Petrus Family Trust Dated May 1, 1991 v. Kirk

IN THE SUPREME COURT OF THE STATE OF IDAHO
Docket No. 44784
PETRUS FAMILY TRUST DATED MAY 1, )
1991, and EDMOND A. PETRUS JR., )
individually and as Co-Trustee of the Petrus )
Family Trust Dated May 1, 1991,
)
Plaintiffs-Appellants-Cross )
Respondents, )
v. ) Boise, February 2018 Term
)
CHRIS KIRK, dba KIRK ENTERPRISES, ) 2018 Opinion No. 28
)
Defendant-Respondent-Cross
) Filed: April 4, 2018
Appellants,
and )
) Karel A. Lehrman, Clerk
NANCY GENTRY-BOYD; TODD )
MCKENNA dba HOMECRAFT HOME )
INSPECTIONS; RE/MAX RESORT )
REALTY; KEVIN BATCHELOR; and )
DOES 1-4,
)
Defendants. )
Appeal from the District Court of the Fourth Judicial District, State of Idaho,
Valley County. Hon. Jason D. Scott, District Judge.
District court order granting summary judgment, affirmed.
Parsons Behle & Latimer, Boise, and Higgs, Fletcher & Mack LLP, San Diego,
CA for appellants. John M. Morris argued.
Arkoosh Law Offices, Boise, for respondents. Daniel A. Nevala argued.
_________________________________
BURDICK, Chief Justice.
Petrus Family Trust and Edmond A. Petrus, Jr., individually and as trustee of the Petrus
Family Trust (collectively, Petrus) brings this appeal from the Ada County district court. Petrus
sued Chris Kirk d/b/a Kirk Enterprises (Kirk) and several other parties for claims arising from
Petrus’s purchase of a home Kirk built in McCall. Kirk moved for summary judgment, and the
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district court granted the motion in Kirk’s favor. The district court also awarded attorney fees to
Kirk under Idaho Code section 12-121, apportioning the award so as to award Kirk fees only
insofar as Kirk was required to defend against a frivolous claim. Petrus timely appeals the grant
of summary judgment in favor of Kirk, and Kirk timely cross-appeals the apportionment of fees.
For the reasons below, we affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
The material facts of this case are not in dispute. Kirk built a home located in McCall
under an oral contract Kirk had with Nancy Gentry-Boyd. Kirk began construction in June 2004
and completed the home by September 2005. Gentry-Boyd paid Kirk and used the home for
vacation purposes from 2005 until 2012.
In April 2012, Petrus purchased the home from Gentry-Boyd for vacation purposes under
a Real Estate Purchase and Sale Agreement (PSA). The PSA required Gentry-Boyd to disclose
certain property conditions before closing. As relevant here, in response to the PSA’s inquiry of
“any water intrusion or moisture related damage to any portion of the property,” Gentry-Boyd
answered “[n]o.” Nor did Gentry-Boyd disclose any water intrusion in response to the PSA’s
directive to list “any other existing problems that [she] kn[e]w of concerning the property.” A
home inspection occurred before closing, and while water seepage in the crawlspace was noted,
the home inspector assured Petrus it was “normal seepage for this type of property, this type of
area, this type of house, this type of – you know, this is normal, nothing unusual.”
Shortly after moving into the home in or around June 2012, Petrus discovered that a set
of French doors in the home were swollen with water and did not open, close, or lock properly.
When Petrus contacted Gentry-Boyd about the issue, Gentry-Boyd responded that “[t]he doors
sometimes stick after the winter. If you keep them locked, they will dry out and function
again[,]” notwithstanding that Gentry-Boyd had failed to disclose this condition on the PSA. Nor
had this condition been discovered during the home inspection. Petrus notified Kirk of the issue
by letter dated August 7, 2013. Kirk thereafter inspected the home on several occasions, and
surmised that “at some point after construction on the Home was completed, the Home had been
severely altered and damaged.” Petrus eventually discovered extensive rot and mold from water
intrusion and expended over $60,000 to remediate the water damage. Petrus and Kirk never
reached an amicable resolution.
2
In March 2014, Petrus sued Kirk, Gentry-Boyd, and the home inspector. Petrus did not
serve the initial complaint. Instead, Petrus filed a first amended complaint in September 2014,
which Petrus later served. In the first amended complaint, as against Kirk, Petrus alleged claims
for breach of the implied warranty of habitability and conspiracy to defraud. Thereafter, Petrus
filed a second amended complaint in September 2015, which Petrus later served, alleging claims
against Kirk that were substantially identical to the claims alleged in the first amended
complaint. Various contract, tort, and consumer-protection claims were asserted against Gentry-
Boyd and the home inspector, but those claims are not at issue in this appeal. 1
As relevant here, Kirk moved for summary judgment in May 2016, contending, in part,
that (1) Petrus’s conspiracy-to-defraud claim was unsupported; and (2) Petrus’s breach of the
implied warranty of habitability claim was untimely under Idaho Code section 5-241(b). Petrus
responded that the breach of implied warranty of habitability claim was timely under section 5-
241(a) because it arose in tort, not in contract, and did not address the conspiracy-to-defraud
claim. The district held a hearing on Kirk’s summary judgment motion in June 2016, at which
Petrus conceded summary judgment for Kirk was proper on the conspiracy-to-defraud claim,
leaving only the breach of the implied warranty of habitability claim.
The district court granted summary judgment to Kirk, concluding Petrus’s breach of the
implied warranty of habitability claim arose in contract and was therefore untimely under section
5-241(b). Even if Petrus’s claim arose in tort, the district court concluded it would be barred by
the economic loss rule. Petrus timely moved for reconsideration, but the district court denied the
motion after concluding Petrus had not offered any new argument or evidence that would
warrant a different result. Thereafter, the district court awarded attorney fees to Kirk under Idaho
Code section 12-121, apportioning the award so as to award fees to Kirk only insofar as he was
required to defend against Petrus’s conspiracy-to-defraud claim.
