Rep Custom v. McBride ( 2019 )

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
R.E.P. CUSTOM BUILDERS INC., an Arizona corporation,
Third Party Plaintiff/Appellant,
v.
MCBRIDE EXCAVATING CORPORATION, an Arizona corporation;
MINGUS MOUNTAIN MASONRY, L.L.C., an Arizona Limited Liability
Company, and FOXWORTHY CONCRETE, INC., an Arizona corporation,
Third Party Defendants/Appellees.
No. 1 CA-CV 18-0358
FILED 6-4-2019
Appeal from the Superior Court in Yavapai County
No. P1300CV201600183
The Honorable Christopher L. Kottke, Judge Pro Tempore
AFFIRMED
COUNSEL
Springel & Fink, LLP, Phoenix
By Leonard T. Fink, Thomas G. Levine
Shorall McGoldrick Brinkmann, PC, Phoenix
By Scott M. Zerlaut
Co-Counsel for Appellant
Wright Welker & Pauole, PLC, Phoenix
By Diane L. Bornscheuer, Donald B. Petrie
Counsel for Appellee
REP CUSTOM v. MCBRIDE
Decision of the Court
MEMORANDUM DECISION
Judge Kent E. Cattani delivered the decision of the Court, in which
Presiding Judge David D. Weinzweig and Judge James P. Beene joined.
C A T T A N I, Judge:
¶1 R.E.P. Custom Builders Inc. appeals from the superior court’s
entry of summary judgment in favor of McBride Excavating Corporation
based on Arizona’s eight-year statute of repose for actions arising under
construction contracts. See Ariz. Rev. Stat. (“A.R.S.”) § 12-552. For reasons
that follow, we affirm.
FACTS AND PROCEDURAL BACKGROUND
¶2 In January 2006, the Whiles family entered a construction
contract with REP to build a custom home in Cornville, Arizona. REP then
hired McBride (among others) as a subcontractor to provide certain work
related to the house’s foundation. In conjunction with that subcontract,
McBride executed a “Supplemental Insurance & Indemnity Agreement for
Subcontractors” that, as relevant here, required McBride to (1) name REP
as an additional insured on its commercial general liability insurance policy
for liability arising out of McBride’s work under the subcontract and (2)
indemnify REP for all claims arising from McBride’s work under the
subcontract. The house was substantially completed as of March 14, 2008.
¶3 The Whiles family first noticed then-minor issues with the
construction (e.g., doors sticking) in 2009. In January 2010, REP sent a
representative to look at the property, and the representative did some
minor repairs the same day—tightening balcony bolts, adjusting a door
jamb, and spraying foam into a retaining wall—but recommended waiting
a year for the house to settle. According to Mr. Whiles, REP did not
complete any other repairs, provide any list of proposed repairs, or
otherwise indicate an intent to make additional repairs after that time.
¶4 Over the summer of 2013, the Whiles family allegedly
discovered substantial latent defects in the home, including movement and
cracks in walls, floors, and retaining walls. In August 2013, the Whileses
hired a different contractor, Arizona Ram Jack, to inspect the property to
document and evaluate foundation issues and resulting damage. Also in
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2013, REP contacted McBride to ask about alleged defects, but McBride did
not offer any information, and REP did not follow up. Later, in October
2015, REP hired a geotechnical engineering firm to inspect the Whiles
property.
¶5 Meanwhile, in mid-2014, REP’s insurance carrier contacted
McBride’s insurer to seek coverage for claims related to the alleged defects.
In October 2014, McBride’s insurer responded that REP was not an
additional insured under McBride’s policy. Then, in December 2015, REP
contacted McBride directly seeking a defense and indemnity, which
McBride denied in February 2016.
¶6 On March 11, 2016, the Whileses brought a construction
defect claim against REP.
¶7 On August 22, 2016, REP filed a third-party complaint against
McBride, asserting seven contract-based claims seeking indemnity, defense,
and additional insurance coverage premised on the supplemental
insurance and indemnity agreement, as well as claims for negligence and
common law indemnity. McBride answered the complaint and, among
other affirmative defenses, asserted that REP’s claims were time-barred.
