Notice of Review and Appeal Rights

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In the Matter of the Claim of: VIRGINIA THOMBS, Claimant, vs. LUCRATIVE BUSINESS DEVELOPMENT, LLC., dba A & C CONSTRUCTION, Respondent. Claim No. 150562-102


On February 4, 2003, claimant, pursuant to Oregon Revised Statutes (ORS) 701.139 to 701.180 (2001), timely filed this claim with the Construction Contractors Board (CCB), alleging that respondent improperly performed, and failed to complete, work under a contract to remodel her home in Portland, Oregon. Respondent was licensed with the CCB during at least a portion of the work period. The CCB reviewed the matter, and on March 20, 2003, conducted an on-site investigation that respondent did not attend. On April 11, 2003, claimant submitted a Declaration of Monetary Damages seeking $146,652.91. Respondent subsequently submitted a written response to the on-site investigation report. After reviewing this submission, the on-site investigator issued a supplemental report changing the recommendations in his original report, and recommending that the matter be referred for an administrative hearing. On June 11, 2003, without issuing a proposed order, the CCB, pursuant to ORS 701.147 and 701.148, and Oregon Administrative Rules (OAR) 812-004-0590, issued a referral of this matter to the Office of Administrative Hearings for binding arbitration to be conducted under ORS Chapter 701 and OAR Chapter 812, Division 10. On June 23, 2003, the Office of Administrative Hearings served a Notice of Arbitration on the parties, setting the hearing for October 22, and 23, 2003. The arbitration rules in OAR Chapter 812, Division 10, were provided to the parties with the Notice of Arbitration. Neither party timely submitted a request for a contested case hearing or timely filed a complaint in court. On August 8, 2003, a telephonic prehearing conference was conducted in which respondent did not participate. The hearing was held on October 22, 2003, in Salem, Oregon, before Arbitrator Gregory J.

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Naugle, appointed by the Office of Administrative Hearings. Claimant, Virginia Thombs, appeared with counsel, T. Ann Gregory, and testified on her own behalf. Respondent, Lucrative Business Development, LLC., did not appear and was found to be in default. William Griffith, Robert Gallaway, Kathleen Stephens, and Carolyn Muhlhauser testified on behalf of claimant. No other witnesses testified. The hearing concluded and the record was closed on October 22, 2003. I, the undersigned Arbitrator, having been duly sworn and having heard the proofs and allegations of the parties, and having considered the full record of this proceeding, which consists of a tape recording of the hearing, Exhibits 1 through 222, filed prior to hearing, and Exhibits 223 and 224, filed at hearing, all of which were admitted into evidence without objection, enter the following:

Claimant desired to update and expand her 50 year old home in Portland, Oregon. These improvements were motivated by claimant wanting to have her daughter move in with her and the deteriorating condition of the house. To finance the work and consolidate other debt, she applied for a home equity line of credit with Oregon Telco. Oregon Telco used the $86,350.00 real market value in claimant’s 2001-2002 Multnomah County property tax statement to determine the amount of the line of credit. The tax statement indicated a value of $44,110.00 for the land and $42,240.00 for the structure. Oregon Telco had a drive by appraisal performed to confirm the condition of the property. In September of 2002, Oregon Telco approved a $63,200.00 line of credit upon claimant’s signing a trust deed and loan note. On September 17, 2002, after paying off other debt, Oregon Telco issued claimant a check for $35,468.69, which exhausted the line of credit. On September 17, 2002, claimant also entered into a written contract with respondent, whereby for the fixed price of $46,620.00, respondent would supply the specified labor and materials for remodeling claimant’s residence. The contract provided that work was to start on October 15, 2002, and be substantially complete by December 15, 2002. With respect to payment, the contract provided: Payments of the contract price shall be paid in the following manner: 20% = ($9,324.- upon signing) contract 10,676. – at start of work balance to be financeed [sic] by 2 nd mortgage per agreement. Paragraph 7 of the contract’s General Provisions stated in relevant part: If a mortgage or consumer loan is obtained in order to secure work by the contractor and consumer loan or mortgage can not be sold or transferred to obtain funds contractor may cancel that portion of work that is secured by such loan. Claimant made a $9,324.00 payment to respondent shortly after signing the contract, and a $10,676.00 payment near the time work began, for total payments of $20,000.00. To facilitate respondent’s work, claimant removed all belongings from the house and moved out on approximately October 12, 2002. Prior to the work beginning, the scope of the project increased, and claimant signed an itemized breakdown reflecting the new $55,270.00 adjusted contract

