1977, Borchardt paid the third draw in the amount of $34,777.00 although construction was not at the stage called for under the contract. On November 22, 1977, Borchardt paid $18,000.00 of the fourth draw and on January 23, 1978, paid the remaining portion of $16,777.00. At that time, the roof was not completed, tile work had not been started, woodwork was incomplete, and kitchen cabinets and vanities had not been installed pursuant to the terms of the contract. Borchardt had made a number of trips from Illinois to Florida during the construction period and was aware that his various partial payments were made in advance of completion of the several construction phases. He had dealt primarily with Edward J. Garnett, president of Garnett-McAllister Associates, Inc., as to the financial aspects of the project. Respondent primarily was a "field" man in charge of supervising construction. Also, Borchardt's son-in- law, Vincent A. Svegel, had moved to Florida in September, 1977, and acted as Borchardt's contact with Respondent's firm after that time. Both Respondent and Garnett informed Svegel in the fall of 1977 that the building would be completed by December 15. (Testimony of Borchardt, Svegel, Petitioner's Exhibit 1)
Although during the early part of 1978, five subcontractor liens were filed against the property for work and materials supplied on the project, three of these liens were eventually paid by Garnett-McAllister and the remaining two totaling over $7,000.00 were eventually paid by Borchardt. One of the latter liens was filed by Pompano Roofing Company, Inc. That firm refused to install the roofing tile until paid and the tile therefore "sat on the roof" for approximately five months. On March 13, 1978, Borchardt filed a complaint with Petitioner based on the fact that the work had not been performed according to the draw schedule and liens had been placed on the property. Borchardt also complained to James P. Simmons, the building official of Lighthouse Point about the project delays and claims of lien. As a result, on March 14, 1978, Simmons referred the complaint to Petitioner because Respondent was certified by the state. Petitioner's local inspector, Wallace Norman, issued a Notice of Violation of Section 468.112(2)(e), F.S., to Respondent on March 15, 1978, for diversion of funds based on the filing of liens by suppliers. In a meeting with Respondent and Garnett, Norman asked for an explanation of the situation. They told him that they had been building a house in Davies, Florida, and had used some of the money that Borchardt had paid them to pay suppliers on that house and they had expected to be able to put the money back into the Borchardt project when they sold and realized a profit on the other house. (Testimony of Borchardt, Svegel, Simmons, Norman, Petitioner's Exhibits 7, 9, 10; Respondent's Exhibit 3)
During the period between January and March, 1978, some progress was made toward completing the building, including the rough in of the plumbing and
electrical systems, installation of inside lath work, installation of tub and shower stalls, and extension of a kitchen area. As late as April 19, 1978, Respondent accompanied Borchardt to a supplier to purchase windows for the building. (Testimony of Svegel, Respondent, Pet. Ex. 3)
On May 29, 1978, Svegel, in behalf of Borchardt, notified building official Simmons that Garnett-McAllister Associates, Inc. had been terminated from any further work on the building due to the fact that the building permit had expired and would not be reissued, and requested authorization to finish the building. Simmons thereafter issued a building permit to complete the building to Borchardt on June 21, 1978. He also instructed his staff not to issue any more permits to Respondent due to his "poor track record" and liens which had been filed against the building under construction. Simmons issued the completion permit under the authority of Section 304.3 of the South Florida Building Code, Broward County Edition, which provided that a building permit expires and becomes null and void if work is abandoned at any time for a period of ninety days. Although Simmons considered that the time limit had elapsed because an inspection had not been called for by the builder for ninety days, he erroneously believed that the last inspection had been on January 4, 1978, when, in fact, the city's inspection records show that the plumbing department had made an inspection of rough plumbing on March 27, 1978. Simmons did not notify Respondent of the issuance of the second permit. He considered that he had inherent authority in his position to prohibit issuance of additional permits to Respondent, but didn't consider his action in this regard to be disciplinary in nature because the City of Lighthouse point does not issue contractor's licenses. Therefore, the matter was referred to Petitioner for any action against Respondent's state certification. (Testimony of Simmons, Svegel, Petitioner's Exhibit 3, 4, 11, Respondent's Exhibit 1)
At some time prior to obtaining the permit to complete the building, Borchardt had refused to pay the final draw of $27,824.00 to Garnett-McAllister Associates, Inc. because the firm was so far behind on the job. Garnett had told Borchardt that be was selling another home for $80,000.00 and was going to put some of the money he realized from that sale into the Borchardt project. He wanted Borchardt to loan him $20,000.00 and take back a lien on a boat in order to have money in the interim to work on the building. When Borchardt declined to do so, Garnett told him that he could not complete the job. Borchardt also received a call from Respondent to the effect that he would finish the job on his own for $150.00 a week if Borchardt would pay the remaining costs.