¶8 McBride then moved for summary judgment on REP’s
contract-based claims based on the eight-year statute of repose applicable
to construction contracts. See A.R.S. § 12-552(A). REP opposed, urging that
the statute of repose either did not apply to the contract for additional-
insured coverage or was tolled while REP and the Whileses worked on
repairs and attempted to resolve their dispute under the Purchaser
Dwelling Act. See A.R.S. § 12-1363(F). See generally A.R.S. §§ 12-1361 to -
1366. REP also filed a cross-motion for partial summary judgment on the
merits of several of its claims, which McBride opposed.
¶9 The superior court granted McBride’s motion for summary
judgment and denied REP’s cross-motion. The court reasoned that § 12-552
applied to all of REP’s contract-based claims and found no evidence to
support tolling the statute of repose.1 Approximately one month later on
May 29, 2018, after considering McBride’s request for attorney’s fees and
1 In addition to the judgment on REP’s contract-based claims, McBride
moved for and the superior court granted summary judgment on the
negligence and common law indemnity claims on other grounds, and REP
does not challenge those facets of the ruling.
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costs, the court entered a Rule 54(b) judgment in favor of McBride on all of
REP’s claims. REP timely filed a notice of appeal three days later.
¶10 McBride then filed a timely motion to amend the judgment to
include an award of attorney’s fees and costs, which the superior court
denied in an unsigned minute entry. Because that ruling was unsigned, this
court stayed the already-pending appeal and revested jurisdiction in the
superior court to sign the order resolving McBride’s time-extending
motion. See ARCAP 9(e); Tripati v. Forwith, 223 Ariz. 81, 84, ¶ 15 (App.
2009). The superior court entered a signed ruling on McBride’s motion to
amend on July 27, 2018. The appeal was automatically reinstated on July
30 when this court received the signed order.
¶11 On July 31, REP filed in superior court a motion for
reconsideration or for new trial challenging the summary judgment ruling.
After the superior court promptly granted McBride’s request to strike REP’s
motion, REP moved for reconsideration of that ruling, then filed an
amended notice of appeal that included the court’s order striking REP’s
motion.
DISCUSSION
I. Scope of the Appeal.
¶12 REP’s appeal challenges both the summary judgment ruling
in favor of McBride that led to a final judgment entered May 29, 2018, and
the superior court’s post-judgment ruling striking REP’s motion for
reconsideration or for new trial. We have jurisdiction over the appeal from
the final judgment under A.R.S. § 12-2101(A)(1).
¶13 We lack jurisdiction, however, to consider REP’s challenge to
the order striking its post-judgment motion. By the time REP filed its
motion for reconsideration or for new trial, the appeal had been perfected
and reinstated, divesting the superior court of jurisdiction over REP’s
challenge to the underlying judgment. See Burkhardt v. Burkhardt, 109 Ariz.
419, 421 (1973). Although a timely filed motion for new trial would have
extended the deadline to appeal, the 15-day deadline for filing a motion for
new trial ran from entry of judgment (not from the post-judgment order),
and here, REP’s motion was not filed until 63 days after entry of judgment.
See ARCAP 9(e)(1)(D); Ariz. R. Civ. P. 59(b)(1); Jaynes v. McConnell, 238 Ariz.
211, 214, ¶ 8 (App. 2015). And rulings on motions for reconsideration are
not time-extending and generally are not independently appealable. See
ARCAP 9(e)(1); Arvizu v. Fernandez, 183 Ariz. 224, 226–27 (App. 1995)
(appeal from post-judgment order must raise issues “different from those
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that would arise from an appeal from the underlying judgment” for the
order to be independently appealable as a special order made after final
judgment). Accordingly, we do not further address REP’s contention that
the superior court erred by striking its post-judgment motion.
