A builder cannot disclaim the implied warranty of workmanship and habitability in new home construction. Arizona courts have imposed the implied warranty since 1979, and courts have thwarted prior attempts to eliminate or narrow it. So it is here. This opinion follows long-standing precedent. The supreme court agrees with the court of appeals’ prior opinion rejecting a disclaimer as against public policy, but the supreme court replaces that opinion with its own. Cf., ARCAP 23(d)(3). Why then did the court grant review? One reason may be the court of appeals invited review in its opinion: “Arizona may one day change course and allow for an implied-warrant waiver or disclaimer. But we cannot chart that new direction without further guidance from our supreme court.” The answer may come from the dissent by Justice King and Justice Bolick who would allow a disclaimer. Two additional votes would have been needed for review and perhaps, as the opinion suggests, the court was interested in whether there should be a different rule when a sophisticated consumer is involved – Zambrano was a licensed real estate broker. All of this points to an issue of state-wide importance which is sufficient reason to grant review.
Compare the supreme court opinion authored by Vice-Chief Justice Timmer with the court of appeals’ opinion. Justice Timmer’s opinion is forceful, careful, strong, and well-reasoned. Arguably this is one of her finest opinions. Justice Timmer easily casts off the dissent and the builders’ arguments. She schools the dissent who resort to an appeal to the legislature. If the builders saw an opening in the courts after 1800 Ocotillo, which allowed limitation of liability clauses in professional service contracts in commercial construction, the court has forcefully shut the door as to home construction.
This case was argued on November 19, 2020. The Arizona Supreme Court begins:
“This case requires us to clarify the standard of proof applicable to establishing a prima facie case for punitive damages necessary to justify the discovery of a defendant’s financial information. We hold that to make such a showing in a negligence case, a plaintiff must establish that there is a reasonable likelihood that the punitive damage claim will be submitted to the jury. We also hold that a punitive damage claim will be submitted to the jury only where there is proof that the defendant’s conduct was either intended to cause harm, motivated by spite or ill will, or outrageous, in which the defendant consciously pursued a course of conduct knowing that it created a substantial risk of significant injury to others.”
This looks like the Arizona Recommended Jury Instruction which has been used for many years. The problem with the instruction has been deciphering what it means to have “consciously pursued a course of conduct knowing that it created a substantial risk of significant injury to others.” The Arizona Supreme Court clarifies the punitive damage standard is not met by evidence of cumulative negligent acts, gross negligence, or even reckless indifference. Most times, the so-called “evil mind” is shown by intentional wrongful conduct or criminal conduct. In a negligence case, outrageous conduct is required. The court explains it will be a rare negligence case where this standard is met. “Although it is enough that the defendant had reason to know of the facts creating a substantial risk, it is not enough that a defendant had reason to appreciate the severity of the risk; the defendant must have actually appreciated the severity of the risk before consciously disregarding it.” Id. at ¶ 25. That standard is not met in this case where the defendant was driving a semi-truck too fast, on wet roads, with the Jake Brake engaged, while on cruise control, talking to his daughter on the phone, etc.
While the opinion is helpful, one expects better guidance. Referring to precedent, emphasizing the “outrageous” conduct required, and reminding us of subjectivity are fine points, but look at the floundering by trial courts and the court of appeals over the past several years. This was a missed opportunity to replace a vague standard with something better.
Plaintiff’s son was killed while walking home from school. She faults the City of Peoria and sent a notice of claim offer to settle for millions. In the notice, she included a 30 day deadline stating: “This compromise to settle is valid for 30 days from the date of this letter.” Both the trial court and court of appeals held the notice is invalid because the notice provides a shorter deadline, and the notice of claim statute gives a governmental entity 60 days. Almost ten years ago the court of appeals reached the same result as the court of appeals in this case. Drew v. Prescott Unified School Dist., 233 Ariz. 522 (App. 2013). In Drew, the court of appeals held in the absence of a written denial by a public entity, the settlement offer in a notice of claim must remain open for 60 days. The court invalidated the notice of claim because it included a shorter deadline. Relying on Drew and contract law, the court of appeals held the notice of claim was a contract offer and the 30 day window was “neither meaningless nor ineffectual.” The supreme court reverses. The deadline is meaningless and ineffective and is a legal nullity. The City still has 60 days to respond and the shorter deadline is “of no legal consequence.”
As far as contract law, the supreme court tells us the City conceded at oral argument this is a matter of statutory interpretation and not contract law. When the court of appeals used contract law principles as the basis for its ruling, we sort of expect the supreme court to do something more than referencing a concession at oral argument. The statute provides under subpart (E): “A claim against a public entity. . . filed pursuant to this section is deemed denied sixty days after the filing of the claim unless the claimant is advised of the denial in writing before the expiration of the sixty days.” This language is a deadline for the public entity and not the claimant. It gives the public entity 60 days to respond. “Because James did not have the statutory or other legal authority to impose a shorter time for the City to respond, her attempt in the notice of claim to shorten the sixty-day deadline to thirty days had no effect. A legal nullity. Accordingly, James’ thirty-day deadline did not invalidate her otherwise valid notice of claim.”