Homeowners Ass'n v. Pilgrims Landing, Lc

Decision Date02 October 2009
Docket NumberNo. 20070914.,20070914.
Citation2009 UT 65,221 P.3d 234
PartiesDAVENCOURT AT PILGRIMS LANDING HOMEOWNERS ASSOCIATION, Plaintiff and Appellant, v. DAVENCOURT AT PILGRIMS LANDING, LC; LeGrand Woolstenhulme; Michael D. Parry Construction Company, Inc.; and John Does 1-30, Defendants and Appellees.
CourtUtah Supreme Court

A. Richard Vial, Michael B. Miller, Salt Lake City, for plaintiff.

Stephen Quesenberry, Charles L. Perschon, Provo, for defendants.

Craig C. Coburn, Zachary E. Peterson, Lincoln W. Hobbs, Julie Ladle, Stanford P. Fitts, William B. Ingram, Aaron C. Jacobs, Salt Lake City, for amici American Institute of Architects, Utah Chapter of the Community Assoc., Community Assocs. Institute, National Assoc. of Home Builders, Utah Valley Home Builders Assoc.

DURHAM, Chief Justice:

INTRODUCTION

¶ 1 Davencourt at Pilgrims Landing Townhome Owners Association (Association) appeals the district court's rulings that granted in part the Motion to Dismiss Complaint filed by Davencourt at Pilgrims Landing, LC, Le Grand Woolstenhulme, and Michael D. Parry Construction Company, Inc. (collectively, Defendants), and that denied the Motion to Amend Complaint and Reinstate Dismissed Claims filed by the Association. We affirm in part and reverse in part.

BACKGROUND

¶ 2 Davencourt at Pilgrims Landing (the Project) is a planned unit development. The Project is the result of the design and development efforts by Davencourt at Pilgrims Landing, LC (Developer), which is managed by its member, LeGrand Woolstenhulme. To construct the Project, the Developer contracted with Michael D. Parry Construction Company, Inc. (Builder). The Builder constructed, supervised construction, and inspected the Project for quality and compliance with building codes. When finished, the Project included thirty-eight buildings, each of which consisted of three to four attached townhomes, for a total of 145 units with appurtenant common areas.

¶ 3 The Developer planned to sell the 145 units to individual owners, but before doing so, it organized and established by a Declaration of Easements, Covenants, Conditions, and Restrictions (CC & Rs), the Davencourt at Pilgrim's Landing Townhome Owners' Association, a Utah nonprofit corporation. Pursuant to the Declaration, the Association has the obligation and duty to maintain and repair the common areas, which include exterior surfaces and roofs. The Association is also responsible for levying assessments and setting reserves to cover the maintenance and repair of the common areas.

¶ 4 Because no units had been sold at the time of the Association's establishment, the Developer was the initial owner of all the units and the controlling member. Thus the Developer, through Woolstenhulme as the trustee, the president, the secretary, and the treasurer, controlled the Association. The Developer's control of the Association continued until its marketing efforts resulted in the sale of a certain percentage of the units. The Developer then turned over control of the Association to the owners of the units (Unit Owners) and later sold the remaining units.

¶ 5 In selling the units, the Developer used a standard form real estate purchase contract for residential construction in each transaction. Also, the Developer represented and warranted that the Project (1) complied with the building code and had been inspected for such; (2) consisted of high-quality structures; (3) was in good condition and properly and fully maintained; (4) had no faulty workmanship; (5) had no water intrusion, moisture problems, or other material defects; and (6) the Association's budget and monthly assessments were accurate and adequate for future maintenance, repair, and replacement.

¶ 6 A few years after turnover of the Association to the Unit Owners, the Association learned of significant problems with the Project. Water began to seep into the buildings through the foundation, floors, porches, stucco, sidewalls, exterior walls, doors, windows, window boxes, and roofs. The water intrusion caused damage to the buildings in the form of dryrot, mold, staining, and degradation of the stucco. Upon hiring a building envelope specialist, the Association learned that the water intrusion and resulting damage stemmed from faulty design, faulty workmanship, defective materials, improper construction, and/or noncompliance with building codes. The building envelope specialist informed the Association that these flaws and defects, evident in all the buildings, were present in several latent construction defects, including: improper installation of stucco; improper stucco termination points at slabs and foundations; window boxes designed without a drainage plane, allowing water into the building cavity; improper integration of the stucco; missing or inadequate control joints in the stucco to prevent cracking; missing or improper flashings; and missing, incomplete, or improperly installed waterproofing at the foundations and walls of the units.

