Lead
OPINION
¶ 1 This appeal presents the question whether a subsequent (i.e., non-original) homeowner may maintain a negligence cause of action against a homebuilder for economic losses arising from latent construction defects unaccompanied by physical injury to persons or other property. The homeowners in this case contend that a public policy-based tort duty arises from a municipal building code, as well as from statutes and regulations governing residential contractors. We disagree and therefore affirm the judgment of the superior court.
FACTS AND PROCEDURAL HISTORY
¶ 2 Defendan/Appellee Pulte Home Corporation developed and built homes in a
¶ 3 The Sullivans sued Pulte, alleging eleven separate counts, including several negligence-based claims. The Sullivans sought to recover out-of-pocket costs associated with identifying and remediating the alleged defects, as well as damages for diminution in the property’s value. Pulte moved to dismiss all counts of the complaint pursuant to Arizona Rule of Civil Procedure 12(b)(6), arguing that the implied warranty claim was barred by the statute of repose and that the tort claims were impermissible under the economic loss doctrine (“ELD”).
¶ 4 This Court affirmed the dismissal of all counts of the Sullivans’ complaint except the negligence claims. Sullivan v. Pulte Home Corp.,
Our holding that the economic loss doctrine does not bar the Sullivans’ tort claims does not, of course, imply that those claims will ultimately succeed. Cf. Flagstaff Affordable Hous.,223 Ariz. at 327-28, ¶ 39 ,223 P.3d at 671-72 (directing courts to consider applicable substantive law to determine if non-contracting parties may recover economic losses in tort); Draft Restatement § 6(2), reporter’s nоte to cmt. c (noting division of authority but concluding that subsequent home purchasers should not recover in tort from homebuilder for negligent construction). As the court of appeals noted, Pulte made other arguments challenging the legal sufficiency of the tort claims that were not addressed by the trial court, which may consider those arguments in the first instance on remand.
Sullivan I,
¶ 5 On remand to the superior court, Pulte moved to dismiss the negligence claims pursuant to Rule 12(b)(6), arguing “a homebuilder such as Pulte does not owe a duty of care to a subsequent purchaser (such as plaintiffs) to prevent them from economic harm.” The superior court granted Pulte’s motion, and the Sullivans again timely appealed.
DISCUSSION
¶ 6 “Whether the defendant owes the plaintiff a duty of care is a threshold issue; absent some duty, an action for negligence cannot be maintained.” Gipson v. Kasey,
¶ 7 At oral argument before this Court, the Sullivans disavowed any assertion that a duty exists based on common law principles of negligеnce. They instead premise their duty argument on a municipal building code and on Arizona statutes and regulations governing residential contractors. The Sullivans contend they “fall within the class of persons protected by Arizona’s public policy framework which mandates specific design and construction standards for safe residential construction.” Specifically, they argue:
The duties imposed by law upon Pulte are found in: the Building Code adopted by the City of Phoenix (specifying minimum standards in design and construction to protect, inter alia, life or limb, health, property); the Arizona Administrative Code, AAC R4-9-108 (Registrar of Contractors ... regulations establishing Workmanship Standards); and, A.R.S. § 32-1154 (mandating compliance with building codes and ROC regulations).
¶ 8 Turning first to the City of Phoenix Uniform Building Code (“Building Code”), thе Sullivans rely on its stated purpose of “provid[ing] minimum standards to safeguard life or limb, health, property and public welfare by regulating and controlling the design, construction, quality of materials, use and occupancy, location and maintenance of all buildings and structures....” Building Code § 101.2. However, that same section of the Building Code specifically disclaims any intent to protect or benefit a particular group or class, stating, “[T]he purpose of this code is not to create or otherwise establish or designate any particular class or group of persons who will or should be especially protected or benefited by the terms of this code.” Id.
