Sullivan v. Pulte Home Corp.

Sullivan v. Pulte Home Corp.: Arizona’s Court Of Appeals Rules That Subsequent Owners Cannot Bring Tort Claims Against Builders For Non-Injury Construction Defect Claims

A new decision from the Arizona Court of Appeals has changed the rules on construction defect causes of action again. The decision in Sullivan v. Pulte Home Corp. (CA-CV 14-0199, App. Div. 1, July 28, 2015) restores the long-standing Arizona rule that subsequent owners of homes cannot bring tort claims for non-injury construction defect claims. This has the effect of fixing problems with the Statute of Repose and indemnity that existed as a result of other recent decisions.

From 1984 until 2010 Arizona homeowners had their available causes of action defined in the decision Woodward v. Chirco Construction Co., 141 Ariz. 514, 687 P.2d 1269 (1984), and discussed further in Nastri v. Wood Bros. Homes, Inc., 142 Ariz. 439, 690 P.2d 158 (App. 1984). After the rulings in Woodward and Nastri, a plaintiff could pursue damages for the need to repair a home under contract theory, including the implied warranty. Damages for personal injury or injury to personal property could be pursued under tort theory.

Arizona’s Supreme Court ended this distinction in 2010 through its decision Flagstaff Affordable Housing L.P. v. Design Alliance, 233 Ariz. 320, 223 P.3d 664 (2010). The decision involved claims of an architect’s professional negligence. The Court explained that previous decisions including Woodward and Nastri, supra, did not properly interpret previous rulings on the Economic Loss Rule and defined a new rule applicable to all construction defect cases. Parties who contracted with each other are limited to contractual remedies unless their contracts expressly preserve tort remedies. The decision did not extend the reasoning to claims by parties who were not in privity. After this decision there was no clear rule to prevent subsequent homeowners from seeking damages for repair costs under tort theory.

The dispute between Plaintiffs Sullivan and Defendant Pulte Home Corp. has resulted in three reported decisions so far. Plaintiffs are second owners of a home who alleged damages for the cost of repair to an allegedly defective retaining wall. An Appellate decision, Sullivan v. Pulte Home Corp., 231 Ariz. 53, 290 P.3d 446 (App. 2012), focused on fee recovery for Implied Warranty causes of action. The Supreme Court in Sullivan v. Pulte Home Corp. 232 Ariz. 344, 306 P.3d 1 (2013) vacated part of the decision regarding negligence claims, and remanded to the Superior Court. It ruled that the Economic Loss Doctrine did not apply but that the trial court should still determine whether Plaintiffs could maintain their negligence claim for economic damages. Defendant argued and the Superior Court agreed there was no duty to protect subsequent homeowners from economic harm. Plaintiffs argued there was a duty based on the building codes and on statutes and regulations applicable to contractor regulation. The Court of Appeals found in the latest ruling, Sullivan v. Pulte Home Corp. (CA-CV 14-0199, App. Div. 1, July 28, 2015), that there was no duty to protect subsequent owners from purely economic losses.

Flagstaff Affordable Housing L.P. v. Design Alliance left a possibility of subsequent purchaser negligence claims for repair costs. Now there is a reported decision that specifies there is no duty to create that kind of liability. This could allow the elimination of present claims for repair costs under negligence theory. It also fixes problems for builders that arose when the potential causes of action for repairs were not limited to contact claims. The Statue of Repose applies to contract-based claims only, which created some problems that are fixed now that the available causes of action for most construction defect cases are limited to contract claims again:

The Statute of Repose applies to all non-injury construction claims again. It bars all claims based on contract-based causes of action if they are brought more than eight years after substantial completion (with a potential extension up to one year and some limited statutory tolling provisions). After Flagstaff Affordable Housing L.P. v. Design Alliance there was a hole in the effectiveness of the Statute because a subsequent purchaser could still pursue their damages indefinitely under negligence theory. A two-year Statute of Limitations period for negligence claims applies but does not even begin to run until a plaintiff knows or reasonably should know about the potential claim. Until this latest ruling, a subsequent purchaser plaintiff could ask for repair costs under negligence theories any number of years after completion if the damages occurred or were discovered within two years of filing suit. Now only injury damages can be pursued after the Repose period.

Sullivan v. Pulte Home Corp. (CA-CV 14-0199, App. Div. 1, July 28, 2015) also solves the problem where a builder or seller could have potential indefinite exposure for construction defects, even though it could have contractual indemnity rights limited by the Statute of Repose.

This case could still be subject to reconsideration by the Court of Appeals or review by the Supreme Court. Watch this space for updates.

Our team remains attentive to this new case and any issues that may arise out of same, and we will continue to follow any further developments as they materialize.

By: Louis W. Horowitz, Phoenix, Arizona