Unlicensed Contractor Wins Relief from Order to Pay Full Restitution

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.

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 had 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.

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 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.