7-1005-12990-2

 

STATE OF MINNESOTA

OFFICE OF ADMINISTRATIVE HEARINGS

 

FOR THE DEPARTMENT OF COMMERCE

 

In the Matter of the Residential Building Contractor’s License of J.T. Smedberg & Associates, Inc.

FINDINGS OF FACT,

CONCLUSIONS AND

RECOMMENDATIONS

            The above matter was heard by Administrative Law Judge Richard C. Luis on December 20, 2000 at the Office of Administrative Hearings in Minneapolis.  Jennifer S. Kenney, Assistant Attorney General, 1200 NCL Tower, 444 Minnesota Street, St. Paul, Minnesota 55101-2130, appeared for the staff of the Minnesota Department of Commerce (“Department, DOC”).  Jay Smedberg, P.O. Box 437, Crosslake, Minnesota 56442, appeared on behalf of the Licensee, J.T. Smedberg & Associates, Inc. (“Respondent”, “Smedberg”).  The record closed on January 17, 2001.

NOTICE

            Notice is hereby given that, pursuant to Minn. Stat. § 14.61, the final decision of the Commissioner of the Department of Commerce shall not be made until this Report has been made available to the parties to the proceeding for at least ten days, and an opportunity has been afforded to each party adversely affected to file exceptions and present argument to the Commissioner.  Exceptions to this Report, if any, shall be filed with James C. Bernstein, Commissioner, Minnesota Department of Commerce, 121 Seventh Place East, Suite 200, St. Paul, Minnesota 55101.

STATEMENT OF ISSUES

Whether disciplinary action should be taken against the Residential Building Contractor License of J.T. Smedberg & Associates, Inc., for failing to pay subcontractors and suppliers in connection with its work as a residential building contractor; and

Whether the Summary Suspension imposed on the license of J.T. Smedberg & Associates, Inc. on September 18, 2000 was appropriate.

Based upon all of the proceedings herein, the Administrative Law Judge makes the following:

FINDINGS OF FACT

1.            Jay Smedberg is the President, owner and operator of the Licensee corporation, J.T. Smedberg & Associates, Inc.  Unless indicated otherwise, all of the Licensee’s activities specified in this Report are the actions of Mr. Smedberg or, in a few cases, of his employees.  The Licensee has been engaged in the residential building construction business since 1980, and has been licensed as a residential building contractor since April, 1993.  All of the licensee’s operations involved in this case arise out of construction contracts and work done by the Licensee in or near the community of Crosslake in Crow Wing County.

2.            An initial Notice of and Order for Hearing, Notice of Prehearing Conference and Statement of Charges was issued in this matter on July 12, 2000.  The Notice alleged specifically that an enforcement action was being brought against the Respondent for failing to pay subcontractors and suppliers in connection with its work as a residential building contractor.  The charges in issued in connection with the July 12 Notice arose out of the Respondent’s contracts for residential construction projects on property owned by H. & R.H., P.&L.J., M.J.R. and on property owned by the Respondent.  The vendors of labor and/or material who were not paid by the Respondent in connection with those projects included Simonson Lumber of Crosslake, Inc., Jim’s Electric Company, Inc., Horizon Heating and Services, Inc., SuperSiders and Remodelers, Inc. and Lakeland Fireplace Plus.  It was alleged also that the Respondent, in connection with its failure to pay Simonson Lumber, also executed a promissory note for $27,684.04 to Simonson Lumber, securing payment of the note with two residential lots owned by the Licensee in Crow Wing County, and that the Respondent defaulted on that note.  The allegation of defaulting on the note was dropped later, in an Amended Notice issued August 22, 2000.

