IN THE

SUPREME COURT OF THE STATE OF ARIZONA

_______________

JOHN F. SULLIVAN AND SUSAN B. SULLIVAN,

Plaintiffs/Appellants,

v.

PULTE HOME CORPORATION,

Defendant/Appellee.

No. CV-12-0419-PR

Filed July 31, 2013

Appeal from the Superior Court in Maricopa County

The Honorable Jonathan H. Schwartz, Judge

The Honorable Joseph B. Heilman, Judge

No. CV2010-004898

REMANDED

Opinion of the Court of Appeals, Division One

231 Ariz. 53, 290 P.3d 446 (App. 2012)

VACATED IN PART

COUNSEL

John F. Sullivan (argued), In Propria Persona, Phoenix, for John F. and

Susan B. Sullivan

Stephen E. Richman (argued), Anne L. Tiffen, Denise H. Troy, Dickinson

Wright/Mariscal Weeks, Phoenix, for Pulte Home Corporation

E. Jeffrey Walsh, Nicole M. Goodwin, Greenberg Traurig, LLP, Phoenix,

for Amici Curiae Home Builders Association of Central Arizona, et al.

P. Douglas Folk, Christopher D.C. Hossack, Heather K. Seiferth, Folk &

Associates, P.C., Phoenix, for Amicus Curiae American Council of

Engineering Companies of Arizona

Michael J. Holden, Holden Willits PLC, Phoenix, for Amicus Curiae

Arizona Builders’ Alliance

_______________
SULLIVAN V. PULTE HOME CORP.

Opinion of the Court

2

VICE CHIEF JUSTICE BALES authored the opinion of the Court, in which

CHIEF JUSTICE BERCH, JUSTICE PELANDER, JUSTICE BRUTINEL, and

JUDGE MILLER* joined.

_______________

VICE CHIEF JUSTICE BALES, opinion of the Court:

¶1 Arizona’s economic loss doctrine limits contracting parties to their

agreed upon remedies for purely economic losses. Even if a homeowner

has no contract with the builder of the home, when there are construction

defects, Arizona law allows the homeowner to sue the builder for breach

of implied warranty. This cause of action is contractual in nature but rests

on duties imposed by law. Despite the availability of this remedy, if the

homeowner does not have a contract with the homebuilder, we hold that

the economic loss doctrine does not bar the homeowner’s negligence

claims to recover damages resulting from construction defects.

I.

¶2 Because the trial court dismissed this action for failing to state a

claim upon which relief can be granted, we describe the facts as alleged in

the complaint and assume them to be true for purposes of our review.

Flagstaff Affordable Hous. Ltd. P’ship v. Design Alliance, Inc., 223 Ariz. 320,

321 ¶ 2, 223 P.3d 664, 665 (2010).

¶3 Pulte Home Corporation constructed a home and sold it in 2000 to

its initial purchaser, who in turn sold it to John and Susan Sullivan in

2003. Because the Sullivans did not buy their home directly from Pulte,

they never entered into a contract with that company. In 2009, the

Sullivans first noticed irregularities with the home’s hillside retaining

wall. They hired an engineer who determined that the wall and home site

had been constructed in a dangerously defective manner. The Sullivans

notified Pulte, hoping it would cover the cost of repair, but Pulte claimed

it was no longer responsible for any construction defects.

¶4 The Sullivans then filed this action to force Pulte to cover the cost of

repair. Their complaint alleged consumer fraud, fraudulent concealment,

negligence, negligent non-disclosure, negligence per se, negligent

misrepresentation, and breach of implied warranty. The trial court

dismissed all of the claims, ruling that the consumer fraud and fraudulent
SULLIVAN V. PULTE HOME CORP.

Opinion of the Court

3

concealment allegations failed to state a claim because Pulte had never

made any representations to the Sullivans; the breach of implied warranty

claim was barred because Arizona’s statute of repose precludes any

implied warranty action against a builder “more than eight years after

substantial completion of the improvement to real property,” A.R.S. § 12-

552(A); and the remaining tort claims were barred by the economic loss

doctrine. The Sullivans appealed.