II. Summary Judgment.
¶14 REP argues that the superior court erred by granting
summary judgment in favor of McBride, urging both that the eight-year
construction-contract statute of repose under A.R.S. § 12-552 does not apply
to its claims and that, even if the statute of repose applies, its third-party
complaint was timely filed because the limitations period was tolled under
the Purchaser Dwelling Act.
¶15 Summary judgment is proper if there are no genuine issues of
material fact and, based on those undisputed facts, the moving party is
entitled to judgment as a matter of law. Ariz. R. Civ. P. 56(a); Orme Sch. v.
Reeves, 166 Ariz. 301, 305 (1990). To establish entitlement to summary
judgment, the party with the burden of proof on a claim or defense “must
submit ‘undisputed admissible evidence that would compel any reasonable
juror to find in its favor on every element of its claim.’” Wells Fargo Bank,
N.A. v. Allen, 231 Ariz. 209, 213, ¶ 18 (App. 2012) (quoting Comerica Bank v.
Mahmoodi, 224 Ariz. 289, 293, ¶ 20 (App. 2010)). In contrast, the party
opposing a claim may establish a basis for summary judgment by simply
“point[ing] out by specific reference to the relevant discovery that no
evidence exist[s] to support an essential element of the [non-moving
party’s] claim.” Orme Sch., 166 Ariz. at 310; see also Mahmoodi, 224 Ariz. at
292, ¶ 18. The non-moving party then must produce sufficient evidence of
a genuine issue of material fact as to one or more essential elements of the
claim or defense to overcome the motion. Orme Sch., 166 Ariz. at 310; see
also Ariz. R. Civ. P. 56(c)(3).
¶16 We review the grant of summary judgment de novo, viewing
the facts in the light most favorable to the party against which judgment
was entered. Allen, 231 Ariz. at 213, ¶ 14. We similarly review de novo
questions of statutory construction. Evans Withycombe, Inc. v. W.
Innovations, Inc., 215 Ariz. 237, 239, ¶ 6 (App. 2006).
A. Statute of Repose.
¶17 Arizona’s construction-contract statute of repose limits the
time in which any action based in contract may be brought against
developers, builders, and certain others involved in construction of real
property improvements:
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Notwithstanding any other statute, no action . . . based in
contract may be instituted or maintained against a person
who . . . performs or furnishes the design, specifications,
surveying, planning, supervision, testing, construction or
observation of construction of an improvement to real
property more than eight years after substantial completion
of the improvement to real property.
A.R.S. § 12-552(A); see also Maycock v. Asilomar Dev., Inc., 207 Ariz. 495, 498,
¶ 15 (App. 2004). The statute allows a limited extension to nine years after
substantial completion if a latent defect is not discovered until the eighth
year. A.R.S. § 12-552(B). For these purposes, an “action based in contract”
includes one “based on a . . . written agreement for construction or for the
services set forth in subsection A of this section [including design,
specifications, surveying, planning, supervision, testing, construction or
observation of construction].” A.R.S. § 12-552(F).
¶18 Here, the parties agree that the construction was
“substantially complete” as of March 14, 2008, when Yavapai County
issued a certificate of occupancy. See A.R.S. § 12-552(E)(3); see also Evans
Withycombe, 215 Ariz. at 239, ¶ 8 n.2. And they agree that the Whileses
discovered the alleged defects well before the eighth year after substantial
completion. Accordingly, the time for filing under § 12-552 expired on
March 14, 2016, just three days after the Whileses filed their complaint
against REP and over five months before REP filed its third-party complaint
against McBride.
¶19 REP contends, however, that § 12-552 does not apply to its
claims premised on the indemnity and insurance agreement. But this court
held over a decade ago that the strictures of § 12-552 apply not only to
contract actions brought by property owners, but also to contractors’
contract-based third-party complaints against subcontractors—including
contract-based indemnity claims. Evans Withycombe, 215 Ariz. at 239–40,
242, ¶¶ 10–11, 23.
