No Time Limit on ROC Collection Efforts
Despite a statutory requirement that the ROC “promptly enforce” subrogation claims, those claims have no definite expiration date
When a licensed
contractor fails to pay a residential property owner as ordered by the Arizona
Registrar of Contractors (ROC), the ROC makes the payment on the contractor’s
behalf from the Registrar’s Residential Recovery Fund. The ROC may then sue the
contractor to force the contractor to reimburse the Fund.
How promptly the ROC must
take legal action, and whether there is a time limit on the ROC’s right to seek
reimbursement, was the issue that the Arizona Court of Appeals addressed in its
August 2009 ruling in
State of Arizona v. Johnston.
2004, Edward and Joy Kufahl filed an ROC complaint against Frederico and Mary
Johnston, doing business as Ace Aluminum and Products (“Ace”). The ROC issued an
administrative order requiring Ace to remedy the violations. Ace failed to do
In April 2005, the ROC
issued a final judgment against Ace and awarded the Kufahls $16,900 in damages.
That amount was paid from the Residential Recovery Fund and charged against Ace.
On June 16, 2005, the Kufahls assigned to the ROC their judgment against Ace.
The next day the ROC sent a demand letter to Ace’s surety, seeking reimbursement
from Ace’s license bond. The surety paid $1,000.
On October 22, 2007, two
years and four months after the date of the demand letter, the Attorney General
sued Ace in Superior Court to enforce the ROC’s subrogation rights, pursuant to
32-1138. (“Subrogation” refers to the substitution of one party in the place
of another with reference to a lawful claim, demand or right.)
Ace asked the trial court
to dismiss the State’s lawsuit, arguing that the time had expired for the ROC to
enforce its subrogated judgment against Ace. In making that argument, Ace cited
the provision of § 32-1138 that states, “The registrar and the attorney general
shall promptly enforce all subrogation claims.” (Emphasis added.)
Ace also based its
argument on a 2007 Arizona Court of Appeals decision (West Valley View, Inc.
v. Maricopa County Sheriff’s Office) in which the Court found that
“promptly” means “at once or without delay.” (That case dealt with the failure
of a government agency to “promptly” furnish copies of records to a requesting
The ROC countered that
the “promptly enforce” requirement in § 32-1138 was not intended to serve as a
statute of limitations and that Ace’s interpretation was contrary to Arizona
statutes, case law and public policy. (A “statute of limitations” sets maximum
time periods during which certain actions can be brought.)
The trial court sided
with Ace, noting that “’promptly’ as used in A.R.S. § 32-1138 cannot mean 2˝
years,” and granted Ace’s motion to dismiss.
The ROC appealed.
three-judge panel at the Arizona Court of Appeals, the sole issue was whether
the statutory phrase “shall promptly enforce all subrogation claims” prohibits
the ROC from seeking subrogation against a non-compliant contractor nearly
two-and-a-half years after an award was paid from the Residential Recovery Fund.
Ace argued that “shall
promptly enforce” constitutes “express language limiting the time period” during
which the ROC can enforce its subrogation rights. Ace also argued that the Court
should interpret the word “promptly” in its ordinary meaning.
The ROC reiterated its
trial-level argument that the legislature did not intend for § 32-1138 to serve
as a statute of limitations.
The Court of Appeals
agreed with the ROC, noting that the statute does not state a specific time
limit for enforcing the ROC’s subrogation rights and, therefore, is not a
statute of limitations. In its ruling, the Court found that “neither the
language, purpose, nor context of A.R.S. § 32-1138 reflects legislative intent
to create a statute of limitations regulating the enforcement of the Registrar’s
subrogation right against a non-compliant contractor.”
Further, the Court’s
opinion stated that “nothing in the history or context of A.R.S. § 32-1138
suggests that the statute was intended to be a shield to protect non-compliant
contractors.” The opinion goes on to state, “[W]e cannot conclude that the
legislature [intended to excuse] a non-compliant contractor from accountability,
which includes … compensating an injured party for damages caused by his
non-compliance with Arizona law. To hold otherwise would effectively require
all licensed residential contractors in compliance with the law to bear the
burden of paying for a non-compliant contractor’s misdeed.” (Emphasis
As for Ace’s reliance on
the West Valley View decision, the Court found the circumstances to be so
different from the ROC’s subrogation issue that the meaning of “promptly” in
that case was not applicable to this one.
Conclusion. In reversing
the trial court’s order dismissing the ROC’s claim, the Court of Appeals sent a
clear message that there is no particular expiration date on the ROC’s
At whatever point the ROC
chooses to pursue those rights – whether “promptly” in the ordinary sense of the
word or whenever the ROC decides to act – contractors cannot escape liability
for failure to reimburse the Registrar’s Residential Recovery Fund.