Sirrah Enterprises LLC v. Wayne Wunderlich Et Ux , 242 Ariz. 542 ( 2017 )

IN THE
SUPREME COURT OF THE STATE OF ARIZONA
SIRRAH ENTERPRISES, LLC, AN ARIZONA LIMITED LIABILITY COMPANY,
Plaintiff/Counterdefendant/Appellant,
v.
WAYNE AND JACQUELINE WUNDERLICH, HUSBAND AND WIFE,
Defendants/Counterclaimants/Appellees.
No. CV-16-0156-PR
Filed August 9, 2017
Appeal from the Superior Court in Yavapai County
The Honorable David L. Mackey, Judge
No. CV 20070399
AFFIRMED
Opinion of the Court of Appeals, Division One
240 Ariz. 163 (App. 2016)
VACATED
COUNSEL:
John J. Belanger (argued), Bremer Whyte Brown & O’Meara, Tempe,
Attorneys for Sirrah Enterprises, LLC
Jeffrey R. Adams (argued), The Adams Law Firm, PLLC, Prescott,
Attorneys for Wayne and Jacqueline Wunderlich
Stephen E. Richman (argued), Vail C. Cloar, Dickinson Wright PLLC,
Phoenix, Attorneys for Amicus Curiae Home Builders Association of
Central Arizona
JUSTICE TIMMER authored the opinion of the Court, in which CHIEF
JUSTICE BALES, VICE CHIEF JUSTICE PELANDER, and JUSTICES
BRUTINEL, BOLICK, GOULD, and LOPEZ joined.
SIRRAH ENTERPRISES, LLC V. WAYNE WUNDERLICH, ET UX.
Opinion of the Court
JUSTICE TIMMER, opinion of the Court:
¶1 The law implies a warranty of workmanship and habitability
into every residential construction contract. This Court has wrestled with
application of this warranty on several occasions. We reenter the fray and
here decide whether the successful party on a claim for breach of the
warranty qualifies for an attorney-fee award under either a contractual fee
provision or A.R.S. § 12-341.01. Because the warranty is imputed into the
construction contract, it is a term of the contract. Any claim for breach of
that term arises from the contract. The successful party therefore qualifies
for fees under a controlling contractual fee provision or, barring that, § 12-
341.01.
BACKGROUND
¶2 Wayne and Jacqueline Wunderlich contracted with Sirrah
Enterprises, LLC to build “a basement through exterior walls” at the
Wunderlichs’ home. Sirrah performed the work. The Wunderlichs
partially paid Sirrah but refused to pay the full contract amount, claiming
construction defects.
¶3 Sirrah sued for the unpaid contract amount. The Wunderlichs
counterclaimed for breach of the implied warranty of workmanship and
habitability (the “Implied Warranty” or “Warranty”) and other claims. A
jury found in Sirrah’s favor on its claim and awarded it $31,374. The jury
further found in Sirrah’s favor on the Wunderlichs’ claims for breach of
contract and breach of the covenant of good faith and fair dealing. But the
jury found in the Wunderlichs’ favor on their claim for breach of the
Implied Warranty and awarded them $297,782.
¶4 The trial court determined that the Wunderlichs were the
prevailing parties and awarded them attorney fees pursuant to a
contractual fee provision and § 12-341.01. The court of appeals affirmed the
award as authorized by the contractual fee provision. Sirrah Enters., LLC v.
Wunderlich, 240 Ariz. 163, 171 ¶ 25 (App. 2016). (The court variously stated
that § 12-341.01 did and did not apply here, but ultimately rested its
decision on the contractual fee provision. Id. at 168–69 ¶¶ 11, 15, 171 ¶ 24.)
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SIRRAH ENTERPRISES, LLC V. WAYNE WUNDERLICH, ET UX.
Opinion of the Court
¶5 We granted review because the recovery of fees under a
contractual fee provision or § 12-341.01 for an Implied Warranty claim is a
recurring legal issue of statewide importance. This Court has jurisdiction
pursuant to article 6, section 5(3) of the Arizona Constitution and A.R.S. §
12-120.24.