Borchardt informed him that he would pay nothing further until the job was completed. Garnett had also told Svegel that he had used some $25,000 to
$30,000 of the Borchardt funds to construct the house in Davies and that he would put that money back into the firm's business account to use for the Borchardt building when the house was sold. (Testimony of Borchardt, Svegel, Respondent)
At the time Borchardt took over completion of construction, the building was approximately 70-75 percent completed. Borchardt paid an additional sum of about $82,000.00 to complete the building which was some
$54,000.00 more than the original contract price. However, about $12,000.00 of this sum constituted changes to the original specifications that had been agreed to by Borchardt during the course of construction. Some of these involved changes due to building code requirements, such as the addition of a ramp for the handicapped. Other changes were made on the recommendation of subcontractors or resulted from requests by Borchardt's daughter and son-in-law who were intending to occupy one of the apartments in the building. None of these changes was reflected in a written change order or supplemental agreement
to the contract because Borchardt had agreed to the changes and neither party to the contract apparently considered it necessary to formalize these matters.
Additional changes in the sum of some $12,000 were made to the building after Borchardt took over construction. These primarily dealt with carpeting, appliances and the like. (Testimony of Borchardt, Svegel, Simmons, Respondent, Stipulation, Petitioner's Exhibits 5, 8)
Respondent testified at the hearing and disclaimed knowledge of the financial affairs of the corporation which he claimed were handled exclusively by Garnett. He denied ever abandoning the project and stated that he was unaware, until June 7, 1978, that Borchardt was taking over the construction project to complete. He acknowledged that funds became a problem about mid- January, 1978, and that he then recognized that the contract price had been set at too low a figure because cost overruns were being experienced. He denied diversion of Borchardt's funds to the Davies house, and claimed that his firm did not purchase supplies for that project. He conceded, however, that the firm had one corporate business account from which suppliers on all jobs were paid. Respondent further testified that when funds for the Borchardt building became scarce, profits from other jobs were used in meeting construction costs on the building. He acknowledged receiving a salary of $8,420.00 during the course of construction and said that Garnett had also drawn a sum of approximately
$11,000.00 for himself. (Testimony of Respondent)
A review of the books of Garnett-McAllister Associates, Inc. by a certified public accountant indicated that they were not well kept and were frequently in error. The auditor's report reflected that the firm had expended at least $80,675.00 in direct construction costs on the project. Certain cost items could not be verified due to the failure of suppliers to respond to the auditor's inquiry. These accounts were reflected on the books of the firm at a total of approximately $1,000.00. (Testimony of Webb, Respondent's Exhibit 4)
CONCLUSIONS OF LAW
Petitioner predicates its proposed disciplinary action against Respondent on alleged violations of three subsections of Section 468.112, Florida Statutes, which read pertinently as follow:
468.112 Revocation or suspension of certificate or registration.--
On its own motion or the verified written complaint of any person, the board may investigate the action of any contractor certified or registered under this part and hold hearings pursuant to chapter 120; provided, however, when any complaint involves a contractor certified or registered under this part for acts or omissions occurring in any area of the state which has a local board, the board shall forward the complaint to the municipality, city, or county where the alleged violation occurred for its action. Where no local board exists, the board shall take jurisdiction. The board may take appropriate disciplinary action if the contractor is found to be guilty of or has committed any one or more of the acts or omissions constituting cause for disciplinary
action set out herein or adopted as rules or regulations by the board.
The following acts constitute cause for disciplinary action:
* * *
Diversion of funds or property received for prosecution or completion of a specified construction project or operation when as a result of the diversion, the contractor is, or will be, unable to fulfill the terms of his obligation or contract.
Disciplinary action by any municipality, city, or county, which action shall be reviewed by the state board before the state
board takes any disciplinary action of its own.
* * *
(h) Abandonment of a construction project in which the contractor is engaged or under contract as a contractor. A project is to be considered abandoned after 90 days if the contractor terminates said project without notification to the prospective owner and without just cause.
