Arizona Court of Appeals Division One Holds That the Arizona Registrar of Contractors is Entitled to a Hearing Under A.R.S. § 32-1136(B) to Determine Whether an Applicant Has Met All of the Statutory Eligibility Requirements.

Shelley Magness and Colorado State Bank & Trust Company (“Magness”) hired Lendo Management, LLC to remodel Magness’s bathroom.  Magness and Lendo executed several contracts and various change orders.  After one year, Lendo stopped working, and Magness filed an administrative claim with the Arizona Registrar of Contractors (“ROC”) against Lendo.  When Lendo did not answer, an Administrative Law Judge adopted the allegations of the complaint and revoked Lendo’s license.  Magness sued Lendo in superior court and named ROC as a defendant, claiming that Magness was entitled to recover from the Residential Contractors’ Recovery Fund (the “Fund”).  Lendo never answered and the superior court entered default judgment against Lendo.  ROC did not oppose the entry of default judgment, but requested that the court deny Magness any recovery from the Fund unless Magness could demonstrate eligibility under A.R.S. §§ 32-1131, -1132(A), and -1136.  The trial court denied ROC’s request for a hearing to determine whether Magness met the statutory eligibility requirements and awarded Magness $14,067.39 from the Fund.  ROC appealed and the Court of Appeals reversed and remanded. 

The Court of Appeals rejected Magness’s argument that ROC was precluded from challenging Magness’s ability to recover from the Fund simply because Magness obtained a default judgment against Lendo.  A default judgment applies only to the party who has failed to plead or defend.  The Court then explained that A.R.S. § 32-1136(B) prevents the court from directing payment from the fund “without affording the registrar a reasonable opportunity to present and support its objections.”  Finding that the trial court had denied ROC these procedural rights, the Court explained that when read together, the provisions of § 32-1136 require a hearing to determine whether the applicant has met the statutory eligibility requirements.  Section 32-1136(D) expressly requires a hearing when ROC has objected to an application for payment, but the Court rejected Magness’s argument that the hearing is required only for the four elements listed in subsections 1136(D)(1)–(4).  The Court explained that § 32-1136(D) gives effect to each of the relevant provisions of the statutory scheme regarding the Fund, and that subsection (E) requires the trial court to issue an order of payment of “whatever sum it finds to be payable on the claim.”  Reading these sections together, the Court of Appeals explained that limiting the hearing to only the four sub-requirements in 11-36(D) would: nullify the eligibility requirements that are found elsewhere in § 32-1132; deprive ROC of its statutory right to support its objections to payment; and relieve the burden of proof on Magness to demonstrate eligibility for payment from the fund.   

Judge Brown authored the opinion; Acting Presiding Judge Downie and Chief Judge Johnsen concurred.