Petrus timely appeals the grant of summary judgment in favor of Kirk, and Kirk timely
cross-appeals the apportionment of fees.
II. ISSUES ON APPEAL
1. Did the district court err by granting summary judgment to Kirk?
2. Did the district court err by denying Petrus’s motion for reconsideration?
3. Did the district court err in its apportionment of attorney fees to Kirk?
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Gentry-Boyd and the home inspector both settled with Petrus.
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4. Is Kirk entitled to attorney fees on appeal?
III. ANALYSIS
A. The district court properly granted summary judgment to Kirk.
This Court has explained that, when it reviews a summary judgment on appeal,
it does so under the same standards employed by the district court. “The fact that
the parties have filed cross-motions for summary judgment does not change the
applicable standard of review, and this Court must evaluate each party’s motion
on its own merits.” Summary judgment is proper “if the pleadings, depositions,
and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to a
judgment as a matter of law.” Idaho R. Civ. P. 56(c).[2] Where the case will be
tried without a jury, “the trial court as the trier of fact is entitled to arrive at the
most probable inferences based upon the undisputed evidence properly before it
and grant the summary judgment despite the possibility of conflicting inferences.”
This Court freely reviews the entire record that was before the district court to
determine whether either side was entitled to judgment as a matter of law and
whether inferences drawn by the district court are reasonably supported by the
record.
Borley v. Smith, 149 Idaho 171, 176–77, 233 P.3d 102, 107–08 (2010) (citations omitted).
The parties agree Idaho Code section 5-241 governs the fate of Petrus’s claim for breach
of the implied warranty of habitability. That statute provides as follows:
Actions will be deemed to have accrued and the statute of limitations shall
begin to run as to actions against any person by reason of his having performed or
furnished the design, planning, supervision or construction of an improvement to
real property, as follows:
(a) Tort actions, if not previously accrued, shall accrue and the
applicable limitation statute shall begin to run six (6) years
after the final completion of construction of such an
improvement.
(b) Contract actions shall accrue and the applicable limitation
statute shall begin to run at the time of final completion of
construction of such an improvement.
The times fixed by these sections shall not be asserted by way of defense
by any person in actual possession or control, as owner, tenant, or otherwise, of
such an improvement at the time any deficiency in such an improvement
constitutes the proximate cause of an injury or death for which it is proposed to
bring an action.
Nothing in this section shall be construed as extending the period
prescribed by the laws of this state for the bringing of any action.
2
Effective July 1, 2016, Idaho Rule of Civil Procedure 56 was amended. The relevant portion of the rule now
provides: “The court must grant summary judgment if the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” I.R.C.P. 56(a).
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As used in this section, the term “person” shall mean an individual,
corporation, partnership, business trust, unincorporated organization, association,
or joint stock company.
I.C. § 5-241. Section 5-241 is a statute of repose, not a statute of limitations, since its operation
does not depend on the occurrence or discovery of injury. Id.; accord Twin Falls Clinic & Hosp.
Bldg. Corp. v. Hamill, 103 Idaho 19, 23, 644 P.2d 341, 345 (1982); 54 C.J.S. Limitations of
Actions § 7 (2017).
The interpretation of section 5-241 is not in dispute. Instead, the dispute is whether a
breach of the implied warranty of habitability arises in contract or tort. If it arises in contract, as
the district court found, section 5-241(b) applies to make the “applicable limitation statute . . .
begin to run at the time of final completion of construction of such an improvement.” In this
case, that would mean Petrus’s claim is untimely, as it was required to have been brought within
four years of completion of construction, since the contract for construction was oral. I.C. §§ 5-
241(b), 5-217; see also Stapleton v. Jack Cushman Drilling & Pump Co., 153 Idaho 735, 738–
40, 291 P.3d 418, 421–23 (2012). By contrast, if a breach of the implied warranty of habitability
arises in tort, as Petrus contends, the action, “if not previously accrued, shall accrue and the
applicable limitation statute shall begin to run six (6) years after the final completion of
construction of such an improvement.” I.C. § 5-241(a). That would mean Petrus’s claim would
now be timely because the applicable four-year statute of limitations under Idaho Code section 5-
224 would have begun to run six years after the September 2005 completion of construction,
thereby giving Petrus ten years to sue. Id.; I.C. § 5-224. As such, our primary inquiry is whether
a breach of the implied warranty of habitability arises in contract or tort.
This Court first recognized the implied warranty of habitability in Bethlahmy v. Bechtel,
91 Idaho 55, 63–68, 415 P.2d 698, 706–11 (1966). In Bechtel, the Bethlahmys purchased a home
from Bechtel that Bechtel had constructed. Id. at 57–59, 415 P.2d at 700–02. Bechtel, however,
built the home atop an unsealed irrigation ditch, which caused significant water damage to the
home and ultimately required the Bethlahmys to vacate the home. Id. The Bethlahmys sued
Bechtel. Id. at 59, 415 P.2d at 702. In support of recovery, the Bethlahmys pointed to the
“presence of the unsealed irrigation ditch through the lot and beneath the garage, coupled with
the fact that the basement was not of waterproof construction, constituted major defects, known
to [Bechtel], and unknown to [the Bethlahmys], and not discoverable upon reasonable
inspection.” Id. While the evidence was insufficient to show that Bechtel had committed fraud by
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intentionally concealing the unsealed ditch, this Court reasoned that the Bethlahmys were not
precluded from recovery. Id. at 63, 415 P.2d at 706. Rather, “[t]he pleadings and evidence
presenting the issue of fraud were sufficient to present the issue of breach of warranty.” Id.
