ROC hearings and Arizona's "new trial" statute: two years later, the impact for contractors
By Jamie Hanson
In 2021, the Arizona Legislature revised the statutes that govern appeals from Registrar of Contractors (ROC) hearings, with the result that an appeal of an administrative agency’s decision can lead to a fresh trial in Superior Court, where the agency’s decision is disregarded.
Our December 2021 Construction Advisor® article described the revisions to A.R.S. § 12-910 and the anticipated impact. Two years later, this article revisits those changes and discusses what we now know and still don’t.
ROC Complaint and Hearing. If a homeowner files an ROC complaint against a licensed contractor, the complaint can be dismissed or resolved through corrective work, and the contractor’s license will not be affected.
However, if the complaint keeps going, the ROC will refer the dispute for a hearing before an administrative law judge (ALJ), who will issue a decision recommending what should happen to the contractor’s license. If the homeowner has presented a sympathetic case, there is a real risk that the contractor’s license will be revoked or suspended.
The hearing process is fair, and Arizona ALJs are consistently intelligent, honest, and professional. Nevertheless, at the hearing the contractor faces an uphill battle: The contractor will be accused of violating workmanship standards, the ROC’s investigator will offer evidence substantiating the alleged violation, and the ALJ will likely view the investor’s testimony as credible.
It is not unusual for the contractor to receive some form of discipline, and even a one-day suspension of the license is a public, long-term blemish, and it allows the homeowner to access the ROC’s Recovery Fund, which can lead to a potentially expensive payout (up to $30,000) that the contractor is ultimately responsible to repay.
Appealing the License Discipline. A license suspension or revocation stemming from an ROC hearing does not need to be the final word.
The contractor can appeal the discipline to Superior Court, which has the power to “stay” the decision, pursuant to A.R.S. § 12-911, until the case is argued and decided in the court in a trial de novo (“new trial”).
The stay of the discipline is not automatic. The contractor needs to know how to request the stay and how to argue for it, especially if the homeowner is actively opposing that request. (Remember that the homeowner will want to keep the discipline in place in order to access the Recovery Fund.) The contractor will need an attorney to appear in court, and the prudent contractor will hire an attorney familiar with the process of appealing from an ROC case.
During the two years since A.R.S. § 12-910 was amended, our firm has obtained in Superior Court a stay of the discipline in every case where we have requested it, even over the opposition of homeowners and their attorneys.
Where to Seek the Trial De Novo. Regardless of the county in which a contractor performs its licensed work, the hearing before the ALJ will be held either in Phoenix at the Office of Administrative Hearings (OAH) in person, or remotely from the OAH via Google Meet. Thus, a contractor seeking to appeal an ROC decision involving a project in a rural county needs to make a decision: file its appeal (a) in that county’s Superior Court or (b) in Maricopa County Superior Court using the Phoenix-based legal proceedings as grounds for that venue.
Which is the better choice? It depends.
It may make sense to keep a case with a local judge, especially if there is related litigation that could find its way to a jury.
However, one of the risks in keeping the appeal in the local court (rather than bringing it into Maricopa County) is the uncertainty. The revisions to A.R.S. § 12-910 are still only two years old, which is a very short time in the world of the law, and there have been no definitive or binding decisions about implementing the new provisions. Thus, how a trial de novo will be handled under § 12-910 is up to the judge.
In Maricopa County, the judges who have handled these cases seem to recognize that the new provisions of § 12-910 give the licensed contractor major new rights as a regulated party. The judges may not yet fully know what those rights are or their practical implications, but they seem to be recognized as meaningful. In other counties, however, judges are more willing to get a trial novo moving as quickly as possible and less willing to explore what rights the licensed contractor might have (including basic forms of discovery, such as depositions of witnesses).
A non-Maricopa County contractor seeking to appeal an adverse decision from an administrative hearing should consult with an experienced attorney about where to file the appeal and why.
Consolidation of Lawsuits Not Guaranteed. Why does it make sense to keep the trial de novo in the ROC case from happening too quickly? One reason is that other issues need to be explored through disclosure and discovery.
Many ROC cases involve a complaint from a homeowner who still owes money under the contract. Very often, the contractor does not want to perform additional work (including corrective work or work to complete the project) for a difficult customer who appears unwilling to pay the final amount due.
This can lead to a situation in which the contractor faces a license suspension because the contractor appears to be unwilling to take necessary corrective action. From that contractor’s perspective, the contractor is unwilling to continue performance on a contract that the homeowner has breached.
