Cal-Am Props. Inc. v. Edais Eng'g Inc.

• Decision Date: 23 May 2022
• Docket Number: CV-21-0129-PR
• Citation: 71 Arizona Cases Digest 4,509 P.3d 386
• Parties: CAL-AM PROPERTIES INC., Plaintiff/Appellant, v. EDAIS ENGINEERING INC., Defendant/Appellee.
• Court: Arizona Supreme Court

71 Arizona Cases Digest 4

509 P.3d 386

CAL-AM PROPERTIES INC., Plaintiff/Appellant,

v.EDAIS ENGINEERING INC., Defendant/Appellee.

No. CV-21-0129-PR

Supreme Court of Arizona.

Filed May 23, 2022

Stephen E. Richman, Bennett Evan Cooper (argued), Vail C. Cloar, Emily G. Jeffries, Dickinson Wright PLLC, Phoenix, Attorneys for Cal-Am Properties, Inc.

Christopher D. Hossack (argued), Clark Hill PLC, Scottsdale, Attorneys for Edais Engineering, Inc.

John R. Jefferies, Justin A. Robles, Fennemore Craig P.C., Phoenix; Michael J. Holden, Barry A. Willits, Holden Willits PLC, Phoenix; D. Kim Lough, Jennings Haug Cunningham, Phoenix; Richard A. Friedlander, Lang & Klain, PC, Scottsdale; Robert F. Roos, Frances J. Haynes, Lewis Roca, Phoenix; Melvin C. Cohen, Bernardo M. Velasco, Mesch Clark Rothschild, Tucson; Richard B. Murphy, Murphy Cordier PLC, Phoenix; James J. Sienicki, Amanda Z. Weaver, Snell & Wilmer L.L.P., Phoenix; and Stephen E. Jackson, Chris R. Baniszewski, Warner Angle Hallam Jackson & Formanek PLC, Phoenix, Attorneys for Amicus Curiae ABA/Arizona Builders Alliance

Jacqueline Pons-Bunney, Brian P. Roteliuk, Martha L. Bringard, W & D Law LLP, Phoenix, Attorneys for Amici Curiae American Council of Engineering Companies of Arizona and Arizona Chapter of American Institute of Architects

JUSTICE LOPEZ authored the opinion of the Court, in which CHIEF JUSTICE BRUTINEL, VICE CHIEF JUSTICE TIMMER, and JUSTICES BOLICK, BEENE, MONTGOMERY, and KING joined.

JUSTICE LOPEZ, opinion of the Court:

¶1 Today we revisit our holding in Donnelly Construction Company v. Oberg/Hunt/Gilleland , 139 Ariz. 184, 187, 677 P.2d 1292, 1295 (1984), which held that a design professional's duty to use ordinary skill, care, and diligence in rendering professional services extends both to persons in privity with the professional and to persons foreseeably affected by a breach of that duty. We hold that under Arizona's post- Gipson framework, which repudiated foreseeability as a basis for duty, design professionals lacking privity of contract with project owners do not owe a duty to those owners to reimburse them for purely economic damages.

BACKGROUND

¶2 Cal-Am Properties, Inc. ("Cal-Am") is a developer and operator of RV and mobile-home parks. In 2014, Cal-Am leased the Sundance RV Resort in Yuma, Arizona, from its owner, intending to construct a new banquet and concert hall on the property. Although the owner of the property provided the funding for the construction of the new hall, Cal-Am managed the project. Cal-Am hired a contractor, VB Nickle, to design and construct the hall, who then hired Edais Engineering, Inc. ("Edais") to survey the property and place construction stakes to mark the permitted location of the hall. This arrangement created two contracts: Cal-Am's with VB Nickle and VB Nickle's with Edais; no contract existed between Edais and Cal-Am. Edais concedes that its placement of the stakes was defective. As a result, the hall was constructed ten feet north of the planned location, and Cal-Am was forced to adjust its site plan accordingly which eliminated eight RV parking spaces planned near the hall.

¶3 Cal-Am sued Edais for various claims including the negligence claim at issue here. The trial court granted summary judgment for Edais on the negligence claim finding that Cal-Am could not recover its purely economic damages. The court of appeals held that Edais did not owe a duty to Cal-Am and affirmed the trial court. Cal-Am Props. Inc. v. Edais Eng'g Inc. , No. 1 CA-CV 20-0279, 2021 WL 1422738, at *3 ¶¶ 15, 18 (Ariz. App. Apr. 15, 2021) (mem. decision). We granted review to reexamine our holding in Donnelly —that design professionals may be liable to third parties who suffer purely economic damages resulting from the professionals’ negligence—under Arizona's current duty framework as described in Quiroz v. ALCOA Inc. , 243 Ariz. 560, 416 P.3d 824 (2018). This is an issue of statewide importance over which we have jurisdiction pursuant to article 6, section 5(3) of the Arizona Constitution.

DISCUSSION

I.

¶4 We determine the legal issue of whether a duty exists de novo. Dinsmoor v. City of Phoenix , 251 Ariz. 370, 373 ¶ 14, 492 P.3d 313, 316 (2021).