¶20 REP suggests that we revisit that principle, positing that it is
“grossly unfair” to apply the statute of repose to a contractor’s third-party
indemnity claims, which may not accrue until the contractor’s liability and
loss are established months or years after the property owner files suit (and
likely long after expiration of the statute of repose). See MT Builders L.L.C.
v. Fisher Roofing, Inc., 219 Ariz. 297, 302, ¶ 11 (App. 2008). But this argument
ignores the distinction between a statute of limitations and the statute of
repose. See Albano v. Shea Homes Ltd. P’ship, 227 Ariz. 121, 127, ¶¶ 23–24
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(2011). While a statute of limitations is not triggered until a cause of action
accrues, the statute of repose defines a substantive right for those it protects,
in effect representing a legislative grant of immunity eight years after
substantial completion of the house. Id.; see also A.R.S. § 12-552(A). Because
it establishes a fixed time-frame “beyond which no suit may be pursued,”
Evans Withycombe, 215 Ariz. at 240, ¶ 12, the statute of repose may
permissibly operate to completely bar claims that do not accrue within the
eight-year period.2 Albano, 227 Ariz. at 127, ¶ 24; see also id. at 126, ¶ 19
(noting that the Legislature enacted § 12-552 to limit the otherwise
“indeterminable period of liability exposure” facing developers and
builders).
¶21 Moreover, even though little time remained for REP to file its
third-party complaint against McBride after the Whileses sued, REP had
already been aware of the alleged construction defects for several years.
REP had also unsuccessfully sought coverage from McBride’s insurer in
2014, leaving ample opportunity to pursue a claim for McBride’s failure to
name REP as an additional insured. And REP knew by February 2016 that
McBride had declined to defend or indemnify REP. REP offers no
explanation for its failure to act to preserve its claims against McBride
before expiration of the statute of repose despite having an opportunity to
do so. Cf. Evans Withycombe, 215 Ariz. at 240, ¶ 13.
¶22 REP alternatively argues that the insurance and indemnity
agreement at issue here is not itself a construction contract, and thus falls
outside of the ambit of § 12-552. REP does not dispute that its subcontract
with McBride to provide certain work related to the house’s foundation
qualifies as a construction agreement subject to § 12-552. Rather, REP
asserts that the Supplemental Insurance & Indemnity Agreement for
Subcontractors is “separate from and independent of any subcontract for
any specific construction,” so claims based on the insurance and indemnity
2 REP also offers a cursory assertion that application of § 12-552 to
preclude contract claims before they accrue would violate Arizona’s
constitutional prohibition on laws impairing contractual obligations. See
Ariz. Const. art. 2, § 25. But “[t]he contract clause only limits the state’s
ability to impair existing contract obligations; it does not curtail application
of proscriptive principles that existed at the time of contract creation.”
Dobson Bay Club II DD, LLC v. La Sonrisa de Siena, LLC, 242 Ariz. 108, 116, ¶
41 (2017). Here, the statute of repose existed at the time REP and McBride
entered their contract and was incorporated into their agreement by
operation of law, and thus did not impair either party’s contractual
obligations. See id.7
REP CUSTOM v. MCBRIDE
Decision of the Court
agreement are not “based on a . . . written agreement for construction” as
necessary for the statute of repose to apply. See A.R.S. § 12-552(F).
¶23 The terms of the insurance and indemnity agreement
undermine REP’s assertion that it is independent of and unrelated to the
subcontract for construction services. The indemnity provision only covers
claims “that may arise from the performance of [McBride’s] work,” and the
additional insured provision expressly applies to “liability arising out of
operations performed by or on behalf of [McBride] in connection with the
operations described within the agreement between [McBride] and [REP].”
Moreover, the insurance and indemnity agreement situates itself as a
supplement to “other provisions of the subcontract,” its terms provided “in
consideration of payment to be made to [McBride] for work to be performed
by [McBride] on behalf of [REP].” The insurance and indemnity agreement
thus simply represents additional terms of the subcontract, and REP offers
no authority for the proposition that reciting these terms in a separate
document insulates it from the otherwise-applicable statue of repose. Cf.