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amount.1 On October 19, 2002, claimant executed a $36,791.00 promissory note and deed of trust in favor of Carolyn Alvarez, who was involved with respondent’s operations. The funds from this loan were to finance the balance of the adjusted contract amount. On November 18, 2002, the deed of trust from this loan was recorded with Multnomah County. Respondent began work in mid October of 2002, and stopped work in early January of 2003. Correspondence from respondent’s attorney dated January 8, 2003, informed claimant that “pursuant to General Provision 7 of your Contract, AC Construction is hereby canceling the remaining portion of work yet to be completed at the above-identified address.” Respondent alleged that it was unable to resell the loan issued by Ms. Alvarez due to purported restrictions in the Oregon Telco line of credit prohibiting junior liens. The letter went on to allege that respondent had performed $22,410.00 worth of work on the contract to date. Respondent had not obtained any building permits for the project, and took no measures to protect the structure from the weather when it left the jobsite in early January, 2003. At the time respondent stopped work, the house was an empty shell. The interior of the structure had been stripped down to exposed framing; the carport, siding, doors, windows, and the sheathing on the back of the house had also been removed. New tarpaper and composition shingles had been installed on the front part of the roof, and some excavation for footings had also been performed. Other than claimant’s subsequent securing of the building, no further work has occurred. The analysis begins with the propriety of respondent’s canceling the contract. The contract does provide that if a mortgage or consumer loan is obtained to fund the project, and the mortgage or consumer loan cannot be sold or transferred to obtain funds, the contractor may cancel that portion of the work secured by the loan. Respondent relied on this provision in canceling the

The itemization provided: Prep interior of home: Walls, floors, ceiling – including closets New hot water heater installed Foundation extensions Framing new addition Siding Roofing: - Re-roof existing home & make necessary alterations Sheetrock and insulation Painting exterior Painting interior Install HVAC Cable & phone wiring Gutters Kitchen and bathroom cabinets (fixtures) Install electric service box & outlets New front door Plumbing Gable roof over addition Windows and doors Extend living room floor, finish walls (garage area) Drawings & permits TOTAL Less 10% Yellow Pages discount Contract Amount

$5,760.00 580.00 4,330.00 2,800.00 3,900.00 8,400.00 2,400.00 1,400.00 600.00 6,500.00 380.00 490.00 1,150.00 2,840.00 250.00 1,200.00 4,300.00 2,870.00 9,260.00 2,000.00 $61,410.00 -6,140.00 $55,270.00

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remaining work at the project. However, since respondent did not appear at hearing, no testimony was available as to the efforts respondent made in attempting to sell the loan, or as to why the loan could not be sold as respondent contended in written documents. Rather, William Griffith, a manager with Oregon Telco, testified that none of the documents relating to the line of credit they issued prohibited a junior lien. Given respondent’s failure to appear, and the unrebutted testimony contradicting respondent’s assertion, I conclude that respondent’s cancellation of the work financed by the loan was an improper breach of contract. Similarly, respondent also breached the contract by not supplying the materials and labor that claimant had paid for. Claimant paid respondent $20,000.00 of the $55,270.00 contract price, which is slightly more than 36 percent of the contract amount. In examining the photographs and videotape of the project when respondent stopped working, it is quite clear that far less than 36 percent of the project had been completed. Respondent’s written contention that $22,410.00 worth of work on the contract was performed is not persuasive, especially when the itemized costs of the work performed is totaled. Respondent’s untimely performance was a further breach of contract. The original contract provided that the work was to be substantially complete by December 15, 2002. The only work that had been performed by early January 2003, was the demolition, some roofing, and partial excavation for footings. In addition to the foregoing breaches of contract, respondent’s work on the roof was improperly performed. Respondent failed to repair large holes/gaps in the roof sheathing prior to installing the new tarpaper and shingles, which compromises the integrity of the roof system and the safety of anyone on the roof. With respondent’s breaches of contract and improper work established, the analysis turns to damages. Claimant alleged the following damages: Item Amounts paid on contract 9/25/02 10/8/02 10/26/02 11/23/02 Amount $9,324.00 10,676.00 370.97 370.97 117,000.00 1,000.00 1,000.00 7,800.00 1,774.00 1,950.00 2,730.00 5,000.00 $158,995.94

