Hughes Custom Bldg, L.L.C. v. Davey

Decision Date07 May 2009
Docket NumberNo. 2 CA-CV 2008-0103.,2 CA-CV 2008-0103.
Citation221 Ariz. 527,212 P.3d 865
PartiesHUGHES CUSTOM BUILDING, L.L.C. and John Hughes and Amalia Pineres, M.D., husband and wife, Plaintiffs/Appellants, v. James DAVEY and James Davey and Associates, Inc., Defendants/Appellees.
CourtArizona Court of Appeals

Thompson, Montgomery & DeRose By Jerry B. DeRose, Globe, Attorney for Plaintiffs/Appellants.

Bonnett, Fairbourn, Friedman & Balint, P.C. By Andrew Q. Everroad and Meredith L. Vivona, Phoenix, Attorneys for Defendants/Appellees.

OPINION

BRAMMER, Judge.

¶ 1 Appellants Hughes Custom Building, L.L.C., John Hughes, and Amalia Pineres (collectively, "Hughes") appeal from the trial court's grant of summary judgment in favor of appellees James Davey and James Davey and Associates, Inc. (collectively, "JDA"). Hughes argues the trial court erred in applying the economic loss doctrine to bar its tort claims against JDA and in concluding it lacked standing to assert certain damages. We affirm in part, reverse in part, and remand the case to the trial court.

Factual and Procedural Background

¶ 2 We view the facts in the light most favorable to the party opposing summary judgment and draw all reasonable inferences arising from the evidence in favor of that party. See Prince v. City of Apache Junction, 185 Ariz. 43, 45, 912 P.2d 47, 49 (App. 1996). JDA is a civil engineering firm that had performed various engineering services at the Sunset View real estate subdivision in Globe, Arizona, under a contract with the subdivision's developers. In 1997, Hughes purchased two lots in the subdivision and constructed houses on those lots. In 1999, Hughes sold one of the houses to James and Mary Bernstein, and in 2001 sold the other to Brian and Lindy Francom.

¶ 3 In 2004, the Bernsteins sued Hughes and JDA for breach of implied warranty, breach of contract, negligence, and unjust enrichment, alleging, inter alia, that "improper compaction of the subdivision land [had] resulted in soil subsidence and structural damage" to their house. In 2005, Hughes and the Bernsteins settled and, pursuant to the settlement agreement, the Bernsteins' claims against JDA were dismissed with prejudice. The settlement agreement also provided that Hughes would transfer a house, also located in the Sunset View subdivision, to the Bernsteins and that the Bernsteins would "transfer title and possession of [the home they had purchased from Hughes back] to [Hughes]." In 2003, the Francoms filed a complaint against Hughes with the Arizona Registrar of Contractors, asserting the house they had purchased from Hughes was suffering structural damage from excessive settling. The Registrar revoked Hughes' license, finding that, although Hughes had initially attempted to correct the damage caused by settling and to prevent further damage, Hughes had failed to respond appropriately after the Registrar had issued a "Corrective Work Order."

¶ 4 In 2002, Hughes filed an action against the City of Globe, which had approved the subdivision plat before he purchased the lots, asserting the City had negligently approved the subdivision and provided incorrect information regarding the "excavation, fill and compaction" of the subdivision lots. Hughes later amended its complaint to include a "malpractice" claim against JDA. In 2004, the trial court granted the City's motion for summary judgment, concluding the economic loss doctrine prevented Hughes from recovering from the City and, in any event, Hughes had not filed a notice of claim or his action within time limits prescribed by A.R.S. §§ 12-821 and 12-821.01(A).

¶ 5 In 2006, Hughes filed a second amended complaint, asserting a negligence claim against JDA alleging it had breached its duty to both "ensure that the subdivision lots could be used for the construction of single family residences," and determine whether the lots "met minimum requirements for compact and soil expansion," and that it had also failed to "advise the public ... of any conditions that would prevent the development of the lots as reasonably anticipated." Hughes also alleged JDA had breached an implied warranty "that [it had] exercise[d][its] skill with care and diligence and in a reasonable, non-negligent manner" in performing its contract with the subdivision developers. Hughes asserted as damages "[p]ast and future lost income," "[e]xpenses incurred in an attempt to prevent further subsidence," "[p]enalties imposed by the Arizona Registrar of Contractors," "[l]iability incurred by [Hughes] to the purchasers of the residential structures," "[d]amages paid to the purchasers of the residential structures," and "[a]ttorney fees and costs."