¶ 9 A statute or regulation typically gives rise to a tort duty premised on public policy only if it “is designed to protect the class of persons, in which the plaintiff is included, against the risk of the type of harm which has in fact occurred as a result of its violation.” Estate of Hernandez v. Ariz. Bd. of Regents,
¶ 10 Although Arizona’s appellate courts have held that statutes enacted for public safety may support public policy-based tort duties, they have done so largеly in the context of injury and death cases. See, e.g., Gipson,
¶ 11 Our conclusion that the Building Code does not support imposition of a public policy-based duty for purely economic loss finds support in reported decisions from other jurisdictions. See, e.g., Parker Bldg. Servs. Co. v. Lightsey,
¶ 12 Nor do we find Arizona’s statutory and administrative schemes governing licensed contractors a sufficient basis for holding that homebuilders owe public policy-based tort duties to subsequent homeowners for economic loss. Like the Building Code, the governance of licensed contractors has a broad, general purpose: “to protect the public health, safety and welfare by licensing, bonding and regulating contractors engaged in construction.” 2014 Ariz. Sess. Laws, ch. 247, § 11 (2d Reg. Sess.); see also 2004 Ariz. Sess. Laws, ch. 16, § 3 (2d Reg. Sess.); 1994 Ariz. Sess. Laws, eh. 7, § 3 (2d Reg. Sess.). Our supreme court has commented on the purpose of regulating contractors as follows:
It appears to us upon reviewing the legislative history of the evolution of the сontractor’s code, that the legislature intended (1) to control contractors by issuance, suspension or revocation of licenses, and (2) after passage of the 1952 statute, to offer additional protection to persons damaged by failure of the contractor to perform his contract in the manner required by the statute, or to pay for materials or labor, by requiring bonds to insure payment of such damages.
Emp’t Sec. Comm’n of Ariz. v. Fish,
¶ 13 The policy underpinnings identified in Fish do not exist here. The Sullivans have no contract with Pulte, and they concede that no duty arises from a relationship between the parties. Although licensed contractors are subject to discipline for, inter alia, “[d]eparture from or disregard of ... any building code of the state or any political subdivision of the state in any material respect,” A.R.S. § 32-1154(A)(2), this regulatory provision does not support imposing public policy-based tort duties in favor of subsequent property owners asserting economic loss. Professional codes frequently establish standards for licensees that do not give rise to private causes of action. See, e.g., Ariz. R. Sup.Ct. 42, Preamble ¶ 20 (violation of Rules of Professional Conduct does not give rise to cause of action against licensed attorney).
¶ 14 Should the Arizona Legislature deem it appropriate to expand civil remedies based on construction-related statutes and cоdes, it obviously may do so. See, e.g., Fla. Stat. Ann. § 553.84 (permitting certain civil actions premised on building code violations). Such a broad expansion of the law is a policy-laden decision best suited for the legislative branch of government. See Jackson,
¶ 15 Finally, our conclusion is consistent with, though not dependent on, the Restatement (Third) of Torts: Liability for Economic Harm (“Restatement”), which our supreme court cited in Sullivan I.
CONCLUSION
¶ 16 For the foregoing reasons, the superi- or court properly dismissed the Sullivans’ negligence claims. We deny both parties’ requests for attorneys’ fees incurred on appeal. However, as the prevailing party on appeal, Pulte is entitled to recover its taxable costs upon compliance with ARCAP 21.
Notes
. "The economic loss doctrine prohibits certain tort actions seeking pecuniary damage[s] not arising from injury to the plaintiff's person or from physical harm to property.” Sullivan v. Pulte Home Corp.,
Dissenting Opinion
dissenting:
¶ 17 According to the majority, the issue in this appeal is “whether a subsequent (i.e., non-original) homeowner may maintain a negligence cause of action against a home-builder for economic losses arising from latent construction defects unaccompanied by physical injury to persons or other property.” See supra ¶ 1. This formulation of the issue does nоt fully address what is at stake here. The Sullivans sued Pulte to recover the monies they had spent to repair a retaining wall that, according to their engineering firm, was failing and in danger of collapsing and/or
¶ 18 A cause of action for negligence requires the existence of a duty of care, which is a determination that a defendant is under a legal obligation to conform to a particular standard of conduct to protect others against unreasonable risks of harm. Gipson v. Kasey,
¶ 19 Although the majority acknowledges these principles, it concludes the Building Code and statutes and regulations governing contractors the Sullivans rely on do not revеal an “intention to protect or benefit subsequent homeowners who experience economic loss.” See supra ¶¶ 9, 12. I believe the majority’s conclusion is grounded on a misperception regarding what the Building Code and associated statutes and regulations were designed to do and on an overly restrictive view of Arizona tort law.
¶ 20 The Building Code was designed to protect against risks to health and property posed by unsafe structures. The Building Code states:
The purpose of this code is to provide minimum standards to safeguard life or limb, health, property and public welfare by regulating and controlling the design, construction, quality of materials, use and occupancy, location and maintenance of all buildings and structures ....
Id. at § 101.2. The Building Code specifically addresses minimum standards for the construction of retaining walls. Id. at ch. 18.