3.            Subsequent to the commencement of the enforcement action summarized in the preceding Finding, the Department received two additional complaints against the Respondent.  The first was made by D.&S.F. in connection with work the Licensee contracted to perform on their home.  The second was received from S.C. and D.P. on September 11, 2000.  These complaints resulted in a Second Amended Notice of and Order for Hearing and Statement of Charges on September 18, 2000.  The Second Amended Notice and Order included also a Notice of a Summary Suspension of the Respondent’s Residential Building Contractor License.  The Notice alleged that, in connection with the construction of a house at Pequot Lakes, Minnesota for S.C. and D.P., the couple paid the Licensee over $220,000 (the contract price was $327,800), and discovered late last summer that approximately $114,000 was still owed to various contractors and suppliers retained for the project by the Licensee.  The Department, persuaded by the new complaints that the Respondent was continuing in its pattern of taking money from homeowners under contract with it to build or remodel their homes, and then failing to pay subcontractors and suppliers, suspended the Respondent’s license summarily in order to prevent what it believed was continued operations by the Licensee in an incompetent, untrustworthy, financially irresponsible manner that caused significant harm to the public.

4.            In a Pretrial Brief filed on December 14, 2000, counsel for the Department made a request that the factual allegations contained in Paragraphs 23-39 and the alleged violations of law in Counts 25-75 in the Second Amended Notice of and Order for Hearing and Statement of Charges be deemed admitted, and that testimony at the evidentiary hearing be taken on the remaining factual allegations and violations only.  If the request is granted, there is no need for any further proof of the factual allegations concerning the transactions connected to or between the Respondent and S.C. and D.P.  The request was based on admissions made in the Licensee’s written Responses to the Department’s First Set of Requests for Admissions, and on a Notice of Docketing of Judgment issued December 6, 2000, which judgment was entered against the Licensee in Crow Wing County District Court in favor of S.C. and D.P., in the amount of $50,000.  In its Response to the Department’s Request for Admissions, the Respondent admitted (1) that it did not pay several subcontractors and suppliers in connection with the S.C./D.P. project in the total amount of “between approximately $105,000 and $115,000”; and (2) that it failed to use “more than approximately $90,000 to $100,000 of the $220,844 paid to J.T. Smedberg & Associates, Inc. in construction draws by or on behalf of S.C. and D.P., to pay for expenses related to the C./P. project.”  Based on these admissions, the Administrative Law Judge GRANTED (orally) the Request by the Department for Admission of the Factual Allegations and Alleged Violations of Law noted in the Paragraphs and Counts specified above.

5.            At the hearing in this matter on December 20, 2000, the Administrative Law Judge allowed the Respondent to make an offer of proof in an effort to persuade the Judge to rescind all or part of his oral Order of Admission noted in the preceding Finding.  Based on due consideration of the Respondent’s offer of proof, its Motion to Modify the Administrative Law Judge’s Order Admitting the Factual Allegations and Alleged Violations of Law in Paragraphs 23-39 and Counts 25-75 in the Second Amended Notice of and Order for Hearing and Statement of Charges is DENIED.  The paragraphs and counts noted are INCORPORATED BY REFERENCE HEREIN and into the subsequent CONCLUSIONS in this Report, as appropriate.  The factual allegations made therein by the Department in connection with all transactions relating to the construction project performed by the Respondent for S.C. and D.P. are DEEMED PROVED.

6.            On February 27, 1999, the Respondent contracted with H.&R.H. to be the general contractor on the construction of their new home in Crosslake.  In connection with that contract, the Respondent engaged several subcontractors and suppliers, including Simonson Lumber of Crosslake, Inc., Jim’s Electric Co., Inc., Horizon Heating and Services, Inc., SuperSiders and Remodelers, Inc. and Lakeland Fireplace Plus.

7.            The Respondent failed to pay $13,650.68 to Simonson Lumber of Crosslake, Inc. for materials it supplied to the Respondent in the course of the Respondent’s performance as a residential building contractor on the H property, with the foreseeable result that Simonson filed a mechanics lien against the H property.  The Hs were forced to pay Simonson for the materials supplied in order to prevent foreclosure of their property.

8.            The Respondent failed to pay $9,885 to Jim’s Electric Co., Inc. for labor and materials it rendered to the Respondent in the course of the Respondent’s performance as a residential building contractor on the H property.

9.            The Respondent failed to pay $6,610 to Horizon Heating and Services, Inc. for labor and materials it rendered to the Respondent in the course of the Respondent’s performance as a residential building contractor on the H property, with the foreseeable result that Horizon filed a mechanic’s lien against the H property.

