Shelby v. Arizona Registrar of Contractors

• Decision Date: 06 August 1992
• Docket Number: No. CV-91-0173-PR,CV-91-0173-PR
• Parties: Gene SHELBY, an unmarried woman; Edward DeValk and Mary Jane DeValk, husband and wife, representatives of the class of individuals of Las Casas Bellas Subdivision, Tucson, Arizona; Las Casas Bellas Condominiums Association, an Arizona non-profit corporation, and Members of the Board of Directors of Las Casas Bellas Condominiums Association, Plaintiffs/Appellants, v. The ARIZONA REGISTRAR OF CONTRACTORS, Intervenor/Appellee.
• Court: Arizona Supreme Court

Page 818

834 P.2d 818

172 Ariz. 95

Gene SHELBY, an unmarried woman; Edward DeValk and Mary Jane DeValk, husband and wife, representatives of the class of individuals of Las Casas Bellas Subdivision, Tucson, Arizona; Las Casas Bellas Condominiums Association, an Arizona non-profit corporation, and Members of the Board of Directors of Las Casas Bellas Condominiums Association, Plaintiffs/Appellants, v. The ARIZONA REGISTRAR OF CONTRACTORS, Intervenor/Appellee.

No. CV-91-0173-PR.

Supreme Court of Arizona, In Banc.

Aug. 6, 1992.

[172 Ariz. 96] Tanis A. Duncan, Tucson, for plaintiffs/appellants.

Grant Woods, Atty. Gen. by Fred W. Stork, III, William V. Hornung, Phoenix, for intervenor/appellee.

OPINION

FELDMAN, Chief Justice.

Petitioners Gene Shelby, Ed and Mary DeValk, and Las Casas Bellas Condominium Association seek review of a court of appeals opinion limiting their total award from the Residential Contractors' Recovery Fund (the Fund) under A.R.S. §§ 32-1131 to -1140. See Shelby v. Arizona Registrar of Contractors, 169 Ariz. 137, 817 P.2d 941 (Ct.App.1991). The issues presented regarding the Fund's award limits are questions of first impression. Accordingly, we granted review. See Rule 23(c)(4), Ariz.R.Civ.App.P., 17B A.R.S. We have jurisdiction pursuant to article 6, § 5(3) of the Arizona Constitution and A.R.S. § 12-120.24.

FACTS AND PROCEDURAL HISTORY

The individual Petitioners, Gene Shelby and Ed and Mary DeValk, own individual condominium units in Las Casas Bellas Condominiums in Tucson. Shelby owns four units and resides in one, while the DeValks own and reside in one condominium unit. Shelby and the DeValks filed an action against the general contractor that built the condominium project, the project developer, and other parties. So far as relevant to this proceeding, Petitioners sought damages for the contractor's and developer's negligence and breach of warranty in constructing the development, and for misrepresentation.

Shelby and the DeValks also named their condominium association, Las Casas Bellas Condominium Association (the Association), as a defendant, seeking damages for the Association's alleged failure to repair and maintain the common elements of the condominium project, as required by the Declaration of Covenants, Conditions and Restrictions and Grant of Easements (CCRs) established for the condominium project. The developer formed the Association to manage and control the common elements of the project. At the time the action commenced, the developer still maintained control over the Association's board of directors. ¹

Shelby and the DeValks requested that all individual condominium owners be certified as a class under Rule 23, Ariz.R.Civ.P., 16 A.R.S. The trial court denied that motion. Minute Order (May 16, 1988). After the individual condominium owners gained control of the Association, Shelby and the DeValks moved for reconsideration of their previous motion to certify the class or, in the alternative, for leave of court to allow the Association to join as a plaintiff, under Rule 19, Ariz.R.Civ.P., because it was no longer an alter ego of the developer. The trial court granted the motion to join the Association as a plaintiff but again refused to certify the class. Minute Order (April 17, 1989).

At trial, the parties entered into a stipulated judgment providing that Shelby was entitled to $25,250 and the DeValks to $17,400 from the developer on the negligence and breach of warranty claims. Stipulated Judgment (Jan. 22, 1990). These sums represented the cost of repairing or replacing the roofs over Shelby's and the DeValks' respective units (Buildings A and B). The judgment also awarded the Association $35,720 "on behalf of all the owners of 63 residential units in Las Casas Condominium" for repairing construction defects in the condominium roads, pool, spa, and the roof over Building C. Because the roads, pool, spa, and roofs are all considered common elements of the development, as defined by the CCRs and A.R.S. § 33-1202(7), the parties agree that all sums awarded represent damages for defects in the common elements of the development.

