Sullivan v. Pulte Home Corp.

354 P.3d 424, 237 Ariz. 547, 718 Ariz. Adv. Rep. 7, 2015 Ariz. App. LEXIS 130

• Court: Court of Appeals of Arizona
• Decided: July 28, 2015
• Docket: No. 1 CA-CV 14-0199
• Status: Published

Opinions

OPINION

DOWNIE, Judge:

¶ 1 This appeal presents the question whether a subsequent (i.e., non-original) homeowner may maintain a negligence cause of action against a homebuilder for economic losses arising from latent construction defects unaccompanied by physical injury to persons or other property. The homeowners in this case contend that a public policy-based tort duty arises from a municipal building code, as well as from statutes and regulations governing residential contractors. We disagree and therefore affirm the judgment of the superior court.

FACTS AND PROCEDURAL HISTORY

¶ 2 Defendan/Appellee Pulte Home Corporation developed and built homes in a Phoenix hillside community. In 2000, Pulte sold the home at issue in these proceedings to the original homeowners, who, in 2003, sold the property to Plaintiffs/Appellants John and Susan Sullivan. In 2009, the Sullivans discovered problems with the home’s hillside retaining wall. An engineering firm they retained concluded that Pulte had constructed the retaining wall and prepared the home site without proper structural and safety components, including footings, rebar, and adequate drainage and grading. Pulte declined the Sullivans’ request to make repairs.

¶ 3 The Sullivans sued Pulte, alleging eleven separate counts, including several negligence-based claims. The Sullivans sought to recover out-of-pocket costs associated with identifying and remediating the alleged defects, as well as damages for diminution in the property’s value. Pulte moved to dismiss all counts of the complaint pursuant to Arizona Rule of Civil Procedure 12(b)(6), arguing that the implied warranty claim was barred by the statute of repose and that the tort claims were impermissible under the economic loss doctrine (“ELD”).¹ The superior court granted Pulte’s motion, and the Sullivans appealed.

¶ 4 This Court affirmed the dismissal of all counts of the Sullivans’ complaint except the negligence claims. Sullivan v. Pulte Home Corp., 231 Ariz. 53, 60, ¶¶ 30-31, 290 P.3d 446, 453 (App.2012), vacated in part, 232 Ariz. 344, 306 P.3d 1 (2013). We held that because the Sullivans were not in privity with Pulte and had no contract with the homebuilder, the ELD did not bar their negligence claims. Although the Arizona Supreme Court vacated the portion of our opinion discussing the ELD, it nevertheless agreed that the ELD did not bar the Sullivans’ negligence claims. Sullivan v. Pulte Home Corp., 232 Ariz. 344, 345-47, ¶¶ 7, 11, 15, 306 P.3d 1, 2-4 (2013) (“Sullivan I”). Sullivan I held that the ELD “protects the expectations of contracting parties, but, in the absence of a contract, it does not pose a barrier to tort claims that are otherwise permitted by substantive law.” Id. at 346, ¶ 11, 306 P.3d at 3. Instead, courts must “consider the applicable substantive law to determine if non-contracting parties may recover economic losses in tort.” Id. at 347, ¶ 14, 306 P.3d at 4. The supreme court cautioned that its opinion should not be read as implying that the Sullivans would ultimately prevail on their negligence claims, stating:

Our holding that the economic loss doctrine does not bar the Sullivans’ tort claims does not, of course, imply that those claims will ultimately succeed. Cf. Flagstaff Affordable Hous., 223 Ariz. at 327-28, ¶ 39, 223 P.3d at 671-72 (directing courts to consider applicable substantive law to determine if non-contracting parties may recover economic losses in tort); Draft Restatement § 6(2), reporter’s note to cmt. c (noting division of authority but concluding that subsequent home purchasers should not recover in tort from homebuilder for negligent construction). As the court of appeals noted, Pulte made other arguments challenging the legal sufficiency of the tort claims that were not addressed by the trial court, which may consider those arguments in the first instance on remand.

Sullivan I, 232 Ariz. at 347, ¶ 14, 306 P.3d at 4.

¶ 5 On remand to the superior court, Pulte moved to dismiss the negligence claims pursuant to Rule 12(b)(6), arguing “a homebuilder such as Pulte does not owe a duty of care to a subsequent purchaser (such as plaintiffs) to prevent them from economic harm.” The superior court granted Pulte’s motion, and the Sullivans again timely appealed.

