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OAH 3-1902-17220-2 |
STATE
OF
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE COMMISSIONER OF LABOR AND INDUSTRY
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In the Matter of Todd Scott Wheeler, individually and d/b/a Timber Mountain Construction, a/k/a Construction Associates |
FINDINGS OF FACT,
CONCLUSIONS AND RECOMMENDATION |
The above-entitled matter came on
before Administrative Law Judge Kathleen D. Sheehy for hearing on August 29,
2006, at the Office of Administrative Hearings,
Christopher M. Kaisershot, Assistant Attorney General,
Thomas C. Pearson, Esq., Erickson, Pearson & Aanes Law Offices,
STATEMENT OF ISSUES
1. Did
the Respondent engage in unlicensed residential building contractor work by
building a new home, in violation of Minn. Stat. §§ 326.84, subds. 1 and 1b,
and 326.91, subd. 1(5) and 4?[1]
2. Did the Respondent perform in breach of
contract by failing to complete work on the home, in violation of Minn. Stat. §
326.91, subds. 1(4) and 4?
3. Did Respondent engage in an act that
demonstrates he is untrustworthy, financially irresponsible, or incompetent by
using $3,900 of the landscaping budget for purposes other than landscaping, in
violation of Minn. Stat. § 326.91, subds. 1(6) and 4, and Minn. R. 2891.0050,
subp. 1C?
4. Did Respondent fail to pay a plumbing
subcontractor who worked on the project, demonstrating that he is untrustworthy,
financially irresponsible, or incompetent, in violation of Minn. Stat. §
326.91, subds. 1(6), (8), and 4?
5. Did Respondent misrepresent his unlicensed
status in executing a contract that requires the contractor to secure all
licenses necessary for the proper execution and completion of the work, thereby
engaging in fraudulent, deceptive, or dishonest practices in violation of Minn.
Stat. § 326.91, subds. 1(2) and 4, and Minn. R. 2891.0040, subp. 1D?
Based upon all of the files, records and proceedings herein, the Administrative Law Judge makes the following:
FINDINGS OF
FACT
1. The Respondent, Todd Scott Wheeler, has engaged
in the business of home building under the names Timber Mountain Construction
and Construction Associates. The
Department has not licensed any of these entities as a residential building
contractor.
2. Respondent built his home at
3. In the summer of 2003, Michael and Bambi
O’Hern were living in
4. The O’Herns purchased two lots in the
development from Respondent. They
intended to return to
5. On January 19, 2004, the O’Herns signed
an agreement with Respondent calling for the construction of a new residence on
Lots 7 and 8 of Castlewood Estates. The
contract identifies the O’Herns as the owners and the Respondent individually
as the contractor.[5] The contract sum is stated to be $410,523,
which reflects the $15,000 credit offered by Respondent.[6] The contract provides that the contract sum
may be changed only by written change order.[7]
6. The contract further provides that work
was to begin on or about March 25, 2004, and was to be substantially complete
by April 30, 2005. The contract also
provides that due to normal variations in the custom construction process
including, but not limited to the selection, ordering, manufacture, and
installation of customer selections, the substantial completion date may be
forty-five days earlier or later than projected in the contract.[8] Substantial completion was defined as the
date when “construction is sufficiently complete so that the owner can occupy
or utilize the work for the use for which it is intended.”[9]
7. On January 19, 2004, Bambi O’Hern signed
an application for a building permit from the City of Breezy Point. In the application, Ms. O’Hern identified
herself as the building contractor.[10]
8. On February 16, 2004, Bambi and Michael
O’Hern signed an acknowledgment on a form submitted to the City of Breezy
Point, which provides as follows:
I understand that
the State of
Furthermore, I
understand that I may be hiring independent contractors to perform certain
aspects of the construction or improvement of this house and I understand that
some of these contractors may be required to be licensed by the State of
9. At the bottom of this page, underneath the O’Herns’ signatures, the form further provides that “To determine whether a particular contractor is required to be licensed, or to check on the licensing status of individual contractors, please call the Minnesota Department of Commerce, Enforcement Division, at (612) 296-2594, or toll free at 1-800-657-3602.”[12]
10. The
City of Breezy Point issued the building permit for the project to the O’Herns on
February 23, 2004.[13]
11. The O’Herns financed the construction of
the home with funds from the sale of their home in
12. In June 2004, Respondent notified the
O’Herns that his business name had changed to Construction Associates.[15]
13. In September 2004 the O’Herns signed a
written change order adding some windows, a window well, some additional work
on the well, and a gas line for a total of $5,040.[16]
14. By December 2004 it had become apparent
that the Respondent’s estimate for construction materials ($83,500) was grossly
underbid. The bid did not include the
materials for the floor system, roof trusses, drywall, or finishing material
for the large master suite over the garage.
