Arizona Supreme Court Holds That Economic Loss Doctrine Does Not Extend to Non-Contracting Parties.

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 trial court granted the homebuilder’s motion to dismiss under Rule 12(b)(6), Ariz. R. Civ. P.  The Court of Appeals reversed in part, holding that the trial court erred in dismissing certain tort claims based on the economic loss doctrine.  In order to clarify Arizona’s application of the economic loss doctrine, the Supreme Court granted review and vacated the section of the court of appeals’ opinion addressing the doctrine

The economic loss doctrine, when applicable, limits contracting parties to contractual remedies for purely economic losses.   The Court unanimously “decline[d] to extend the doctrine to non-contracting parties.”  It agreed with the court of appeals that because there was no contract between the Plaintiffs and the homebuilder, the doctrine was inapplicable and the homeowners were free to pursue a tort claim against the builder for damages resulting from construction defects. 

The Court rejected the builder’s arguments that Plaintiffs’ negligence claims should be barred because Plaintiffs could seek a remedy under the implied warranty of workmanship and habitability, as Arizona’s statute of repose (A.R.S. § 12-552) barred such recovery.  Further, the Court explained that the implied warranty was something imposed as a matter of Arizona’s common law, not as a result of negotiation between Plaintiffs and Defendant, so the policy considerations that underlie the economic loss doctrine did not apply to non-contracting parties.

Vice Chief Judge Bales authored the unanimous opinion.