OAH 2-1902-17521-2
STATE OF
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE DEPARTMENT OF LABOR AND INDUSTRY
|
In the Matter of |
RECOMMENDED ORDER AFFIRMING CEASE AND
DESIST ORDER AND TO IMPOSE DISCIPLINARY ACTION |
This
matter comes before Administrative Law Judge Raymond R. Krause following a
hearing pursuant to an Order to Show Cause and Notice of and Order for Hearing
dated September 19, 2006. The hearing
in this matter was held at the Office of Administrative Hearings on February
24, 2007 and February 26, 2007, concluding on February 26, 2007. Pursuant to the request of the Administrative
Law Judge, the parties submitted and filed post-hearing briefs addressing the
legal question of the applicability of the State Building Code in this case and
summarizing their cases.
Christopher
M. Kaisershot, Assistant Attorney General,
STATEMENT OF ISSUES
1.
Whether
the Department’s August 16, 2006, Cease and Desist Order was valid and whether Respondent
violated the Order by continuing to cause, permit, or perform
construction-related activities on the four-plex townhouse development located
at lots 1, 2, 3, and 4, Block 10, School Estates, City of Nicollet (the Townhouse).
The ALJ finds that the Order was valid and Respondent did violate the Cease and
Desist Order.
2.
Whether
Respondent failed to comply with the Department’s information requests of May
3, July 10, or July 12, 2006 and refused to allow inspection of the premises on
August 16, 2006, in violation of Minn. Stat. § 45.027, subds. 1a and 7(a)(3),
and 326.91, subds. 1(5) and 2 (2004). The ALJ finds that the Respondent did
comply with the information request of May 3, 2006 but failed to comply with
the other information requests or to permit inspection on August 16, 2006.
3.
Whether
the State Building Code is the proper standard for use in connection with the
warranty provisions of Minn. Stat. § 327A.02 and whether that standard applies
in a jurisdiction which has not adopted the State Building Code. The ALJ finds
that the State Building Code is the proper standard and does apply in this case
and therefore engaged in acts that demonstrate that is untrustworthy,
incompetent and otherwise unqualified.
4.
Whether
Respondent failed to comply with the State Building Code when it designed and
constructed the Townhouse thus engaging in acts that demonstrate that
Respondent is untrustworthy, incompetent, or otherwise unqualified to act under
the license granted by the Commissioner of the Department of Labor and
Industry. The ALJ finds that Respondent did fail to comply with the State
Building Code.
5.
Whether
Respondent engaged in a fraudulent, deceptive or dishonest practice by
performing plumbing work on the Townhouse without a plumbing license. The ALJ
finds that Respondent did engage in work outside the scope of its license by
plumbing without a license for the period prior to August 11, 2006 and
therefore engaged in a fraudulent or dishonest practice.
6.
Whether
Respondent engaged in a fraudulent, deceptive, or dishonest practice by
submitting a permit application to the City of
7.
Whether
Respondent provided false and misleading information to the Department and
otherwise engaged in a deceptive or dishonest practice by misrepresenting to the
Department that the Qualified Person was an engineer. The ALJ finds that Mr.
Peirce, as Respondent’s Qualified Person, did provide false or misleading
information in violation of Minn. Stat. §§ 45.027, subd. 7(a)(3), and 326.91,
subd. 1(2).
Based on the evidence
in the hearing record, the Administrative Law Judge makes the following:
FINDINGS OF FACT
1.
On
September 15, 2005, the Department issued a residential building contractor’s
license to Respondent pursuant to Minn. Stat. § 326.84 (2004).[1]
2.
Melanie
Peirce signed the license application as Respondent’s owner, partner or
officer. Mr. James Peirce (Mr. Peirce)
signed as its qualifying person.[2]
3.
On October 15, 2005, Respondent obtained a
building permit to construct a four-plex townhouse in the City of
4.
The
applicant for the Building Permit was Mr. Peirce. The owner of the property listed on the
permit was
5.
Respondent
constructed the Townhouses for the purpose of selling them.[5]
6.
At the
time that Respondent began constructing the Townhouses, the State Building Code
was not adopted or enforced by the City of
7.
In a letter dated April 20, 2006, the
Administrator for the City of
8.
In
response to the City of
9.
On May 16, Respondent submitted a written
reply to the information request. The
reply acknowledged that it was sent in compliance with Minn. Stat. § 45.027 and
stated that the Townhouses complied with the “Minnesota State Building Code
2000, the Minnesota Energy Code 2000 MN Rule chapter 7672 . . . [and with the]
International Residential Code 2003.”
The letter also assured the Department that I & S Engineers, located
in
10.
Following
this exchange, Department personnel met with Mr. Peirce on several occasions to
discuss their concerns about the Townhouses.
On May 24, 2006, Mr. Peirce met with Department staff Doug Nord,
Supervisor for Regional and Administrative Services and Michael Fricke,
Building Code Representative, at the Townhouse construction site.[10]
11.
During
the May 24 meeting, Nord and Fricke reviewed their concerns with Mr. Peirce
about the foundation’s construction; property line/unit separation walls;
parapet walls and exceptions; beams, in relation to size, load and span; and
the height of the tall walls.[11]
12.
On June
1, 2006, Mr. Peirce met with Department personnel at the Department’s offices
in
13.
