Author Archives: unknown

Flagstaff Affordable Housing v. Design Alliance (2/12/10)

Posted on by

This is an examination and explanation of the economic-loss doctrine. It reverses a Division One opinion we blogged in March 2009.

Design Alliance designed apartments that Flagstaff Affordable Housing built. The design violated federal handicap-accessibility  requirements. FAH was required to remedy the problem at considerable expense so it sued Design Alliance.

Design Alliance moved to dismiss, arguing that the economic-loss rule barred the claim. That rule, as established by the First Division in  Carstens v. City of Phoenix, 206 Ariz. 123, says that there can be no recovery for economic loss absent personal injury or property damage. The trial court granted the motion. The Court of Appeals reversed, holding that the economic-loss rule does not apply to claims against design professionals. The Supreme Court reverses that, in an opinion meant to be a fairly definitive statement on the economic-loss rule.

Carstens had said that there is no tort recovery of economic loss absent physical harm. This opinion says that that’s what the rule is not. Tort plaintiffs who have no contract with the defendant can and often do seek to recover economic loss. The economic-loss doctrine is a creature of contract law: a contracting party is limited “to contractual remedies for the recovery of economic losses unaccompanied by physical injury to persons or other property.”

This was the law before the Court of Appeals mixed things up in Carstens. But the Supreme Court court seems aware that the real culprit was its opinion in the case that confused the Carstens court: Salt River (143 Ariz. 368). That case held that products liability plaintiffs, who could have both contract and tort claims, can’t get economic loss (assuming that the contract doesn’t permit it) unless there is physical harm caused suddenly and accidently by an unreasonably dangerous product (the “three-factor” test). The court tries to iron out one or two smaller problems with Salt River and then throws doubt on the three-factor test itself, apparently signaling a willingness to change it when an appropriate products case comes along.

In construction-defect cases, the court in effect says that building a building is a more contract-centric thing than buying a product and so allowing tort damages would not be appropriate. Therefore, “when a construction defect causes only damage to the building itself or other economic loss, common law contract remedies provide an adequate remedy.” Economic loss is recoverable only if the contract so provides. The three-factor test does not apply.

As to the Court of Appeals’ holding that the economic-loss rule isn’t involved in claims against design professionals, it is true that the architect owes common-law duties to the owner but they arise because there is a contract between them. There is no valid basis for dealing differently with architects than with other construction contractors.

It is at this point that the court seems to come closest to saying frankly that the very idea of an “economic-loss rule” is misleading. Its simply an aspect of the law of contract damages. To call it a “rule” makes more of it than there is and invites its misinterpretation as a piece of substantive law. That isn’t exactly what the court says, though it may not be a bad way to think about what the court means.

The opinion remands the case to the trial court. It announces an economic-loss rule different from the Carstens rule that the trial judge had; the new rule would allow economic loss if permitted by contract but the contract was not in the record on appeal.

This points up a potential source of confusion. Both this case and a number of Court of Appeals cases following Carstens indicate that the economic-loss rule applies to construction-defect cases. But this opinion means something different by “economic-loss rule;” it holds that the Carstens rule does not apply, overturning or making obsolete the CA cases.

One problem this opinion does not address – the facts did not present it – is the “other property” issue. The court repeatedly points out that the economic-loss rule does apply to claims of physical injury to persons or “other property” – i.e., property other than the product, building, etc. that was the subject of the contract. What “other property” means is not always easy to figure out.

A hat-tip to the court for trying in this and other decisions in the last year or so to address some real trouble-spots in our civil law. And also for citing in this one an oldie but a goodie, Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 145 (1854), which you no doubt remember fondly from law school.

(link to opinion)

Bennett v. Baxter Group (CA2 2/10/10)

Posted on by

Sometimes you read a case and wonder what the [bleep] was really going on.

Bennett agreed to buy a hotel from Baxter, conditioned on getting financing. He didn’t get it, so Baxter arranged to sell to someone else. Baxter refused to return Bennett’s $10,000 deposit. In retaliation, Bennett recorded his purchase agreement (which of course interfered with the new sale) and refused to release it until he got his money back. They sued each other.

That’s right: having sold a property for $1.7 million, Baxter got greedy about $10,000; Bennett deliberately clouded a title he had no interest in. Seems a shame that either won the case. But, after a bench trial, Bennett did. Baxter appealed.

Most of Baxter’s claims were thrown out on summary judgment; what remained was slander of title (and interference with contract, though having mentioned that the opinion drops it). This claim, the opinion says, was based on A.R.S. 33-420. It grants treble damages against a person who records a “forged, groundless . . . or otherwise invalid” document claiming an interest in title. A document “purporting to create an interest . . . not authorized” by law is presumed groundless. According to the court, Baxter argued that since no law specifically permits the recording of a real estate sales agreement, it was groundless. This is such a dumb argument that the opinion blows it off in a few sentences.