Demolition/rebuilding of structure Relandscaping costs Costs for securing property Lost rental income Claimant’s storage costs Claimant’s rental expenses Claimant’s travel expenses Attorney fees to clear title to property TOTAL Each item of damages is addressed below:

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Amounts Paid on Contract - Demolition/Rebuilding of Structure: Claimant, by seeking a refund of the payments made, and the funds to construct a new replacement home, is seeking both restitution and expectation/benefit of the bargain damages. Expectation damages allow the non-breaching party to receive what was contracted for at the contract price. Restitution damages return the non-breaching party as near as possible to the position the party was in prior to forming the contract. Accordingly, a determination as to which measure of damages to apply is required. In order to award expectation damages, claimant's damages must be for what was agreed to under the parties’ contract. This requires an examination of what the parties agreed to and the damages sought. In this case, the substance of the parties' contract was to expand and remodel a 50 year old home. Claimant's $117,000 estimate is for demolition of the existing structure and building a new replacement house. The sketch used for the estimates is for a larger home and includes a second bathroom, covered porch, and a deck, which were not part of the original home or the contracted for improvements. Consequently, as the estimate presented by claimant is not for what was agreed to be provided under the parties' contract, use of expectation damages is inappropriate. Restitution damages, however, are another matter. As previously stated, restitution damages return the non-breaching party as near as possible to the position the party was in prior to forming the contract. In this case, claimant, prior to contracting, owned a structure valued at $44,240.00, and had made no payments to respondent or Carolyn Alvarez. With respect to the structure, it cannot be returned to the condition it was in prior to contracting and will require demolition. Accordingly, claimant is entitled to the value of the structure plus the demolition expense. The Multnomah County tax statement valued the structure at $44,240.00, and the evidence established that it will cost $5,000.00 to have the existing structure demolished. Therefore, as to the structure, it will take an award of $49,240.00 ($44,240.00 + 5,000.00) to return claimant to the position she was in prior to entering into the contract with respondent, and I hereby award claimant damages in this amount. With respect to the payments made, the evidence established that claimant paid respondent a total of $20,000.00 ($9,324.00 + 10,676.00) on the contract, and that claimant made three $370.97 payments on the promissory note to Carolyn Alvarez. Therefore, as to the contract payments, it will take an award of $20,000.00 to return claimant to the position she was in prior to entering into the contract with respondent, and I hereby award claimant damages in this amount. As to the payments to Carolyn Alvarez on the second promissory note, notwithstanding the reference to the second mortgage in the contract, I am not persuaded that the promissory note and trust deed in favor of Ms. Alvarez are contracts for performance of work subject to ORS Chapter 701, and dismiss the portion of the claim relating to payments to Alvarez under the promissory note and trust deed as being outside the scope of ORS Chapter 701. Respondent, however, is entitled to an offset for reasonable value of any work properly performed that will benefit claimant. In this case, given that the structure requires demolition, claimant will receive no benefit for any of the work performed by respondent. Therefore, respondent is not entitled to any offset.

