Recent developments in Arizona’s statutory scheme and case law limit a Plaintiff’s ability to recover attorney fees in residential construction defect cases.

New statutes and case law have changed the rules for when attorney fees may be awarded in Arizona residential construction defect cases. New developments are based on the changes to the Purchaser Dwelling Act that went into effect in 2015, and changes in the law from the Sullivan v. Pulte (aka Sullivan I) decision in 2012 and the Sirrah v. Wunderlach decision in 2016.

Prior to July 2015 there were multiple bases for a fee award. The old Purchaser Dwelling Act process included a procedure that provided Plaintiffs with a mandatory award of fees in most cases. The new Purchaser Dwelling Act in effect since July 2015 no longer contains a fee-shifting provision. The old mandatory fee award was based on an offer process, but the offer process has been modified to include right to perform repairs.

Furthermore, Arizona statutes provide that contractual fee-shifting provisions are enforceable. Arizona statutes allow a permissive fee award for all contract-based cases. The permissive fee award was, until recently, interpreted to include claims based on implied warranty, which is a cause of action available in Arizona to all original and subsequent purchasers.  New case law has eliminated the right of subsequent purchasers bringing implied warranty claims to recover their attorney fees.

The Court of Appeals in Sullivan v. Pulte Home Corp., 231 Ariz. 53, 290 P.3d 446 (App. 2012), affirmed in part and vacated in part on other grounds, 232 Ariz. 344, 306 P.3d 1 (2013) (also known as Sullivan I) held that a claim by a subsequent purchaser arising in implied warranty did not entitle the prevailing party to fees. The Court of Appeals explained in the more recent decision of Sirrah v. Wunderlich 377 P.3d 360, 240 Ariz. 163 (App. 2016) that fee shifting is available when an implied warranty claim is between the original buyer because the implied warranty is then “implied-in-fact.” Fee shifting does not apply to an implied warranty claim by a subsequent purchaser because the claim is “implied-in-law” and outside the scope of the contractual fee-shifting statute, A.R.S. §12-341.01(A). This decision is pending review by Arizona’s Supreme Court.

New claims of construction defect that are brought by an original purchaser will allow an award of fees to the successful party.  If the claim is based on an express warranty term and the purchase agreement has a fee-shifting provision, that provision will govern. Otherwise, the statutory rule allowing permissive fee shifting will apply and the Court may award reasonable fees to the prevailing party. This is a permissive award, and the Court may decline to grant an award or may award less than the full amount of fees. Any written offer has an impact on the definition of prevailing party under the statute. New claims of construction defect that are bought by subsequent purchasers will not allow fee shifting under any basis.

We will continue to monitor Arizona case law and will provide updates on further developments, so stay tuned to our Newsroom for future updates.

Blog by: Louis Horowitz, Associate, Arizona