City of Phoenix v. Glenayre Elecs., Inc., 242 Ariz. 139, 146–47, ¶¶ 29, 32 (2017)
(defining a written agreement “for” construction-related services covered
by § 12-552 as one “with the purpose or object of” engaging such services);
Evans Withycombe, 215 Ariz. at 242, ¶ 23.
¶24 Accordingly, the superior court did not err by determining
that the eight-year construction-contract statute of repose under § 12-552
applied to REP’s contract-based claims against McBride.
B. Tolling Under the Purchaser Dwelling Act.
¶25 REP filed its third-party complaint against McBride eight
years, five months, and eight days after substantial completion of the
Whileses’ house, outside the eight-year deadline set by § 12-552(A). REP
nevertheless argues that its claims were not time-barred because the statute
of repose was tolled while REP and the Whileses engaged in the notice and
repair or replacement process under the Purchaser Dwelling Act (“PDA”).
¶26 The PDA imposes certain requirements before a purchaser of
a dwelling can bring a construction defect action against the seller
(including subcontractors and other construction professionals). See A.R.S.
§ 12-1361(5), (7), (10). See generally A.R.S. §§ 12-1361 to -1366. Unless the
alleged defect imposes immediate safety concerns, the purchaser must first
provide the seller written notice describing in “reasonable detail” the
alleged defects and resulting damage to the dwelling. See A.R.S. §§ 12-
1362(A), -1363(A), (O). The seller then has a right to repair or replace any
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such defects before the purchaser may file a dwelling action. See A.R.S. §§
12-1362(B), -1363(N).
¶27 This notice and repair or replacement process is delineated in
the PDA in some detail, specifying requirements that notices (both the
initial notice by the purchaser and the seller’s response) be given in writing
and communicated by certified mail, and that steps in the process be
completed within prompt timeframes. See, e.g., A.R.S. § 12-1363(A)
(purchaser’s notice in writing, sent by certified mail), (B) (seller’s right to
inspect the dwelling, including a requirement that the purchaser allow the
inspection within 10 days of the seller’s request), (C) (seller’s good faith
written notice of intent to repair, replace, or provide monetary
compensation to be sent by certified mail within 60 days of purchaser’s
initial notice), (E)(1) (purchaser and seller coordinate repair or replacement
within 30 days of seller’s notice of intent to repair), (K) (authorizing
extension of time periods by written agreement). After completion of any
repairs or replacements, or if the seller fails to provide a response or
otherwise comply with the specified process, the purchaser may then file a
dwelling action. A.R.S. § 12-1363(C), (D), (E)(6), (M).
¶28 As relevant here, the PDA expressly tolls the § 12-552 statute
of repose—including contractors’ claims against subcontractors—for the
full duration of the notice and repair or replacement process, plus 30 days:
During the notice and repair or replacement process, and for
thirty days after substantial completion of the repair or
replacement, the statute of limitations and statute of repose,
including § 12-552, applicable to the purchaser, including any
construction professionals involved in the construction or
design, are tolled as to the seller and the seller’s construction
professionals who were involved in the construction or
design of the dwelling for all alleged construction defects
described in reasonable detail in the written notice sent to the
seller pursuant to subsection A of this section.
A.R.S. § 12-1363(F).3 The superior court declined to toll the statute of repose
on this basis, however, concluding that no evidence showed REP engaging
in the PDA’s repair or replacement process.