Michael
Fricke and Herman Hauglid, a Senior Investigator with the Licensing and
Enforcement division at the Department, visited the Townhouse site on July 7,
2006 to review the progress Respondent was making in addressing the concerns
which had been raised in May and June.[13]
14.
The
Department concluded, as a result of the July 7, 2006 visit, that the
“contractor has continued to proceed with the work without regard to address
(sic) the concerns that were discussion with him @ (sic) the June 1st
meeting.” Additional concerns became apparent during the July 7 visit,
including a floor joist beam which had been notched to make room for a waste
line for a bathroom, a lack of protective water barriers behind tubs, questions
about support of a ridge beam above the entry door, support and cantilever of
the same ridge beam and valley beams, construction of a ridge beam in the room
next to the entry and the support of that same beam which was hung from a “TJI”
rafter. After Fricke and Hauglid reviewed
all of these concerns with Peirce, Peirce said “he would get on them right
away.” Finally, Fricke and Hauglid
discussed the separation walls between units and the Department’s concern that
“one unit has been covered with gypsum board and there is no way to tell
whether the issues we discussed before have been corrected or not.”[14]
15.
Jim
Shay of the Department’s plumbing unit visited the Townhouse construction site
on July 6 and had some serious concerns with the plumbing on the project. During a telephone call on July 7, 2006, with
Mr. Hauglid, Mr. Peirce stated that he did all of the plumbing for the project.[15] At the hearing, Mr. Peirce did not remember
the specifics of this conversation, but stated that Respondent had performed
plumbing on the Townhouses before August 11, 2006.[16]
16.
Peirce
Properties, an unlicensed plumbing contractor, received a code compliance bond
on August 11, 2006. The plumbing
contractor named on the bond is Jason Peirce.[17]
17.
Peirce
Properties performed plumbing on the Townhouse project during the period of
August 11 through August 21, 2006.[18]
18.
In a
letter dated July 10, 2006, the Department stated that it was requiring
Respondent to provide the following by July 18, 2006:
A
Evaluation and approval from a
Evaluation and approval from the
manufactures (sic) engineers for the attachment ridge beam to the TJI to carry
roof loads.
A construction detail drawing of the center
separation/bearing wall (complete top to bottom) and listed assembly number.
Evaluation report from the manufacturers
(sic) engineers for the cut TJI in the bathroom ceiling. Copies of engineered repair design and clear
pictures of the completed repair will be required.
Evaluation and approval from a
A construction detail showing unit fire
separation for side by side units going from floor through the roof.
Construction details for the exterior walls,
the ceiling/attic, and foundation.
A letter from Bruce Nelson for “Reflectix”
material and its application.[19]
19.
In a
letter dated July 12, 2006, Herman Hauglid wrote to Respondent asking for the
report from I & S Engineers that Respondent had discussed in its May 13 letter;
and requesting evidence to support Mr. Peirce’s claim that he was an engineer
and was “personally responsible for verifying the engineering calculation on
this project.”[20]
Mr. Peirce has engineering training and experience but is not a certified engineer.[21]
20.
Respondent
did not submit any written reply to either the July 10 or the July 12 letters.[22]
21.
In a
letter dated July 18, 2006, James Peterson, Plumbing Program Supervisor at the
Department, informed Respondent that James Shay, Plumbing Standards Representative,
had conducted an inspection of the Townhouses and found numerous violations of
the rules governing plumbing. In
addition, the letter stated that neither Mr. Peirce nor Respondent had filed a
plumbing code compliance bond.[23]
22.
Respondent
replied to the Department’s July 18 letter with a letter dated July 25, 2006,
acknowledging that it had not obtained a plumbing code compliance bond but that
such a bond was “in the process of being secured.” This letter also addressed the plumbing concerns
raised by the Department, in some instances stating what had been done to
correct a problem, in others stating that the Department had inaccurate
information or that it had accurate information but that the problem would be
cured.[24]
23.
On or
about July 28, 2006, Justin Peirce entered into a Contract for Deed with
Respondent to purchase Unit 1 of the Townhouses.[25]
24.
Herman
Hauglid left four messages on Mr. Peirce’s voice mail in an attempt to schedule
a follow-up inspection in August 2006.
The last of these messages informed Mr. Peirce that Department
representatives would be coming to the Townhouses to conduct a site inspection
on August 16 and that Mr. Peirce should contact Mr. Hauglid if that date was
not convenient for Respondent. Mr.
Hauglid received no response to any of the messages he left for Mr. Peirce.[26]
25.
Mr.
Peirce denied that he received any of the messages from Mr. Hauglid about the
August 16 site visit.[27]
26.
On
arriving at the construction site on August 16, Department representatives
Michael Fricke and Dan Kelsey found no sign of Mr. Peirce. “No Trespassing” signs, which had not been
present at Fricke’s prior visits to the site, were posted on the property. Fricke and Kelsey chose to heed the “No
Trespassing” signs and did not go onto the Townhouse property. Instead, they telephoned Mr. Peirce again,
leaving him a message. They waited for
about 15 minutes, and then went to have lunch, returning to the site in hopes
of meeting Mr. Peirce there later. Mr.