¶5 A negligence claim requires proof of four elements: "(1) a duty requiring the defendant to conform to a certain standard of care; (2) a breach by the defendant of that standard; (3) a causal connection between the defendant's conduct and the resulting injury; and (4) actual damages." Gipson v. Kasey , 214 Ariz. 141, 143 ¶ 9, 150 P.3d 228, 230 (2007). The existence of a duty is a legal issue decided by the court. Id. "Whether the defendant owes the plaintiff a duty of care is a threshold issue; absent some duty, an action for negligence cannot be maintained." Id. ¶ 11.

¶6 In Donnelly , we held that "[d]esign professionals have a duty to use ordinary skill, care, and diligence in rendering their professional services" and confirmed that such liability extends to "foreseeable injuries to foreseeable victims which proximately result from ... negligent performance of their professional services." 139 Ariz. at 187–88, 677 P.2d at 1295–96. In other words, the potential liability of design professionals, such as land surveyors, for negligence extended not only to the entity who contracted them, but to other foreseeable plaintiffs which may include property or project owners.

¶7 Donnelly ’s holding controlled on the existence of such a duty until our decision in Gipson . There, we held that "foreseeability is not a factor to be considered by courts when making determinations of duty" and we "reject[ed] any contrary suggestion in prior opinions." Gipson , 214 Ariz. at 144 ¶ 15, 150 P.3d at 231. We have since clarified that "[p]ost- Gipson , to the extent our prior cases relied on foreseeability to determine duty, they are no longer valid." Quiroz , 243 Ariz. at 565 ¶ 12, 416 P.3d at 829. Indeed, we have noted repeatedly that Donnelly employed the now-rejected foreseeability framework. See id. at 564 ¶ 10, 416 P.3d at 828 (citing Donnelly as an example of a prior case that relied on foreseeability); Gipson , 214 Ariz. at 144 ¶ 14, 150 P.3d at 231 (same); Flagstaff Affordable Hous. Ltd. v. Design All., Inc. , 223 Ariz. 320, 327 ¶ 35 n.4, 223 P.3d 664, 671 (2010) (stating that we have "rejected Donnelly ’s reliance on foreseeability to determine the existence of a duty of care for purposes of tort law"). To the extent that Donnelly ’s viability remains in question today, we clarify that it is no longer good law.

¶8 In rejecting Donnelly , however, we do not foreclose the possibility that a duty may exist between design professionals and those not in privity with them. Whether a duty arises here or in any other context must be analyzed under the post- Gipson duty framework.

II.

¶9 In Arizona, duties are based on either special relationships or on public policy. Dinsmoor , 251 Ariz. at 373 ¶ 14, 492 P.3d at 316.

A.

¶10 Special relationships that give rise to a duty in negligence include legally recognized common law relationships and those formed by contract, familial relationship, or joint undertaking. Id. There are various recognized categorical relationships that give rise to a duty in Arizona. See, e.g. , Quiroz , 243 Ariz. at 567 ¶ 23, 416 P.3d at 831 (landowner-invitee, landowner-licensee, employer-employee); Gipson , 214 Ariz. at 145 ¶ 19, 150 P.3d at 232 (tavern owner-patron); Dinsmoor , 251 Ariz. at 373 ¶ 15, 492 P.3d at 316 (school-student). But, despite Cal-Am's contention that Donnelly created a special relationship between design professionals and project owners and that other jurisdictions have followed suit, Arizona does not recognize design professionals as parties to any such relationship.

¶11 A duty based on a special relationship requires a preexisting, recognized relationship between the parties, see Quiroz , 243 Ariz. at 565 ¶ 15, 416 P.3d at 829, and here there is none. Cal-Am's argument that Donnelly recognized such a relationship is unpersuasive because its holding relied primarily, if not exclusively, on a foreseeability framework which has since been rejected. See supra ¶¶ 4–7; Donnelly , 139 Ariz. at 188, 677 P.2d at 1296 ("We only hold here that design professionals are liable for foreseeable injuries to foreseeable victims which proximately result from their negligent performance of their professional services." (emphasis added)). Therefore, Donnelly did not recognize a preexisting relationship under Arizona law.

¶12 Cal-Am also relies on other jurisdictions that have recognized a duty based on the relationship between design professionals and owners. These cases are unavailing. Most of these jurisdictions rely on foreseeability to recognize such relationships, see, e.g. , E. Steel Constructors, Inc. v. City of Salem , 209 W.Va. 392, 549 S.E.2d 266, 274–75 (2001) (citing Donnelly and acknowledging, without disapproval, the foreseeability rationale used in it and other related decisions); Beacon Residential Cmty. Ass'n v. Skidmore, Owings & Merrill LLP , 59 Cal.4th 568, 173 Cal.Rptr.3d 752, 327 P.3d 850, 862 (2014) (factoring in its conclusion that "[i]t was foreseeable that these homeowners would be among the limited class of persons harmed by the negligently designed units"), and negligence actions are governed by state common law, US Airways, Inc. v. Qwest Corp. , 238 Ariz. 413, 418 ¶ 19, 361 P.3d 942, 947 (App. 2015), aff'd in part, depublished in part on other grounds , 241 Ariz. 182, 385 P.3d 412 (2016) (per curiam). Arizona has yet to recognize the relationship between a design professional and an owner as a categorical, special relationship. We decline to do so now.

¶13 Here, no contractual or familial relationship exists between Cal-Am and Edais. And although liability for a joint undertaking may exist despite a lack of privity between two parties, this concept necessarily involves conduct a defendant undertook directly with or for a plaintiff, see, e.g. , Stanley...