AC Excavating v. YACHT CLUB II ASS'N

• Decision Date: 27 June 2005
• Docket Number: No. 03SC842.,03SC842.
• Citation: 114 P.3d 862
• Parties: A.C. EXCAVATING; Brady & Son Bonded Roof Co.; NDF Company; Formex Concrete Forming, Inc.; Frank's Finish Grading, Inc.; Hesterly Holland Construction, LLC; K.J. Woodworks, Ltd.; Rocky Mountain Flatwork, Inc.; Stevens Excavating, Inc.; Watren Concrete Forming, Inc.; and Yeager Concrete Corporation, Petitioners, v. YACHT CLUB II HOMEOWNERS ASSOCIATION, INC., Respondent.
• Court: Colorado Supreme Court

114 P.3d 862

A.C. EXCAVATING; Brady & Son Bonded Roof Co.; NDF Company; Formex Concrete Forming, Inc.; Frank's Finish Grading, Inc.; Hesterly Holland Construction, LLC; K.J. Woodworks, Ltd.; Rocky Mountain Flatwork, Inc.; Stevens Excavating, Inc.; Watren Concrete Forming, Inc.; and Yeager Concrete Corporation, Petitioners, v. YACHT CLUB II HOMEOWNERS ASSOCIATION, INC., Respondent.

No. 03SC842.

Supreme Court of Colorado, En Banc.

June 27, 2005.

Harris, Karstaedt, Jamison & Powers, P.C., A. Peter Gregory, James G. Gaspich, Englewood, for Petitioners Brady & Son Bonded Roof Co.; Formex Concrete Forming, Inc.; Frank's Finish Grading, Inc.; Hesterly Holland Construction, LLC; and Watren Concrete Forming, Inc.

Messner & Reeves, LLC, Ryan A. Williams, John K. Shunk, Denver, for Petitioner A.C. Excavating.

Burg, Simpson, Eldridge, Hersh & Jardine, P.C., David K. TeSelle, Englewood, for Petitioner NDF Co.

Ray Lego & Associates, Janet S. Wells, Greenwood Village, for Petitioners K.J. Woodworks Ltd. and Rocky Mountain Flatwork, Inc.

Fowler, Schimberg & Flanagan, P.C., Daniel M. Fowler, Katherine Taylor Eubank, Steve Fox, Denver, for Petitioner Stevens Excavating, Inc.

Hall & Evans, LLC, Bruce A. Menk, Alan Epstein, Denver, for Petitioner Yeager Concrete Corp.

McKenzie Rhody, LLC, T. Cass McKenzie, Michael A. Hearn, Andrew M. Karr, Holland & Hart, LLP, Joseph W. Halpern, Teresa D. Locke, Denver, for Respondent Yacht Club II Homeowners Association, Inc.

Campbell, Latiolais & Ruebel, P.C., Jeffrey Clay Ruebel, Denver, Amicus Curiae for Colorado Defense Lawyers' Association.

Holme Roberts & Owen LLP, K. Preston Oade, Snell & Wilmer, LLP, Lee Mickus, Hale Friesen, LLP, Scott Eric Gessler, Denver, Amicus Curiae for Colorado Civil Justice League.

Vanatta, Sullan, Sandgrund and Sullan, P.C., Ronald M. Sandgrund, Greenwood Village, Amicus Curiae for Homeowners Against Deficient Dwellings.

Benson & Associates, P.C., Jesse Howard Witt, Golden, Amicus Curiae for Homeowners Against Deficient Dwellings.

MARTINEZ, Justice.

We granted certiorari to review the court of appeals' decision in Yacht Club II Homeowners Ass'n., Inc. v. A.C. Excavating, et al., 94 P.3d 1177 (Colo.App.2003). In Yacht Club II, the court of appeals held that a homeowners association's negligence claim against construction subcontractors was not barred by the economic loss rule. We agree with the court of appeals and hold, as a matter of law, that subcontractors owe homeowners a duty of care, independent of any contractual obligations, to act without negligence in the construction of a home. Accordingly, we find the economic loss rule has no application to the present case and therefore affirm the judgment of the court of appeals.

I. Facts and Proceedings Below

Yacht Club II is a townhouse development (the development) that was constructed between 1994 and 1996. Respondents Yacht Club II Homeowners Association, Inc. (the Association) is comprised of and represents individual unit owners of the development. Petitioners are A.C. Excavating; Brady & Son Bonded Roof Co.; NDF Company; Formex Concrete Forming, Inc.; Frank's Finish Grading, Inc.; Hesterly Holland Construction, LLC; K.J. Woodworks, Ltd.; Rocky Mountain Flatwork, Inc.; Stevens Excavating, Inc.; Watren Concrete Forming, Inc.; and Yeager Concrete Corporation (collectively, the subcontractors). The subcontractors were involved in the construction of the development.

