Krishna Pinnamaneni v. Arizona Registrar of Contractors – 4/9/2015

April 20, 2015

Arizona Court of Appeals Division One holds that (1) a person who occupies or intends to occupy a residence, and who is the trustor, trustee, and beneficiary of a revocable trust that owns the property, meets the statutory owner–occupant requirement for making a claim to the Residential Contractors’ Recovery Fund, and (2) the “person injured” need not participate in the underlying complaint or have privity of contract.

Krishna Pinnamaneni designed and had a home built for himself and his family.  A revocable living trust owned the land, and Pinnamaneni was trustor, trustee, and beneficiary of that trust.  During the home construction, Pinnamaneni negotiated all contracts through a limited liability company.  After problems arose with one of the contractors, Pinnamaneni file a complaint with the Registrar of Contractors (“ROC”).  The ROC found that the contractor performed deficient work and revoked its license.  The contractor then filed for bankruptcy.

Pinnamaneni filed a claim to recover his payment from the Residential Contractors’ Recovery Fund (“Fund”).  The ROC denied the claim because Pinnamaneni and his entities did “not meet the legal definition of a ‘person injured’ as required by § 32-1131.3.”  After an eligibility hearing, the ROC again denied the claim because the LLC and not the Trust filed the underlying complaint and because Pinnamaneni had no contractual privity with the contractor.  The superior court affirmed the ROC’s order on appeal.

The Court of Appeals reversed and remanded.  It held that the Fund is set up to compensate “any person injured” by a licensed residential contractor whose license has been revoked or suspended for a violation of the rules governing contractors.  The Court held that a “person injured” under § 32-1131(3) “must (1) be an owner of residential real property; (2) actually occupy or intend to occupy the property as a residence; and (3) be damaged by the failure of a residential contractor to adequately build or improve a residential structure.”  These owner-occupant requirements are met when an occupant is also the trustor, trustee, and beneficiary of a revocable trust that owns the property.

The Court of Appeals also rejected the ROC’s interpretation that § 32-1131 requires contractual privity between the claimant and the contractor.  Although early legislative history and an earlier version of the statute indicated that contractual privity was required, the current version of § 32-1131 includes no such reference.  The later removal of that requirement controls over any contrary indications from legislative history.  Another part of the Fund’s legislative scheme specifically requires privity for lessees, and the courts will not read requirements from one section into another section where the legislature excluded them.

Finally, the Court of Appeals held that the underlying complaint is an independent issue which only serves to establish whether there has been a violation.  The party seeking recovery from the Fund need not participate in that complaint.  The ROC is authorized to investigate and punish violations on its own motion.  Limiting the Fund to only those parties that participate in the complaint is not required by the statutory language and would frustrate its intended compensatory purpose.

Presiding Judge Cattani authored the opinion; Judges Thompson and Kessler concurred.