¶5 The court of appeals held that the trial court erred in dismissing

certain tort claims based on the economic loss doctrine but had properly

dismissed the Sullivans’ other claims. Sullivan v. Pulte Home Corp., 231

Ariz. 53, 60, 63 ¶¶ 31, 50, 290 P.3d 446, 453, 456 (App. 2012). Relying on

this Court’s decision in Flagstaff Affordable Housing, the court of appeals

concluded that, because the Sullivans had no contract with Pulte,

Arizona’s economic loss doctrine did not bar their tort claims. Sullivan,

213 Ariz. at 60 ¶¶ 30-31, 290 P.3d at 453. Accordingly, the court remanded

the case to the trial court for resolution of the Sullivans’ various

negligence claims.

¶6 We granted review to answer a recurring question of statewide

importance and to clarify the application of Arizona’s economic loss

doctrine. We have jurisdiction pursuant to Article 6, Section 5(3) of the

Arizona Constitution and A.R.S. § 12-120.24.

II.

¶7 “The scope of the economic loss doctrine presents a legal issue that

we review de novo.” Flagstaff Affordable Hous., 223 Ariz. at 322 ¶ 9, 223

P.3d at 666. We agree with the court of appeals that the Sullivans’

negligence claims are not barred by Arizona’s economic loss doctrine.

¶8 The economic loss doctrine prohibits certain tort actions seeking

“pecuniary damage[s] not arising from injury to the plaintiff’s person or

from physical harm to property.” Restatement (Third) of Torts: Liability

for Economic Harm § 2 (Tentative Draft No. 1, 2012) (“Draft

Restatement”). Although some courts apply the doctrine to generally bar

tort recovery of purely pecuniary losses, Arizona takes a narrower

approach. See Flagstaff Affordable Hous., 223 Ariz. at 323 ¶¶ 11-12, 223 P.2d

at 667. In Arizona, the doctrine bars only the recovery of “pecuniary or

commercial damage, including any decreased value or repair costs for a
SULLIVAN V. PULTE HOME CORP.

Opinion of the Court

4

product or property that is itself the subject of a contract between the

plaintiff and defendant, and consequential damages such as lost profits.”

Id. at ¶ 11.

¶9 We decline to extend the doctrine to non-contracting parties. Id. at

327 ¶ 37, 223 P.3d at 671 (noting that Donnelly Constr. Co. v.

Oberg/Hunt/Gilleland, 139 Ariz. 184, 677 P.2d 1292 (1984), “correctly

implied that [the economic loss doctrine] would not apply to negligence

claims by a plaintiff who has no contractual relationship with the

defendant”). Our express, limited holding in Flagstaff Affordable Housing

was that “a contracting party is limited to its contractual remedies for

purely economic loss from construction defects.” Id. at 326 ¶ 28, 223 P.3d

at 670. It follows that “[r]ather than rely on the economic loss doctrine to

preclude tort claims by non-contracting parties, courts should instead

focus on whether the applicable substantive law allows liability in the

particular context.” Id. at 327 ¶ 39, 223 P.3d at 671.

¶10 Arizona’s economic loss doctrine serves to encourage the private

ordering of economic relationships, protect the expectations of contracting

parties, ensure the adequacy of contractual remedies, and promote

accident-deterrence and loss-spreading. See id. at 325-26 ¶¶ 25-27, 223

P.3d at 669-70. Limiting the doctrine to contracting parties supports those

policy considerations and aligns with the most recent draft of the

Restatement. See Draft Restatement § 3 cmt. a (noting that application of

the economic loss rule “is limited to parties who have contracts.”).

¶11 The doctrine protects the expectations of contracting parties, but, in

the absence of a contract, it does not pose a barrier to tort claims that are

otherwise permitted by substantive law. See, e.g., Vincent R. Johnson, The

Boundary-Line Function of the Economic Loss Rule, 66 Wash. & Lee L. Rev.