Respondent blamed the error on the lumberyard (BuildAll Lumber). Respondent estimated at that time that the
materials costs were about $30,000 more than the estimate.
15. By December 2004, it had also become
apparent that the O’Herns needed to borrow more money than they had
anticipated, because they had used some of the funds from the sale of their
16. In a meeting with the O’Herns and their
banker, Respondent estimated that it would cost an additional $150,000 to
finish the project, which would bring the total price to approximately $463,532. The O’Herns did not believe they should be
responsible for the overage amounts, but they agreed to borrow another $150,000
because they felt they had no other option but to complete the project.[19]
17. In December 2004, Michael O’Hern moved to
18. In March 2005, Michael O’Hern was planning
a trip back to
19. As of the end of March 2005, the O’Herns
had paid $451,639.00 in construction costs.[23] There was still a substantial amount of
finishing work to be completed on the home, including installation of plumbing
fixtures, carpet, and deck; trim work throughout the home; and electrical work.[24]
20. When the O’Herns jointly reviewed the amounts
already expended, they called the Lakes State Bank and informed their banker
that they would not permit payment of any further expenses from the
construction loan account to the Respondent until the overages were reconciled.[25] They subsequently spoke to the Respondent,
who said he would not “work for free” or arrange for any further work by
subcontractors unless they allowed the bank to disburse amounts owed.[26]
21. On April 12, 2005, the O’Herns wrote the
following letter to Respondent:
Your failure to
complete construction is being viewed by us a [breach] of contract as [cited]
in Article 9B of the Construction Contract between Bambi and Michael O’Hern and
Timber Mountain Construction/Construction Associates. As per your request you will no longer be
permitted on the property of
22. After this date, the O’Herns managed the building
process. They spent approximately $30,202
from the construction loan account toward completion of the project.[28] They also paid $13,134.12 to remove a lien
filed by the plumber for work and fixtures that had been provided, but not yet
billed, at the time the O’Herns terminated the agreement with Respondent.[29]
23. In December 2005, the Department received
information that Respondent had engaged in unlicensed contractor activity on
behalf of the O’Herns.[30]
24. On April 12, 2006, the Commissioner served
on the Respondent by U.S. Mail the Notice and Order for Hearing, Order for
Prehearing Conference, and Statement of Charges in the above matter.
25. The prehearing conference took place on May
17, 2006. At that time, the hearing was
scheduled to take place on July 12, 2006.[31] Because of a conflict in the Administrative
Law Judge’s schedule, the hearing was rescheduled to take place August 15,
2006.[32]
26. On July 17, 2006, at the request of the
Respondent, the hearing was rescheduled to August 29, 2006.[33]
27. On July 26, 3006, the Commissioner served
the Respondent by U.S. Mail with a Notice of Amendment, Notice of and Order for
Hearing, and Amended Statement of Charges.
28. The hearing took place as scheduled on
August 29, 2006.
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 the charges against Respondent under Minn. Stat. §§
14.50, 326.91, and 326.92, subd. 3.
2.
The Department has complied with all relevant procedural
legal requirements.
3.
The Commissioner
may take disciplinary action against unlicensed residential building
contractors.[34]
4.
The Respondent is not licensed, but he engaged in residential
building contractor activity, in violation of Minn. Stat. § 326.84, subd. 1.
5.
The Commissioner may take action against residential
building contractors who perform in breach of contract.[35]
6.
The O’Herns terminated the contract before the Respondent
was obligated to substantially complete construction of the home. The Respondent did not perform in breach of
contract by failing to complete work on the home.
7.
The Commissioner may take action against a residential
building contractor who has been shown to be incompetent, untrustworthy, or
financially irresponsible. Diversion of
funds from the purposes for which the funds were intended is a practice
considered to be incompetent, untrustworthy, or financially irresponsible.[36]
8.
The Respondent
did not divert funds intended to be used for landscaping.
9.
The Commissioner
may take action against a residential building contractor who has been shown to
be incompetent, untrustworthy, or financially irresponsible or who fails to use
the proceeds of any payment to the contractor for payment of labor, skill,
material, or machinery contributed to the construction or improvement of
residential real estate, knowing that the cost of the labor, skill, material or
machinery furnished for the improvement remains unpaid.[37]
10.
The O’Herns did
not make any payment to Respondent specifically intended to cover the balance
of the plumbing bill, and the Respondent did not fail to pay a plumbing
contractor with the proceeds of any payment intended to cover the plumbing work
in violation of Minn. Stat. § 326.91, subd. 1(8).
11.
The Respondent
had collected substantial additional sums from the O’Herns in the form of
materials overages without amending the contract in writing or giving the
O’Herns any certainty about what the total costs would be. The Respondent should have paid the balance
of the plumbing bill under these circumstances, and his failure to do so does
demonstrate that he was incompetent or untrustworthy, warranting discipline
under Minn. Stat. § 326.91, subd. 1(6).
