Unlicensed Contractor
Wins Relief from Order to Pay Full Restitution
The Arizona Supreme Court
reverses a harsh ruling from the Court of Appeals
On August 4, 2008, the
Arizona Supreme Court reversed the state Court of Appeals ruling in Town of
Gilbert v. Downie, likely reducing the restitution burden that the Court of
Appeals had imposed on a man who had been convicted of contracting without a
license.
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The Supreme Court remanded the
case to trial court with instructions to determine the actual – and
presumably lower –economic loss for which the unlicensed contractor must pay
restitution.
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This case was the subject of
the September 2007 "Construction Advisor." The discussion that follows is
updated to reflect the Supreme Court's ruling.
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Read the Supreme Court's
opinion in
Town of Gilbert v. Downie
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What licensed
contractors should learn from this case.
In its July 24, 2007,
decision, the Court of Appeals ordered a man convicted of contracting without a
license to refund to the property owner all amounts – totaling nearly $53,000 –
that the owner had paid to the contractor. What made the ruling particularly
devastating was that the unlicensed contractor had already paid substantial sums
to subcontractors. He also had to pay a fine.
In its ruling, the Court
of Appeals relied on a 2002 decision in State v. Wilkinson, in which the
Arizona Supreme Court determined that the loss suffered by victims of unlicensed
contractors is exactly equal to the amount of money the victims paid –
regardless of the quality of the work performed. (The current Supreme Court's
interpretation of Wilkinson, discussed
below, was key to the reversal of the Court of Appeals decision.)
Background.
Mitch Matykiewicz, doing business as MLM Construction Services, was hired by
a Gilbert couple to build a swimming pool and make other improvements to their
home. Matykiewicz performed some of the work, but most of it was done by
licensed subcontractors. Over the course of ten months, the homeowners paid him
$52,784.22.
When the homeowners
became unhappy with the work performed, they contacted the Registrar of
Contractors, where they learned that neither Matykiewicz nor his company was
licensed.
Matykiewicz was
eventually charged with contracting without a license, a class one misdemeanor (A.R.S.
§ 32-1151). A Gilbert Municipal Court judge found Matykiewicz guilty and
ordered him to repay the entire $52,784.22 that the homeowners had paid to him.
Matykiewicz appealed to
Maricopa County Superior Court, where Judge Margaret Downie vacated the
restitution and ordered the Gilbert court to determine the homeowners’ actual
economic loss.
The Gilbert Prosecutor’s
Office, citing Wilkinson, asked the Court of Appeals to set aside Judge
Downie’s order and uphold the Gilbert court’s restitution award.
Citing case law and
various Arizona statutes, the Court of Appeals found that the Gilbert court
ruled correctly in ordering “restitution equal to the amount the victims paid to
Matykiewicz ... because those payments were ‘the fruits of the crime’” (the
crime here being the act of contracting without a license).
In other words,
even if Matykiewicz had performed flawless work, in a timely manner, for the
agreed fee, he would have been forced to give back every penny the homeowners
paid him.
Supreme Court reversal. In reversing
the Court of Appeals ruling, the Supreme Court noted that Wilkinson:
"[did not create] a per se rule that
the entire amount of consideration paid by the victim in an unlicensed
contractor case is the proper amount of restitution[.]
"Although Wilkinson explored
the extent to which 'courts can order restitution for victims of an
unlicensed contractor who performs incomplete and faulty work,' ... it never
addressed whether losses incurred by victim-homeowners may be reduced by
benefits conferred upon them."
The Supreme Court's
ruling went on to state that "determining a victim's 'loss' requires
consideration of any benefits conferred on the victim[.] ... If value is
conferred ... courts must consider such benefits in determining a victim's loss.
Specifically, the ruling
instructed the trial court to, first, determine the homeowners' total payments
to Matykiewicz and, second, subtract from that total any value that the
homeowners received as a result of the work performed by Matykiewicz and/or his
subcontractors.
The Supreme Court also
instructed the trial court not to compensate the homeowners for expenses they
incurred because Matykiewicz "failed to complete the work he contracted to do or
did so in a faulty manner."
Wrong license, no license. It
is important that licensed contractors understand that they are not immune to
the consequences discussed above. A.R.S. § 32-1151 states as follows:
“It is unlawful for a person … to
engage in the business, or act or offer to act in the capacity, or purport
to have the capacity of a contractor, without having his own license in good
standing[.]”
As the Arizona Registrar
of Contractors confirms on its website, this means that a contractor must have a
current and active license, showing he is qualified to perform the type of
work required, before he or she can even bid on a project. Violation of this
statute is a class 1 misdemeanor.
If you perform, contract
to perform, or offer to perform work that is different than the work for which
you are licensed, you may be charged with a misdemeanor. If you are convicted,
you may be held liable for the difference between what the owner paid to you and
the value that the owner received from your work.
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