Looking to other jurisdictions, Bechtel observed that the “trend of judicial opinion is to invoke
the doctrine of implied warranty of fitness in cases involving sales of new houses by the
builder.” Id. at 67, 415 P.2d at 710. This Court elected to follow suit and explained:
The old rule of caveat emptor does not satisfy the demands of justice in such
cases. The purchase of a home is not an everyday transaction for the average
family, and in many instances is the most important transaction of a lifetime. To
apply the rule of caveat emptor to an inexperienced buyer, and in favor of a
builder who is daily engaged in the business of building and selling houses, is
manifestly a denial of justice.
The implied warranty of fitness does not impose upon the builder an
obligation to deliver a perfect house. No house is built without defects, and
defects susceptible of remedy ordinarily would not warrant rescission. But major
defects which render the house unfit for habitation, and which are not readily
remediable, entitle the buyer to rescission and restitution. The builder-vendor’s
legitimate interests are protected by the rule which casts the burden upon the
purchase to establish the facts which give rise to the implied warranty of fitness,
and its breach.
Id. at 67–68, 415 P.2d at 710–11 (citations omitted). While Bechtel did not address whether a
breach of the implied warranty of habitability arose in contract or tort, Bechtel did explain that
the claim would “entitle the buyer to rescission and restitution.” Id. Rescission and restitution are
remedies available in contract law. See, e.g., 26 Williston on Contracts §§ 68:2, 68:3 (4th ed.
2017); Restatement (Third) of Restitution and Unjust Enrichment §§ 37, 38, 39, 54 (2011).
In the years after Bechtel, this Court acknowledged the implied warranty of habitability
on several occasions. See, e.g., Sorensen v. Pickens, 99 Idaho 564, 564, 585 P.2d 1275, 1275
(1978); Mays v. Kast, 96 Idaho 472, 472–73, 531 P.2d 234, 234–35 (1975); Hafer v. Horn, 95
Idaho 621, 623, 515 P.2d 1013, 1015 (1973); Shrives v. Talbot, 91 Idaho 338, 346, 421 P.2d 133,
141 (1966). While Sorensen, Mays, Hafer, and Talbot are notable for their references to recovery
of contract remedies for a breach of the implied warranty of habitability, no substantive
pronouncement elaborating on the implied warranty of habitability came from this Court until
1987 in Tusch Enterprises v. Coffin, 113 Idaho 37, 45–51, 740 P.2d 1022, 1030–36 (1987), from
which the district court found it “clear, or at least readily inferable,” that a breach of the implied
warranty of habitability arises in contract. The district court is correct.
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In Tusch Enterprises, 113 Idaho at 38, 740 P.2d at 1023, the Vander Boeghs contracted
with Coffin, a general contractor, for the construction of three duplexes on the Vander Boeghs’
land. Construction was completed by early 1976. Id. at 39, 740 P.2d at 1024. Starting in June
1978, Tusch Enterprises (Tusch) submitted three offers to purchase the duplexes from the
Vander Boeghs, and the third offer was accepted in or around March 1979. Id. at 40, 740 P.2d at
1025. One month after Tusch closed on the duplexes, a duplex tenant notified Tusch that “[t]he
walls had begun cracking around the windows and many of the doors would not close properly.”
Id. Tusch investigated further to find the duplexes’ foundations were cracking. Id. Tusch
expended a great deal of money remedying the problems. The structural defects
have caused damage to the duplexes themselves and to the parking lot, and have
caused losses in rental income, but [Tusch] has suffered no personal injuries and
has suffered no damage to property other than that which was the subject of the
duplex sales transaction.
Id. Tusch sued the Vander Boeghs and Coffin, alleging claims that included negligent design and
construction of the duplexes and breach of the implied warranty of habitability. Id. This Court
affirmed summary judgment in favor of the Vander Boeghs and Coffin on Tusch’s negligence
claim based on the economic loss rule, 3 as the only damages Tusch alleged were “lost rental
income and property damage to the duplexes and the parking lot.” Id. However, this Court
reversed summary judgment that had been granted in favor of the Vander Boeghs and Coffin on
Tusch’s breach of the implied warranty of habitability claim. Id. at 45–51, 740 P.2d at 1030–36.
As to the Vander Boeghs, triable issues of fact surrounded whether the Vander Boeghs acted as a
“developer-builder [(and thus could be liable for breach of the implied warranty of habitability)]
or merely an ordinary person with little expertise” who contracted with Coffin for construction.
Id. at 49, 740 P.2d at 1034.
Tusch Enterprises’s analysis as to Coffin is more instructive in regards to Petrus’s claim
in this appeal. That analysis resolved the vexing question of “whether a subsequent purchaser of
residential dwellings may assert a claim for breach of the implied warranty of habitability against
the builder of the dwellings when there is no privity of contract between them.” Id. Citing to
other jurisdictions, this Court elected to dispose of such a privity requirement and thereby
extended the warranty to subsequent purchasers, with the following caveat:
3
In Clark v. International Harvester Co., 99 Idaho 326, 333–36, 581 P.2d 784, 791–94 (1978), this Court
recognized the economic loss rule and held that it barred recovery in negligence for pure economic losses sustained
to the subject of the transaction.
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This extension of liability is limited to latent defects, not discoverable by a
subsequent purchaser’s reasonable inspection, manifesting themselves after the
purchase. The standard to be applied in determining whether or not there has been
a breach of warranty is one of reasonableness in light of surrounding
circumstances. The age of the home, its maintenance, the use to which it has been
put, are but a few factors entering into this factual determination at trial.
Id. at 50, 740 P.2d at 1035 (quoting Barnes v. Mac Brown & Co., Inc., 342 N.E.2d 619, 621 (Ind.
