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OAH 4-1903-21445-2 |
STATE OF
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE COMMISSIONER OF LABOR AND INDUSTRY
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In the Matter of Wayne A. and Deborah K. Derosier’s Verified
Application for Compensation from the Contractor Recovery Fund |
FINDINGS OF FACT, CONCLUSIONS AND ORDER |
Administrative
Law Judge Bruce H. Johnson conducted a hearing in this matter beginning at 9:30
a.m. on August 2, 2010, at the
Christopher M.
Kaisershot, Assistant Attorney General, appeared on behalf of the Department of
Labor and Industry (Department). Charles
C. Kallemeyn, attorney at law, Kallemeyn & Kallemeyn, PLLC, appeared on
behalf of the Respondents Wayne A. Derosier and Deborah K. Derosier
(Respondents).
STATEMENT
OF ISSUES
Whether Respondents’ application for
recovery from the Contractor Recovery Fund should be granted, and if so, in
what amount?
The ALJ concludes that the Respondents’
application for recovery should be granted in the amount of $23,265.96.
Based upon all of
the files, records and proceedings herein, the Administrative Law Judge makes
the following:
FINDINGS
OF FACT
1.
On August 22, 2008, the Respondents contracted with
Damont, Inc. (Damont), to remodel their home.
The Respondents paid Damont a total of $109,930.00 for construction work,
and Damont completed the work specified by the contract.[1]
2.
David Monte was the contractor licensee and owner
of Damont. He died on February 5, 2009 after
completing the Respondents’ remodeling work.[2]
3.
Damont had hired various subcontractors to provide
material for the project. Among them was
Spring Lake Park Lumber Company (SLPL), which supplied lumber and building materials.
However, Damont had failed to pay SLPL
for those building materials. As a
result, on February 10, 2009, SLPL filed a $23,687.55 mechanic’s lien statement
against Respondents pursuant to Minn. Stat. ch. 514.[3]
4.
On May 21, 2009, the Anoka County District Court
appointed a receiver to collect Damont’s corporate assets, to discharge its
corporate obligations, and to dissolve the corporation.[4]
5.
On June 23, 2009, the Respondents sued Damont. The complaint was served upon the Secretary
of State on August 3, 2009. As their
sole cause of action, the Respondents alleged that Damont had failed to pay
$23,687.55 to SLPL for the building materials that SLPL had supplied for the
Respondents’ remodeling project.[5]
6.
On October 23, 2009, SLPL, in turn, initiated a
civil action against Respondents and Damont seeking $23,687.55 for unpaid
materials, plus interest, costs and attorneys fees.[6]
7.
On January 20, 2010, the Respondents obtained a
$23,587.55 default judgment against Damont.[7] It is unclear from the record why the
judgment was $100 less than the mechanic’s lien.
8.
Thereafter, on January 25, 2010, the Respondents,
through their attorney, notified the Department that SLPL had placed a lien on
their property, that Damont was now in receivership, that they had obtained a
judgment against Damont, and that Damont’s receiver had indicated that some
funds would be available to pay a portion of Damont’s judgment debt to
them. The Respondents then asked the
Department whether they should immediately submit an application to the Fund
for recovery or wait until they received a portion of Damont’s judgment debt
from the receiver.[8]
The Department subsequently advised the
Respondents that the Department’s “position is that your clients may pursue
application to the Fund at this time.”[9]
9.
Sometime in early 2010, the receiver collected
approximately $200,000 from the proceeds of a life insurance policy that had
been issued to Damont. On April 2,
2010, the receiver paid each unsecured creditor, including the Respondents and
SPPL, a pro rata payment equal to 19.73%, or approximately $.20 on the
dollar. The Respondents received
$3,735.88, and SLPL received $5,009.66.
Shortly after distributing those payments, the receiver dissolved Damont
in accordance with the provisions of Minn. Stat. § 302A.701. [10]
10.