523, 555 (2009) (“The purpose of the economic loss rule is not to leave

injured persons remediless for economic losses but to ensure respect for

private ordering by relegating a plaintiff to contract remedies in cases

where there is an agreement between the parties allocating economic

risks. If there is no contract between the parties to litigation, there is no

boundary-line function to be performed by the economic loss rule.”);

Thomas E. Lordan, Arizona’s “Economic Loss Rule” and Flagstaff Affordable

Housing, 4 Phoenix L. Rev. 85, 137 (2010) (“Restricting the application of

the [economic loss rule] to contracting parties makes sense. If the purpose

of the [economic loss rule] is to limit parties to the ‘benefit of their
SULLIVAN V. PULTE HOME CORP.

Opinion of the Court

5

bargain,’ the [economic loss rule] should only apply where there is a

bargain to which it might be applied.”).

III.

¶12 Pulte argues that even though it had no contract with the Sullivans,

their tort claims should be barred by the economic loss doctrine because

they had a contractual remedy under Arizona law. As subsequent

purchasers, the Sullivans had an actionable claim against the builder

Pulte, despite the parties’ lack of privity, via the implied warranty of

workmanship and habitability. See Lofts at Fillmore Condo. Ass’n v. Reliance

Commercial Constr., Inc., 218 Ariz. 574, 577-78 ¶¶ 15-19, 190 P.3d 733, 736-

37 (2008); see also Richards v. Powercraft Homes, Inc., 139 Ariz. 242, 245, 678

P.2d 427, 430 (1984) (noting that “privity is not required to maintain an

action for breach of the implied warranty of workmanship and

habitability”). The Sullivans’ implied warranty claim, however, was

barred by Arizona’s statute of repose, A.R.S. § 12-552, before they filed

this action. See Sullivan, 231 Ariz. at 57 ¶ 14, 290 P.3d at 450.

¶13 We are not persuaded that the economic loss doctrine should apply

to bar the negligence claims simply because the Sullivans had a possible

contractual remedy under an implied warranty claim. Such a remedy was

imposed as a matter of Arizona’s common law; it did not result from any

opportunity the Sullivans had to negotiate with Pulte over remedies. See

Woodward v. Chirco Constr. Co., 141 Ariz. 514, 516, 687 P.2d 1269, 1271

(1984) (noting that law imputes warranty into construction contract and

allows subsequent purchasers a cause of action). Furthermore, allowing

the Sullivans’ tort claims to proceed does not frustrate the policy of the

statute of repose. That statute applies only to actions “based in contract,”

including actions based on “implied warranties of habitability, fitness or

workmanship,” A.R.S. § 12-552(A), (C), (F); it does not address actions

based in tort. Whether the common law economic loss doctrine should be

expanded to encompass non-contracting parties does not hinge on the

scope and effect of a statute governing contractual remedies.

¶14 Our holding that the economic loss doctrine does not bar the

Sullivans’ tort claims does not, of course, imply that those claims will

ultimately succeed. Cf. Flagstaff Affordable Hous., 223 Ariz. at 327-28 ¶ 39,

223 P.2d at 671-72 (directing courts to consider applicable substantive law

to determine if non-contracting parties may recover economic losses in
SULLIVAN V. PULTE HOME CORP.

Opinion of the Court

6

tort); Draft Restatement § 6(2), reporter’s note to cmt. c (noting division of

authority but concluding that subsequent home purchasers should not

recover in tort from homebuilder for negligent construction). As the court

of appeals noted, Pulte made other arguments challenging the legal

sufficiency of the tort claims that were not addressed by the trial court,

which may consider those arguments in the first instance on remand.

Sullivan, 231 Ariz. at 62 ¶ 45, 290 P.3d at 455.

IV.

¶15 We did not grant review on issues decided by the court of appeals

other than the application of the economic loss doctrine, and we

accordingly do not comment on those issues. We vacate paragraphs 24-31

of the court of appeals’ opinion and remand this case to the trial court for

further proceedings consistent with this opinion.

* Justice Timmer recused herself from this case. Pursuant to Article 6,

Section 3 of the Arizona Constitution, the Honorable Michael Owen

Miller, Judge of the Arizona Court of Appeals, Division Two, was

designated to sit in this matter.