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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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