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OAH 8-1900-20734-2 |
STATE OF
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE COMMISSIONER OF LABOR AND INDUSTRY
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In the Matter of the Rescission Order Issued to James and Mavoureen
Albright Contractor Recovery Fund Case Number 2900052 |
FINDINGS OF FACT, CONCLUSIONS AND ORDER |
The
above-entitled matter came on for a hearing before Administrative Law Judge Eric
L. Lipman at 9:30 a.m. on August 25, 2009, at the
Nancy Leppink,
STATEMENT
OF ISSUE
The issue presented in this case is whether,
under Minn. Stat. § 326B.89, subd. 7, the Department properly issued its
Rescission Order dated July 5, 2009.
The Administrative Law Judge concludes that
the Commissioner exceeded his authority when he rescinded the Settlement
Agreement with the Respondents and therefore vacates the July 5, 2009 Rescission
Order.
Based upon all of
the files, records and proceedings herein, the Administrative Law Judge makes
the following:
FINDINGS
OF FACT
1.
In October of 2007, the Albrights purchased a 1974
split-level house and had it relocated to their property in
2.
The Albrights’ existing home is a 120 year old farm
house that has black mold and other significant problems. The Albrights intended to have their existing
home demolished once construction on the new home was completed.[2]
3.
The furnace in the Albrights’ current home has
recently been “red-tagged” and cannot be operated this winter. The family lacks the resources to purchase a
new furnace.[3]
4.
In October of 2007, the Albrights entered into a contract
with Zum Builders & Remodelers, LLC (Zum Builders), under which Zum Builders
agreed to act as the general contractor for the installation of the basement
and retrofitting of the home that the Albrights purchased. The agreed-upon work included: laying the
foundation for the basement; installing the basement floor and walls; installing
plumbing, a furnace, septic system, electrical wiring, drywall, siding, doors
and windows; and demolishing and removel of the Albrights’ existing home. Under the terms of the contract, for the sum
of $50,000, Zum Builders agreed to complete all of the necessary work by May 1,
2008.[4]
5.
Zum Builders is a Minnesota Limited Liability
Company owned and operated by James Zumwalt.
Mr. Zumwalt is the cousin of Albrights’ daughter-in law.[5]
6.
From September 14, 2005 until March 31, 2009, Zum
Builders was licensed by the Department as a residential contractor. Zum Builders did not apply to renew its
license when it lapsed in 2009.[6]
7.
As of January 5, 2008, the Albrights had paid Zum
Builders the sum of $43,000 for the agreed-upon construction work.[7]
8.
By October 2008, Zum Builders had only partially
performed under the contract. It had
poured the basement’s concrete floor, roughed-in the entryway, and installed approximately
80 percent of the framing and plumbing.
The work the entryway, however, does not meet the applicable building
codes.[8]
9.
On October 22, 2008, the Albrights filed a breach
of contract claim against Zum Builders alleging damages in excess of $50,000.[9]
10.
Shortly after filing the lawsuit, the Albrights and
their counsel were informed by Mr. Zumwalt that he intended to file for
bankruptcy.[10]
11.
On January 2, 2009, Mr. Zumwalt signed a Confession
of Judgment on behalf of Zum Builders acknowledging that it owed the Albrights
$37,725.41. Contemporaneously with the
execution of the Confession of Judgment, the Albrights and Zum Builders entered
into a Settlement Agreement whereby the Albrights agreed to file a Satisfaction
of Judgment if they received compensation from the Minnesota Contractor’s
Recovery Fund.[11]
12.
The terms of the January 2, 2009 Settlement
Agreement between the Albrights and Zum Builders provides in part:
(a)
Contemporaneously with the execution of this
Settlement Agreement, [Zum Builders] shall execute and deliver to [Albrights’
attorney] a Confession of Judgment in the form attached as Exhibit A.
(b)
[The
Albrights] shall not take any action to enforce the Confession of Judgment
directly against [Zum Builders]. Rather,
the Confession of Judgment shall only be used for purposes of recovering from
the Minnesota Contractor’s Recovery Fund.
(c)
[Zum Builders] agrees to cooperate fully with [the
Albrights’] efforts to collect from the Minnesota Contractor’s Recovery
Fund. [Zum Builders] further agrees that
if the Confession of Judgment attached hereto as Exhibit A is deemed
insufficient by the Minnesota Contractor’s Recovery Fund, [Zum Builders] agrees
to execute an amended Confession of Judgment incorporating any and all terms by
the Minnesota Contractor’s Recovery Fund.
