Flagstaff Affordable Housing Ltd. Partnership v. Design Alliance, Inc.

223 P.3d 664, 223 Ariz. 320, 575 Ariz. Adv. Rep. 31, 2010 Ariz. LEXIS 11
CourtArizona Supreme Court
DecidedFebruary 12, 2010
DocketCV-09-0117-PR
StatusPublished
Cited by78 cases

This text of 223 P.3d 664 (Flagstaff Affordable Housing Ltd. Partnership v. Design Alliance, Inc.) is published on Counsel Stack Legal Research, covering Arizona Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Flagstaff Affordable Housing Ltd. Partnership v. Design Alliance, Inc., 223 P.3d 664, 223 Ariz. 320, 575 Ariz. Adv. Rep. 31, 2010 Ariz. LEXIS 11 (Ark. 2010).

Opinion

OPINION

BALES, Justice.

¶ 1 The “economic loss doctrine” bars plaintiffs, in certain circumstances, from recovering economic damages in tort. This Court has previously applied the doctrine only to products liability claims. Today we apply the doctrine in a construction defect case and hold that a property owner is limited to its contractual remedies when an architect’s negligent design causes economic loss but no physical injury to persons or other property.

I.

¶2 Because the superior court dismissed this action pursuant to Arizona Rule of Civil Procedure 12(b)(6), we assume the complaint’s factual allegations to be true for purposes of our review. Cullen v. Auto-Owners Ins. Co., 218 Ariz. 417, 419 ¶ 7, 189 P.3d 344, 346 (2008).

¶ 3 In 1995, Flagstaff Affordable Housing Limited Partnership (“Owner”) contracted with Design Alliance, Inc. (“Architect”) for the design of eight apartment buildings and a community center (the “apartments”). To qualify as a low income housing project, the apartments had to comply with the federal Fair Housing Act’s accessibility guidelines. Owner separately contracted with Butte Construction Company (“Contractor”) for the construction of the apartments, which were completed in Flagstaff in 1996.

¶ 4 In 2004, the U.S. Department of Housing and Urban Development (“HUD”) filed a complaint against Owner, alleging that the apartments violated the accessibility guidelines. After settling with HUD, Owner in 2006 sued Architect and Contractor, alleging they had breached their respective contracts and acted negligently. Contractor was later dismissed from the action.

¶ 5 Architect moved to dismiss the complaint under Rule 12(b)(6). Architect argued that the contract claim is barred by the statute of repose in Arizona Revised Statutes (“AR.S.”) section 12-552 (2003), which provides that no action based in contract may be brought against a person who “furnishes the *322 design ... of an improvement to real property more than eight years after substantial completion of the improvement.” Architect argued that the negligence claim should be dismissed based on Carstens v. City of Phoenix, which held that the economic loss doctrine precludes tort recovery of economic losses in the “construction defect setting.” 206 Ariz. 123, 125 ¶ 10, 75 P.3d 1081, 1084 (App.2003).

¶ 6 Owner voluntarily dismissed the contract claim, but argued that the economic loss doctrine does not bar the claim for professional negligence. Owner did not dispute that it seeks recovery only for economic losses, and acknowledged that Carstens applied the doctrine in a construction defect case. Owner argued, however, that a claim for “professional negligence” is based on the special relationship between architects and their clients and therefore is excepted from the economic loss doctrine. The superior court dismissed the complaint.

¶ 7 The court of appeals reversed, holding that the economic loss doctrine does not bar negligence claims against design professionals. Flagstaff Affordable Hous. Ltd. P’ship v. Design Alliance, Inc., 221 Ariz. 433, 212 P.3d 125 (App.2009). The court acknowledged that prior Arizona cases, such as Carstens, applied the doctrine to cases involving construction defects. Id. at 436 ¶ 10, 212 P.3d 125, 212 P.3d at 128. Distinguishing Carstens, the court stated that this case does not involve construction defects, but an architect’s alleged negligent design. Id. at 436, 449 Mill, 28, 212 P.3d at 128, 132. The court concluded that the economic loss doctrine should not apply because Owner’s claim is based in tort, not contract, and reflects the special duties imposed on architects by law. Id. at 437, 441 ¶¶ 13-14, 30, 212 P.3d at 129, 133.

¶ 8 We granted Architect’s petition for review because the application of the economic loss doctrine in this context is an issue of first impression and statewide importance. We have jurisdiction under Article 6, Section 5(3) of Arizona’s Constitution and A.R.S. § 12-120.24 (2003).

II.

A.

¶ 9 Architect argues that the superior court properly dismissed the complaint because Owner alleges only economic loss; the economic loss doctrine applies in construction cases and precludes tort recovery for such losses absent personal injury or damage to other property; and the doctrine should apply to claims against not only contractors but also architects and other design professionals. The scope of the economic loss doctrine presents a legal issue that we review de novo. See Dressler v. Morrison, 212 Ariz. 279, 281 ¶ 11, 130 P.3d 978, 980 (2006) (applying de novo review to legal issues underlying dismissal of complaint pursuant to Rule 12(b)(6)).

¶ 10 This Court has not addressed the economic loss doctrine since its decision in Salt River Project Agricultural Improvement and Power District v. Westinghouse Electric Corp., 143 Ariz. 368, 694 P.2d 198 (1984). 1 In the absence of other decisions by this Court, the court of appeals and the federal courts have reached conflicting conclusions regarding the application of the doctrine under Arizona law. Compare Apollo Group, Inc. v. Avnet, Inc., 58 F.3d 477, 480 (9th Cir.1995) (stating that Salt River reflects that Arizona applies the economic loss rule “broadly”), with Evans v. Singer, 518 F.Supp.2d 1134, 1142-45 (D.Ariz.2007) (stating Salt River “provided anything but” a broad reading of the rule); compare also Carstens, 206 Ariz. at 128 ¶ 21, 75 P.3d at 1086 (arguing that Salt River supports applying doctrine to bar homeowners’ claim for economic losses from construction defects), with Valley Forge Ins. Co. v. Sam’s Plumbing, LLC, 220 Ariz. 512, 515-16 ¶¶ 11-12, 207 P.3d 765, 768-69 (App.2009) (arguing that Carstens misconstrued Salt River).

*323 ¶ 11 We begin by clarifying terminology. Courts and commentators have defined the economic loss doctrine in varying ways, which itself has created some confusion in the law. See Eddward P. Ballinger & Samuel A. Thumma, The Continuing Evolution of Arizona’s Economic Loss Rule, 39 Ariz. St. L.J. 535, 536-37 (2007) (noting confusion surrounding doctrine in various jurisdictions and stating cases do not define a “single, unified economic loss rule”); Dan B. Dobbs, An Introduction to Non-Statutory Economic Loss Claims, 48 Ariz.L.Rev.

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223 P.3d 664, 223 Ariz. 320, 575 Ariz. Adv. Rep. 31, 2010 Ariz. LEXIS 11, Counsel Stack Legal Research, https://law.counselstack.com/opinion/flagstaff-affordable-housing-ltd-partnership-v-design-alliance-inc-ariz-2010.