Peirce did not respond to their message, nor did they find him at the
construction site, so they did not inspect the Townhouses that day.[28]
Respondent’s failure to respond to any of the telephone calls about the August
16, 2006 site visit, combined with its display of “No Trespassing” signs at the
site, effectively prevented the Department personnel from conducting the site
visit on that day.
27.
On
August 16, 2006, the Department served Respondent with a Cease & Desist
Order and Notice to Right of Hearing (“Order”).
The Order requires Respondent to “cease and desist from causing,
permitting, or performing any construction-related activities on the
Townhouse . . . until (1) Respondent
complies with the Department’s information requests dated May 3, July 10, and
July 12, 2006, and (2) satisfies the Department that Respondent’s townhouse
design and construction, including any necessary corrective action on the townhouse,
complies with the State Building Code.”[29]
28.
On
August 21, 2006, Mr. Peirce resigned from his position as Manager of Respondent
Executive Homes Minnesota, LLC.[30] From
the date of his resignation, continuing to the date of the hearing, Mr. Peirce
did not believe he had authority to act as Respondent’s Qualifying Person under
29.
On
September 13, 2006, Nicollet County Sheriff’s Office Investigator Marc
Chadderdon went to the Townhouses pursuant to a request from the Nicollet County
Attorney’s Office.[32]
30.
At the Townhouses,
Mr. Chadderdon “noticed that there was a lot of activity at the south townhouses.” The garage doors were open on the south units
and several vehicles were parked in front of the property, including a 1987 red
Jaguar with license plates listed to Respondent, a van with license plates
listed to Otto Electric and a white work van whose license plates he was unable
to read.[33]
31.
Mr.
Chadderdon took thirteen pictures of the outside of the property and the parked
vehicles with his digital camera. In one
of those pictures, a realtor’s “For Sale” sign is plainly visible, along with a
second sign which says “Model Home” with an arrow pointing to unit #1. Another photograph shows a large blue
dumpster full of scrap drywall and another shows forms and debris piled up on
the street on the north side of the building.[34]
32.
While
Mr. Chadderdon was at the work site, a man came out of unit #1. His clothes were dirty with a white substance
which Mr. Chadderdon stated looked like drywall dust and he wore yellow safety
glasses. Based on these observations,
Mr. Chadderdon assumed the man was a construction worker of some kind.[35]
33.
In
response to Mr. Chadderdon’s inquiry about whether the owner was present, the
“worker” stated that he was inside and he offered to go get him. Mr. Peirce came outside then and spoke with
Mr. Chadderdon.[36]
34.
During
his conversation with Mr. Chadderdon, Mr. Peirce stated that he had personal
ownership of unit #1 of the Townhouses and that that was the only unit he was
working on. He further stated that he
was aware of the Cease and Desist order but believed that, because he planned
on moving into Unit #1, he should be permitted to work on it. He asked Mr. Chadderdon to take a complaint
from him against the Department because he alleged that the Cease and Desist
Order was issued illegally.[37]
35.
On
September 14, 2006, Respondent, through its attorney, requested a hearing to
contest the Cease and Desist Order, but waived its right to a hearing within 10
days.[38]
36.
On September
19, 2006, the Department issued a Notice of and Order for Hearing, Order for
Prehearing Conference, Order to Show Cause and Statement of Charges (OSC) in
this matter. The Statement of Charges
included the following alleged violations:
Count I:
Respondent violated the August 16, 2006 Cease and Desist Order by
continuing to cause, permit, or perform construction-related activities on the
Townhouse.[39]
Count II:
Respondent failed to comply with the Department’s information requests
dated May 3, July 10 or July 12, 2006, and refused to allow inspection of the
premises on August 16, 2006.[40]
Count III:
Respondent failed to comply with the Building Code when it designed and
constructed the Townhouse located on Block 10, School Estates, City of
Count IV:
Respondent performed plumbing work on the Townhouse, even though it is
not licensed as a plumber. Respondent
engaged in a fraudulent, deceptive or dishonest practice.[42]
Count V:
Respondent submitted a permit application to the City that that (sic)
stated Nicollet Plumbing & Heating would perform all plumbing work on the
Townhouse. In fact, Respondent has
performed the plumbing work. Respondent
engaged in a fraudulent, deceptive or dishonest practice.[43]
Count VI:
Respondent misrepresented to the Department that he was an
engineer. Respondent provided false and misleading
information to the Department and otherwise engaged in a deceptive or dishonest
practice.[44]
37.
In the
time between September 2006 and the date of the hearing, work was done on the
exterior of the townhouses, including installation of the outside surfaces
covering the Tyvek moisture barrier, although there was no evidence to show at
whose direction or by whom the work was being done.[45]
38.
On
November 27, 2006,
39.
On
January 5, 2007, Respondent permitted Department personnel to conduct a site
inspection. Michael Fricke and Daniel
Kelsey inspected the Townhouses, observing, among other things, that additional
construction had occurred since their August 16, 2006 visit.[47]
40.