The discussion seems like the typical newspaper report of a trial: accurate bits and pieces assembled wrongly. Was that really what Baxter argued? Didn’t Bennett act precisely for the purpose of making a claim on title – a claim he knew he didn’t have – and precisely for the purpose of blocking another deal until he got what he wanted? Since when must a slander of title claim rely on a statute? Isn’t that a separate claim? What happened to interference with contract?

As for Bennett’s claim, it was based on one 132-word sentence in the contract. (A sentence that long doesn’t just beg for trouble, it grabs trouble by the lapels and double-dares it.) It could be read either as letting Baxter keep the deposit if Bennett didn’t buy the hotel or as letting Baxter keep it only if Bennett didn’t perform “in accordance with” the contract. The difference, apparently, is that getting out of the deal for lack of financing was in accordance with the contract, which would get Bennett the money back. The trial court ruled that the sentence – at least when read in conjunction with a a provision the opinion doesn’t quote – was unambiguous and the Court of Appeals agreed: it meant “in accordance with.”

Was the appellate court’s decision on the contract de novo or did it uphold the trial court’s ruling? Good question; the opinion wants it both ways. And why didn’t either court do the sensible thing and call ambiguous language ambiguous?

Having dealt with mere substance, though, the opinion addresses what takes up about two-thirds of the opinion and at least that much of the court’s thought: costs and attorneys fees. The trial court awarded Bennett a bunch of both.

Baxter argued that a lot of the fees arose out of tort, not contract claims. What do you do when you have both? The trial court applied a case called Ramsey v. Air Meds, which says that a tort claim will “arise out of a contract” only when it could not exist “but for” the contract breach. But it misapplied the case, ruling that but for the contract the tort claims “would” (not “could”) not have been brought. Last year, in Modular Mining Systems,  the Court of Appeals basically threw up its hands at trying to apply Ramsey and simply awarded fees when the issues are “interwoven.”  So the opinion remands to let the trial court cite Modular Mining when it re-awards the fees (the opinion isn’t worded quite that blatantly).

The trial court had also awarded fees because Baxter’s claims were groundless, harassment, not made in good faith. Baxter argued that there were no specific findings to support this. At first the opinion says that the findings include enough bad things to justify fees but then decides that one of those bad things might not have justified some of them so it remands all of them for “reconsideration” (i.e., rewording).

The trial court had awarded all Bennett’s costs. The opinion has to point out that there is a statute on what costs are taxable and that most of Bennett’s weren’t. Wasn’t anybody paying attention?

Finally, Baxter argued that its two shareholders were included in the judgment even though they weren’t parties in the case. They were also not parties to the appeal, so the court decided that it had no jurisdiction to decide whether they could appeal (that’s what it says).

How does that happen? Did that sweet guy Bennett just inadvertently add to his judgment people he had never before bothered to name (and who were therefore not in the existing caption)? Did Baxter’s lawyers catch it in the court below? If not, why not; if so, what did they do about it? And if not, how do you like having to hope that the trial court paid no particular attention to what it was doing?

One more problem with this case: we shouldn’t read an opinion and end up with the suspicion that one party and its lawyers got slammed because someone, somewhere, didn’t like them.

 

(Link to opinion)

Gamboa v. Metzler (CA1 2/2/10)

Posted on by

This adds nothing to the law. But the courts need to publish one of these every once in a while to reassure trial judges and to teach/remind/scare lawyers.

Gamboa’s lawyer fouled up his witness scheduling, even after various discussions and agreements about it with defense counsel and the court. As a result, come 5:00 or so on the last day of the evidence he had only been cross-examining the defense expert for 43 minutes when the court stopped him. He objected but didn’t seek to have the witness return the next day and didn’t make an offer of proof of what he expected to show. The jury gave him a lot of money but gave the defendant only 10% of the fault, so he appealed.

After reciting the facts, the court’s entire legal analysis is, quite appropriately, “the court did not abuse its broad discretion.”

Well, not quite the entire analysis since without an offer of proof the plaintiff couldn’t show harm even if there had been error.

Plaintiff’s lawyer made noises about “due process”; they always do. But this has happened many times before and the law is clear. The trial judge doesn’t violate anybody’s rights by putting a reasonable limit on you. Its your burden to prove that it wasn’t reasonable. Its a big one. And its an impossible one unless you make a record.

And, by the way, if you haven’t made all your main points on cross within 43 minutes, fuggedaboudit.