3 New amendments to the PDA will, going forward, include
subcontractors in the notice and repair or replacement process and extend
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¶29 REP argues that strict compliance with the PDA’s detailed
requirements is not required to support tolling and asserts that there was
an ongoing, PDA-compatible investigation and negotiation process with
the Whileses based on: (1) its representative’s January 2010 visit to the
Whileses’ house to look at the property and perform some minor repairs,
(2) REP’s August 2013 receipt of the Ram Jack report, and (3) REP’s October
2015 site inspection by a geotechnical engineering firm.4
¶30 We need not address whether the PDA requires strict
compliance with the statutorily delineated notice and repair or replacement
process because REP offered no evidence of any compliance. Based on the
summary judgment record, those three isolated actions were REP’s only
responses to the alleged construction defects. To the extent the January
2010 visit could be considered a site inspection, see A.R.S. § 12-1363(B), there
is no evidence that REP proposed or completed any further repairs, or
pursued any other follow-up action. See A.R.S. § 12-1363(C). Although the
August 2013 Ram Jack report for the first time delineated the alleged
construction defects in some detail, see A.R.S. § 12-1363(A), (O), there is no
evidence that REP then followed up with an inspection, repair proposal, or
other negotiation. See A.R.S. § 12-1363(B), (C), (E). And although the
October 2015 site inspection could, in the abstract, form part of the PDA
process, see A.R.S. § 12-1363(B), the resulting report simply documented the
damage to the home (and commented on potential causes), but did not itself
offer any repair proposals or lead to separate repair or compensation
proposals from REP. See A.R.S. § 12-1363(C). Based on the absence of any
significant repair or replacement activities evidenced in the summary
judgment record, the superior court did not err by concluding that the
statue of repose was not tolled under the PDA.
¶31 REP also argues that McBride waived any argument that PDA
tolling does not apply by failing to plead non-compliance with the PDA
process as a defense. But REP’s argument mistakes the interplay of the
the tolling period for third-party indemnity or contribution claims against
subcontractors. 2019 Ariz. Sess. Laws, ch. 60, §§ 1–2 (54th Leg., 1st Reg.
Sess.) (S.B. 1271). These amendments are not, however, applicable to this
case.
4 REP also notes a May 2016 letter from the Whileses’ counsel, but REP
did not provide that document during the summary judgment proceedings.
And in any event, that letter only reflects discussions of alternative dispute
resolution after March 24, 2016, by which time the statute of repose had
already run.
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parties’ claims and defenses. McBride’s affirmative defense—raised in the
answer to REP’s third-party complaint—was the statute of repose under §
12-552, not the PDA. REP then raised PDA tolling in its response to
McBride’s motion for summary judgment. McBride had no cause to raise
non-compliance with the PDA until REP raised PDA tolling under A.R.S. §
12-1363(F), particularly given the Whileses’ assertion that they had never
given PDA notice to REP. See A.R.S. § 12-1362(A).
¶32 Similarly, REP asserts that McBride cannot raise non-
compliance with the PDA because McBride was not itself a party to the PDA
process and did not accept REP’s tender of its defense (so as to assert REP’s
rights under the PDA). Cf. Cunningham v. Goettl Air Conditioning, Inc., 194
Ariz. 236, 242, ¶ 28 (1999) (indemnitor’s failure to accept tender waives its
right to contest issues resolved by stipulated judgment between plaintiff
and indemnitee). This argument again mistakes the interplay of the parties’
positions and relative burdens. Because tolling under the PDA was the
basis for REP’s opposition to McBride’s statute of repose defense, REP bore
the burden to prove that tolling was proper under the PDA. Cf. McCloud v.
State, 217 Ariz. 82, 85, ¶ 8 (App. 2007); Anson v. Am. Motors Corp., 155 Ariz.
420, 421 (App. 1987). McBride’s contrary position simply pointed to an
absence of evidence to support REP’s assertion that PDA tolling applied.
See Orme Sch., 166 Ariz. at 310.
¶33 Accordingly, the superior court did not err in declining to
apply PDA tolling and thus concluding that REP’s third-party claim against
McBride is time-barred under § 12-552(A).
III. Attorney’s Fees and Costs on Appeal.
¶34 McBride requests an award of its attorney’s fees under A.R.S.
§ 12-341.01 and § 12-349. In an exercise of our discretion, we decline its
request for fees. As the prevailing party, however, McBride is entitled to
an award of costs on appeal upon compliance with ARCAP 21.
CONCLUSION
¶35 The judgment is affirmed.
AMY M. WOOD • Clerk of the Court
FILED: JT
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