¶ 21 The Arizona Legislature has incorporated the public safety function of local building codes into the public policy of this state. In reauthorizing its statewide regulation of the construction industry, see A.R.S. §§ 32-1101 to -1171 (2007 & Supp.2014), the Legislature has sought “to protect the public health, safety and welfare by licensing, bonding and regulating contractors engaged in construction.” 2014 Ariz. Sess. Laws, ch. 247, § 11 (2d Reg. Sess.); 2004 Ariz. Sess. Laws, ch. 16, § 3 (2d Reg. Sess.); 1994 Ariz. Sess. Laws, ch. 7, § 3 (2d Reg. Sess.). Among the statutory grounds for revoking a contractor’s license is “[departure from or disregard of ... any building code of the state or any political subdivision of the state in any material respect that is prejudicial to another without consent of the owner” or other authorizеd representative. A.R.S. § 32-1154(A)(2). Indeed, although not cited
¶ 22 Further, exercising the authority granted to it by the Legislature to “[m]ake rules ... necessary to effectually carry out” the Legislature’s intent, A.R.S. § 32-1104(5), the Registrar of Contractors has further emphasized the importance of complying with local building codes. In adopting “minimum standards for good and workmanlike construction,” id., the Registrar has required contractors to “perform all wоrk in accordance with any applicable building codes.” A.A.C. R4-9-108(B).
¶ 23 The Sullivans suffered harm as a result of what the Building Code and associated statutes and regulations were designed to prevent: construction of an unsafe structure that posed a risk of harm to persons and property. As I noted above, according to the Sullivans’ engineering firm, the retaining wall was failing and in danger of collapsing and/ or causing a landslide. Pulte’s failure to comply with the Building Code resulted in structural defects that created a risk to “life or limb, health, property and public welfare.” Building Code § 101.2. Faced with this risk, the Sullivans paid to repair the retaining wall. In doing so, they assumed a burden that — under the public policy of this state— Pulte should have carried when it built the house.
¶ 24 The majority discounts the protective purpose of the Building Code and associated statutes and regulations because the Building Code “disclaims any intent to protect or benefit a particular group or class,” see supra ¶¶ 8-9, and the statutes and regulations discussed above reflect a broad, general purpose to protect the public at large rather than any particular group such as subsequent homebuyers like the Sullivans. See supra ¶ 12. Implicit in the majority’s reasoning is the belief that for a statute or regulation to serve as the basis for a duty of care, it must benefit a class of persons narrower than the general public. See supra ¶¶ 9-10. Indeed, the majority cites eases from other jurisdictions which require a building code or statute to benefit a class of persons nаrrower than the general public. See supra ¶ 11.
¶ 25 Arizona law is not so restrictive. Arizona courts have frequently defined “the class of persons to be protected” broadly, encompassing “all those likely to be injured by the [statutory or regulatory] violation,” Keeton et al., supra, § 36 at 224, as long as the injury is the type the statute was designed to prevent. See Gipson,
¶ 26 The majority suggеsts the Arizona cases cited above which involved statutes enacted for the safety of the general public and not for the safety of any particular group or class are distinguishable because the statutes were applied “in the context of injury and death cases.” See supra ¶ 10. Stated more directly, the majority believes public safety statutes can serve as a basis for a duty of care only if the statutory or regulatory violation caused personal injury or death. Thus, under the majority’s view of Arizona law, the Sullivans have not suffered the type of harm the Building Code and related statutes and regulations were designed to prevent because they repaired the defective retaining wall before it could fail and cause any harm to persons or property. But, under Arizona law, a duty of care is a determination that a defendant is under a legal obligation to conform to a particular standard of conduct to protect others against the unreasonable risk of harm. Gipson,
¶ 27 In Council of Co-Owners Atlantis Condo., Inc. v. Whiting-Turner Contracting Co.,
If there is a defect in a stairway and the purchaser repairs the defect and suffers an economic loss, should he fail to recover because he did not wait until he or some member of his family fell down the stairs and broke his neck? Does the law penalize those who are alert and prevent injury? Should it not put those who prevent personal injury on the same level as those who fail to anticipate it?
Id. at 345 (quoting Barnes v. Mac Brawn & Co.,
¶ 28 The Sullivans suffered the type of harm the Building Code and related statutes
¶ 29 In reaching this conclusion I acknowledge, as the majority notes at ¶ 10, that the Arizona Supreme Court has explained that courts are generally reticent to recognize duties “to exercise reasonable care for the purely economic well-being of others, as distinguished from their physical safety or the physical safety of their property.” Lips v. Scottsdale Healthcare Corp.,
¶ 30 The public policies the Building Code and related statutes and regulations express constitute the requisite “special reasons for finding a duty of care.” Indeed, these policies mirror the reasons identified by the Arizona Supreme Court for extending the implied warranty of workmanship and habitability to homeowners not in privity with the homebuilder, thereby allowing a subsequent purchaser to recover economic losses arising from latent construction defects. As the court explained in Richards v. Powercraft Homes, Inc.:
[T]hat house-building is frequently undertaken on a large scale, that builders hold themselves out as skilled in the profession, that modern construction is complex and regulated by many governmental codes, and that homebuyers are generally not skilled or knowledgeable in construction, plumbing, or electrical requirements and practices — are equally applicable to subsequent homebuyers. Also, we note that the character of our society is such that people and families are increasingly mobile. Home builders should anticipate that the houses they construct will eventually, and perhaps frequently, change ownership. The effect of latent defects will be just as catastroрhic on a subsequent owner as on an original buyer and the builder will be just as unable to justify improper or substandard work. Because the builder-vendor is in a better position than a subsequent owner to prevent occurrence of major problems, the costs of poor workmanship should be his to bear.