10.            The Respondent failed to pay $3,597.66 to SuperSiders and Remodelers for labor and material it rendered to the Respondent in the course of the Respondent’s performance as a residential building contractor on the H property, with the foreseeable result that SuperSiders filed a mechanic’s lien against the H property.

11.            The Respondent contracted with P.&L.J. to act as their general contractor on a construction project at their home in Crow Wing County Minnesota.  As the general contractor, Smedberg engaged Simonson Lumber of Crosslake, Inc. to supply the Lumber for the project.  Smedberg failed to pay $22,682.05 to Simonson Lumber of Crosslake, Inc. for materials it supplied to the Respondent in the course of its performance as a residential building contractor on the J property, with the foreseeable result that Simonson filed a mechanic's lien against the J property.  The Js were forced to pay Simonson $18,677.00 for the materials supplied, in order to prevent foreclosure of their property.  The Respondent owes Simonson the balance of $4,005, but has failed to make a payment.

12.            The Respondent contracted with M.J.R. to act as the general contractor on a construction project at her home in Crow Wing County Minnesota.  As the general contractor, it engaged Simonson Lumber of Crosslake, Inc. to supply the lumber for the project.  The Respondent failed to pay $10,605.33 to Simonson Lumber of Crosslake, Inc. for materials it supplied to Smedberg in the course of its performance as a residential building contractor on R’s property, with the foreseeable result that Simonson filed a mechanic’s lien against R’s property.  After settling the matter with R., Simonson is pursuing legal action against the Respondent in Crow Wing County District Court for the balance remaining due.

13.            The Respondent failed to pay $9,609.66 to Simonson Lumber of Crosslake, Inc. for materials it supplied to Smedberg for the improvement of property owned by the Respondent at Lot 4 (IV), Block 11 (XI) in Manhattan Beach, a Replat of Twin Beach in Crow Wing County, Minnesota.

14.            On September 11, 1998, Jay Smedberg signed an Addendum to a contract the Respondent had with S.&D.F. to remodel their home in Crow Wing County.  In the Addendum, the Respondent agreed to complete certain electrical work in the garage.  The Respondent was paid the full contract price, with the understanding that the electrical work referenced in the Addendum would be completed in March, 2000.  Numerous efforts by the Fs to contact the Respondent have been unsuccessful and the Respondent never completed the work.  The Fs hired Jim’s Electric Company to complete the work for an additional cost of $1,518.

15.            On July 26, 1999, the Respondent and the Fs signed a Change Order indicating that the Respondent would remove an existing window and replace it.  Painting, staining and varnishing were included in the Change Order price of $883.20, which was prepaid by the Fs on July 26, 1999.  The Respondent never completed the work, nor refunded the $883.20.

Based upon the above Findings of Fact, the Administrative Law Judge makes the following:

CONCLUSIONS

1.                  Any of the above Findings of Fact more properly termed Conclusions are hereby adopted as such.

2.                  The Administrative Law Judge and the Commissioner of Commerce have jurisdiction in this matter pursuant to Minn. Stat. §§ 14.50, 45.027 and 326.91.

3.                  The Department of Commerce has given proper notice of the hearing, and all procedural requirements of law or rule have been fulfilled.

4.                  The Department of Commerce has established by a preponderance of the evidence that the Respondent engaged in activities properly considered violations of law, as detailed in Counts 25-75 in the Second Amended Notice of and Order for Hearing and Statement of Charges issued in this matter on September 18, 2000.  The Legal Conclusions in Counts 25-75 of the Second Amended Notice of and Order for Hearing and Statement of Charges are DEEMED PROVED, and are INCORPORATED BY REFERENCE HEREIN.

5.                  The Department has established facts by a preponderance of the evidence that the Respondent diverted funds from the purposes for which they were intended, which demonstrates that the Respondent is incompetent, untrustworthy or financially irresponsible, in violation of Minn. Stat. § 326.91, subd. 1(6) and Minn. Rule 2891.0050, subp. 1(C). 