(d)
Within thirty (30) days of receipt by [the
Albrights] of all funds, if any, due and owing from the Minnesota Contractor’s
Recovery Fund, [the Albrights] shall file a Satisfaction of Judgment on the
Confession of Judgment.
In exchange,
[the Albrights and Zum Builders] mutually irrevocably and unconditionally
release, remit, acquit, and agree to hold harmless and discharge each other
from all actions, causes of action, suits, debts, claims, liabilities, damages,
and demands of every kind and nature, including any and all arbitrations,
administrative or license proceedings, whether in law or in equity, contract or
tort, known or unknown, which they or their respective representatives,
administrators, successors, or assigns, now or hereafter may have, or claim to
have, against each other or their respective representatives, administrators,
successors, or assigns relating to any and all claims, including those listed
in [the Albrights’] complaint dated October 24, 2008, or the facts and
circumstances underlying all actions contained therein.[12]
13.
Based upon Zum Builders’ Confession of Judgment, on
January 9, 2009, the District Court for
14.
The record does not include any evidence that
either Mr. Zumwalt or Zum Builders has filed for bankruptcy.
15.
Because construction of the foundation and basement
was not completed on the Albrights’ house, the house is uninhabitable and
cannot be certified for occupancy. In
addition, all of the building permits that were obtained for the construction
project have expired. The Albrights lack
the resources to obtain new permits or to hire another contractor to complete
the work.[14]
16.
On January 12, 2009, the Albrights filed an
Application for Compensation from the Contractor Recovery Fund. The Albrights attached a copy of the
Confession of Judgment and the final Judgment obtained in Isanti County
District Court. The Albrights requested
compensation in the amount of $37,725.41.[15]
17.
The Albrights did not submit a copy of the settlement
agreement with Zum Builders with their application of January 12, 2009.[16]
18.
Disbursements from the Contractor Recovery Fund are
made once each year, on or around December 1.
Applications for compensation from the Contractor Recovery Fund must be
submitted before June 30, in order to be eligible for a disbursement on
December 1. An application received by
the Department after the June 30 deadline is considered for possible
disbursement in December of the following calendar year.[17]
19.
After requesting further documentation from the Albrights,
the Department approved compensation from the Fund for the Albrights in the
amount of $28,672.52.[18]
20.
By letter dated March 5, 2009, Eileen McNiff, the Contract
Recovery Fund Administrator, notified Albrights’ counsel of the compensation
amount that was approved and attached a Settlement Agreement and Order for Albrights
to review and sign. The Settlement
Agreement was signed by Peggi White of the Department’s Construction Codes and
Licensing Division, on behalf of the Commissioner, on March 5, 2009. As recited in the Settlement Agreement and
Order, it was “effective and deemed issued” on that date.[19]
21.
Paragraph 11 of the Settlement Agreement, provides
as follows:
Upon payment of compensation to Applicants from the Fund, the
Commissioner shall be subrogated to all of the rights, title and interest in
Applicant’s final judgment in the amount of compensation paid from the
Fund. Applicants shall assign to the
Commissioner all rights, title, and interest in the final judgment in the
amount of compensation paid. See, Minn. Stat. § 326B.89, subd.
10. Applicants and the Commissioner
agree that Applicants shall provide an executed and notarized Assignment of
Judgment to the Commissioner within 15 days of the date compensation from the
Fund is mailed to Applicants in accordance with this Settlement Agreement and
Order.[20]
22.
The Albrights signed the Settlement Agreement and
Order on March 11, 2009.[21]
23.
By letter dated May 20, 2009, Ms. Doom notified Ms.
McNiff of the Settlement Agreement between the Albrights and Zum Builders; and
in particular, the Albrights’ agreement to deliver a Satisfaction of Judgment
upon receipt of compensation from the Contractor Recovery Fund. Ms. Doom inquired whether it was the
Department’s opinion that the Settlement Agreement between the Albrights and
Zum Builders would need to be “reformed” before the Fund could pay out the Albrights’
compensation.[22]
24.
On July 7, 2009, Ms. Doom again wrote to Ms. McNiff
and requested a response to her May 20, 2009 letter.[23]
25.
By letter dated July 15, 2009, Ms. McNiff informed Ms.
Doom that the Fund had determined that the Albrights agreement to deliver a
Satisfaction of Judgment to Zum Builders rendered them ineligible for
compensation from the Contractor Recovery Fund.
Further, Ms. McNiff enclosed an Order from the Department rescinding the
March 5, 2009 Settlement Agreement and Order.