As indicated by subsection 468.112(1), Petitioner has no jurisdiction to discipline a contractor if there is a local board where the alleged acts or omissions occurred that has authority to take disciplinary action against the contractor. In this instance, the building official of Lighthouse Point, Florida, acknowledged that there was no local board in that city having disciplinary jurisdiction over Respondent, and for that reason he referred the matter to Petitioner for appropriate action. He did not view his exercise of authority in terminating the permit for the Borchardt building and then restricting the issuance of further permit to Respondent as being disciplinary in nature, but simply as a precaution pending any action by Petitioner against Respondent's state certification. Petitioner recognized chat disciplinary action did not lie in the hands of any local board as evidenced by its filing of the Administrative Complaint herein. It is concluded that Petitioner's proposed action under subsection 468.112(2)(f) cannot be maintained because there has been no showing that "disciplinary action" was taken by any municipality, city, or county.
As to the allegation that Respondent abandoned the construction project, Petitioner has failed to establish that Respondent terminated the project without notification to the owner for the ninety day period required under subsection 468.112(2)(h). On the contrary, the evidence shows that Respondent was performing work on the project, although insubstantial in nature, as late as April 19, 1978, which was little more than a month before Borchardt advised the building official that the contractor had been terminated from further work on the apartment building. The revocation of the building permit by that official was clearly premature under the pertinent provisions of the South Florida Building Code which also required a period of ninety days to elapse before a permit could be considered to have expired and become null and void.
As to Petitioner's final allegation, it is considered that Garnett- McAllister, Inc. did, in fact, divert funds received for construction of the Borchardt building which caused the firm to be unable to fulfill the terms of
its obligations under the contract. It is apparent from the admissions of Respondent and the firm's president, Edward J. Garnett, that an undetermined amount of money paid by Borchardt to Garnett-McAllister Associates, Inc. was used in the construction of another house. Although it also appears that funds from other projects were eventually diverted for use in the Borchardt building, as evidenced by the almost 75 percent completion of the building by the time the contractor was terminated, the fact remains that the project was unduly delayed and the contractor was unable to complete the same for lack of adequate funds.
Borchardt was entirely within his rights in declining to provide the final draw of some $28,000.00 until the building was completed, as provided under the terms of the contract. It was up to the contractor to insure that it could so complete the building within a reasonable period of time, absent a definite time for performance under the provisions of the agreement. Respondent's claim that he had no connection with the financial aspects of the firm cannot serve to insulate him from overall responsibility as the qualifier for Garnett-McAllister Associates, Inc. Section 468.107(2) provides that an individual proposing to qualify a corporation under Chapter 468 must show in his application that he is "legally qualified to act for the business organization in all matters connected with its contracting business and that he has authority to supervise construction undertaken by such business organization." This language clearly shows the legislative intent that the qualifying contractor is to be held accountable for all aspects of its contractual undertakings. This is further recognized by the fact that a certificate issued upon application of a business organization is in the name of the qualifying individual and not the organization. Accordingly, it is concluded that Respondent is chargeable with violation of subsection 468.112(e), Florida Statutes.
Not withstanding Respondent's culpability in the above regard, it is appropriate to consider his actual limited participation in the handling of the funds in question. The evidence discloses that Garnett handled the financial decisions for the firm almost exclusively and Respondent was primarily engaged in actual construction. It further appears that the corporation did not accurately estimate its costs on the Borchardt project, and when faced with escalating labor and material costs, used its one bank account to attempt to stay current on its various jobs. Additionally, there has been no showing that Respondent has been disciplined in the past for other violations of Chapter 468. In view of the foregoing, it is considered that suspension of the Respondent's certification is warranted, but that revocation would be too severe a penalty under the circumstances.
Respondent's Motion for Directed Verdict of Dismissal has been considered, but in view of the foregoing Conclusions of Law, is denied.
That Respondent's certification as a general contractor be suspended for a period of 90 days, but that he be permitted to complete any contracts which are uncompleted at the time suspension is effected.
DONE and ENTERED this 25th day of April, 1979, in Tallahassee, Florida.
THOMAS C. OLDHAM
Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304
Alan C. Brandt, Jr., Esquire 1040 Bayview Drive
J. K. Linnan Executive Director