¶ 6 JDA filed a motion for partial summary judgment, asserting Hughes did not have "standing to bring an action seeking the lost value" of the houses sold to the Bernsteins and Francoms "or the costs to demolish [them]." JDA argued that, in order to have standing, Hughes had to prove it had sustained "particularized injuries," and could not do so because neither the Bernsteins nor the Francoms had assigned to Hughes any potential claims they might have had against JDA. Hughes responded that it "ha[d] not filed this action on behalf" of the homeowners, and instead sought compensation for its own losses, which "include[d] the damages Hughes must pay to the Francom[s] for breach of the implied warranty of habitability and for the loss of the value of the ... home [Hughes] [had] given to the Bernstein[s] to satisfy the judgment obtained by the Bernstein[s] against Hughes." The trial court granted JDA's motion and instructed JDA to "prepare findings of fact and conclusions of law to present to the Court for signature." The court signed JDA's proposed "findings of fact and conclusions of law,"1 which stated the statute of limitations barred any potential claims the Francoms might have had against JDA, the Francoms and Bernsteins had not assigned any claims to Hughes and, thus, Hughes "had no standing to assert as damages the alleged lost value" of either house.

¶ 7 JDA subsequently filed two more motions for partial summary judgment, asserting the economic loss doctrine as a bar to Hughes' negligence and breach of implied warranty claims. The court granted both motions and, again, adopted JDA's proposed findings of fact and conclusions of law. The court, relying on Carstens v. City of Phoenix, 206 Ariz. 123, 75 P.3d 1081 (App.2003), concluded the economic loss doctrine precluded Hughes' claims because Hughes had "not allege[d] any personal injury or secondary property loss resulting from JDA's alleged negligence [or breach of implied warranty]." The court entered final judgment in favor of JDA, awarding it $3,390.80 in costs. This appeal followed.

Discussion

¶ 8 Summary judgment is proper when "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Ariz. R. Civ. P. 56(c)(1). A court should grant summary judgment "if the facts produced in support of the claim or defense have so little probative value, given the quantum of evidence required, that reasonable people could not agree with the conclusion advanced by the proponent of the claim or defense." Orme Sch. v. Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990). We review de novo whether there are any genuine issues of material fact and whether the trial court applied the law properly. Brookover v. Roberts Enters., Inc., 215 Ariz. 52, ¶ 8, 156 P.3d 1157, 1160 (App.2007).

Economic Loss Doctrine

¶ 9 Hughes argues the trial court erred in ruling the economic loss doctrine precluded recovery on its negligence claim.2 The economic loss doctrine precludes a party from recovering in tort if the party has suffered only an economic loss and, therefore, should pursue its remedy in contract instead of in tort. See generally Salt River Project Agric. Improvement & Power Dist. v. Westinghouse Elec. Corp., 143 Ariz. 368, 376-79, 694 P.2d 198, 206-09 (1984), abrogated on other grounds by Phelps v. Firebird Raceway, Inc., 210 Ariz. 403, 111 P.3d 1003 (2005); Carstens, 206 Ariz. 123, ¶ 10, 75 P.3d at 1083-84.

¶ 10 Hughes asserts the economic loss doctrine does not apply to its negligence claim against JDA because there is an "exception" to the doctrine for negligence by "design professionals." Hughes relies on Donnelly Construction Co. v. Oberg/Hunt/Gilleland, 139 Ariz. 184, 677 P.2d 1292 (1984), rejected in part by Gipson v. Kasey, 214 Ariz. 141 150 P.3d 228 (2007). In Donnelly, our supreme court determined that "[d]esign professionals have a duty to use ordinary skill, care, and diligence in rendering their professional services," 139 Ariz. at 187, 677 P.2d at 1295, and are liable for "foreseeable injuries to foreseeable victims which proximately result from their negligent performance of their professional services." Id. at 188, 677 P.2d at 1296.3 Thus, the court concluded, a construction contractor could bring a negligence action against a design professional for increased construction cost caused by a faulty site plan — even in the absence of a contract between the contractor and designer. Id. at 185-86, 188, 677 P.2d at 1293-94, 1296.

¶ 11 The supreme court, however, did not discuss whether the economic loss doctrine could apply to preclude such an action. But Division One of this court recently reached this question, and, relying in part on Donnelly, held the doctrine did not bar recovery in a negligence action against an architect for defects in design, as opposed to defects in construction. Flagstaff Affordable Hous. Ltd. P'ship v. Design Alliance, Inc., ___ Ariz. ___, ¶¶ 28, 30, 212 P.3d 125, ___, ___ (App.2009). There, the architect had provided the builder with a plan for an apartment complex that did not comply with federal regulations and, after completing construction, the builder incurred significant additional costs to correct the deficiencies. Id. ¶¶ 2-3. Division One noted the...

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