The check that the Respondents obtained from the
receiver contained the following language on the back:
This payment is made in full and final satisfaction and settlement of
all debts and obligations of Damont, Inc. to payee whose endorsement and
negotiation of this check shall signify its acceptance of these terms and its
release of all claims against Damont, Inc. and its receiver.[11]
11.
The Respondents endorsed the check and thereby accepted
$3,735.88 from the receiver in full and final payment for all claims against
Damont.[12]
12.
On April 22, 2010, the Respondents issued a check
in the amount of $27,001.84 to SLPL to satisfy its claims against them.[13] The payment reflected the following
amounts:
|
Mechanic’s Lien Amount |
$23,687 |
|
Interest to March 3, 2009 |
$515.85 |
|
Costs |
$705 |
|
Attorney’s Fees |
$3,903.25 |
|
Interest
from March 3, 2009, to April 2, 2010 |
$3,077.05 |
|
Interest
from April 2, 2010, to April 22, 2010 |
$122.80 |
|
Credit
for Payment from Receivership |
($5,009.66) |
|
Total |
$27,001.84 |
13.
The $515.86 in interest, $705.00 in costs, and $3,903.25
in attorneys fees described above were not costs or expenses that the
Respondents incurred but rather costs and expenses that SLPL had incurred in
perfecting its mechanic’s lien and in the civil action against the Respondents
seeking to reduce that mechanic’s lien to judgment.
14.
On May 20, 2010, the Respondents filed an
application to recover $23,265.96 from the Fund.[14] Respondents calculated their loss as the
amount they paid SLPL to discharge the mechanic’s lien, less the amount they
recovered from the receiver ($27,001.84 - $3,735.88 = $23,265.96). Respondents’ application for recovery
therefore included the $3,715.70 in interest, $705 in costs, and $3,903.25 in
attorney’s fees that SLPL had incurred in the course of pursuing its claim
against the Respondents.[15]
15.
Based on the fact that Respondents had discharged
their claims against Damont when they accepted the payment from Damont’s
receiver, the Fund denied Respondents’ application for recovery, concluding
that Respondents did not meet the statutory eligibility requirements because
they had been “paid in full satisfaction of [their] judgment” against Damont.[16]
Based upon the foregoing Findings of Fact,
the Administrative Law Judge makes the following:
CONCLUSIONS
1.
The Administrative Law Judge had authority to
consider this matter under Minn. Stat. §§ 14.50 and 326B.89, subd. 8 (2008).
2.
The Respondents received due, proper and timely
notice of the hearing and this matter is, therefore, properly before the
Administrative Law Judge.
3.
The
Department 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.[17]
5.
(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.83;
(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.
Upon review of the Commissioner’s decision, the Respondents
bear the burden of proving their eligibility under Minn. Stat. § 326B.89, subd.
6, by substantial evidence.[18]
7.
Respondents satisfied the eligibility requirements
for compensation under Minn. Stat. § 326B.89, subd. 6.
8.
Minn. Stat. § 326B.89, subd. 6, further provides:
[T]he owner’s and the lessee’s actual and direct out-of-pocket loss
shall not include attorney fees, litigation costs or fees, interest on the
loss, and interest on the final judgment obtained as a result of the loss. Any
amount paid in satisfaction of the final judgment shall be applied to the
owner’s or lessee’s actual and direct out-of-pocket loss. An owner or lessee may serve a verified
application regardless of whether the final judgment has been discharged by a
bankruptcy court. [Emphasis supplied.]
9.
Minn. Stat. § 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.”
10.
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.
Based
upon the foregoing Conclusions, the Administrative Law Judge makes the
following:
IT IS HEREBY ORDERED
THAT the Respondents application for recovery from the Contractor Recovery
Fund is GRANTED in the amount of $23,265.96.