6.                  By failing to use the proceeds of payments made to it for the construction of, or any improvement to residential real estate for the payment of labor, skill, material and machinery contributed to the construction or improvement, knowing that the cost of any labor performed, or skill, material, or machinery furnished for the improvement remains unpaid, the Respondent has violated Minn. Stat. § 326.91, subd. 1(8).

7.                  By failing to pay for materials supplied to it in the course of the Respondent’s performance as a residential building contractor, the Respondent has not furnished to the person making payment either a valid lien waiver as to any unpaid labor performed, or skill, material or machinery furnished for an improvement, or a payment bond in the basic amount of the contract price for the improvement conditioned for the prompt payment to any person or persons entitled to payment in violation of Minn. Stat. § 326.91, subd. 1(9).

8.                  Based on the above Conclusions, it is appropriate to CONTINUE the INDEFINITE SUSPENSION of the residential building contractor license of J.T. Smedberg and Associates, Inc. until a final decision is issued in this matter by the Commissioner of Commerce.

9.                  As a result of the violations noted in the above Conclusions, it is appropriate to take disciplinary action against the residential building contractor license of J.T. Smedberg and Associates, Inc.

10.             The taking of disciplinary action against the residential builders building contractor license of J.T. Smedberg and Associates, Inc. is in the public interest.

Based on the foregoing conclusions, the Administrative Law Judge makes the following:

RECOMMENDATIONS

IT IS RECOMMENDED that disciplinary action be taken against the residential building contractor license of J.T. Smedberg and Associates, Inc.; and

IT IS RECOMMENDED FURTHER that the INDEFINITE SUSPENSION of the residential building contractor license of J.T. Smedberg and Associates, Inc. be CONTINUED until the Commissioner of Commerce issues a final order in this matter.

 

Dated this 15th day of February, 2001.

                                                                             

 

RICHARD C. LUIS

Administrative Law Judge

Reported: Taped.

NOTICE

Under Minn. Stat. § 14.62, subd. 1, the agency is required to serve its final decision upon each party and the Administrative Law Judge by first class mail or as otherwise provided by law.

MEMORANDUM

            The Motion by the Respondent to allow testimony (received by way of an offer of proof on December 20, 2000) regarding its version of the C./P. construction project and associated transactions is denied because the evidence proffered by Mr. Smedberg concerns alleged events that occurred subsequent to the Licensee’s admitted failure to pay over $100,000 owed for labor and material supplied on the project, even though he had been advanced $220,000 by C. and P.  Even if the allegations the Licensee wants considered are taken as true, and they serve to “clarify” (in Mr. Smedberg’s words) the amount it may owe for labor and material, the evidence proffered by the Respondent fails to mitigate sufficiently the amount it still owes to persuade the Administrative Law Judge to consider changing his Conclusions or Recommendations.  The Licensee suggests that the amounts of money C. and P. have yet to pay pursuant to the “draw schedule” in their contract, or pursuant to certain “change orders,” be used to set off what it has not paid to vendors.  In that regard, by its own admission, the Licensee failed to apply at least $90,000 of the $220,000 already “drawn” from C. and P. to pay for material or labor intended to be used or performed in construction of their house.  Given that, it is understandable why C. and P. have refused to advance the Respondent more money.

            The record abounds with evidence of the Respondent’s financial misadventures.  The Licensee has shown nothing to refute the fact that a $50,000 judgment was won by C. and P. against him or to challenge the fact that it has been unable to work out from large debts owed to vendors such as Simonson Lumber.

            Mr. Smedberg alleges the Licensee is “in a spot” because of poor business decisions he has made, starting with “not charging enough” for the buildings he contracts to construct.  In an emotional plea, he apologizes to the Department and the State for his problems and urges that the Respondent be granted a restricted license, possibly limiting it to performing work on its own land.  The Administrative Law Judge leaves appropriate discipline to the Commissioner, in consultation with the staff at the Commerce Department, but recommends, based on this record, that the license continue in its status of indefinite suspension until appropriate discipline is determined and a final order is issued.  It is so concluded because the evidence in this case is that the Licensee has a history, whether intentionally or not, of not living up to its financial obligations, and that its customers have suffered as a result.

                                                                                    R.C.L.