Tomlinson v. Douglas Knight Constr., Inc.

This opinion is subject to revision before
publication in the Pacific Reporter
2017 UT 56IN THE
SUPREME COURT OF THE STATE OF UTAH
JOSEPH TOMLINSON,
Appellant,
v.
DOUGLAS KNIGHT CONSTRUCTION, INC., et al.,
Appellees.
DOUGLAS KNIGHT CONSTRUCTION, INC.,
Third-Party Plaintiff/Cross-Appellant,
v.
SUPERIOR INSULATION CO., INC., et al.,
Third-Party Defendants/Cross-Appellees.
No. 20150529
Filed August 29, 2017
On Direct Appeal
Third District, Salt Lake
The Honorable Ryan M. Harris
No. 100500668
Attorneys:
Joseph E. Wrona, Bastiaan K. Coebergh, Derek J. Onysko, Jarom B.
Bangerter, Park City, for Joseph Tomlinson
Jesse C. Trentadue, Noah M. Hoagland, Britton R. Butterfield, Jason R.
Mullis, Salt Lake City, for Douglas Knight Construction, Inc.
Brett N. Anderson, Scott R. Taylor, Salt Lake City, for Superior
Installation Co., Inc.
TOMLINSON v. DOUGLAS KNIGHT CONSTRUCTION
Opinion of the Court
Scott T. Evans, Sarah E. Spencer, Gabriel K. White, Salt Lake City, for
Picture Perfect Stone Masonry, LLC
Kumen L. Taylor, Richard L. Wade, Las Vegas, NV, for Akita
Construction, Inc.
ASSOCIATE CHIEF JUSTICE LEE authored the opinion of the Court, in
which CHIEF JUSTICE DURRANT, JUSTICE DURHAM, JUSTICE HIMONAS, and
JUSTICE PEARCE joined.
ASSOCIATE CHIEF JUSTICE LEE, opinion of the Court:
¶ 1 Utah Code section 78B-4-513(1) provides that “an action for
defective design or construction is limited to” an action for “breach of
. . . contract, whether written or otherwise, including both express and
implied warranties.” The statute also states that such a claim may be
brought only by a person who is “in privity of contract with the
original contractor” or by a person with a right to sue as an assignee of
a person in privity. Id. § 78B-4-513(4), (6). In this case the district court
dismissed a homebuyer’s construction defect claims against the
company that built his home. We affirm that decision on the ground
that the homebuyer was not in privity with the contractor and had no
right to sue as an assignee.
I
¶ 2 This case began when Lot 84 Deer Crossing, a single-purpose
LLC, acquired a piece of property. Lot 84 then entered into an
agreement with Douglas Knight Construction, Inc. (DKC) to build a
house on the property. In that agreement DKC agreed to provide a one-
year warranty on the construction: “Contractor further warrants the
Work as per Utah state code for a period of one year.” Lot 84
subsequently assigned all its rights to the home and the construction
agreement to Outpost Development, Inc.
¶ 3 As construction on the home neared completion, Outpost sold
the home to Joseph Tomlinson. Outpost did not, however, assign its
interest in the construction agreement to Tomlinson, even though
several construction defects had already come to light prior to the sale.
¶ 4 The most glaring defect was a leak that caused significant
water damage. Pursuant to the express one-year warranty in the
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construction agreement, Outpost asked DKC to repair the defects. But
despite DKC’s efforts to do so, Tomlinson discovered that the leak still
existed more than a year after he purchased the home.
¶ 5 Nearly another year after this discovery, Tomlinson hired a
different contractor to fix the leak and repair the water damage.
Tomlinson also discovered several other purported construction defects
while these repairs were underway.
¶ 6 Tomlinson later filed this suit against both DKC and Outpost,
seeking compensation for the damages to his home. Outpost declared
bankruptcy, however, and was dismissed from the suit.
¶ 7 In the course of Outpost’s bankruptcy proceedings Tomlinson
was assigned “all of Outpost’s right title and interest in and to any and
all rights, claims, causes of action, choses in action, rights to payment,
and judgments of any kind that Outpost has asserted . . . or may
otherwise assert, against” DKC. Tomlinson maintained that this
assignment encompassed claims against DKC for breach of the
construction agreement—including breaches of the express one-year
construction warranty, the implied warranty of good faith and fair
dealing, and the implied warranty of workmanlike manner and
habitability. He accordingly amended his complaint against DKC to
include those claims, which are the claims at issue on this appeal.