1976)). As Tusch Enterprises reasoned, latent defects “will be just as catastrophic on a
subsequent owner as on an original buyer and the builder will be just as unable to justify
improper or substandard work.” Id. at 49, 740 P.2d at 1034 (quoting Richards v. Powercraft
Homes, Inc., 678 P.2d 427, 430 (Ariz. 1984)). Accordingly, “[b]ecause the builder-vendor is in a
better position than a subsequent owner to prevent occurrence of major problems, the cost of
poor workmanship should be his to bear.” Id. (quoting Richards, 678 P.2d at 430). In summary,
Tusch Enterprises held that
subsequent purchasers of residential dwellings, who suffer purely economic losses
from latent defects manifesting themselves within a reasonable time, may
maintain an action against the builder (or builder-developer, as the case may be,)
of the dwelling based upon the implied warranty of habitability despite the fact
that no privity of contract exists between the two.
Id. at 50–51, 740 P.2d at 1035–36.
A key consideration causing Tusch Enterprises to dispose of a privity requirement was
that the economic loss rule barred Tusch from recovery in negligence. In that regard, this Court
explained that if, “in the area of pure economic losses, negligence is to be preempted by contract
principles [under the economic loss rule], then contract principles must be given a freer hand to
deal with injuries the law has typically redressed.” Id. at 50, 740 P.2d at 1035. In a footnote,
Tusch Enterprises recited the following “respected authority” with approval:
Historically, therefore, the only tort action available to a disappointed
purchaser suffering intangible commercial loss has been the tort action of deceit
for fraud and the only contract action has been for breach of a warranty, express
or implied. This remains the generally accepted view. A few courts in recent years
have permitted either a tort action for negligence or one in strict liability. Usually,
the reason for so doing has been to escape the requirement of privity of contract
as a prerequisite to recovery on a warranty theory. But the elimination of this
requirement for recovery on a contract-warranty theory would seem to constitute
the more satisfactory technique.
Id. at 50 n.8, 740 P.2d at 1035 n.8 (emphasis added) (quoting Prosser & Keeton, The Law of
Torts, § 101, at 708 (5th ed. 1984)). Therefore, Tusch Enterprises plainly treated a breach of the
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implied warranty of habitability as sounding in contract and dispensed with a privity requirement
to enable contract law to “deal with” economic losses tort law could not address in this limited
context. Id.
While Petrus asks this Court to reverse summary judgment in favor of Kirk and remand
for further proceedings, “exactly” as this Court did in Tusch Enterprises, Petrus is mistaken.
Tusch Enterprises reversed and remanded Tusch’s breach of the implied warranty of habitability
claim against Coffin after ruling that privity was not required. 113 Idaho at 50–51, 740 P.2d at
1035–36. Petrus’s claim here is not barred by a lack of privity, but by contract-based statutes of
repose and of limitations. As reasoned above, Tusch Enterprises does not assist Petrus, but, in
fact, illustrates that Petrus’s claim arises in contract. Id. at 49–51, 740 P.2d at 1034–36; accord
Adkison Corp. v. Am. Bldg. Co., 107 Idaho 406, 410–11, 690 P.2d 341, 345–46 (1984) (“In sum,
breach of implied warranty actions for purely economic losses must be viewed in a contract
setting with relevant contract principles.”); 1A C.J.S. Actions § 132 (2017) (“Where the claim is
for a breach of implied warranties of habitability and workmanlike construction, the claim is
based on the contract not in tort.”).
Petrus cites to Salmon Rivers Sportsman Camps, Inc. v. Cessna Aircraft Co., 97 Idaho
348, 544 P.2d 306 (1975), to contend that the absence of a privity requirement shows Petrus’s
claim arises in tort. In Salmon Rivers, this Court held that “privity of contract is required in a
contract action to recover economic loss for breach of implied warranty.” Id. at 354, 544 P.2d at
312. Salmons Rivers was a product-liability case involving a breach of implied warranty claim
against an airplane manufacturer. Id. at 350, 544 P.2d at 308. The claim sought damages solely
“for the cost of the airplane’s removal and repair, and for the loss of the use of the aircraft during
its repair”—i.e., pure economic damages. Id. at 351, 544 P.2d at 309. The plaintiff, however, was
not in privity of contract with the manufacturer. Id. This Court affirmed summary judgment for
the manufacturer on that basis. Id. at 350, 544 P.2d at 308.
Petrus grabs dicta from Salmon Rivers and emphasizes how this Court quoted with
approval that, “unless there is privity, liability to the consumer must be in tort and not in
contract.” Id. at 353–54, 544 P.2d at 311–12 (quoting William L. Prosser, The Assault Upon the
Citadel (Strict Liability to the Consumer), 69 Yale L. J. 1099, 1134 (1960)). Petrus therefore
argues that, here, since privity is absent, Petrus’s claim must arise in tort. Salmon Rivers does not
assist Petrus. Tusch Enterprises specifically addressed Salmon Rivers and explained:
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We recognize that in [Salmon Rivers], a case dealing with a sale of goods,
we held privity of contract is a prerequisite to recovery of pure economic losses in
an action for breach of implied warranty. Nonetheless, in State v. Mitchell
Construction Co., 108 Idaho 335, 699 P.2d 1349 (1984), three members of this
Court expressed the view that this privity requirement should be abolished.[4]
Salmon Rivers was decided prior to our decision in Clark, supra. As noted earlier,
Clark held that a party suffering only economic losses could not recover under a
negligence theory. The rationale behind that decision was to allow the law of
contracts to resolve disputes concerning economic losses. If, however, in the area
of pure economic losses, negligence is to be preempted by contract principles, as
we ruled in Clark, then contract principles must be given a freer hand to deal with
injuries the law has typically redressed. Therefore, we decline to extend the
privity requirement enunciated in Salmon Rivers to the facts at hand. The instant
case is not a goods case, and the question regarding the continued vitality of
Salmon Rivers in such cases is better left to another day when a response on our
part would be something more than mere dictum.