At the
hearing, the Department identified the following nine areas in which the
construction and engineering of the Townhouse did not comply with the State Building
Code or were otherwise unacceptable building practices:[48]
a) Foundation insulation and frost
protection: Expanded polystyrene foam
was used for the foundation insulation, rather than the extruded foam
insulation required by the 2000 International Residential Code (IRC) which was
in effect at the time of construction.[49] Use
of the wrong kind of insulation could result in frost heaves and freezing in
the foundation, causing the building to shift.[50]
b) Soils, drainage and strips footings and
frost protection: The method used by
Respondent to construct the foundation was not consistent with the 2000
IRC. Respondent used the 2003 IRC and ASCE
32. The foundation was installed by
excavating 30 inches and pouring a concrete strip footing, with a short
concrete foundation wall on top of the 20 x 20 strip footing. Two-inch Bead Board (expanded polystyrene)
was placed on the foundation wall 20-inches down and 24-inches wide; and the
foundation was backfilled with a sand base.
The 2000 IRC requires a single, monolithic poured concrete foundation,
extruded polystyrene insulation (except when used vertically) and screened and
washed gravel or crushed stone. The
technique prescribed by the 2000 IRC is designed to keep the foundation from
freezing and shifting in the cold southern
c) Insulation for attached garages: The same method of footings and foundation
used for the townhouses (described in paragraphs a and b, above) was also used
for the attached garages. This
construction method poses problems for frost protection and the ability to
maintain a minimum temperature of 64 degrees Fahrenheit in the garages. The 2000 IRC standards do not permit garages
to be attached to dwelling units with frost-protected shallow foundations as
Respondent’s townhouses are.[52]
d) Property line, unit separation and
parapet walls: The state building code requires minimum separation between
attached townhouse units to keep fire from moving from one unit to
another. The center walls separating the
dwelling units utilize these walls to attach the ceiling joists for support of
the lofts directly to the center wall framing members. The ceiling joists would
create “voids” in the sheetrock every couple of feet in the upper part of the
wall separating the units. This results in a wall that is not consistent with
tested assembly methods for fire protection and does not provide fire
protection as required for a wall separating townhouse units. The requirement for fire protection between
units is either double 1-hour fire-resistive walls or a single 2-hour resistive
wall. Respondent’s construction methods
achieve neither of these levels of protection.
In addition, attached buildings are required to have fire protective 30”
high parapet walls on the exterior of the roof between units or, in the
alternative, a layer of 5/8” chip board on top of the roof rafters before the
roof decking or shingles are put on. The
townhouses in this project have neither kind of required fire protection. The result of Respondent’s failure to build
appropriate protections between units is that fire in one unit could quickly
spread to the others.[53]
e) Tall wall construction: Tall walls are walls over ten feet tall. The state building code caps the height of
load-bearing walls at ten feet, taking into account factors such as wind speeds
and snow load in
f) Notching and/or cutting laminated veneer
lumber (LVL) valley beams: The state
building code does not permit cuts, notching or bored holes in LVL.[56] Respondent notched the valley beams in all of
the townhouses to allow for the installation of vertical posts. LVL is a pre-engineered material designed to
carry prescribed loads. Cutting into the material as Respondent has can cause
the beam to become structurally unsound.[57]
g) Cutting an engineered floor truss to
allow for the installation of plumping pipe:
Respondent used wooden I-beams to support the floors. Using such I-beams
provides structural efficiency. I beams, which concentrate the thickness of the
wood at the outer edges, are stronger and more rigid than 2x10 or 2x12 where
there is an equal amount of wood throughout the height of a board. The structural stiffness and strength of an
I-beam is compromised if the outer edges, which give the beams their strength
and rigidity, are cut. Respondent cut through at least one such I-beam to allow
for the installation of a pipe. This is
a violation of the State Building Code.[58]
h) Ridge beam and rafter support and
trusses: The state building code
generally prescribes that a roof constructed with rafters should have ceiling
joists at the bottom of the rafters, also joining with the walls.[59] In some instances those joists are moved
higher and, when a vaulted ceiling is designed, horizontal ties are also
used. The reason for the horizontal ties
is to prevent the two sides of the ceiling, which are leaning up against one
another, from flattening and pushing out against one another. If horizontal
ties are not used, then a beam must be installed at the ridge, which is the
top. The purpose of the ridge beam is to
carry the load of the ceiling and of the two sides of the vaulted ceiling which
otherwise would be pressuring one another. A ridge beam must be designed in
accord with accepted engineering practice.
Typically, contractors use pre-engineered lumber instead of “building
up” a beam on site, but Respondent made the ridge beams for the roofs in the
townhouses on site. The beam is made
from 2 x 6 boards, wooden I-beams and “a patchwork of oriented strand board,”
all of which are not a standard design and which would need further review to
determine their structural integrity.
Furthermore, the support depends on a single I-beam as well as a
connection from the ground which “would warrant a closer look.” Should this ridge beam fail, the roof would
likely collapse into the room below.[60]
i) Roof framing – non-continuous bearing
support for the ridge beam: The ridge
beam described in paragraph h, above, concentrates or “collects” the load of
the roof and is typically supported by studs which run all the way down to the
foundation. In this case, some of the
studs have other boards nailed between them and some of the studs do not reach
the full height of the ridge beam they are to support. Other boards are “scabbed on” to the studs to
make up for the height necessary to reach the ridge beam. Thus, some of the studs meant to support the
ridge beam, which itself supports the weight of the roof, are not single boards
but have pieces “scabbed on” to make up the height needed to connect them to
the ridge beam. This construction puts
the ridge beam, and therefore the roof, at risk of collapse.[61]
41.
