Sullivan v. Pulte (CA1 12/4/12)


This case against a homebuilder is interesting for a few reasons but mainly for its new wrinkle on the economic-loss doctrine.

The Sullivans bought a house with a defective retaining wall. The sued – for breach of implied warranties of workmanship and habitability, negligence,  fraud, and consumer fraud – the original builder rather than their seller, the first purchaser. Pulte removed the case and then moved to dismiss, to which motion the Sullivans responded. The District Court remanded. The Superior Court then dismissed based on the pleadings filed in federal court. The Sullivans appeal.

The argue firstly that dismissal based on federal pleadings violates due process and equal protection. The Court of Appeals disagrees; pleadings filed in federal court become part of the state record on remand.

The opinion first addresses the implied-warranty claims.

Pulte’s motion was based on the statute of repose (A.R.S. 12-552). (Pulte built the house in 2000; the Sullivans sued in 2010.) The opinion spends 2 1/2 pages deciding that it applies to implied warranty claims, though the statute says so specifically and it isn’t clear that the Sullivans argued about that.

The Sullivans did argue that the statute was unconstitutional, making an abrogation argument. But “the anti-abrogation clause does not apply to common-law contract claims,” applying instead to “tort claimants”; this cites the Samaritan case from 1998. And an implied warranty claim, despite an absence of privity, is a contract claim, citing various Arizona Supreme court cases.

The Sullivans also argued equitable tolling. But our Supreme Court has already held (Albano 2011) that that doctrine does not apply to this statute. “[T]o apply equitable tolling here would allow a judge-made doctrine to trump the statutory language reflecting the clear intent of the legislature.”

On the tort claims, Pulte argued the economic-loss doctrine. Both sides cited Flagstaff Affordable Housing. If you’ve read that case you probably think that it doesn’t allow recovery here. This opinion, citing Flagstaff, decides that it does. why? Because even though Arizona law allows the Sulllivans to sue Pulte on implied warranty without privity, and even though that sounds in contract, the Sullivans weren’t actually “contracting parties” – with Pulte, at least – and so didn’t have the “opportunity to negotiate with Pulte to allocate the risk of future losses (as if anybody has the opportunity to negotiate with a mass builder), therefore even though they’re protected by contract law they’re not really protected by contract law and so people not in privity with the builder should have more rights against it than those who were. We’d have said that the court’s quotations from Flagstaff just as well support the opposite view but maybe that’s just us. (In a footnote the court specifically recognizes the weirdness of a more-rights-without-privity situation but blames it on Flagstaff.)

Regarding consumer fraud, the court concludes, by construing its language, that the statute (A.R.S. 4401521ff) does not apply to subsequent purchasers. Similarly, it briefly concludes that fraudulent concealment applies only to the parties to the original transaction.

The trial court had awarded Pulte its attorney fees. The Court of Appeals does not merely reverse that award but concludes that it was wrong in the first place because these implied warranties are implied-in-law (and 12-341.01 applies to implied-in-fact). This cites North Peak (2011), which involved an architect’s warranty, which even that case said was different from the merchantability/habitability warranty but apparently not enough different in not quite the same way, or something.

So the court affirms dismissal of the warranty, fraud, and consumer fraud claims but reverses on the tort claims. It denies fees on appeal but awards the Sullivans’ costs.

link to opinion)