¶ 8 DKC responded by filing various motions to dismiss and for
summary judgment. Those motions were granted. The district court
first granted a motion to dismiss Tomlinson’s claim for breach of the
implied warranty of workmanlike manner and habitability. It noted
that the warranty protects homeowners only from harm caused by a
“builder-vendor” or “developer-vendor.” See Davencourt at Pilgrims
Landing Homeowners Ass’n v. Davencourt at Pilgrims Landing, LC, 2009
UT 65, ¶ 60, 221 P.3d 234. And it determined that DKC was not a
vendor of any kind because DKC never owned or sold the property.
¶ 9 The district court also granted a motion for summary
judgment on Tomlinson’s remaining claims. In dismissing the
remaining claims the district court ruled that Tomlinson had never
acquired any viable construction defect claims against DKC. It reasoned
that the bankruptcy assignment did not give Tomlinson a direct interest
in the construction agreement. Instead it held that Tomlinson’s claims
were “entirely dependent upon Outpost first being found liable to
[Tomlinson] for damages.” And because Outpost had never been found
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TOMLINSON v. DOUGLAS KNIGHT CONSTRUCTION
Opinion of the Court
liable in this case, the court concluded that none of the assigned claims
could survive.
¶ 10 Before dismissing Tomlinson’s claims, the district court also
dismissed a third-party complaint filed by DKC—a complaint seeking
indemnity and contribution from DKC’s subcontractors in the event it
was found liable to Tomlinson for any construction defects. The district
court held that this third-party complaint was not timely filed.
¶ 11 Tomlinson appealed the dismissal of his claims and DKC filed
a cross-appeal on the dismissal of its third-party complaint. We review
the appealed orders for correctness. See State v. Ririe, 2015 UT 37, ¶ 5,
345 P.3d 1261 (de novo review of decision on motion to dismiss); Bahr v.
Imus, 2011 UT 19, ¶ 16, 250 P.3d 56 (de novo review of summary
judgment).
II
¶ 12 By statute, an “action for defective design or construction is
limited to” an action for “breach of . . . contract, whether written or
otherwise, including both express and implied warranties.” UTAH CODE
§ 78B-4-513(1). Except as expressly provided, moreover, “an action for
defective design or construction may be brought only by a person in
privity of contract with the original contractor.” Id. § 78B-4-513(4). The
statute makes an express exception for assignees; it says that “[n]othing
in this section precludes a person from assigning a right under a
contract to another person, including to a subsequent owner or a
homeowners association.” Id. § 78B-4-513(6). And it also provides for
claims for “damage to other property or physical personal injury” by
persons other than those in privity. Id. § 78B-4-513(2).
¶ 13 All of Tomlinson’s claims are covered by this statute. He seeks
to hold DKC liable for “defective design or construction.” And his right
to sue—for breach of contract or for express or implied warranty—is
thus preserved only if it aligns with the terms of this statute.
¶ 14 Tomlinson is not asserting claims for damage to “other
property” or “physical personal injury.” But he does purport to assert
claims as an assignee of parties in privity with DKC—first through an
assignment made when Outpost purchased the property from Lot 84
and later by an assignment in the Outpost bankruptcy proceedings.
¶ 15 We find no basis in either of these assignments for
Tomlinson’s claims, however. And we affirm the dismissal of
Tomlinson’s action on that basis.
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¶ 16 The DKC construction agreement was entered into with Lot
84. And that contract included an express one-year warranty and an
implied warranty of good faith and fair dealing.1 These warranties,
moreover, were assigned to Outpost when it purchased the property
from Lot 84. But Outpost made no similar assignment to Tomlinson
when he later purchased the property from Outpost. So Tomlinson is in
no position to sue as an assignee of claims belonging to Lot 84—or by
extension (and assignment) to Outpost—as Tomlinson was not
assigned any contract or warranty rights arising under the DKC
construction agreement.2
¶ 17 Tomlinson seeks to avoid that problem by pointing to the
assignment in the Outpost bankruptcy. There Tomlinson was assigned
claims “that Outpost has asserted . . . or may otherwise assert” against
DKC. And Tomlinson insists that the bankruptcy assignment
encompassed all warranty claims that existed when Outpost owned the
home.
