Arizona Court of Appeals Division One Holds That Construction Defect Statute of Repose Is Not Subject to Challenge Under Anti-Abrogation Clause of Arizona Constitution.

Plaintiffs sued a homebuilder for economic damages arising out of alleged defects in construction of a retaining wall and other site preparation for their home.  Plaintiffs bought the home in 2003 from its original purchaser.  Plaintiffs filed suit in 2010. 

The homebuilder removed to federal court and filed a motion to dismiss for failure to state a claim.  Plaintiffs responded to the motion to dismiss and moved to remand to state court.  The federal district court remanded without deciding the motion to dismiss.  After the remand, the homebuilder filed a motion to dismiss with the state court.

The trial court granted the homebuilder’s motion to dismiss under Rule 12(b)(6), Ariz. R. Civ. P. without waiting for a separate response to be filed in state court, and awarded the homebuilder its attorneys’ fees under A.R.S. § 12-341.01(A).  Plaintiffs appealed.  The Court of Appeals reversed in part and remanded for further proceedings.

The appellate court rejected Plaintiffs’ argument that their due process and equal protection rights were violated by the state trial court’s having decided the motion to dismiss without waiting for Plaintiffs to file a response in state court.  The trial court considered the Plaintiffs first response to the motion, filed in federal court, and the Plaintiffs’ second response, filed in state court one day after the court granted the motion, was not substantially different from the first.  Because Plaintiffs received notice of the motion and an opportunity to be heard by filing a response, there was no due process or equal protection violation.

The appellate court affirmed the trial court’s dismissal of Plaintiffs’ implied warranty claims under the statute of repose, A.R.S. § 12-552.  The statute limits the time within which parties may bring a breach of contract and implied warranty actions against developers, builders, and certain others.  Such actions must be brought within eight or, in some instances, nine years after substantial completion of the improvement to real property. 

The statute of repose is not subject to challenge under Article 18, Section 6 of the Arizona Constitution.  That “anti-abrogation clause” does not apply to contract claims, such as the claims here for breach of the implied warranty of good workmanship and habitability.  The statute of repose is not subject to equitable tolling.

The trial court erred, however, by finding the Plaintiffs’ tort claims barred by the economic loss doctrine.  The doctrine, when applicable, limits contracting parties to contractual remedies for purely economic losses.  Because there was no contract between the Plaintiffs and the homebuilder, the doctrine did not apply.

The trial court correctly dismissed the Plaintiffs’ claims under the Arizona Consumer Fraud Act.  Section 44-1522(A) of the Arizona Revised Statutes creates an implied private right of action by a purchaser damaged by a deceptive act in connection with the sale or advertisement of merchandise.  The act does not apply, however, to subsequent purchasers who are not in privity of contract with the party alleged to have violated the Act.  Similarly, because Plaintiffs did not enter into any transaction with the homebuilder, the trial court did not err in dismissing their common law fraudulent concealment claim. 

Finally, the Court of Appeals reversed the award of attorneys’ fees.  The fact that an implied warranty claim sounds in contract does not compel the conclusion that it “arises out of a contract” for purposes of a fee award under § 12-341.01(A).  The implied warranty claims arise out of a contract implied-in-law, not one implied-in-fact, and thus an award of fees under § 12-341.01(A) was not permissible.

Judge Gemmill authored the opinion; Presiding Judge Thompson and Judge Portley concurred.