No
evidence was presented to show that any of the defects identified in the above
paragraphs have been corrected.
42.
Were
Respondent to complete construction on the Townhouse project, the structural
defects identified in the above paragraphs would, if not corrected, result in a
building that would pose a risk to its occupants.[62]
Based on the foregoing Findings of Fact, the
Administrative Law Judge makes the following:
CONCLUSIONS OF LAW
1.
Respondent
was a licensed residential building contractor pursuant to Minn. Stat. §
326.83, subd. 15 at the time it began the Townhouse project in the City of
2.
Mr.
Peirce was Respondent’s qualifying person as required by Minn. Stat. § 326.84,
subd. 1c at the time it received its license.
3.
At all
times relevant to these proceedings, the City of
4.
The
Commissioner of Labor and Industry (Commissioner) is authorized, pursuant to
Minn. Stat. § 326.91, to take action against a residential contractor’s license
if the Commissioner finds that such an action is in the public interest and
that the licensee:
(2)
has engaged in a fraudulent, deceptive, or dishonest practice…;
(6)
has been shown to be incompetent, untrustworthy, or financially
irresponsible;
(7)
has been convicted of a violation of the State Building Code or, in
jurisdictions that do not enforce the State Building Code, has refused to
correct a violation of the State Building Code when the violation has been
certified by a
5.
The
Commissioner has authority pursuant to Minn. Stat. § 45.027 to issue a cease
and desist order “whenever it appears to the commissioner that a person has
engaged or is about to engage in an act or practice constituting a violation of
a law, rule, or order related to the duties and responsibilities entrusted to
the commissioner.”
6.
Because
Respondent constructed the Townhouses for the purpose of sale, it is a “vendor”
within the meaning of the statutory warranty provisions at Minn. Stat. §
327A.01, subd. 7.
7.
As a
vendor pursuant to Minn. Stat. § 327A.01, subd. 7, Respondent is required to
build the Townhouses to the “building standards” referred to in § 327A.01,
subd. 2 which are the “standards of the State Building Code . . .in effect at
the time of the construction or remodeling.”
8.
“In
effect at the time of the construction or remodeling” refers to the State
Building Code which is currently in statute.
Section 327A, subd. 2 is not limited to the specific locales within the
state which have adopted the code or where it is otherwise required by law to
be enforced.
9.
The
Department is required to administer the Contractor’s Recovery Fund which is
generally liable for judgments arising out of a licensed contractor’s “failure
of performance,” including statutory warranties.[63]
10.
When a
licensed contractor is a vendor for purposes of the statutory warranty
provisions of section 327A.01 and thus falls within the scope of the
Department’s potential liability pursuant to section 326.975, it is reasonable
for the Department to rely on the State Building Code standards referred to in
section 327A.01, subd. 2 in determining whether a licensed residential
contractor is “incompetent or untrustworthy” pursuant to Minn. Stat. § 326.91,
subd. 1(6).
11.
Respondent
has not “refused to correct a violation of the State Building Code when the
violation has been certified by a
12.
The
rules governing residential building contractors state that it is a
“fraudulent, deceptive or dishonest practice” for a residential contractor to
knowingly contract for, or perform, “a service beyond the scope of the
license.”[64] Section 326.83, subd. 19 lists the skills
which a residential building contractor may provide. Plumbing services are not listed in that
subdivision. Respondent’s plumbing work
on the Townhouses violated section 326.83, subd. 19 and Minn. R. pt.
2891.0040, subp. 1.G.
13.
Respondent’s
manager and qualified person, Mr. Peirce made repeated statements that he is an
engineer and that he would use his expertise as an engineer to address issues related
to the construction of the Townhouses. These statements fall within the conduct
prohibited by Minn. Stat. § 326.02.[65]
14.
Respondent’s
failure to construct the Townhouses to the standards required by Minn. Stat. §
327A.01, its provision of plumbing services beyond the scope of its license in
violation of Minn. R. pt. 2891.0040, subp. 1.G., and the statements of its manager and qualified person, Mr. Peirce,
that he is an engineer in violation of Minn. Stat. § 326.02 justify the
Department’s decision to issue a cease and desist order under Minn. Stat.
§45.027, subd. 5a.
15.
The
Department has proven the allegations in Count I of the OSC as follows:
Respondent allowed Peirce properties to do
plumbing work between August 11 and August 21, 2006, thus violating the Cease
and Desist order by causing or permitting construction-related activities to
continue on the Townhouse between August 17 and August 21.
Respondent, which held legal title to all
four Townhouses at least until November 27, 2006 and continues to hold legal
and equitable title to at least Units 2, 3 and 4, caused or permitted
construction-related activities, or performed those activities, on the
Townhouses, including, but not limited to, covering the Tyvek moisture barriers
on the outside of the Townhouses by installing outside surfaces over the
moisture barriers.
16.
The
Department has proven the allegations in Count II of the OSC as follows:
Respondent failed to respond to the
Department’s July 10 or July 12 letters requesting information about the
concerns raised with Respondent about the Townhouse construction. This failure to respond to an information
request violates Minn. Stat. §§ 45.027, subd. 1a and 7(a)(3); and 326.91, subd.