Tusch Enters., 113 Idaho at 50, 740 P.2d at 1035 (internal citation omitted). In short, Tusch
Enterprises was clear that a privity requirement was discarded so that contract law can “deal
with” economic losses tort law cannot address in this limited context. Id.
This Court addressed the “continued vitality” of Salmon Rivers in Ramerth v. Hart, 133
Idaho 194, 198, 983 P.2d 848, 852 (1999). There, Ramerth sued a mechanic, Hart, for negligence
and breach of implied warranty, claims allegedly arising from Hart’s work on an airplane later
sold by a third-party to Ramerth. Id. at 195–96, 983 P.2d at 849–50. This Court affirmed
dismissal of the negligence claim under the economic loss rule “[b]ecause there [we]re no
allegations of personal injury or property damage other than the cost to repair the airplane.” Id. at
197, 983 P.2d at 851. This Court also affirmed dismissal of the implied warranty claim on the
basis that there was no privity of contract between Ramerth and Hart. Id. at 198, 983 P.2d at 852.
In doing so, this Court in Ramerth explained—clearly and unanimously—that “Salmon Rivers
remains valid. We are not persuaded that the rule announced in Salmon Rivers should be further
relaxed to allow a claim for breach of implied warranty on the facts of this case.” Id. Ramerth,
however, acknowledged that “[t]he primary argument advanced against the requirement of
4
Mitchell temporarily cast doubt on whether privity was required to recover for breach of implied warranty, causing
Salmon Rivers to be the subject of “substantial debate[.]” Ramerth v. Hart, 133 Idaho 194, 198, 983 P.2d 848, 852
(1999). In Mitchell, three members of the Court—Justices Bistline, Donaldson, and Huntley—wrote in special
concurrences and dissents that Salmon Rivers should be overruled. 108 Idaho at 337–41, 699 P.2d at 1351–55.
Nevertheless, Salmon Rivers’s privity requirement remains good law, as later clarified by Tusch Enterprises, 113
Idaho at 50, 740 P.2d at 1035, and, as will be discussed in the text above, Ramerth, 133 Idaho at 198, 983 P.2d at
852, and American West Enterprises, Inc. v. CNH, LLC, 155 Idaho 746, 751–52, 316 P.3d 662, 667–68 (2013).
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privity is its perceived unfairness, particularly in light of the economic loss rule preventing
plaintiffs from recovering economic damages in tort” and agreed
that there may be cases where the plaintiff may be unfairly prejudiced by the
operation of the economic loss rule in combination with the privity requirement
articulated in Salmon Rivers. Given such a case, further relaxation of Salmon
Rivers may be justified. We are not convinced that this is such a case.
Id.
Salmon Rivers was again addressed in American West Enterprises, Inc. v. CNH, LLC, 155
Idaho 746, 750–52, 316 P.3d 662, 666–68 (2013). In CNH, American West Enterprises (AWE)
sued Case New Holland, Inc. (CNH), who manufactured an allegedly defective tractor engine.
Id. at 665, 316 P.3d at 749. AWE hired a third-party mechanic to replace its tractor engine. Id.
The third-party mechanic did so with an engine manufactured by CNH, and the engine later
failed. Id. AWE thus sued CNH for breach of implied warranty. Id. The district court dismissed
AWE’s claim against CNH at summary judgment due to lack of privity between AWE and CNH,
and this Court unanimously affirmed that ruling when AWE timely appealed. Id. at 750–52, 316
P.3d at 666–68. In doing so, this Court cogently catalogued the above-discussed cases and
concluded Salmon Rivers’s requirement of privity barred AWE’s claim. Id. As in Ramerth, CNH
explained that “[p]rivity of contract is required in a contract action to recover economic loss for
breach of implied warranty, potentially unless the application of this rule would have the effect
of unfairly prejudicing the plaintiff.” Id. at 752, 316 P.3d at 668. In dicta, CNH acknowledged
that the Idaho Court of Appeals had addressed “the potential to relax the Salmon Rivers rule on
the basis of unfair prejudice” and held that “a party is not unfairly prejudiced where the privity
requirement and the economic loss rule work to preclude a party from recovering if the party had
a viable cause of action against another party.” Id. (citing Nelson v. Anderson Lumber Co., 140
Idaho 702, 711, 99 P.3d 1092, 1101 (Ct. App. 2004)). As CNH then explained, the “mere
inability to be fully compensated for losses is not sufficient to relax the Salmon Rivers rule.” Id.
Based on the above, this Court’s precedent instructs that privity of contract is required to
recover economic loss flowing from a breach of implied warranty “unless the application of this
rule would have the effect of unfairly prejudicing the plaintiff.” CNH, 155 Idaho at 752, 316 P.3d
at 668; accord Ramerth, 133 Idaho at 197, 983 P.2d at 851; Tusch Enters., 113 Idaho at 50, 740
P.2d at 1035. One instance illustrating unfair prejudice is where a breach of the implied warranty
of habitability is alleged, and the economic loss rule bars the plaintiff from tort recovery; in that
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instance, the plaintiff cannot recover in tort, but can recover in contract, even absent privity of
contract. Tusch Enters., 113 Idaho at 50, 740 P.2d at 1035.