12.
The Commissioner may take action against a residential
building contractor who engages in fraudulent, deceptive, or dishonest
practices. Any fraud or dishonesty in
the execution of a contract incident to a building transaction is considered a
fraudulent, deceptive, or dishonest practice.[38]
13.
The Respondent’s
contract provides that he will secure and pay for the building permit and “for
all other permits and governmental fees, licenses and inspections necessary for
the proper execution and completion of the work.” A license from the Department is a license
necessary for the proper execution and completion of the work. Inclusion of this phrase in the contract of
an unlicensed builder is dishonesty in the execution of a building contract and
is a deceptive or dishonest practice.
14.
Disciplinary
action against the Respondent is in the public interest.
Based upon the foregoing Conclusions, the Administrative Law Judge makes the following:
IT IS HEREBY
RECOMMENDED: that the Commissioner take disciplinary action against the
Respondent.
Dated: October 11, 2006.
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KATHLEEN D. SHEEHY |
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Administrative Law Judge |
Reported: Tape recorded (4 tapes)
No transcript prepared
MEMORANDUM
Count 1 of the
Amended Statement of Charges alleges that the Respondent engaged in unlicensed
residential building contractor work. There
is no dispute that neither the Respondent nor his businesses were licensed by
the Department or that he did in fact engage in unlicensed work. Respondent argues that he did not believe he
violated the statute by contracting with the O’Herns. The record reflects, however, that Respondent
was aware that residential building contractors are required to be licensed in
Count 2 alleges that the Respondent failed to complete the work on the O’Herns’ home, including failing to install plumbing fixtures, carpeting, deck, trim work, gutters, landscaping, and electrical, and failing to pave the driveway. The Respondent did not fail to complete the work; rather, the O’Herns fired him before he was obligated to finish the work, for good reason, because of their dispute about the price.[39]
Count 3 alleges
that Respondent withdrew $3,900 allocated for landscaping from the loan but
failed to complete any landscaping before his employment was terminated. The record reflects that the Respondent did
some landscaping work in the form of grading the property and installing timbers
used for a retaining wall, which could be what is reflected on the Respondent’s
spreadsheet as a $1,500 draw on the landscaping budget in November 2004.[40] The other $2,000 drawn from the loan account
was done with the express consent of Michael O’Hern to help fund his trip to
Count 4 alleges that the Respondent failed to pay $13,134.12 to Larry Blaeser Plumbing for labor, services, or supplies provided on the project, despite receiving $449,185.84 in progress payments. The Department alleged that this conduct proves two violations: Minn. Stat. § 326.91, subd. 1(6) and 1(8). Minn. Stat. § 326.91, subd. 1(8), permits the Commissioner to take action against a contractor who fails to use the proceeds of any payment made to the licensee 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 Administrative Law Judge has concluded that the O’Herns did not make any payment to Respondent specifically intended to cover the balance of the plumbing bill, so there is no violation of this section.
Minn. Stat. § 326.91, subd. 1(6), permits the Commissioner to take action against a contractor who has been shown to be incompetent, untrustworthy, or financially irresponsible, and the Administrative Law Judge has concluded that the Respondent did violate this section. By charging the O’Herns for all materials overages without negotiating this through the change order process and obtaining their written agreement, as required by the contract, Respondent made it impossible for them to keep track of the total contract price. Respondent’s interpretation that they were responsible for all overages essentially means that the contract price is completely uncertain until all the bills are paid, which is not what the contract says. The O’Herns’ agreement in December 2004 to pay the overages accumulated to that point does not mean that they were legally responsible for those overages or for any similar overages that might accumulate in the future. By the time their relationship fell apart, the O’Herns had paid substantially more than the express terms of the contract required them to pay, and the Respondent should have paid the plumbing bill instead of requiring them to do so to satisfy a lien. The Respondent’s failure to do so, under these circumstances, shows him to be untrustworthy in violation of Minn. Stat. § 326.91, subd. 1(6).
Count 5 alleges
that in one provision of the contract requiring the contractor to secure all
licenses necessary to properly execute and complete the work, the Respondent
misrepresented his unlicensed status and thereby engaged in fraudulent,
deceptive, or dishonest practices in violation of Minn. Stat. § 326.91, subd.
1(2), and
It is important to note, however, that this deception in the contract did not in fact deceive the O’Herns. The Administrative Law Judge has concluded, based largely on the testimony of Dave Elsenpeter (the O’Herns’ banker), that the O’Herns knew the Respondent was unlicensed, and they knew it before the contract was signed. Therefore, the O’Herns knowingly engaged an unlicensed builder and participated in making false statements to the City of Breezy Point for the purpose of obtaining the building permit. Their testimony that they did not remember why they did this is unconvincing. The fact that the O’Herns knew the Respondent was unlicensed does not diminish the seriousness of the Respondent’s violation, because Respondent never should have proposed the scheme, but it is relevant in assessing the harm caused by the violation and in determining the amount of any civil penalty.