Dated: September 28, 2010
s/Bruce H. Johnson
|
BRUCE
H. JOHNSON Administrative
Law Judge |
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
Respondents
Are Not Barred from Recovering from the Fund
The Department argues that Respondents are
not entitled to recover any amount from the Fund because they settled and
discharged Damont’s obligations to them—more specifically that the satisfaction
of the underlying obligation precludes Respondents from obtaining any recovery
from the Fund. According to the
Department, it is a fundamental element to any recovery claim that a licensee
owes a current obligation that has been reduced to judgment, but that has not been
paid or otherwise satisfied. The
Department suggests that if the licensed contractor does not owe any current obligation
to the claimant the claimant cannot, as a matter of law, obtain recovery from
the Fund. In this case, Respondents
agreed to discharge any and all obligations owed to them by Damont when they received
and deposited the check from the receiver.
The Department argues that the Respondents thereby discharged Damont’s
obligations to them without express acquiescence from the Fund, and therefore,
because no obligations are owed to them by a licensee, their claim is
ineligible and the Fund is not liable as a matter of law.
The Department’s arguments are supported neither
by the language of statute, its purpose, or the legislature’s intent. First of all, although Minn. Stat. §
326B.89, subd 7, provides that in determining the disbursements to be made
from the Fund, the Commissioner is “not bound by any prior settlement,
compromise, or stipulation between the owner or the lessee and the licensee,”
the statute does not explicitly prohibit recovery from the Fund if an owner has
entered a settlement with the licensed contractor. Second, Minn. Stat. § 326B.89, subd. 7, expressly
provides that “[a]ny amount paid in satisfaction of the final judgment shall be
applied to the owner’s … actual out-of-pocket loss,” thereby explicitly
contemplating situations where an owner and licensed contractor have previously
entered into a settlement, compromise or stipulation.
Additionally, Minn. Stat. § 326B.89, subd.
6(8), specifically requires an owner to “diligently pursue remedies against all
the judgment debtors and all other persons liable to the judgment debtor.” Here, Respondents attempted to collect the
debt from David Monte’s estate and sued Damont for the amount due to SLPL. If they had refused the partial payment from
the receiver, they would not have collected all funds available from
alternative sources. Legislative intent
controls interpretation of statutes, and legislative intent can be
ascertained by considering, among other things “the consequences of a
particular interpretation.”[19] Moreover,
in ascertaining legislative intent, there is a presumption that “the
legislature intends the entire statute to be effective and certain.”[20] The Department’s interpretation would
diminish and render uncertain the effect of Minn. Stat. § 326B.89, subd. 6(8).
The purpose of the Fund is to compensate
aggrieved homeowners who obtain a final judgment against a residential
contractor for insufficient, fraudulent or negligent performance where the
contractor does not possess sufficient assets to reimburse the homeowners for
their loss.[21] The Department’s position that Respondents
are barred from recovering therefore is contrary to the remedial purpose of the
statute, as well as a reasonable reading of the statutory language.[22]
Finally, the Department has not been damaged
by the Respondents’ decision to accept the receiver’s payment to them rather
than waiting until after an application was filed and asserting the
Department’s subrogated right against the receiver. The receiver marshaled all funds available to
Damont, Inc., and under court supervision, paid all the unsecured creditors an
equal percentage of their claims.
Damont, Inc., was dissolved and no further funds exist to collect, even
if the Fund attempted such recovery. In
view of the foregoing, the ALJ concludes that the Respondents have met all of the
criteria set forth in the statute and they are entitled to a recovery from the
Fund.[23]
The Respondents also contended that they are
entitled to a recovery from the fund under the doctrine of equitable
estoppel. Because the ALJ has concluded
that the Respondents are eligible for a recovery from the fund as a matter of
law, it is unnecessary to consider whether the doctrine of equitable estoppel
applies to this case.
Amount
of Recovery
The Department contends that if Respondents
are allowed any recovery from the fund, they should only be allowed to recover
$14,942.01, representing the principal amount of what Damont owed SLPL for
building materials used on the Respondents’ project, less what the Respondents
and SLPL both obtained from the receiver.