Not only do the above-discussed cases show that a breach of the implied warranty of
habitability arises in contract, but this Court treated a breach of the implied warranty of
workmanship 5 as arising in contract in Employers Mutual Casualty Co. v. Donnelly, 154 Idaho
499, 505, 300 P.3d 31, 37 (2013). There, the Donnellys suffered a house fire and hired Rimar
Construction, Inc. (RCI) to perform repair work. Id. at 500, 300 P.3d at 32. Disputing the quality
of RCI’s work and alleging it caused a personal injury, the Donnellys later sued RCI for several
claims, including for breach of the implied warranty of workmanship. Id. They “alleged
substantial damages to property, physical injury, and loss of use.” Id. RCI had a general liability
insurance policy with Employers Mutual Casualty Company (EMC). Id. EMC sought a
declaratory judgment against the Donnellys and RCI, alleging it had no duty to pay any damages
to the Donnellys. Id. at 500–01, 300 P.3d at 32–33. The declaratory judgment action was stayed
pending resolution of the Donnellys’ claims against RCI. Id. at 501, 300 P.3d at 33. Ultimately,
the jury found that RCI had breached the implied warranty of workmanship and awarded the
Donnellys over $120,000 in damages sustained as a result of that breach. Id. When the
declaratory judgment action was reinstated, judgment was entered in EMC’s favor after the
district court concluded EMC was not liable to the Donnellys for damages flowing from RCI’s
breach of the implied warranty of workmanship, as those were “contract-based damages” outside
the scope of the insurance policy. Id.
This Court affirmed when the Donnellys timely appealed. Id. at 504–05, 300 P.3d at 36–
37. In concluding the district court correctly classified the damages awarded from RCI’s breach
of the implied warranty of habitability as “contract-based,” this Court explained as follows:
The key determination for whether an implied warranty of
workmanship—and therefore the insurance policy—covers the damages is
whether the duty is based upon a contractual promise or if the duty can be
maintained without the contract. In the special verdict, the jury found: there was a
contract involving the remodeling project between RCI and the Donnellys; RCI
did not substantially perform under the contract; a breach of contract caused
damage to the Donnellys; and that RCI breached “the implied warranty of
5
This Court has never elaborated on the differences, if any, between the implied warranties of habitability and
workmanship. However, other sources have posited that the implied warranty of habitability focuses on the “quality
of the structure,” whereas the implied warranty of workmanship focuses on the “builder’s conduct.” See Wendy B.
Davis, Corrosion by Codification: The Deficiencies in the Statutory Versions of the Implied Warranty of
Workmanlike Construction, 39 Creighton L. Rev. 103, 106 (2006).
12
workmanship with regard to the manner in which it constructed the Donnelly
remodel project.” Based on the jury’s verdict, the breach of implied warranty of
workmanship occurred with regard to RCI’s performance under the remodeling
contract with the Donnellys. There is no duty beyond the contractual promise
between RCI and the Donnellys. Since the insurance policy contains an express
exclusion for contractual damages, we hold that the district court correctly found
the awarded damages to be outside the scope of the insurance policy.
Id. at 505, 300 P.3d at 37; see also Ervin Constr. Co. v. Van Orden, 125 Idaho 695, 701–04, 874
P.2d 506, 512–15 (1993) (treating a breach of the implied warranty of workmanship as
permitting recovery of contract damages).
The above reasoning espoused in Donnelly comports with this Court’s efforts to
distinguish between contract and tort. As acknowledged in Donnelly,
[t]he law governing the ability to obtain remedies for breach of contract,
as well as tortious behavior, is confusing, with few, if any, court decisions on the
subject. Ordinarily, a breach of contract is not a tort. A contract may, however,
create a state of things that furnishes the occasion for a tort. 38 Am. Jur. 662,
Negligence § 20. If the relation of the plaintiff and the defendants is such that a
duty to take due care arises therefrom irrespective of contract and the defendant is
negligent, then the action is one of tort. To found an action in tort, there must be a
breach of duty apart from the nonperformance of a contract. 52 Am. Jur. 379,
Torts, § 26.
....
It can also be said that if a cause of action for breach of a duty based on a
contractual promise could also be maintained without the contract by virtue of a
statutory or common law duty, then the action is founded upon tort, not contract.
Id. (quoting Sumpter v. Holland Realty, Inc., 140 Idaho 349, 353–54, 93 P.3d 680, 684 (2004)
(holding that malpractice action against realtors sounded in tort because the duties were
statutorily imposed and would have existed without the contract)). Put another way,
[i]n order for a cause of action to arise in tort, Claimants must establish the breach
of a tort duty, separate and apart from any duty allegedly created by the contract.”
Furthermore, “negligent conduct and breach of contract are two distinct theories
of recovery. Ordinarily, breach of contract is not a tort, although a contract may
create the circumstances for the commission of a tort.” But, “[t]he mere negligent
breach or non-performance of a contract will not sustain an action sounding in
tort, in the absence of a liability imposed by law independent of that arising out of
the contract itself.” Instead, “active negligence or misfeasance is necessary to
support an action in tort based on a breach of contract; mere nonfeasance, even if
it amounts to a willful neglect to perform the contract, is not sufficient.”
Baccus v. Ameripride Servs., Inc., 145 Idaho 346, 350, 179 P.3d 309, 313 (2008) (citations
omitted) (holding that contractor was liable in tort to third-party-employee for failing to perform
13
safety-related obligation arising from contactor’s contract with employer, as third-party-
employee was relying on performance of the obligation for his safety, and non-performance of
the obligation created a foreseeable risk of physical injury). Here, however, Petrus has not
identified any duty “separate and apart” from a duty created by Kirk’s oral contract for
construction with Gentry-Boyd; nor has Petrus alleged “active negligence or misfeasance . . .
based on a breach of contract.” See id.; accord Donnelly, 154 Idaho at 505, 300 P.3d at 37.