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Relandscaping, Securing Property, Rental, and Travel Expenses: Claimant alleged damages of $1,000.00 for relandscaping expenses, $1,000.00 to secure the property after respondent abandon it, $1,950.00 in rental expenses, and $2,730.00 in travel expenses. Claimant did not present persuasive testimony, or submit documentation, to support the amounts of the damages alleged. Accordingly, these claim items are dismissed by reason of claimant not meeting her burden of proof as to the amount of monetary damages she sustained. Lost Rental Income and Storage Expenses: Claimant seeks $7,800.00 in damages due to lost rental income. Although the August 2002 rental agreement between claimant and her daughter, Kathleen Stephens, provided that Ms. Stephens would pay claimant $600.00 per month in rent, insufficient evidence was presented as to how the $7,800.00 figure was calculated. Additional difficulties exist with the amount of damages claimed, due to insufficient evidence as to whether the amount was gross rental receipts, or net profits. A person seeking lost profits must present evidence that refers "unambiguously to net profits," Frogge v. U.S. West Communications, Inc., 120 Or.App. 619, 620, 853 P.2d 1323, on recons. 124 Or.App. 669, 863 P.2d 1313 (1993), rev. den. 319 Or. 36, 876 P.2d 782 (1994), because "[o]nly net lost profit may be recovered," GPL Treatment, Ltd. v. Louisiana-Pacific Corp., 133 Or.App. 633, 637, 894 P.2d 470 (1995). Consequently, given the difficulties with the amount, and the nature of the damages alleged, this claim item is dismissed. Claimant also alleged $1,774.00 in damages for storage expenses. Claimant submitted a storage unit lease agreement and other related documents in support of this claim item. These documents indicate a monthly storage charge of $135.00. Although the lease agreement was signed by claimant’s daughter, Kathleen Stephens, I am persuaded that claimant’s belongings are stored in the unit and that the lease is for claimant’s benefit. I am further persuaded that claimant would not have put her belongings in storage except to facilitate the contracted for remodeling. As claimant finished moving out in October of 2002, and as of November of 2003, still has her belongings in storage, some thirteen months of expenses have been incurred, which at the $135.00 monthly charge, total $1,755.00 (13 x $135.00), which is hereby awarded to claimant. Attorney Fees: Claimant seeks $5,000.00 in damages for attorney fees to remove the title encumbrance created by the Alvarez trust deed. Although this trust deed was recorded, and the record does not contain any evidence that claimant received the funds from the loan, or that claimant received the contracted for labor and materials that the loan funds were to provide, the loan, as previously set forth, is outside the scope of ORS Chapter 701. Moreover, even if the matter were within the scope of Chapter 701, the damages sought are barred by OAR 812-0040250. This rule provides in relevant part: (1) Except as provided in section (2) of this rule and subject to OAR 812010-0420, an order or arbitration award of the board awarding monetary damages in a claim that are payable from respondent's bond required under ORS 701.085, including, but not limited to an order of the board arising from a court order, may not include an award for: (a) Attorney fees; ***

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Accordingly, for these reasons, the claim for attorney fees is dismissed. In sum, the evidence established the following damages: Item Amounts paid on contract Demolition expense Real market value of structure Storage expense TOTAL Claimant $20,000.00 5,000.00 42,240.00 1,755.00 $68,995.00

Based on these Findings, and in accordance with ORS Chapter 701 and OAR Chapter 812 Division 10, I enter the following:

Respondent shall pay claimant $68,995.00.

Dated this ______ day of ______________, 2003

____________________________________ Gregory J. Naugle, Arbitrator Office of Administrative Hearings

This award is not effective as an order to pay under OAR 812-004-0600 or an award that may be delivered to the clerk of a circuit court under ORS 36.350 until the 22nd day after the mailing of this award if no party files a petition for reconsideration under OAR 812-010-0425.

Petition for Reconsideration A party may petition the arbitrator to reconsider this award by filing a petition for reconsideration in writing, which substantially conforms to the requirements of OAR 812-0100430. A petition for reconsideration must be received by the arbitrator within 21 days of the mailing of this award. A petition for reconsideration should be mailed to the arbitrator's attention at: Office of Administrative Hearings PO Box 14020 Salem, Oregon 97309-4020 Filing Exceptions with the Circuit Court The following has been prepared and provided by the Construction Contractors Board in accordance with OAR 812-010-480. A party against whom an award is made may file written exceptions to the award with the circuit court in accordance with ORS 36.355. In order to file

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exceptions on an award, the award must also be filed with the clerk of circuit court. A party may not file the award with the court until (1) the 22nd day after the award is mailed to the parties, if no party files a petition for reconsideration; (2) the arbitrator denies a petition for reconsideration, if a party files a petition; or (3) the arbitrator issues an award on reconsideration, if a party files a petition. A party must file the award and exceptions with the court and deliver a copy of the exceptions to the Construction Contractors Board within 30 days of the date of the award, the denial of a petition for reconsideration or the award on reconsideration in accordance with OAR 812-0100460. A copy of the exceptions must be delivered to: Construction Contractors Board PO Box 14140 Salem, Oregon 97309-5052

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