THE ECONOMIC-LOSS PORTION OF THIS OPINION HAS BEEN VACATED

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)

We think the Court of Appeals is probably correct to imply that this plaintiff was planning on default judgment and, when that didn’t happen, didn’t quite know what to do. The court takes the opportunity to say some things about how summary judgment works.

Wells Fargo sued to collect a credit-card debt. It attached to the Complaint the card agreement and the last bill; collections lawyers tend to do things that way, more because that’s the way these things are traditionally done than because they’ve thought about why they’re doing it. But defendants answered and disputed the documents. Wells Fargo moved for summary judgment based on an affidavit by a Wells Fargo paralegal saying basically that he was the custodian of business records, he had reviewed them, and they say that the defendants owed the money. The affidavit didn’t include the documents. Defendants’ Response argued that it was hearsay. The Reply, in addition to presenting – without further affidavit – some business records, argued that the defendants had “failed to satisfy their burden to . . . disclose or put forth . . . evidence to defeat summary judgment.”

The trial court granted the motion. Defendants moved for reconsideration, arguing that there was a question of fact about the applicability of the documents attached to the Complaint (which may have thrown the trial court off the track a bit since this wasn’t really the dispositive issue). The court ordered Wells Fargo to respond; the response tried to explain why the documents had been presented – which evidently it hadn’t done before. The trial court denied the motion for reconsideration.

If you can’t anticipate that it gets reversed then you need to study this opinion and learn its morals.

Moral #1 is that “it is the party moving for summary judgment who bears the ‘burden of persuasion,” which burden “never shifts to the non-moving party.” So, “the question presented by Wells Fargo’s motion . . . was not whether the [defendants] had succeeded in
presenting genuine disputes of material fact –- it was whether Wells Fargo had presented sufficient undisputed admissible evidence to establish its entitlement to judgment.”

Moral #2: “The purpose of a custodian’s affidavit is to authenticate evidence.” We don’t know what’s hard about that but the mistake here – trying to squeeze substantive evidence as well as authentication into a custodian’s affidavit – is not uncommon. “Conclusory affidavits . . . may be sufficient in the default context” but not when you have to prove a disputed case.

Moral #3: Be careful in preparing the custodian’s affidavit. This one didn’t attach the records (“such an affidavit is of little value when it does not attach the evidence at issue”) and fouled up the business-records language by not describing how they were prepared and kept. You need to include all the 803(6) stuff.

Moral #4: Your Reply is too late. ‘It was improper to introduce new evidence with the Reply memorandum.”

None of this is new. But too many people need to be reminded of it.

(link to opinion)

                                             THIS OPINION HAS BEEN MODIFIED

This at first seems to be an anti-abrogation case but the principal analysis is of negligent misrepresentation (and is arguably dicta).

“After [Plaintiffs] unwittingly bought a home next door to a registered sex offender, they sued the couple who sold them the home and the real estate broker that represented both couples in the transaction. The defendants moved to dismiss, arguing the . . .  claims of fraud, misrepresentation and breach of fiduciary duty were barred by the sales documents and by . . . A.R.S. §32-2156(A)(3) . . . which prohibits a civil action against a seller or real estate broker for failing to disclose that a home is located ‘in the vicinity of a sex offender.’”

That’s how the court begins – pleasantly concise. Unfortunately, it turns out that that’s just an introduction; the opinion soon reverts to standard Division One style.

The fraud claim was that defendants were moving because of the sex offender but told plaintiffs that they wanted to be nearer their family. On appeal the defendants apparently agreed that the statute wouldn’t cover fraud. They argued instead that what they said couldn’t be material or relied on because the documents specifically said that the sellers weren’t required to disclose sex offenders and that the buyers had to investigate that for themselves. The court says that contract language can’t excuse fraud and that materiality, etc., was for the jury; it reverses the trial court’s dismissal on fraud. The dissent (which agrees with the majority except for this issue) argues that a party’s reason for entering into a contract is generally not material. The opinion adds a footnote to counter this, suggesting that it isn’t always true as a matter of law. But the dissent points out that motivation’s only alleged relevance here is that it omitted something that needn’t be disclosed anyway.

The court next rules that the allegation of negligent misrepresentation stated a claim – subject to being barred by the statute – because “we draw from the Restatement [§551] . . . the principle that a seller may be required to disclose information when the buyer reasonably cannot discover the information for himself.” This lesson is drawn from a Restatement comment discussing the “continuing development of modern business ethics,” which the ALI professors are all too happy to conflate with law. The facts indicated that the location of a level one sex offender is not public record.

As for A.R.S. §32-2156(A)(3), plaintiffs argued that it was unconstitutional as an abrogation of common-law rights. The court holds it valid. A right to sue because of an undisclosed sex offender did not “evolve out of common-law antecedents” since at common law the seller had no duty to disclose “latent defects” absent a special relationship. Since the court’s negligent-misrepresentation conclusion is based on “modern business ethics” its not based on common law. So dismissal of the claims other than fraud – including the misrepresentation claim that the court had just spent several pages upholding – was okay after all.

(link to opinion)