We conclude the district court is correct that a breach of the implied warranty of
habitability arises in contract, making Petrus’s claim untimely. This conclusion, however, is not
to say that a home buyer is left without a tort remedy when a builder negligently constructs a
home and causes tort damages. In that scenario, an appropriate tort claim may be asserted, and
our ruling today does not foreclose that claim. While Petrus contends that the claim should not
have accrued until it was ascertained, 6 and that public policy “demands that [such] claim . . .
cannot possibly begin to run until the breach manifests itself and is either known or reasonably
should be known to the home buyer,” we are without power to amend section 5-241(b). See
Idaho Const. art. III, § 1 (“The legislative power of the state shall be vested in a senate and house
of representatives.”); Idaho Const. art. II, § 1 (“[N]o . . . collection of persons charged with the
exercise of powers properly belonging to one of these departments shall exercise any powers
properly belonging to either of the others . . . .”). Because Petrus’s claim arises in contract and is
thus untimely, summary judgment for Kirk is affirmed. In light of this ruling, we need not reach
Kirk’s additional arguments concerning the economic loss rule, Idaho’s Notice and Opportunity
to Repair Act, and waiver.
B. The district court properly denied Petrus’s motion for reconsideration.
When a motion to reconsider is raised for this Court’s review, it employs “the same
standard of review used by the lower court in deciding the motion for reconsideration.”
Fragnella v. Petrovich, 153 Idaho 266, 276, 281 P.3d 103, 113 (2012). Thus, when a motion to
6
In support of this assertion, Petrus discusses Tomita v. Johnson, 49 Idaho 643, 290 P. 395 (1930), but that case
does not help Petrus. Tomita concerned a plaintiff who, with full knowledge of the defect, purchased spoiled seed
potatoes from the defendant. 49 Idaho at 647, 290 P. at 396. Tomita applied the “law of warranty” and affirmed
judgment for the defendant. Id. In doing so, Tomita acknowledged that a breach of the warranty at issue—that “the
seed is suitable for the purposes intended”—would normally accrue “at the time it is ascertained by the purchaser
that the seed is not as represented.” Id. But the Tomita plaintiff’s knowledge of the defect barred his recovery. Id. In
any event, Tomita did not concern (1) the implied warranty of habitability; (2) Idaho Code section 5-241; or (3) the
distinction between tort and contract.
14
reconsider follows the grant of summary judgment, “this Court must determine whether the
evidence presented a genuine issue of material fact to defeat summary judgment.” Id.
Petrus has not shown it presented any new argument or evidence on reconsideration. In
fact, the district court declined to hold a hearing on Petrus’s motion for reconsideration since
Petrus merely asked the district court to revisit its ruling, but did not provide any new argument
or evidence causing the district court “to doubt the correctness of its ruling.” Accordingly,
Petrus’s motion for reconsideration was properly denied. See, e.g., Spur Prods. Corp. v. Stoel
Rives LLP, 143 Idaho 812, 817, 153 P.3d 1158, 1163 (2007); Jordan v. Beeks, 135 Idaho 586,
592, 21 P.3d 908, 914 (2001) (“[W]e conclude that the district court was provided with no new
facts to create an issue for trial, and thus there was no basis upon which to reconsider its
summary judgment order.”).
C. The district court’s apportionment of attorney fees to Kirk was a proper exercise of
discretion.
On cross-appeal, Kirk challenges the amount of attorney fees awarded to him. “The
awarding of attorney fees and costs is within the discretion of the trial court and subject to
review for an abuse of discretion.” Kosmann v. Gilbride, 161 Idaho 363, 366, 386 P.3d 504, 507
(2016) (quoting Smith v. Mitton, 140 Idaho 893, 897, 104 P.3d 367, 371 (2004)). To determine
whether the district court abused its discretion, this Court examines whether the district court: (1)
correctly perceived the issue as one of discretion; (2) acted within the outer boundaries of its
discretion and consistently with relevant legal standards; and (3) reached its decision by an
exercise of reason. Swallow v. Emergency Med. of Idaho, P.A., 138 Idaho 589, 592, 67 P.3d 68,
71 (2003).
After summary judgment was entered in his favor, Kirk submitted a timely request for
costs and attorney fees. The latter are at issue. Kirk requested $144,893.72 in attorney fees under
Idaho Code sections 12-120(3), and -121. The district court concluded section 12-120(3) was not
applicable, and that ruling is not challenged here.
However, the district court found section 12-121 was applicable. Section 12-121 permits
an award of attorney fees to a prevailing party in a civil case who is required to defend against
claims that were brought or pursued frivolously, unreasonably, or without foundation. Under
section 12-121, the district court analyzed Petrus’s claims against Kirk that had been asserted
during the litigation and concluded only Petrus’s conspiracy-to-defraud claim was brought or
pursued frivolously, unreasonably, or without foundation. As a result, the district court
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“apportion[ed] Kirk’s attorney fees between Petrus’s frivolous conspiracy-to-defraud claim and
his other claims and ma[d]e an award only with respect to the former.” The district court
ultimately fashioned a $10,000 award.
Kirk attacks the award and emphasizes how it “amounted to less than seven percent of
the total fees incurred.” Kirk erroneously emphasizes how the amount of fees awarded was less
than the fees Kirk actually incurred. “Idaho law simply does not equate reasonable attorney fees
to actual attorney fees.” Inclusion, Inc. v. Idaho Dep’t of Health & Welfare, 161 Idaho 239, 241,
385 P.3d 1, 3 (2016).
Further, the award signifies a proper exercise of discretion. The district court recognized
that an award of fees was within its discretion. The district court acted within the boundaries of
its discretion and consistently with relevant legal standards, as it accurately recited and applied
the governing law. Finally, the district court reached its decision by an exercise of reason. After
conducting a hearing on fees, the district court took the matter under advisement and issued a
written order detailing its reasoning. Under section 12-121, the district court took up Petrus’s
claims one-by-one, starting with the “short-lived claim for negligent construction, included in the
original complaint but excluded from the first amended complaint.” The district court declined to
award fees in relation to that claim, reasoning that, while Kirk was aware he had been sued and
retained counsel, he was never served with process and made no appearance until the first
amended complaint was filed and served. In regards to Petrus’s conspiracy-to-defraud claim, the
district court reasoned that:
Petrus acceded to the entry of summary judgment against that claim. Petrus has
given the Court no reason to believe it was founded on much of anything but
conjecture. The idea behind it—that a homebuilder and a homebuyer agreed to
skirt building codes to keep costs down, so that the homebuyer could years later
sell the “lemon” of a home to an unsuspecting secondary purchaser—borders on
preposterous.
