Rina Rai 2014-01-29 23:35:38
Subcontractor Liability to Owners for Breach of Implied Warranty Born in Birmingham, England and raised in California, Rai attended the University of California at Riverside where she received her Bachelor of Arts degree in liberal studies in 1993. Rai attended Pepperdine University School of Law where she obtained her J.D. degree in 1996. While attending Pepperdine, she also obtained a certificate in alternative dispute resolution from the nationally recognized program. Rai is admitted to practice in Arizona and California and is experienced in the areas of construction defect, insurance defense and civil litigation. Over the past 17 years, Rai has devoted a significant portion of her practice in the areas of construction defect litigation and general liability in both California and Arizona. Rai has represented hundreds of contractors in complex litigation cases and has successfully taken cases to trial and negotiated settlements and dismissals for many of her clients. Rai was one of the youngest members of the bar to chair AZ’s State Bar’s construction section. She also recently co-authored “The Arizona Construction Law Manual,” published by the State Bar of Arizona. www.RaiBarone.com (602) 476-7100 Since 1984, Arizona courts have continued to carve out exceptions to the contractual privity requirement to maintain a cause of action for breach of the implied warranty of workmanship and habitability. First, the Supreme Court held that subsequent purchasers could maintain implied warranty claims against builders, despite the absence of a purchase contract. The court explained that latent defects are just as catastrophic to a subsequent purchaser as to an original buyer, and that the builder was is in a “better position” to prevent damages resulting from poor or improper workmanship. Richards v. PowercraftHomes, Inc., 139 Ariz. 242 (1984). For years after, the general rule was that only a builder or vendor could be sued by a homeowner for breach of implied warranty absent contractual privity with the subcontractors. Lawsuits involving construction defect (CD) claims were brought by owners against builders and typically builders would bring third-party claims for indemnity against the subcontractors in the same action. Those defending subcontractors could reach settlement with the builders and without the involvement of the plaintiffowner. If owners were allowed to bring their own direct claims against the subcontractors, settlement would be more difficult to achieve. In order to obtain a release from the case, subcontractors would likely have to pay a premium and settle with both the builder and the owner. Consequently, CD cases would become more costly to defend, and would clog the court system even longer. Twenty-four years later the implied warranty claim was tested again, and in this instance the Supreme Court expanded the exception to the privity requirement by allowing homebuyers who had no contractual relationship with the builder to sue for breach of the implied warranty. Lofts at Fillmore Condo. Ass’n v. Reliance Commercial Constr., Inc., 218 Ariz. 574 (2008). The court held that a builder should be held accountable for breach of implied warranty, even though it was not also the vendor. Id. Often times the builder and vendor are related entities where one party acts as the builder and the other the vendor. The court reasoned that homeowners should not be denied redress simply because of the form of the business arrangement between the builder and vendor. Id. If a builder could avoid liability by setting up another company to act as the seller, it would, in the court’s estimation, lead to the catastrophic outcome that Richards was designed to prevent. The next logical scenario for courts to consider was whether homebuyers (original or subsequent purchasers) should be allowed to bring a cause of action for breach of implied warranty against subcontractors, with whom they have no contractual relationship or privity, but who constructed portions of their home. Indeed, after Lofts, the plaintiffs’ bar began filing suits which included direct claims against subcontractors, both in superior court and in private arbitration proceedings. In arbitration we have seen the court allow the homeowners’ direct claims, citing a logical extension of the Lofts case, and consistent with the public policy consideration upon which it was based. Superior courts have also allowed implied warranty claims directly against subcontractors. This issue was recently considered by Division Two of the Arizona Court of Appeals, in Yanni v. Tucker Plumbing, Inc., 233 Ariz. 364 (App. 2013). In Yanni, a plaintiff homeowner sought to maintain a cause of action directly against subcontractors, including Tucker Plumbing, for breach of the implied warranty of habitability. Tucker installed brass plumbing fittings that were claimed to be defective and defectively installed. Homeowners claimed that privity was no longer required to maintain the cause of action based on the Lofts case and the public policy relied upon by the courts in that line of cases. Id. While the court agreed with plaintiffYanni’s position that the construction of the home or structure was the subject matter of an implied warranty claim, it did not hold that either Richards or Lofts changed the requirement for privity in order to maintain the claim. Id. The court suggests the fact that a subcontractor is only responsible for a portion of the construction, and not the overall structure, was important to its evaluation. While the court pointed out that a homebuyer is not without recourse for deficiencies in subcontractors’ work, based on the homebuyer’s ability to sue the developer, general contractor or vendor, it is not clear whether the court is suggesting that any claim against a subcontractor is barred, including those based in tort, and not in contract. This is especially unclear now with the recent holding in Sullivan v. Pulte 234 Ariz. 244 (2013). In Pulte, the Arizona Supreme Court held, among other things, that a builder or vendor could be sued in tort in absence of a viable contract claim. Therefore, that a homeowner may not sue a subcontractor for breach of implied warranty in the absence of a contract is now clear; however, what is uncertain is whether tort claims such as negligence, misrepresentation or fraud can be maintained directly against a subcontractor based upon claims of deficient construction. While the court has provided clarity in one instance, the question remains what direct claims by homeowners against subcontractors exist today.
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