1(5).
Respondent did respond to the Department’s
May 3, 2006 information request.
17.
The
Department has proven the allegations in Count III of the OSC as follows:
Respondent’s construction methods,
specifically as outlined in paragraphs 40(a) through 40(i) of the Findings of
Fact, violated the standards established by the State Building Code and form an
adequate basis for the Department to determine that Respondent is “incompetent
and untrustworthy” pursuant to Minn. Stat. § 326.19, subd. 1(6).
18.
The
Department has proven the allegations in Count IV of the OSC as follows:
The rules governing residential building contractors state that it is a
“fraudulent, deceptive or dishonest practice” for a residential contractor to
knowingly contract for, or perform, “a service beyond the scope of the
license.”[66] Section 326.83, subd. 19 lists the skills
which a residential building contractor may provide. Plumbing services are not listed in that
subdivision. By providing plumbing
services to the Townhouse project during the period before August 11, 2006,
Respondent engaged in a “fraudulent, deceptive or dishonest practice” under the
rule and Minn. Stat. § 326.91, subd. 1(2).
19.
The
Department has failed to prove the allegations in Count V of the OSC. Count V alleged that Respondent submitted a
permit application to the City that stated Nicollet Plumbing & Heating
would perform all plumbing work on the Townhouse, that Respondent has performed
the plumbing work and that therefore Respondent engaged in a fraudulent,
deceptive or dishonest practice. Nothing
in the statute or rule prohibits a contractor from choosing to work with a
subcontractor who is different from the one with whom the contractor originally
had planned to work.
20.
The
Department has proven the allegations in Count VI of the OSC as follows:
Respondent misrepresented to the Department that he was an engineer.
Respondent provided false and misleading information to the Department and
otherwise engaged in a deceptive or dishonest practice.[67]
21.
Section
326.84 of the
22.
Pursuant
to
23.
Minn. Stat.
§ 326.88 restates the 15-day notice requirement quoted in paragraph 22, above
and allows the licensee “120 days from the departure of the qualifying person
to obtain a new qualifying person. Failure
to secure a new qualifying person with 120 days will result in automatic
termination of the license.” Under the
language of this statute, Respondent’s license was automatically terminated on
or about November 21, 2006.
24.
These
conclusions are reached for the reasons discussed in the attached Memorandum,
which is incorporated by reference into these conclusions.
Based upon these Conclusions, and for the
reasons explained in the accompanying Memorandum, the Administrative Law Judge
makes the following:
RECOMMENDATION
The
Administrative Law Judge recommends that:
1.
The
August 16, 2006 Cease and Desist Order issued by the Department requiring
Respondent to cease and desist from causing, permitting, or performing any
construction-related activities on the townhouses or properties located at
Blocks 5, 6, 10 and 11, School Estates, City of Nicollet, State of
2.
The
Department impose disciplinary action against Respondent pursuant to Minn.
Stat. 326.91.
Dated: April 12, 2007
s/Raymond
R. Krause
|
RAYMOND R. KRAUSE Chief Administrative Law Judge |
Reported: 7 Tapes-No Transcript
NOTICE
This report is a recommendation, not a final
decision. The Commissioner of Labor and
Industry will make the final decision after a review of the record and may
adopt, reject or modify these Findings of Fact, Conclusions, and
Recommendation. Under Minn. Stat. §
14.61, the Commissioner shall not make a final decision until this Report has
been made available to the parties for at least ten days. The parties may file exceptions to this
Report and the Commissioner must consider the exceptions in making a final
decision. Parties should contact Nancy
Leppink,
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.
Pursuant to Minn. Stat. § 14.62, subd. 1,
the Commissioner is required to serve its final decision upon each party and
the Administrative Law Judge by first class mail.
MEMORANDUM
Application of
The Administrative Law
Judge requested that the parties submit post-hearing briefs addressing the
question of whether the State Building Code can be used as the minimum standard
to which licensed residential contractors are held when the construction
project at issue is in a jurisdiction that has not adopted the State Building
Code.[68] Throughout these proceedings, Respondent has
argued that, because the City of
Building Code Enforcement
Although it may seem
logical on one level that the State Building Code cannot be enforced where it
does not apply, it also is logical that a contractor licensed by the state to
build dwellings that the licensee intends to sell to the public should be held to
a set of standards which comprise the minimum standards for building such
dwellings. In determining whether the
State Building Code may be used to evaluate a licensee’s competence and
trustworthiness, it is necessary to construe a number of statutes, some of
which initially appear to be in conflict.
“The object of all
interpretation and construction of laws is to ascertain and effectuate the
intention of the legislature.”[69] Here, the State Building Code provisions
which permit non-metropolitan counties and small municipalities to decide that
the State Building Code will not apply within their jurisdictions seems to
conflict with the statutory warranty provisions applying the State Building
Code standards to a dwelling built by “any person, firm or corporation which
constructs dwellings for the purpose of sale . . . .” [70] Respondent argues that, because jurisdictions
that do not adopt the code do not do inspections under the code, any building
built in these jurisdictions has failed by definition to comply with the code
and, applying the Department’s logic, every builder who builds them is
therefore “incompetent or untrustworthy” under the Minn. Stat. § 326.91, subd.
1(6) and therefore subject to licensing action.