¶ 7 The Association also learned that before construction began, the Developer and the Builder had obtained a geo-technical study on the soil and subsurface soils of the Project. The report from the study warned that the Project would rest on collapsible subsurface soils that would cause land subsidence without proper preparation. Following construction, the land subsided. This land subsidence caused severe structural defects to the stucco and cement work and contributed to the water intrusion through the foundation, floors, porches, stucco, sidewalls exterior walls, windows, window boxes, and roofs.

¶ 8 The Association repeatedly requested that the Developer and the Builder repair the defects, but they refused to do so. Because the Association, as required by the CC & Rs, was responsible for repair of these defects in the common areas, it turned to its reserves. But the level of monthly assessments that had been established by the Developer during its control of the Association was inadequate to fund the repair and replacement costs arising from the construction defects. To foot the multi-million dollar repair cost, the Association faced the choice of either imposing a special, unexpected assessment on each unit owner, doing nothing and risk being sued by the unit owners, or obtaining legal redress from the parties responsible. The Association filed suit.

¶ 9 In its complaint, the Association sought recovery of damages from the Developer, Woolstenhulme, the Builder, and John Does 1-30 for fifteen causes of action. The Association asserted these causes of action in the following order: (1) against the Developer, Woolstenhulme, and the Builder: negligence, nuisance, and negligence per se; (2) against the Developer and Woolstenhulme: negligent misrepresentation, misrepresentation and nondisclosure, and breach of fiduciary duties; (3) against the Developer: breach of contract, breach of express and implied warranties, and breach of contract as a third party beneficiary; (4) against the Builder: breach of contract as a third party beneficiary; and (5) against John Does 1-30: negligence, negligent misrepresentation, misrepresentation and nondisclosure, breach of fiduciary duties; and (6) against all defendants: equitable subrogation.

¶ 10 The Defendants filed a motion to dismiss pursuant to rule 12(b)(6) of the Utah Rules of Civil Procedure. The district court granted the motion in part. Citing to the economic loss rule, the district court dismissed the claims for negligence, negligent misrepresentation, negligence per se, and nuisance. The district court also dismissed the claim for breach of implied warranties because Utah law does not recognize such warranties, and it dismissed the claim for breach of express warranty and breach of contract under the merger doctrine. The court denied the motion as to the remaining claims.

¶ 11 Following the issuance of Moore v. Smith, 2007 UT App 101, 158 P.3d 562, and the newly discovered evidence of soil subsidence, the Association filed a Motion to Amend the Complaint and Reinstate Dismissed Claims. In deciding the motion, the district court reviewed the Defendants' original motion to dismiss in light of Moore and the recent cases of Smith v. Frandsen, 2004 UT 55, 94 P.3d 919, and Yazd v. Woodside Homes Corp., 2006 UT 47, 143 P.3d 283. Again citing to the economic loss rule, the district court concluded that the dismissed tort-based claims were precluded and denied the Association's motion. However, the district court granted the Association's alternative motion pursuant to rule 54(b) of the Utah Rules of Civil Procedure to certify its judgment as final. We have jurisdiction over this appeal pursuant to Utah Code section 78A-3-102(3)(j)(2008).

STANDARD OF REVIEW

¶ 12 The decision to "grant a motion to dismiss presents a question of law that we review for correctness." Citizens for Responsible Transp. v. Draper City, 2008 UT 43, ¶ 8, 190 P.3d 1245. In reviewing a district court's "order of dismissal entered pursuant to rule 12(b)(6), we `accept the material allegations in the complaint as true and interpret those facts and all reasonable inferences drawn therefrom in a light most favorable to the plaintiff as the non-moving party.'" Moss v. Pete Suazo Utah Athletic Comm'n, 2007 UT 99, ¶ 8, 175 P.3d 1042 (quoting Wagner v. State, 2005 UT 54, ¶ 9, 122 P.3d 599).

¶ 13 We review a district court's denial of a plaintiff's motion to amend a complaint for abuse of discretion. Swan Creek Vill. Homeowners Ass'n v. Warne, 2006 UT 22, ¶ 15, 134 P.3d 1122. "An abuse of discretion may be demonstrated by showing that the district court relied on an erroneous conclusion of law." Kilpatrick v. Bullough Abatement, Inc., 2008 UT 82, ¶ 23, 199 P.3d 957 (internal quotation marks omitted).

ANALYSIS

¶ 14 This appeal presents four main issues for our decision. They are (I) whether the district court erred in dismissing the Association's claims of negligence, negligence per se, negligent...

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