After entry of judgment, Shelby, the DeValks, and the Association (collectively Petitioners) applied to the superior court for an order under A.R.S. § 32-1136(B) requiring payment of the judgment from the Fund established by A.R.S. § 32-1132 because the developer was no longer doing business and its contractor's license had been revoked. ² The Registrar of Contractors (the Registrar) did not object to payment from the Fund but filed an objection to the amount of the payment sought. The trial court ruled that Petitioners' combined recovery from the fund was limited to a single award totalling $15,000. The court of appeals affirmed, and we granted the petition for review. We now reverse and vacate the court of appeals' opinion.

DISCUSSION

As framed by the Registrar, the principal issue presented in this case is whether the Fund statutes (A.R.S. §§ 32-1131 to -1140) permit individual condominium unit owners to recover, to the statutory aggregate limit of $75,000, damages to a condominium's common elements, or whether recovery for all damages to a condominium's common elements is limited to a single $15,000 maximum award.

A. Statutory Provisions for Recoveries from the Fund

The legislature established the Fund in 1981 in part "to provide improved protection for owners and lessees of property who contract for the construction or alteration of residential structures." 1981 Sess.Laws ch. 221, § 1 (legislative purpose). The legislature created the Fund as part of a broad regulatory scheme for the commercial and industrial construction business. See id. §§ 1-38. The legislature has frequently amended the Fund statutes, for example, to limit the Fund's obligations and change its award limits. See, e.g., 1986 Sess. Laws ch. 318, § 8; 1983 Sess. Laws ch. 149, §§ 1-3.

A.R.S. § 32-1132 provides in relevant part that

any person injured by an act, representation, transaction or conduct of a residential contractor, which is in violation of this chapter or the regulations promulgated pursuant to this chapter, may be awarded ... an amount of not more than fifteen thousand dollars for damages sustained by the act, representation, transaction or conduct. An award from the fund is limited to the actual damages suffered by the claimant as a direct result of the contractor's violation but shall not exceed an amount necessary to complete or repair a residential structure or appurtenance within residential property lines.... No more than the maximum individual award from the fund shall be made on any individual residence or to any injured person....

(Emphasis added.) Thus, the statute authorizes awards only to injured persons and sets a maximum individual award limit of $15,000 for "any individual residence or to any injured person." A.R.S. § 32-1131(3) defines "person injured" as

any owner of residential real property which is classified as class five property under § 42-162 [the tax code], and which is actually occupied by the owner as a residence including, but not limited to, community property, tenants in common or joint tenants[,] who is damaged by the failure of a residential contractor to adequately build or improve a residential structure or appurtenance on that real property.

In sum, we believe this statute sets three requirements to qualify as a person injured under the statute. First, the claimant must be an "owner of residential real property" as classified under the tax code. Second, the owner must actually occupy the property "as a residence including, but not limited to, community property, tenants in common or joint tenants." Third, the claimant must be "damaged by the failure of a residential contractor to adequately build or improve a residential structure or appurtenance on that real property." If an individual qualifies as a person injured, he is entitled under § 32-1132 to recover up to the maximum individual award for damage to any "individual residence."

Therefore, we must determine whether individual unit owners qualify as persons injured under the statute for damage to the condominium's common areas and, if so, whether injury to the common areas constitutes injury to each unit owner's individual residence. Likewise, we must decide whether the condominium association is the only person injured under the statute or whether it can sue on behalf of the individual unit owners as persons injured.

B. Are Individual Unit Owners "Persons Injured" as a Result of Damage to the Condominium's Common Elements?

As the court of appeals noted, an individual condominium owner is considered to own only

a horizontal layer of "cubic content space" which is subject to his exclusive control, ... together with an undivided fractional or percentage interest held in common with other unit owners in the "general common elements." Among other things, the general common elements include the land, the foundations, floors, the exterior walls of each [unit], ceilings and roofs, and in general all that portion of the property other than that which is subject to the exclusive ownership and control of an individual [unit] owner.

Shelby, 169 Ariz. at 139, 817 P.2d at 943 (quoting Makeever v. Lyle, 125 Ariz. 384, 386, 609 P.2d 1084, 1086 (Ct.App.1980) (citation and footnote omitted)).

The parties agree that under § 42-162, owners of individual condominium units, such as Shelby and the DeValks, own residential real property. Indeed, a condominium unit is the "portion of the condominium designated for separate ownership or occupancy." A.R.S. § 33-1202(22). In this case, the parties also agree that Shelby and the DeValks actually occupy the property as a residence. ³ Finally, the Registrar concedes that Shelby and the DeValks were damaged by the residential contractor's failure adequately to build their condominium buildings.

The question before us arises...