The Department argues that the statute precludes the Respondents from
recovering the $3,715.70 in interest, the $3,903.25 in attorney’s fees, and the
$705 in costs that they paid to SLPL in order to obtain the release of SLPL’s
mechanic’s lien on their property. The
Respondents contend that they are entitled to recover the additional $8,323.95
in attorney’s fees, costs, and interest that SLPL was entitled to receive in
exchange for satisfaction of its mechanic’s lien, for a total recovery of $23,265.96
The Department relies on the statutory provisions
limiting recovery from the Fund to claimants’ “actual and direct out of pocket
loss”[24]
and explicitly providing that the owner’s compensable or “out-of-pocket” loss
shall not include fees, costs or interests.[25]
In other words, the Department argues that
the statute precludes the recovery of any
attorney’s fees, interest and costs, not just the fees, costs and interests
incurred by the claimants. The
Department therefore maintains the attorney’s fees, interest and costs SLPL
accrued in filing and executing its mechanic’s lien are not recoverable from
the Fund.
However, the express language of the statute
again does not support the Department’s position.
As previously noted, there is a presumption
that the legislature intends all of
the provisions of statute to be effective and certain.[28] Interpreting the statutory bar to recovery of fees, costs and interest
to cover those incurred by a third party, such as a lien holder, is not only
unsupported by the statute’s text, it also does not give full effect to the
provision allowing recovery of the owner’s “out-of-pocket” expense. Here, Respondents are not seeking to recover any
attorney’s fees or costs the interest incurred on the judgment they obtained
against Damont or their litigation costs.
They are only seeking to recover costs that would have been assessed
against them and merged in a judgment.
In summary, the Respondents’ actual
out-of-pocket cost is not the amount that the Respondents were unable to obtain
from the receiver in satisfaction of their judgment against Damont, but the cost
of satisfying SLPL’s mechanic’s lien. The
costs of satisfying that lien totaled $32,011.50. The receiver paid $5,009.66 to SLPL and SLPL
accordingly reduced the lien to $27,001.84 ($32,011.50 - $5,009.66). Respondents paid $27,001.84 to obtain release
of the lien. The receiver also paid $3,735.88
to the Respondents. According to the
statute, any amount paid in satisfaction of the final judgment shall be applied
to the owner’s actual and direct out-of-pocket loss.[29] The out-of-pocket loss should therefore only
be reduced by the amount received from the receiver ($27,001.84 - $3,735.88 = $23,265.96). The ALJ therefore concludes that the Respondents
should recover $23,265.96 from the Fund.
B.
H. J.
[1] Ex. A at 11, 14-21.
[2] Ex. 1; Ex. 3.
[3] Ex. A at 22-23.
[4] Ex. 12; Ex. 13.
[5] Ex. A at 11-13.
[6] Ex. A at 48-52.
[7] Ex. A at 7-10.
[8] Ex. 1.
[9] Ex. 2.
[10] Ex. 3, spreadsheet p. 3, lines 11 and 47.
[11] See Ex. 3.
[12] Ex. 5.
[13] Ex. A at 53.
[14] Ex. A at 1-5.
[15] Ex. A at 1-5.
[16] Ex. A at 57-61.
[17]
[18]
[19]
[20]
[21]
See
[22] See S.M.
Hentges & Sons, Inc. v. Mensing, 777 N.W.2d 228 (
[23] See Legg, 2009 WL 1182041, at *6 (determining that the claimants’ execution of a Pierringer release did not restrict their ability to collect from the Fund).
[24]
[25]
[26] See e.g., B.F. Goodrich v. Mesabi Tire Co.,
430 N.W.2d 180, 182 (
[27] Lewis v. Citizens Agency of Madelia, Inc., 235 N.W.2d 831, 835 (1975).
[28]
[29]