¶ 31 Further, imposition of a duty of care does not present the risk of disproportionate and indeterminate liability that, as Lips recognized, is one of the principal reasons courts have historically refused to recognize a duty of care for economic losses. See generally Ultramares Corp. v. Touche,
¶ 32 The majority notes, as Pulte has argued here, that its conclusion the Building Code and associated statutes and regulations do not support a public policy-based duty for economic loss is consistent with the approach taken by the Restatement Third. See supra ¶ 15. The Restatement Third has taken the position that, absent “a more specific rationale,” duties to avoid the negligent infliction of economic losses should be “narrower” than duties to prevent physical harm. Restatement Third § 1, cmts. a & b. But, I believe the Building Code and associated statutes and regulations, which are consistent with the policy reasons articulated by the supreme court in Richards, present this “more specific rationale.”
¶ 33 The majority further notes, as Pulte has also argued here, that the Restatement Third has specifically rejected imposing a duty of care on a homebuilder to subsequent purchasers for economic losses arising out of latent construction defects. See supra ¶ 15; Restatement Third § 6 cmt. c. Although Arizona courts will usually follow the Restatement, “we will not do so blindly. Rather, we must consider whether the Restatement position, as applied to a particular claim, is logical, furthers the interests of justice, is consistent with Arizona law and policy, and has been generally aсknowledged elsewhere.” Ramirez v. Health Partners of S. Ariz.,
¶ 34 The Restatement Third’s position is also grounded on the view that a subsequent purchaser may have other ways to manage thе risk of economic loss from latent defects, such as through inspection, insurance, or negotiations with the seller. Restatement Third § 6 cmt. c. I am not persuaded that the speculative possibility that a subsequent homebuyer might be able to protect against latent construction defects should negate the existence of a duty of care when, as Arizona courts have recognized, homebuyers are generally unable to protect themselves from such defects. Richards,
In every situation where economic losses occur, it is possible to say that the plaintiff could have entered into some type of contractual arrangement — e.g., an insurance policy, an indemnity agreement, or a release from liability — that would have mitigatеd the damage. To seize upon those hypothetical actions, which never came to pass, as a reason for applying the economic loss rule is to substitute imaginary remedies for real ones and pretend that the facts were other than those that actually occurred.
Vincent R. Johnson, The Boundary-Line Function of the Economic Loss Rule, 66 Wash. & Lee L.Rev. 523, 565 (2009).
¶ 35 Finally, the position taken by the Restatement Third is grounded on the belief that other legal theories, such as implied warranty, are better suited for the recovery of economic losses by a subsequent purchaser. Although the supreme court in Sullivan v. Pulte Home Corp. was not discussing the
¶ 36 Furthermore, recognizing a duty of care does not mean a subsequent purchaser will have an “easy go” at the homebuilder. As the Arizona Supreme Court explained in Woodward-.
Negligence ... requires that a builder or contractor be held to a standard of reasonable care in the conduct of its duties----
Negligence in tort must establish defects in workmanship, supervision, or design as a responsibility of the individual defendant. Proof of defect alone is not enough to establish the claim.
¶ 37 For the foregoing rеasons, a home-builder should be subject to a duty of care, and thus answerable in negligence, to a subsequent homebuyer who is seeking to recover the monies the homebuyer spent in repairing dangerous latent construction defects that pose an unreasonable risk of, but have not yet caused, physical injury to persons or other property. Accordingly, the superior court should not have dismissed the Sullivans’ negligence claims against Pulte.
. Although Woodward cited Cosmopolitan Homes with approval, I do not believe Woodward necessarily accepted Cosmopolitan’s conclusion that a homebuilder owes a duty of care to a subsequent purchaser for latent defects that cause only economic losses. As our supreme court recognized in Flagstaff Affordable Hous. Ltd. P'ship v. Design Alliance, Inc.,