The district court therefore found section 12-121 fees proper for the conspiracy-to-defraud claim.
Finally, the district court addressed Petrus’s claim for breach of the implied warranty of
habitability. But the district court found fees improper for this claim, reasoning that “it is fair to
say Petrus presented an issue of first impression as to whether contract or tort accrual rules and
limitations periods apply to a secondary purchaser’s claim for breach of the implied warranty of
habitability.” As a result, the district court “apportion[ed] Kirk’s attorney fees between Petrus’s
16
frivolous conspiracy-to-defraud claim and his other claims and ma[d]e an award only with
respect to the former.”
While the district court acknowledged that “a precise apportionment isn’t possible[,]” it
arrived at an award of $10,000 after “carefully reviewing Kirk’s itemization of his attorney fees,
after reviewing the other pertinent portions of the record, and after considering the factors set
forth in I.R.C.P. 54(e)(3).” The district court explained that the award was “reasonable in its
judgment” because:
The Court perceives almost all of the work that was necessary to defend against
the conspiracy-to-defraud claim to also have been necessary to defend against the
implied-warranty claim. Some independent analysis and briefing was necessary
with respect to the conspiracy-to-defraud claim, to be sure, and undoubtedly some
written discovery requests and some deposition questions focused on conspiracy-
to-defraud issues. But most of the work pertained to both claims indivisibly or to
the implied-warranty claim in particular. In an exercise of its discretion, the Court
apportions $10,000.00 of Kirk’s attorney fees to the frivolous conspiracy-to-
defraud claim. Kirk is awarded attorney fees in that amount.
The Court considers this apportionment justified for an additional reason.
Petrus’s implied-warranty-claim—the non-frivolous claim—failed based on a
statute-of-limitations defense that could’ve been raised much earlier in the course
of litigation and obviated the need to litigate that claim any further. Show-
stopping defenses that don’t require much discovery, like the successful statute-
of-limitations defense here, should be tested early, before substantially all of the
attorney fees necessary to get the case trial-ready have been incurred. The Court
finds it inequitable to make a six-figures award of attorney fees when an early
statute-of-limitations challenge to Petrus’s plainly stronger claim might have
nipped the litigation in the bud by leaving Petrus with only a pie-in-the-sky
conspiracy-to-defraud claim.
This analysis signifies a proper exercise of discretion. Although the district court could
have declared the conspiracy-to-defraud claim as the only frivolous claim and allowed the
submission of a supplemental memorandum of fees and costs so as to allow Kirk to tailor its
request to that specific claim before apportioning fees, the district court’s analysis in this case
was nevertheless proper. Indeed, Kirk does not contend the district court erred factually by
making the above findings. Rather, despite the district court’s well-reasoned, articulate analysis,
Kirk contends “the district court chose to punish Kirk by awarding him less than seven percent of
his fees for defending against one frivolous claim and one claim involving issues of first
impression.” The district court’s analysis rebuts Kirk’s contention, showing that the award was
not to punish Kirk, but rather was to fairly compensate him for defending against the only
frivolous claim. Kirk, the party awarded fees, is in error to contend he was punished by the
17
award. Section 12-121, under which fees were awarded, is clear that an award of fees is not a
matter of entitlement, but a matter left to the court’s discretion. And based on the district court’s
analysis explored above, the district court appropriately exercised that discretion. Therefore, the
district court’s apportionment of attorney fees is affirmed.
D. We decline to award attorney fees on appeal.
Petrus does not request attorney fees on appeal. Kirk requests attorney fees on appeal,
relying on the basis of Idaho Code section 12-121. Attorney fees under section 12-121 may be
awarded to the prevailing party on appeal only “if the action was pursued, defended, or brought
frivolously, unreasonably, or without foundation.” Idaho Military Historical Soc'y, Inc. v.
Maslen, 156 Idaho 624, 633, 329 P.3d 1072, 1081 (2014) (internal quotation marks omitted).
“Such circumstances exist when an appellant has only asked the appellate court to second-guess
the trial court by reweighing the evidence or has failed to show that the district court incorrectly
applied well-established law.” Snider v. Arnold, 153 Idaho 641, 645–46, 289 P.3d 43, 47–48
(2012).
As reasoned above, Kirk is the prevailing party on appeal, but only in part. Kirk prevails
on Petrus’s appeal, but not on Kirk’s cross-appeal. Fees on appeal to Kirk are improper since he
prevails only in part. Tapadeera, LLC v. Knowlton, 153 Idaho 182, 189, 280 P.3d 685, 692
(2012). Further, Petrus in good faith raised issues of first impression, making fees improper for
an additional reason. E.g., Westover v. Cundick, 161 Idaho 933, 937, 393 P.3d 593, 597 (2017).
IV. CONCLUSION
For the above reasons, we affirm both the summary judgment entered in favor of Kirk
and apportionment of attorney fees. We award neither attorney fees nor costs, as each party has
prevailed in part on appeal.
Justices BRODY and BEVAN, and Justices Pro Tem GRATTON and BUTLER
CONCUR.
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