Unfortunately, the homeowner’s conduct, including the breach of the contract in a way that would excuse the contractor’s performance, is not really part of the ROC hearing. It is a situation that many contractors view as unfair: While the contractor is in the hot seat and its license is at risk in the ROC proceeding, that same proceeding poses no real risk for the homeowner. Unlike the contractor, the homeowner has no license to lose.
If the licensed contractor wants to level the playing field and hold the homeowner responsible for the breach of contract and failure to pay, the only way to do that is to file a lawsuit. Doing so makes sense when the amount owed is significant or when a mechanics’ lien is available.
That lawsuit for breach of contract, the ROC hearing, and any eventual trial de novo following the ROC hearing all involve two basic issues: the contractual relationship between the homeowner and the contractor, and the performance of the contractual duties of each party.
Because it is all one dispute, one might assume that having a single legal action would be the most efficient way of dealing with the dispute. The law allows related cases to be consolidated into a single action, and it is theoretically possible to consolidate the lawsuit with the trial de novo.
Unfortunately, judges in Maricopa County Superior Court have demonstrated some reluctance to consolidate the breach of contract action and a trial de novo. In one particular instance, the judge declined (at least for the time being) to consolidate the lawsuit and the trial de novo case, insisting instead that the parties participate in a mandatory settlement conference. The basis for this decision appeared to be skepticism about the robust rights of the contractor to a brand-new proceeding under § 12-910. (The consolidation was not permanently denied; it was denied merely for the sake of the settlement conference urged by the court.)
At the moment, it remains an open question whether a court will consolidate a contractor’s lawsuit against the homeowner and the trial de novo following an appeal from the homeowner’s ROC complaint.
Likelihood of a Settlement Conference. In several cases in Maricopa County in which the contractor has demanded a trial de novo under A.R.S. § 12-910, the court and the parties have been quick to get the matter to an early settlement conference. The court may push for the settlement conference so that the parties do not waste time or fees in a proceeding that could ultimately disappoint them.
Often, the settlement conference can succeed in resolving the case because the homeowner realizes that their victory in the ROC case was temporary and inconclusive. The stay of the discipline, and the realization that the case is now more difficult to win, can help put them in a mood to settle the dispute.
However, settlement can sometimes become more difficult. By filing an ROC complaint, the homeowner has chosen a forum with limited and very specific relief. The homeowner is not entitled to raise every conceivable issue in an ROC hearing, and a general award of money damages is not available against the contractor as it would be in a basic lawsuit.
Oddly, some homeowners, when they sit down to try to settle a case in the context of an ROC appeal with a trial de novo, decide that they want to ask for everything, regardless of whether they could receive it from the ROC. This is frustrating. It helps if the contractor or the contractor’s attorney has warned the homeowner that the ROC hearing is limited and provisional. That way, if the homeowner is annoyed that they cannot achieve maximum relief, the fault rests solely with the homeowner.
Still, a settlement conference in this context can be hard work, and both the homeowner and the contractor can become frustrated. There is much to be said in favor of an early settlement, even before the ROC hearing occurs. If the parties are willing to negotiate, seasoned counsel can help craft a reasonable settlement.
Trial de Novo and Attorney Fees. Arizona law (A.R.S. § 12-341.01) allows the prevailing party in a contract dispute to seek an award of attorney fees.
Under the old version of A.R.S. § 12-910, it was fairly well settled that an appeal from an ROC decision did not trigger the fee-award provision.
That may no longer be true. While no court has yet decided whether fees are available under the new version of the statute, it makes sense to reserve your right to seek them.
Wrapping Up. The revisions to A.R.S. § 12-910 are still very new, and their implications are not yet fully known. Despite the uncertainty that surrounds the new provisions, some things are much more certain than others.
Knowing the difference between certainty and uncertainty can help the contractor navigate the proceedings with greater confidence. For that reason, a licensed contractor facing a complaint at the Arizona Registrar of Contractors would be wise to consult with an experienced attorney in order to chart the safest and smartest course.
Lang & Klain partner Jamie Hanson is a former Chief Counsel for the Arizona Registrar of Contractors and is a Certified Administrative Law Specialist (Arizona Board of Legal Specialization).
Jamie is a 2023 Phoenix Magazine "Top Lawyer" selectee and a 2024 "Ones to Watch" honoree (Construction Law and Construction Litigation) by The Best Lawyers in America®.