In 1998, the Association filed this action against the subcontractors, developer, and general contractor, alleging a host of construction defects including: improperly installed windows, roofs, chimneys, and doors; improperly braced roof trusses; improperly graded soils, reverse sloping driveways, and improper drainage systems resulting in water penetration, heaving front porches, heaving and cracking basement floors, damaged drywall, and water-stained sills, walls, carpets, and baseboards. The Association asserted against the developer and general contractor claims for breach of express and implied warranty, violation of the Colorado Consumer Protection Act, and negligence. The Association's suit against the subcontractors alleged only negligence.

The Association settled its claims with the developer and general contractor. Regarding the remaining negligence claim against the subcontractors, the trial court granted a motion for partial summary judgment in favor of the subcontractors, ruling that the Association lacked standing. The trial court also ruled that the Association's negligence claim was barred by the economic loss rule because the subcontractors' duties arose entirely out of the contracts between the subcontractors, the developer, and the general contractor. Finding that the subcontractors owed the Association no independent tort duty, the court entered judgment in favor of the subcontractors.

The Association appealed and the court of appeals reversed. The court of appeals first held that standing was conferred upon the Association by the Colorado Common Interest Ownership Act. Next, the court of appeals held that the economic loss rule had no application to the Association's negligence claim because subcontractors owe homeowners a duty of care, independent of any contract provision, in connection with the construction of homes. Yacht Club II, 94 P.3d at 1181. Citing our decision in Cosmopolitan Homes v. Weller, 663 P.2d 1041 (Colo.1983), the court of appeals reasoned that, independent of any contractual duty, builders also have a general duty imposed by law to act without negligence in the construction of homes. Yacht Club II, 94 P.3d at 1181. The court rejected the subcontractors' contention that our decision in Town of Alma v. Azco Constr. Inc., 10 P.3d 1256 (Colo. 2000), bound the Association to the liability limitations agreed to by the subcontractors, the general contractor, and the developer, reasoning that the agreements could not be enforced against the Association because the Association had neither negotiated with the subcontractors, nor invoked the benefits of the subcontractors' agreements. Yacht Club II, 94 P.3d at 1182. Thus, the court of appeals concluded that the trial court erred in dismissing the claim based on the economic loss rule. Id. Thereafter, the subcontractors petitioned for certiorari and we granted review.

II. Analysis

We granted certiorari to determine whether the economic loss rule as adopted in Town of Alma bars the Association's negligence action against the subcontractors.¹ The Association argues that its claim is not barred by the economic loss rule because, pursuant to our decision in Cosmopolitan Homes, the law imposes a duty of care upon builders, independent of any contractual obligations, to build homes without negligence. The Association contends that in light of this independent tort duty, this case is beyond the scope of the economic loss rule. The subcontractors dispute this contention. Relying on our decision in Town of Alma, the subcontractors urge that the standard of care owed to the Association was defined solely by contract and notwithstanding our decision in Cosmopolitan Homes, subcontractors owe homeowners no independent duty of care. Reasoning that the Association seeks only economic damages sounding in tort where no such duty exists, the subcontractors maintain the claim is barred by the economic loss rule.

We conclude that the Association's negligence action is not barred by the economic loss rule. We begin our analysis by reviewing the purpose and application of the economic loss rule. We then revisit the two cases at issue here, Cosmopolitan Homes and Town of Alma, and examine why we permitted a negligence claim to proceed in the former case, but barred a negligence claim in the latter. We explain that in Cosmopolitan Homes, the negligence claim was predicated upon a duty of care that existed independently from any contractual duties, while in Town of Alma, the duties were prescribed solely by contract. We then reiterate that Cosmopolitan Homes is consistent with the economic loss rule as articulated in Town of Alma because both cases recognize that builders are under an independent duty of care to construct homes without negligence. After finding that the General Assembly's legislative enactments recognize this common law duty, we hold that subcontractors owe homeowners a duty of care, independent of any contractual obligations, to act without negligence in the construction of homes. Accordingly, we conclude that the economic loss rule has no application to this case because the Association's negligence claim is based on a recognized independent duty of care.

A. Standard of Review

We review the trial court's grant of summary judgment de novo. BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 71 (Colo. 2004). Summary judgment is appropriate when the pleadings and supporting documents clearly demonstrate that no issues of material fact exist and the moving party is entitled to judgment as a matter of law. C.R.C.P. 56(c); Cotter Corp. v. American Empire Surplus Lines Ins. Co., 90 P.3d 814, 819 (Colo.2004). The nonmoving party is entitled to the benefit of all favorable inferences that may be drawn from the undisputed facts, and all doubts as to the existence of a triable issue of fact must be resolved against the moving party. Martini v. Smith, 42 P.3d 629, 632 (Colo.2002); HealthONE v. Rodriguez ex rel. Rodriguez, 50 P.3d 879, 887 (Colo.2002).

B. Economic Loss Rule

The economic loss rule is intended to maintain the sometimes blurred boundary between tort law and contract law. Town of Alma, 10 P.3d at 1259; Grynberg v. Agri Tech, Inc., 10 P.3d 1267, 1269 (Colo.2000). Our formulation of the economic loss rule is that a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such a breach absent an independent duty of care under tort law. Grynberg, 10 P.3d at 1269; see also Jardel...