K.D.S.
This
Report is a recommendation, not a final decision. The Commissioner of Labor and Industry will
make the final decision after reviewing the record and may adopt, reject or
modify these Findings of Fact, Conclusions, and Recommendation. Under Minn. Stat. § 14.61, the Commissioner’s
decision shall not be made until this Report has been available to the parties
to the proceeding for at least ten (10) days.
An opportunity must be afforded to each party adversely affected by this
Report to file exceptions and present argument to the Board. Parties should contact Scott Brener,
Commissioner, Department of Labor and Industry,
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. If the Commissioner fails to issue a final decision within 90 days of the close of the record, this report will constitute the final agency decision under Minn. Stat. § 14.62, subd. 2a. In order to comply with this statute, the Commissioner must then return the record to the Administrative Law Judge within 10 working days to allow the Judge to determine the discipline to be imposed. The record closes upon the filing of exceptions to the report and the presentation of argument to the Commissioner, or upon the expiration of the deadline for doing so. The Commissioner must notify the parties and the Administrative Law Judge of the date on which the record closes.
[1] Unless otherwise specified all references to Minnesota Statutes are to the 2004 edition.
[2] Testimony of Todd Wheeler.
[3] Test. of T. Wheeler; Testimony of David Elsenpeter.
[4] Ex. C; Test. of T. Wheeler; Testimony of Bambi O’Hern; Testimony of Michael O’Hern.
[5] The top of the first page of the contract contains the name and address of Timber Mountain Construction, but the contract does not anywhere identify Timber Mountain Construction as the contractor. Instead, the signature page identifies Todd Scott Wheeler as the contractor.
[6] Ex. B.
[7] Id., Art. 17(b).
[8] Id., Art. 2(a).
[9] Id., Art. 13(a).
[10] Ex. 1.
[11] Ex. 2 (emphasis added).
[12]
[13] Ex. 5.
[14] Test. of D. Elsenpeter.
[15] Ex. D, Draw Request No. 3; Ex. F.
[16] Ex. D, Draw Request No. 6.
[17] Test. of D. Elsenpeter; Test. of T. Wheeler; Test. of O’Herns.
[18]
[19]
[20] Test. of M. O’Hern.
[21] Test. of M. O’Hern; Test. of T. Wheeler; Ex.D, Draw Request No. 12.
[22] Ex. H.
[23] Test. of M. O’Hern; Ex. M. There continued to be substantial overages due to materials costs after December 2004. See generally Ex. 11 (bank records reflecting total payments to Build All Lumber in the amount of $129,822). In addition, the O’Herns made an $18,000 payment for materials in July 2004 that was applied to the materials budget. See Ex. H; Ex. D, Draw Request No. 4. This would mean that the total amount spent for materials was about $147,822, or about $64,322 over the budgeted amount).
[24] Ex. K.
[25] Test. of B. O’Hern.
[26] Test. of T. Wheeler.
[27] Ex. I.
[28] See generally Ex. 11 (disbursements from construction loan account between May 24, 2005 and June 7, 2005). This sum includes some funds paid to Michael O’Hern for the value of his labor. See id., draw request paid on May 24, 2005. It may or may not include a variety of smaller expenses identified by the O’Herns for supplies and materials from hardware stores and Home Depot. See Ex. O.
[29] Ex. 9.
[30] Ex. N.
[31] Prehearing Order (May 17, 2006).
[32] Second Prehearing Order (June 22, 2006).
[33] Letter from Respondent’s counsel to the Administrative Law Judge (July 17, 2006).
[34] Minn. Stat. §§ 326.84, subds. 1 and 1b, and 326.91, subd. 1(5) and 4.
[35] Minn. Stat. § 326.91, subds. 1(4) and 4.
[36] Minn. Stat. § 326.91, subds. 1(6) and 4; Minn. R. 2891.0050, subp. 1C.
[37] Minn. Stat. § 326.91, subds. 1(6), (8), and 4.
[38] Minn. Stat. § 326.91, subds. 1(2) and 4; Minn. R. 2891.0040, subp. 1D.
[39] In its brief the Department argues the Respondent performed in breach of contract by overcharging the O’Herns, but this is not the violation alleged in the Amended Statement of Charges.
[40] Ex. H ($1,500 charged to landscaping budget in draw request No. 7); Ex. D, Draw Request No. 7, dated November 3, 2004.
[41] In its brief the Department argues that Respondent’s “failure to provide any credible accounting of expenses” and his provision of a spreadsheet containing inaccurate information demonstrates a violation as well, but these were not the violations alleged in the Amended Statement of Charges.