DISCUSSION

¶ 6 “Whether the defendant owes the plaintiff a duty of care is a threshold issue; absent some duty, an action for negligence cannot be maintained.” Gipson v. Kasey, 214 Ariz. 141, 143, ¶ 11, 150 P.3d 228, 230 (2007). “Duties of care may arise from special relationships based on contract, family relations, or conduct undertaken by the defendant.” Id. at 145, ¶ 18, 150 P.3d at 232. Additionally, “[p]ublic policy may support the recognition of a duty of care.” Id. at 145, ¶ 23, 150 P.3d at 232. “In many instances, the legislature reflects public policy by codifying certain duties and obligations.” Monroe v. Basis Sch., Inc., 234 Ariz. 155, 160, ¶ 17, 318 P.3d 871, 876 (App.2014). We consider the duty question de novo. See N. Peak Constr., LLC v. Architecture Plus, Ltd., 227 Ariz. 165, 167, ¶ 13, 254 P.3d 404, 406 (App.2011) (dismissal for failure to state a claim reviewed de novo); Home Builders Ass’n of Cent. Ariz. v. City of Maricopa, 215 Ariz. 146, 149, ¶ 6, 158 P.3d 869, 872 (App. 2007) (questions of law and statutory interpretation reviewed de novo).

¶ 7 At oral argument before this Court, the Sullivans disavowed any assertion that a duty exists based on common law principles of negligence. They instead premise their duty argument on a municipal building code and on Arizona statutes and regulations governing residential contractors. The Sullivans contend they “fall within the class of persons protected by Arizona’s public policy framework which mandates specific design and construction standards for safe residential construction.” Specifically, they argue:

The duties imposed by law upon Pulte are found in: the Building Code adopted by the City of Phoenix (specifying minimum standards in design and construction to protect, inter alia, life or limb, health, property); the Arizona Administrative Code, AAC R4-9-108 (Registrar of Contractors ... regulations establishing Workmanship Standards); and, A.R.S. § 32-1154 (mandating compliance with building codes and ROC regulations).

¶ 8 Turning first to the City of Phoenix Uniform Building Code (“Building Code”), the Sullivans rely on its stated purpose of “provid[ing] minimum standards to safeguard life or limb, health, property and public welfare by regulating and controlling the design, construction, quality of materials, use and occupancy, location and maintenance of all buildings and structures....” Building Code § 101.2. However, that same section of the Building Code specifically disclaims any intent to protect or benefit a particular group or class, stating, “[T]he purpose of this code is not to create or otherwise establish or designate any particular class or group of persons who will or should be especially protected or benefited by the terms of this code.” Id.

¶ 9 A statute or regulation typically gives rise to a tort duty premised on public policy only if it “is designed to protect the class of persons, in which the plaintiff is included, against the risk of the type of harm which has in fact occurred as a result of its violation.” Estate of Hernandez v. Ariz. Bd. of Regents, 177 Ariz. 244, 253, 866 P.2d 1330, 1339 (1994). It would be anomalous, as well as inconsistent with this well-established legal tenet, to premise a tort duty on a regulatory scheme that expressly eschews any intent to protect or benefit a class or group of persons. Cf. Tellez v. Saban, 188 Ariz. 165, 169, 933 P.2d 1233, 1237 (App.1996) (rejecting negligence per se claim based on statute prohibiting rental car company from leasing to unlicensed drivers because “statutes intended for the protection of the public at large rather than an individual or class of persons do not create the standard of conduct required of a reasonable person”); Jackson v. City of Seattle, 158 Wash.App. 647, 244 P.3d 425, 430, ¶ 16 (2010) (“[Plaintiff] does not persuasively explain how we could view the [Seattle] stormwater code as a foundation for a negligence action in spite of the express disclaimer of a purpose to designate a protected class and the express terms making the code enforceable only by the city.”). Thus, even assuming for the sake of argument that a municipal building code is of sufficient legal stature to support imposition of public policy-based tort duties, the code at issue here reveals no intention to protect or benefit subsequent homeowners who experience economic loss.