Ms. McNiff stated that if the Albrights corrected this deficiency, they
could submit a new application for compensation to the Fund.[24]
26.
The Rescission Order provides in part:
Based on the representations in Ms Doom’s letter, the Commissioner has
determined that the Applicants, by entering into the agreement described, can
not currently comply with the requirements of Minn. Stat. § 326B.89, subd. 10,
as set out in paragraph 11 of the Settlement Agreement, and therefore, the
Commissioner hereby rescinds his Order, which ordered payment in the amount of
$28,672.52 to James and Mavoureen Albright from the Fund.[25]
27.
The Rescission Order included a notice informing
the Albrights of their right to request a hearing.[26]
28.
On August 6, 2009, the Albrights requested a
hearing.[27]
29.
On August 12, 2009, the Department filed a Notice
and Order for Hearing. On August 13,
2009, the Department filed an Amended Notice and Order for Hearing correcting
typographical errors and setting this matter on for hearing on August 25, 2009.
Based
upon the foregoing Findings of Fact, the Administrative Law Judge makes the
following:
CONCLUSIONS
1.
The Administrative Law Judge and the Commissioner
are authorized to consider this matter under Minn. Stat. §§ 14.50 and 326B.89,
subd. 8 (2008).
2.
Albrights received due, proper and timely notice of
the hearing and this matter is, therefore, properly before the Administrative
Law Judge.
3.
The
Department has complied with all relevant procedural legal requirements.
4.
The purpose of the Contractor Recovery Fund is
to compensate eligible homeowners and lessees who have suffered economic loss
as a result of a licensed contractor’s fraudulent or deceptive practices, or
failure to perform under a contract.[28]
5.
To be eligible for compensation from the Fund, a homeowner
or lessee shall submit an application to the Commissioner and verify the
following information:
(a)
the specific grounds upon which the owner or lessee
seeks to recover from the fund;
(b)
that the owner or lessee has obtained a final
judgment in a court or competent jurisdiction against a licensee under section
326B.803;
(c)
that the final judgment was obtained against the
licensee on the grounds of fraudulent, deceptive, or dishonest practices,
conversion of funds, or failure of performance that arose directly out of a
contract directly between the licensee and the homeowner or lessee . . . ;
(d)
the amount of the owner’s or lessee’s actual and
direct out-of-pocket loss on the owner’s residential real estate . . .;
(e)
that the residential real estate is located in
(f)
that the owner or the lessee is not the spouse of
the licensee or the personal representative of the licensee;
(g)
the amount of the final judgment, any amount paid
in satisfaction of the final judgment, and the amount owing on the final
judgment as of the date of the verified application;
(h)
that the owner or lessee has diligently pursued
remedies against all the judgment debtors and all other persons liable to the
judgment debtor in the contract for which the owner or lessee seeks recovery; and
(i)
that the verified application is being served
within two years after the judgment became final.
6.
7.
The Albrights satisfied the eligibility
requirements for compensation under Minn. Stat. § 326B.89, subd. 6.
8.
9.
The Commissioner is not authorized to pay
compensation from the fund in an amount greater than $75,000 to any particular
homeowner or lessee, and further is limited to a total set of disbursements of not
more than $150,000 to the customers of each defaulting licensee.[29]
10.
11.
Right of subrogation. If the commissioner pays compensation from
the fund to an owner or a lessee pursuant to an agreement under subdivision 7,
clause (1), or a final order issued under subdivision 7, clause (2), or
subdivision 8, then the commissioner shall be subrogated to all of the rights,
title, and interest in the owner’s or lessee’s final judgment in the amount of
compensation paid from the fund and the owner or the lessee shall assign to the
commissioner all rights, title, and interest in the final judgment in the
amount of compensation paid. The
commissioner shall deposit in the fund money recovered under this subdivision.
12.
Pursuant to the terms of the Settlement
Agreement and Order, the Albrights are required to assign their judgment
against Zum Builders to the Commissioner within 15 days of the date that compensation
is mailed to the Albrights.[30]
13.
After the Settlement Agreement was executed by the
Albrights on March 11, 2009, the Commissioner lacked the authority to unilaterally
rescind the Agreement.
14.
The March 5, 2009, Settlement Agreement and Order
remain in effect and are affirmed.
15.
The Albrights are obliged to assign all of their
rights, title and interest in the final judgment against Zum Builders as
provided in the Settlement Agreement.
Based
upon the foregoing Conclusions, the Administrative Law Judge makes the
following:
IT IS HEREBY ORDERED
THAT:
(1)
The Rescission Order of July 15, 2009 is VACATED.