¶ 18 But Tomlinson’s position cannot be squared with the terms of
the bankruptcy assignment. That assignment covered only claims that
Outpost “ha[d] asserted” as of the time of the bankruptcy or that it
“may [yet] assert” against DKC. Thus, the bankruptcy assignment
focused on a specific timeframe—on the time of the assignment. It
encompassed only claims that previously had been asserted or that
could be asserted in the future. By clear implication, the bankruptcy
1 See Eggett v. Wasatch Energy Corp., 2004 UT 28, ¶ 14, 94 P.3d 193(“An implied covenant of good faith and fair dealing inheres in every
contract.”) (citation omitted).
2 The outcome would obviously have been different if Tomlinson
had acquired Outpost’s claims or interest in the Construction
Agreement at the time he purchased the home. With that in mind, future
homebuyers would do well to obtain an express assignment of all
available warranties at the time they acquire a home. And it might well
serve the interests of such homebuyers if a standard assignment-of-
warranties clause were included in the standard real estate purchase
contract. But no such assignment was made at the time of purchase
here, and the failure of that assignment forecloses Tomlinson’s claim
under the statute.
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TOMLINSON v. DOUGLAS KNIGHT CONSTRUCTION
Opinion of the Court
assignment omitted claims that had not been asserted and could not be
asserted by Outpost—such as claims that it hypothetically could have
brought against DKC at an earlier period (when Outpost owned the
home).
¶ 19 That is fatal to Tomlinson’s position. Outpost no longer
owned the home at the time of the bankruptcy assignment. For that
reason Outpost was in no position to be damaged directly by any harm
to the home. It accordingly could assert a claim for damages only if it
was found liable to a subsequent property owner for some harm to the
home. In that event, Outpost could be in a position to assert a breach of
contract claim against DKC in the nature of contribution. See Shurtleff v.
United Effort Plan Tr., 2012 UT 47, ¶ 40, 289 P.3d 408 (acknowledging a
right to contribution where one party pays damages for which another
party is at least partially responsible). Yet Outpost was never held liable
to a subsequent owner. And Tomlinson’s claims against Outpost were
discharged during the bankruptcy proceedings. So Outpost was not
damaged—and can no longer be damaged—by any alleged breach of
contract by DKC.
¶ 20 Tomlinson accordingly is in no position to assert a claim
under the Outpost bankruptcy assignment. As of the time of that
assignment Outpost had not asserted a direct construction defect claim
against DKC.3 And it could not assert a claim going forward. At most it
could be said that Outpost could have asserted a direct claim at the time it
owned the home. But such a hypothetical claim was not assigned to
Tomlinson in the bankruptcy proceedings, and he accordingly has no
viable contract or warranty claims under the operative statute.
III
¶ 21 We affirm the dismissal of Tomlinson’s claims under the
terms of Utah Code section 78B-4-513. We hold that Tomlinson had no
right to sue under this statute because he did not acquire a right to sue
for breach of contract or warranty as an assignee—at the time he
purchased the home or at the time of the assignment in the Outpost
bankruptcy.
3 Outpost did assert cross-claims against DKC—claims for
indemnity, contingent on Outpost being found liable as a defendant.
But those claims are unavailing because Tomlinson’s claims against
Outpost have been discharged.
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¶ 22 In so holding we do not reach the question whether the
warranty recognized in our decision in the Davencourt case should be
extended to the circumstances at issue here. In Davencourt we limited
the warranty of habitability and workmanlike manner to “builder-
vendor[s]” and “developer-vendor[s].” 2009 UT 65, ¶ 60. Tomlinson has
advanced policy reasons for extending such warranties to construction
companies that build homes for single-purpose LLCs established for
the sole purpose of selling the home to a purchaser. We do not and
need not reach that question here, however, because we conclude that
any warranty claim that Tomlinson might assert is foreclosed under
Utah Code section 78B-4-513.
¶ 23 That decision also forecloses the need to address the issues
raised by DKC in its cross-appeal. Because we affirm the dismissal of all
of Tomlinson’s claims, DKC has no actionable claims against its
subcontractors for indemnity or contribution. And for that reason we
do not reach the question whether the district court erred in dismissing
DKC’s third-party complaint as untimely.
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