¶ 10 Although Arizona’s appellate courts have held that statutes enacted for public safety may support public policy-based tort duties, they have done so largely in the context of injury and death cases. See, e.g., Gipson, 214 Ariz. at 146, ¶ 26, 150 P.3d at 233 (defendant providing prescription drugs to woman who subsequently gave them to third party owed duty based on criminal statute “designed to avoid injury or death to people who have not been prescribed prescription drugs”); Estate of Hernandez, 177 Ariz. at 251-53, 866 P.2d at 1337-39 (statute making it unlawful to provide alcohol to minors supported duty by defendants serving alcohol to minor driver who later injured plaintiff); Alhambra Sch. Dist. v. Maricopa Cnty. Superi- or Court, 165 Ariz. 38, 42-43, 796 P.2d 470, 47A-75 (1990) (school district assumed duty of care to persons using crosswalk it established and could be hable for personal injury caused by deviation from statutory requirements); Ontiveros v. Borak, 136 Ariz. 500, 509-11, 667 P.2d 200, 209-11 (1983) (dram shop statutes as basis for tavern owner’s duty to pedestrian injured by drunk driver served in violation of statute); Estate of Maudsley v. Meta Servs., Inc., 227 Ariz. 430, 436, V 21, 258 P.3d 248, 254 (App.2011) (duty of care based on statutes imposing obligations on entities that screen, evaluate, and treat the mentally ill); Daggett v. Cnty. of Maricopa, 160 Ariz. 80, 84-85, 770 P.2d 384, 388-89 (App.1989) (regulations requiring inspection of swimming facilities imposed duty on county for benefit of patron injured by unsafe conditions). Distinguishing between duties owed in actions alleging death or personal injury and duties arising in cases involving purely economic loss is consistent with a noted judicial reluctance to recognize duties “to exercise reasonable care for the purely economic well-being of others.” Lips v. Scottsdale Healthcare Corp., 224 Ariz. 266, 268, ¶ 11, 229 P.3d 1008, 1010 (2010); cf. Gilbert Tuscany Lender, LLC v. Wells Fargo Bank, 232 Ariz. 598, 601-02, ¶¶ 15-17, 307 P.3d 1025, 1028-29 (App.2013) (declining to extend tort duties based on Bank Secrecy Act in case alleging economic loss).

¶ 11 Our conclusion that the Building Code does not support imposition of a public policy-based duty for purely economic loss finds support in reported decisions from other jurisdictions. See, e.g., Parker Bldg. Servs. Co. v. Lightsey, 925 So.2d 927, 931 (Ala.2005) (rejecting negligence per se claim premised on building code violations because code “does not delineate a specific class of persons it seeks to protect distinguishable from the public”); Davencourt at Pilgrims Landing Homeowners Ass’n v. Davencourt at Pilgrims Landing, LC, 221 P.3d 234, 247-48, ¶¶ 41-44 (Utah 2009) (refusing to find building codes create a duty for purposes of economic loss because “assuming a duty is owed under the statute [requiring compliance with building codes], that duty is to the public”); Jackson, 244 P.3d at 429 (“Building codes and other similar municipal codes do not typically serve as a basis for tort liability because they are enacted merely for purposes of public safety or for the general welfare.”); but see Moglia v. McNeil Co., Inc., 270 Neb. 241, 700 N.W.2d 608, 618-19 (2005) (holding, without analysis, that “[w]ith respect to appellants’ allegation that the defects violated Omaha building codes, we agree with appellants that building codes create a legal duty, thus giving rise to a potential negligence claim”).

¶ 12 Nor do we find Arizona’s statutory and administrative schemes governing licensed contractors a sufficient basis for holding that homebuilders owe public policy-based tort duties to subsequent homeowners for economic loss. Like the Building Code, the governance of licensed contractors has a broad, general purpose: “to protect the public health, safety and welfare by licensing, bonding and regulating contractors engaged in construction.” 2014 Ariz. Sess. Laws, ch. 247, § 11 (2d Reg. Sess.); see also 2004 Ariz. Sess. Laws, ch. 16, § 3 (2d Reg. Sess.); 1994 Ariz. Sess. Laws, eh. 7, § 3 (2d Reg. Sess.). Our supreme court has commented on the purpose of regulating contractors as follows:

It appears to us upon reviewing the legislative history of the evolution of the contractor’s code, that the legislature intended (1) to control contractors by issuance, suspension or revocation of licenses, and (2) after passage of the 1952 statute, to offer additional protection to persons damaged by failure of the contractor to perform his contract in the manner required by the statute, or to pay for materials or labor, by requiring bonds to insure payment of such damages.