(2)
This Order constitutes the final decision in this
matter and is effective immediately.
Date:
September 24, 2009.
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_s/Eric L.
Lipman__________________ |
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ERIC L. LIPMAN |
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Administrative
Law Judge |
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Reported: Digitally recorded.
Pursuant to Minn.
Stat. § 326B.89, subd. 8, this order constitutes the final decision
of the agency in this case. The Commissioner of
the Department or any person aggrieved by this decision may seek judicial
review as provided in Minn. Stat. §§ 14.63 to 14.69.
MEMORANDUM
The Department argues that the Albrights are
not eligible for compensation from the Fund because their separate agreement
with Zum Builders renders the Albrights unable to “assign to the commissioner
all rights, title and interest in the final judgment in the amount of
compensation paid.”[31]
While mindful of the Department’s concern regarding
the Albrights’ willingness to tender a Satisfaction of Judgment to Zum Builders,
there is a threshold issue – namely whether the Commissioner is empowered to
rescind a Settlement Agreement and Order once it has been finalized. In the view of the Administrative Law Judge,
the Minnesota Legislature has withheld the power to unilaterally rescind a
Settlement Agreement and Order under
Upon receipt of an application for compensation from the Contractor Recovery Fund, the Commissioner may choose one of three options. The Commissioner may accept the application, modify the application or deny the application. Because the Minnesota Legislature was specific as to the three possible alternatives, the familiar canon of statutory construction instructs that “the expression of one thing indicates the [Legislature’s] exclusion of another.” [32]
The conclusion that the Legislature did not confer the power of rescission is bolstered by the fact that the Legislature has granted this power to other executive branch agencies when it intended that result.[33]
Moreover, the Legislature addressed the potential that applicants might act to impair the subrogation rights of the Commissioner when it enacted the statute. Instead of conferring the power to rescind completed agreements, the Legislature granted the Commissioner special rights of recovery that cannot be reduced by the applicants. Minnesota Statutes § 326B.89, subd. 7, provides that when making disbursements from the fund to injured claimants, the Commissioner “shall not be bound by any prior settlement, compromise, or stipulation between the owner or the lessee and the licensee.” Implying the power to rescind a fully executed agreement is inappropriate in this context. The Legislature already freed the Commissioner from the strictures of any accords between the owner and the licensee.
Likewise important is the fact that when the
Commissioner uses his powers under section 326B.89, both the Legislature and
the Department understand that he is “resolving” disputed claims to the
Contractor Recovery Fund.[34] The rescission of fully executed settlement
agreements is disfavored in the law[35] –
and is ordinarily permitted only when there is fraud or intentional concealment
of a fact that is material to the transaction.[36]
The Department’s argument pivots on the
claim that the Albrights will not be able to assign to the Commissioner all
rights, title and interest in the final judgment if a disbursement is made from
the Fund. While this may be a reasonable
concern, the impossibility of performance is not established on this
record. Particularly in light of the
fact that the Albrights and Zum Builders fashioned their separate agreement so
as to respond to the deficiencies later claimed by the Department, a revised
agreement between the owners and the licensee is a fair possibility.
Because the Commissioner is not empowered by
E. L. L.
[1] Testimony of James Albright; Exhibit C.
[2]
[3]
[4] Exs. A and C.
[5] Test. of J. Albright.
[6] Exs. 2 and 3.
[7] Ex. A (Attachment 8).
[8] Ex. A (Attachment 2).
[9] Ex. A (Attachment 5).
[10] Test. of J. Albright; Ex. A (Attachment 4); Ex. F.
[11] Ex. A (Attachment 2); Ex. J.
[12] Ex. J.
[13] Ex. A (Attachment 3).
[14] Test. of J. Albright.
[15] Ex. A (Attachment 1).
[16] Ex. A.
[17] See,
[18] Exs. D and E.
[19] Ex. D; Ex. E at ¶ 12.
[20] Ex. E at ¶ 11.
[21] Ex. E at 5.
[22] Ex. F.
[23] Ex. G.
[24] Ex. H.
[25]
[26]
[27] Ex. I.
[28]
[29] See, Minn. Stat. § 326B.89, subd. 7.
[30] Ex. E at ¶ 11.
[31]
[32] See,
Urban v. The American Legion Department
of
[33] Compare,
e.g., Minn. Stat. § 17.117, subd. 9;
[34] Compare, Minn. Stat. § 326B.89, subd. 7 with Ex. E.
[35] See, Johnson
v. St. Paul Ins. Cos., 305 N.W.2d 571, 573 (
[36] See, Gran
v. City of