August 21, 2007
Notes re Appellate Cases
Jeffrey C. Stone d/b/a Summit Builders v. RCI Systems, Inc. (Unpublished Memorandum Decision, March 18, 2004)
The owner of an apartment complex sued the general contractor, Summit, alleging, among other things, defects in construction causing water intrusion. Summit went to trial with the owner but did not put on a defense nd paid the owner $5 million in exchange for a covenant not to execute the judgment. The trial judge entered final judgment against Summit in excess of $16 million. Simultaneously, Summit filed a separate lawsuit against RCI, a fire sprinkler subcontractor, for indemnification. Summit sought to hold RCI and all the other subcontractors liable to the same extent as an insurance company, requesting that RCI and the other subcontractors be jointly and severally liable for all of Summit's defense fees and costs incurred in the litigation between the owner and Summit. The Court of Appeals held that Summit would only be entitled to recover defense fees and costs to the extent that Summit proved the expenses were reasonable and necessary to defend against the owner's claims of water intrusion caused by RCI's work.
Mark Hancock Dev. Corp., Auto-Owners Ins. Co., and Statewide Ins. Co. v. Metric Roofing, et al. (Unpublished Memorandum Decision, January 25, 2007)
Owners of 59 homes in Awhatukee sued the builder and developer alleging construction defects and fraudulent sales practices. The homeowners alleged fraud in that the seller did not disclose known soils conditions. The homeowners sought compensatory damages for the construction defects and punitive damages for the fraud. The builder sued several subcontractors seeking indemnification. The Court of Appeals ruled that the builder would need to show how each subcontractor's work was defective, and that the builder would need to use the observations and allegations of the homeowners' experts as the basis for the subcontractor's liability. The Court further ruled that the builder would need to show each subcontractor's fault and allocate the settlement amounts on a house-by-house and defect-by-defect basis. The Court of Appeals overturned the trial court's blanket dismissal of the builder's lawsuit, ruling that each alleged defect on each house required close scrutiny.
Evans Withycombe, Inc. v. Western Innovations, Inc., 215 Ariz. 237, 159 P.3d 547 (App.2006)
Homeowners sued a builder alleging soil settlement issues. After the expiration of Arizona's Construction Contract Statute of Repose, the builder sued the finish grade contractor for indemnification pursuant to the parties' subcontract agreement. The builder argued that because the homeowner's lawsuit was timely and within the Statute of Repose, that its Third-Party Complaint for indemnification was also timely. Court of Appeals held that the plain language of the Statute of Repose barred all contractual claims filed more than 9 years after substantial completion of the home, regardless of the party filing those claims. The Court further held that the only viable cause of action in such an instance would be a claim arising out of the common law of equitable indemnity, in which the builder would be required to prove that it is one-hundred percent free of fault for the homeowner's damages.