None of the Department
personnel who visited the Townhouse property ever testified that they were
there to “enforce the building code.”
Respondent has not been convicted of a violation of the State Building
Code, nor has such a violation been certified by a
Statutory Warranty Standards
Respondent makes two
additional arguments based on the language of the statutory warranty provisions
in support of its position that the State Building Code cannot be used as the
minimum standard to which it is held.
First, quoting the language at Minn. Stat. § 327A.01, subd. 2, which
states that “building standards” . . .
are the “standards of the State Building Code . . . in effect at the time of
the construction or remodeling,” Respondent argues that because the State
Building Code was not in effect in the City of
The legislature could
have chosen to specify some other building standards, or it could have required
the Department, or some other state agency, to create different building
standards for the purposes of application of the statutory warranties. But the legislature chose to use the
standards set forth in the State Building Code.
Section 327A.01 uses the State Building Code standards without reference
to the procedures for enforcing the building code. It simply holds a vendor to the State
Building Code standards for purposes of application of the warranties required
by the statute.
Statutory Warranty:
Respondent also points out that
section 327A.02 of the statutory warranty provisions state that “[i]n every
sale of a completed dwelling, and in every contract for the sale of a dwelling
to be completed, the vendor shall warrant to the vendee. . .” and that the
Department is not the vendee and so cannot invoke the building standards
referred to in the warranty statute.
While it is true that the Department is not the vendee, it is
nonetheless potentially a liable party under the warranty statute and the
Contractor’s Recovery Fund. The
Department is not invoking the warranty provisions of section 327A.02. It is, however, attempting to protect
potential buyers, as well as the public purse, in holding contractors to the
standards set forth in the statute. This
is reasonable and supported by the statutory scheme that links the Department,
contractors and the warranty provisions.
Furthermore, there was evidence to support the conclusion that Unit 1
has been sold, through both a contract for deed to Justin Peirce; and a
quitclaim deed to Melanie Peirce, thus arguably beginning the running of time
under the warranty statutes and the real potential for liability by the Contractor’s
Recovery Fund.[73] Even if Respondent has not sold any units for
purposes of the Contractor’s Recovery Fund, the Department need not wait for a
structural defect to result in damage to either property or person to invoke
the State Building Code.
Fraudulent and Deceptive
Practices
The
Department has alleged that several actions by Respondent were fraudulent and
deceptive. First is the fact that Respondent performed work outside of the
scope of a license for a general contractor. Mr. Peirce testified that what
plumbing work was done prior to August 11, 2006, was done by Respondent.
Respondent, as a general contractor, is not licensed to do the plumbing. This
work was outside the scope of the license and thus violated Minn. Stat. §
326.91, subd. 1(2) (2004) and
Second, the Department
alleges that Respondent used a different plumber than the one listed on the
building permit application to do the plumbing after August 11, 2006. The
plumber employed by Respondent was Peirce Properties Inc. Although this company
is not a licensed plumber, it did obtain the needed bond and thus qualified to
do the work. No ordinance of the City of
Third, the Department
alleges that Mr. Peirce held himself out to the employees of the Department as
being an engineer and therefore capable of doing the calculations necessary to
make the structural decisions involved with the questions the Department
raised. While Mr. Peirce may have had some engineering education and
experience, he is not a certified engineer.
Cease and Desist Order
Respondent argues in its
summation brief that the Department exceeded its statutory authority in issuing
the August 16, 2006 Cease and Desist order, relying on In the Matter of Certificate of Authority of Mutual Protective Ins. Co.[74] In the Mutual Protective case, the Minnesota Court of Appeals held that
the Department of Commerce exceeded its statutory authority when it issued a
Cease and Desist order pursuant to Minn. Stat. § 45.027 instead of an Order to
Show Cause pursuant to Minn. Stat. § 60A.052, subd. 2, the statute regulating
insurance companies.
In Mutual Protective, the Commerce Department’s only authority for
issuing a Cease and Desist order was Minn. Stat. § 45.027, subd. 5a(a) which
states:
Whenever it appears to the commissioner that
a person has engaged or is about to engage in an act or practice constituting a
violation of a law, rule, or order related to the duties and responsibilities
entrusted to the commissioner, the commissioner may issue and cause to be
served upon the person an order requiring the person to cease and desist from
violations.
The court in Mutual Protective held that the Commerce Department’s determination
that the insurance company was in financial danger did not rise to the level of
a violation, or imminent violation, of an applicable law or rule, so it was
incorrect for the Commerce Department to proceed under section 45.027. This situation differs from Mutual Protective in several key
ways. First, in this situation the
Department did determine that Respondent’s actions constituted violations of
the building standards which the Commissioner of Labor and Industry is required
to oversee. Respondent’s decision to
build townhouses with the intent to sell them invoked the standards of the
State Building Code, as discussed above.
The Department found that Respondent had
failed to meet a number of minimum standards designed to protect property and
safety. In addition, Respondent, despite some actions and words that seemed to
indicate a willingness to work to correct the problems, refused to actually
take any corrective actions over a period of months, instead focusing on
arguments about whether those minimum standards should apply.