Emp’t Sec. Comm’n of Ariz. v. Fish, 92 Ariz. 140, 144, 375 P.2d 20, 23 (1962) (emphasis added); see also Beazer Homes Ariz., Inc. v. Goldwater, 196 Ariz. 98, 101, ¶ 14, 993 P.2d 1062, 1065 (App.1999) (The “general purpose of licensing contractors” is “to regulate the conduct of contracting and protect the public from unscrupulous acts.”).

¶ 13 The policy underpinnings identified in Fish do not exist here. The Sullivans have no contract with Pulte, and they concede that no duty arises from a relationship between the parties. Although licensed contractors are subject to discipline for, inter alia, “[d]eparture from or disregard of ... any building code of the state or any political subdivision of the state in any material respect,” A.R.S. § 32-1154(A)(2), this regulatory provision does not support imposing public policy-based tort duties in favor of subsequent property owners asserting economic loss. Professional codes frequently establish standards for licensees that do not give rise to private causes of action. See, e.g., Ariz. R. Sup.Ct. 42, Preamble ¶ 20 (violation of Rules of Professional Conduct does not give rise to cause of action against licensed attorney).

¶ 14 Should the Arizona Legislature deem it appropriate to expand civil remedies based on construction-related statutes and codes, it obviously may do so. See, e.g., Fla. Stat. Ann. § 553.84 (permitting certain civil actions premised on building code violations). Such a broad expansion of the law is a policy-laden decision best suited for the legislative branch of government. See Jackson, 244 P.3d at 430 (“When a court decides that a violation of a statute shall be considered in determining liability for negligence, the motivation for doing so is to give effect to the will of the legislature.”). Especially given the Sullivans’ disavowal of any common law-based duty, we respectfully disagree with our dissenting colleague’s conclusion that Arizona courts should recognize a duty premised on codes and ordinances that offer no indication such a result was intended. See W. Page Keeton et al., Prosser and Keeton on Torts § 36, at 222 (5th ed. 1984) (discussing reliance on criminal statutes and ordinances as basis for negligence claims, noting “courts in such cases have been careful not to exceed the purpose which they attribute to the legislature. This judicial self-restraint is rooted in part in the theory of the separation of powers.”).

¶ 15 Finally, our conclusion is consistent with, though not dependent on, the Restatement (Third) of Torts: Liability for Economic Harm (“Restatement”), which our supreme court cited in Sullivan I. 232 Ariz. at 347, ¶ 14, 306 P.3d at 4. Section 1(a) of the Restatement states that “[a]n actor has no general duty to avoid the unintentional infliction of economic loss on another,” explaining that such duties are “notably narrower” than duties to prevent physical harm and “that duties to avoid causing economic loss require justification on more particular grounds than duties to avoid causing physical harm.” See Restatement § 1 cmt. a-b (Tentative Draft No. 1, 2012). The Restatement’s distinction between causes of action for economic loss and those alleging personal injury is consistent with Arizona law. See, e.g., Lips, 224 Ariz. at 268, ¶ 11, 229 P.3d at 1010. The Restatement also expressly rejects the imposition of a duty of care on homebuilders for economic losses that subsequent homeowners experience due to latent construction defects. See Restatement § 6 cmt. c (Tentative Draft No. 2, 2014) (“Liability [to subsequent purchasers] fails as a doctrinal matter because the defendant did not act for the purpose of providing a basis for reliance by the plaintiff.”).

CONCLUSION

¶ 16 For the foregoing reasons, the superi- or court properly dismissed the Sullivans’ negligence claims. We deny both parties’ requests for attorneys’ fees incurred on appeal. However, as the prevailing party on appeal, Pulte is entitled to recover its taxable costs upon compliance with ARCAP 21.

1 . "The economic loss doctrine prohibits certain tort actions seeking pecuniary damage[s] not arising from injury to the plaintiff's person or from physical harm to property.” Sullivan v. Pulte Home Corp., 232 Ariz. 344, 345, ¶ 8, 306 P.3d 1, 2 (2013).