Monthly Archives: May 2009

Hughes Custom Building, L.L.C. v. James Davey and Associates (CA2 5/7/09)

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Having very recently addressed the economic loss rule, Division Two does so again here and manages to muddy the waters pretty completely.

Davey (“JDS”) did soil engineering for a subdivision in Globe. Hughes built some houses there. The houses had serious problems due, allegedly, to bad soil. As a result, Hughes dealt with lawsuits from homeowners, problems with the Registrar of Contractors, its own (unsuccessful) suit against the City of Globe, and substantial legal fees. It then sued JDS for negligence. JDS moved for summary judgment, which the trial court – a Graham County judge visiting Gila – granted. (For some reason, the trial judge then instructed JDS to prepare findings and conclusions; in a footnote, this opinion gently points out that they’re not appropriate on summary judgment and that the Court of Appeals would ignore them.) Hughes appealed.

JDS’s argument was that under the economic loss rule Hughes couldn’t sue for negligence. The economic loss rule, traditionally stated, is that a claim for economic loss that does not involve personal injury or damage to property other than that which was the subject of a contract lies only in tort, not in contract. For example, if you buy a widget that turns out to be broken then your claim is in contract unless the broken widget hurts you or causes damage to some other, “secondary” property.

What property is “secondary” can involve the sort of how-many-angels-fit-on-the-head-of-a-pin metaphysics that has not – as this opinion demonstrates – entirely passed out of the law. When Hughes built houses on the land JDS worked on, did they become part of the land – and therefore subject to the economic-loss doctrine – or were they still separate, and therefore “secondary,” property?

In March Division Two seemed to have simplified the problem in  Valley Forge Insurance v. Sam’s Plumbing, L.L.C. (CA2 3/19/09) (which we referred to briefly here). Under that case, the question turns not on whether the property is “other property” but instead on analysis of three factors: “the nature of the defect, how the loss occurred, and the type of loss for which the plaintiff seeks redress.” Under that analysis, there needn’t even be any “other property” to support a tort claim.

Hughes started with the last factor – the type of loss.  If the loss is economic, the remedy is in contract. But if personal injury or damage to other property is involved, tort liability is appropriate. Therefore, the court said, the question is whether the houses became part of the land or were “other property.”

Wait a minute. Haven’t we just circled back to the traditional economic loss rule? And how does that square with the indication in Valley Forge that the question is not whether there is other property?

In any event, after a page or two of studying metaphysics from other jurisdictions, the court concluded that the houses were separate from the lots. (At this point the opinion mentions that JDS had conceded that at oral argument; one wonders whether the court wanted to bolster its argument with the litigant’s admission or to justify the admission with its argument.) So, factor three justifies a tort claim.

The first factor – the nature of the defect – concerns whether there is an unreasonable danger to person or property or merely a construction defect. The court concluded that bad soil is a danger both to the houses and to their occupants. Factor two justifies a tort claim.

The second factor – how the loss occurred – has to do with whether it occurred suddenly or gradually. This factor, the court explained, might favor a contract claim but was outvoted here by the first two factors.

Therefore, Hughes was entitled to sue JDS for negligence. The court reversed and remanded on that issue. (It upheld the trial court on a couple of issues JDS argued below but didn’t discuss in its brief.)

Where this leaves the economic loss rule is anybody’s guess. The old rule has, apparently, been folded into one of the three Valley Forge factors, which are themselves so clearly and artfully drawn that they have to be addressed backwards, or at least sideways.

(Hughes also argued a “standing” issue but the argument was factually silly and so we won’t waste time on it.)

Engel v. Landman (CA1 4/20/09)

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You won’t see us reviewing many cases involving modification of a  child support award (or a divorce, or similar things vitally important, we’re sure, but dreadfully dull and repetitive). But this one features a thoroughly fouled-up procedural situation that we can’t resist laughing at.

A couple years after their divorce, Father moved to modify his child support payments to Mother. Father and Mother are millionaires fighting over financial trifles and therefore went at this litigation with a gusto appreciated, no doubt, by their lawyers but not by Division One, which goes out of its way to comment on the situation. After an evidentiary hearing, the trial court reduced the child support but awarded Mother her attorney’s fees. Father moved for new trial and objected to Mother’s fee application; she apparently did not respond to either. Before the trial court had ruled on those, Father filed a Notice of Appeal and Mother filed a cross-appeal. The following month, the court ruled on the motion, mostly denying it in a signed minute entry but reducing the child support further and vacating the fee award. In the mean time, though, Father had moved to withdraw his motion; after finding out about the court’s ruling, he moved to withdraw his motion to withdraw his motion. Mother objected to the motion to withdraw the motion to withdraw and moved to “strike” the ruling on the new-trial motion.

Are you with us so far?

Father then filed a “supplemental” notice of appeal from the ruling on his new-trial motion. A month later, the court granted his motion to withdraw his motion to withdraw his motion for new trial and denied Mothers motion to strike. Mother then filed an appeal from that order, which was an unsigned minute entry.

Folks, keep in mind that there are staffers at all our appellate courts whose first job is to make sure that their courts have jurisdiction of the appeal. They live for cases like this.

The opinion takes several pages to sort out the procedural problems and deal with them.

Father’s premature appeal (filed, remember, before the ruling on his Motion for New Trial) was a nullity. A party may not file a notice of appeal when a time-extending motion (e.g., for new trial) is pending in the trial court. (An earlier Division One case had adopted a broader rule; the opinion in Engel retracts that in light of a subsequent Supreme Court case.)

Father’s supplemental notice of appeal – filed after the new-trial ruling – was effective.

Mother’s Motion to Strike was properly denied. The opinion points out, in essence, that it was the wrong motion filed at the wrong time asking for the wrong relief under the wrong rule. A footnote requests that lawyers read the rules and figure out what a Motion to Strike is and what it isn’t.

Mother’s cross-appeal was a nullity for the same reason Father’s first notice was. She didn’t file a supplemental notice, so she had no appeal. A party may raise a cross-issue in an answering brief (ARCAP 13) but not, as a practical matter, if it seeks affirmative relief (in the language of the rule and the opinion, if it enlarges the rights of the appellee or lessens the rights of the appellant). Because that’s what Mother wanted – more child support and her attorney’s fees – the court had no jurisdiction to consider her cross-issues.

Mother’s other appeal, you may recall, was from an unsigned minute entry. Normally when that happens (the fact that it happens so often that there is a normal procedure for dealing with it is, by the way,  an embarrassment to the profession) the court suspends the appeal until the appellant gets the order signed. But there’s no point in that if the order isn’t appealable anyway. To be appealable, a post-judgment order must raise different issues than an appeal from the judgment would raise and must affect or enforce/stay the judgment. The court held that this order did not satisfy the first criterion.

The rest of the opinion deals mostly with the details of what Father’s child support should have been; if that’s your thing, go for it.

As we always do with things like this, we should point out that we know only what the opinion says and that there could be extenuating circumstances. On the face of it, though, you have to wonder whether there should have been adult supervision.