In addition to violating
the minimum building standards requirements, Respondent violated laws
prohibiting it from providing services beyond the scope of its license, as
discussed in Conclusion 18, above. Finally, the statements of Mr. Peirce,
Respondent’s manager and qualified person under the licensing statute, that he
was an engineer are not simply technical violations of the statute prohibiting
such statements.[75] Mr. Peirce made these statements in the
context of defending construction practices that did not meet minimum standards
and that resulted in dwellings that were potentially neither safe nor sound.
Given the multiple
violations of the laws and rules which the Department is entrusted to enforce,
the Cease and Desist order was appropriate and justified in order to protect
potential buyers of the Townhouses. The
Department’s choice to use the Cease and Desist order as its initial remedy in this
situation was consistent with the statutory language.
Respondent claims to have
no knowledge of what work was done after the Cease and Desist Order was issued,
or if work was done, by whom. This is disingenuous at best. These Townhomes are
the property of Respondent and/or the family members of Respondent’s owners and
managers. Either Respondent or individuals affiliated with Respondent did the
work in violation of the Cease and Desist Order or allowed it to be done by
others. Either way it is a violation of the Order.
Qualifying Person
Although
it was not part of the original Order to Show Cause or raised by counsel for
the Department, it appears that Respondent’s failure to obtain a new qualifying
person within 120 days of Mr. Peirce’s resignation as manager of the company
resulted in automatic termination of the license. If the Commissioner finds that this automatic
termination did indeed occur, it could obviate the need for further licensing
action against Respondent.
R.R.K.
[1] Hearing Exhibit (Ex.) Z.
[2] Ex. Z.
[3] Ex. A.
[4] Ex. A.
[5] Exs. R, U, W, X and Y and Testimony of Marc Chadderdon (Chadderdon testimony).
[6]
Testimony of Michael Fricke (Fricke testimony), Ex. 3. See
[7] Ex. A.
[8] Ex. C.
[9]
Testimony of James Peirce (Peirce).
[10] Ex. D., Fricke and Peirce testimony.
[11] Ex. D.
[12] Ex., D, Fricke and Peirce testimony.
[13] Ex. E., Fricke and Herman Hauglid (Hauglid) testimony.
[14] Ex. E.
[15] Ex. F.
[16] Ex. F. and Peirce testimony.
[17] Hearing Exhibit (Ex.) 2.
[18] Peirce testimony.
[19] Ex. G.
[20] Ex. H.
[21] Peirce Testimony.
[22] Peirce testimony.
[23] Ex. I.
[24] Ex.J.
[25] Ex. U and V; Peirce testimony.
[26] Hauglid testimony.
[27] Peirce testimony.
[28] Fricke and Kelsey testimony.
[29] Ex. K.
[30] Peirce testimony.
[31]
[32] Ex. Q., Chadderdon testimony.
[33]
[34] Chadderon testimony, Exs. R. and Q.
[35] Chadderdon testimony, Ex. Q.
[36] Ex. Q., Chadderdon testimony.
[37]
[38] Ex. L.
[39] Minn. Stat. § 45.027, subd. 7(a)(2) and 326.91, subd. 1(5) (2004).
[40] Minn. Stat. § 45.027, subds. 1a and 7(a)(3) and 326.91, subds. 1(5) and 2 (2004).
[41]
[42]
[43]
[44]
[45] Chadderdon testimony.
[46] Ex. Y.
[47] Fricke and Kelsey testimony; Ex. O.
[48] Exs. M and N. Fricke and Kelsey testimony.
[49] Ex. N: 2000 IRC, R 403.3.
[50] Fricke testimony, Ex. M.
[51] Ex. M., Fricke testimony.
[52] Exs. M and N: 2000 IRC R.302, 321.2, 403.3(1), Fricke and Kelsey testimony.
[53] Exs. M and N, Fricke testimony.
[54] Ex. N: 2000 IRC R. 602.3.
[55] Ex. M., Kelsey testimony.
[56] Ex. N: 2000 IRC R. 802.7.2.
[57] Kelsey testimony.
[58] Ex. N: 2000 IRC R. 502.8.2, Ex. M., Kelsey testimony.
[59] Ex. N: 2000 IRC, R. 802.3 and R. 301.1.2.
[60] Kelsey testimony.
[61] Ex. M and N: 2000 IRC R. 801.2, Kelsey testimony.
[62] Kelsey testimony.
[63]
[64]
[65]
[a]ny person shall be
deemed to be practicing professional engineering . . . who holds out as being
able to perform or who does perform any technical professional service, such as
planning, design or observation of construction for the purpose of assuring
compliance with specifications and design, in connection with any . . .buildings . . . wherein the public
welfare or the safeguarding of life, health, or property is concerned . . .
when such . . .service requires
the application of the principles of mathematics and the physical and applied
engineering sciences, acquired by education or training, and by experience.
[66]
[67]
[68] See
[69]
[70]
[71] Fricke testimony.
[72] Vlahos v. R& I Constr. Of Bloomington,
Inc., 676, N.W. 2d 672, 681 (
[73]
Given the
relationships between Justin Peirce (son of James Peirce) and Melanie Peirce
(owner of Respondent, wife of James Peirce), it is not clear whether or to what
extent the statutory warranties apply.
Nonetheless, two “sales” of Unit 1 have apparently taken place.
[74]
633 N.W. 2d 567 (
[75] See