DISCUSSION
¶6 The parties’ contract provides that if either party “is required
to retain the services of an attorney to enforce any term or provision of this
Agreement, the prevailing party shall be entitled to and the losing party
shall pay all expenses and costs including reasonable attorney’s fees
incurred by the prevailing party.” Sirrah argues that the Implied Warranty
was not a “term or provision” of the contract but was imposed by law
regardless of the contract’s existence, and therefore the Wunderlichs’
success on only their warranty claim did not trigger the fee provision. The
Wunderlichs respond, and the trial and appellate courts agreed, that the
law imputed the Implied Warranty into the parties’ contract, making the
Warranty a “term or provision” of the contract, and fees were properly
awarded. See Sirrah, 240 Ariz. at 167–68 ¶¶ 9, 12.
¶7 We review de novo the courts’ interpretation of the parties’
contractual fee provision as applying to Implied Warranty claims. See
Murphy Farrell Dev., LLLP v. Sourant, 229 Ariz. 124, 133 ¶ 31 (App. 2012).
I. The Implied Warranty is a contract term
¶8 Under the Implied Warranty, a residential builder warrants
that its work is performed in a workmanlike manner and that the structure
is habitable. See Lofts at Fillmore Condo. Ass’n v. Reliance Commercial Constr.,
Inc. (Lofts), 218 Ariz. 574, 575 ¶ 5 (2008). The Warranty “is imposed by law”
and serves “to protect innocent purchasers and hold builders accountable
for their work.” Richards v. Powercraft Homes, Inc., 139 Ariz. 242, 244-45
(1984) (citation and internal quotation marks omitted). A homeowner is not
required to have privity of contract with the builder to sue it for breach of
the Implied Warranty. See Lofts, 218 Ariz. at 577 ¶ 15; Richards, 139 Ariz. at
245. Rather, the Implied Warranty “arises from construction of the home,”
and therefore runs to subsequent purchasers. Lofts, 218 Ariz. at 577 ¶¶ 13–
14 (reasoning that Richards and other cases “make clear that an implied
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Opinion of the Court
warranty arises from construction of the home, without regard to the
identity of the vendor”).
¶9 Sirrah argues that because the Implied Warranty “arises from
construction of the home,” it neither constitutes a contract term nor arises
from a contract. We disagree.
¶10 Woodward v. Chirco Construction Co., Inc., 141 Ariz. 514 (1984),
directs our decision. The homebuilder there, Chirco Construction, argued
that the six-year statute of limitations applicable for contract claims, A.R.S.
§ 12-548(A), did not apply to preserve the purchasing homeowners’ claim
for breach of the Implied Warranty. Id. at 515–16. Relying on Richards’s
pronouncement that the Implied Warranty “is imposed by law,” Chirco
Construction asserted that the Warranty could not arise from the parties’
contract and, even if it did, breach of the Warranty only created a tort claim.
Id. at 515. This Court disagreed. We decided that negligent construction of
a residence can simultaneously support contract damages for breach of the
Implied Warranty and tort damages for any personal injury or damaged
personal property caused by the contractor’s negligence. Id. at 515–16. The
Court recognized that the Implied Warranty “arises from the contractual
relation between the builder and the purchaser.” Id. at 516 (citation and
internal quotation marks omitted). Significantly, we also clarified Richards:
Our statement in Richards, supra, that the implied warranty of
workmanlike performance and habitability “is imposed by
law” was not meant to transform the duty arising out of the
contract into one based on tort principles alone; instead, it was
meant to inform buyers and sellers that the law imputes the
warranty into the contact for the construction and sale of the
residence. We then held that the warranty runs to subsequent
purchasers of the residence. If the warranty did not arise out
of the contract and provide for a cause of action in contract,
we would have had no cause to be concerned about the
absence of privity between Richards and Powercraft Homes,
Inc.
Id. The Court concluded that the court of appeals properly applied the six-
year statute of limitations to the Implied Warranty claim at issue. Id.
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Opinion of the Court
¶11 In Lofts, the Court did not retreat from its position in
Woodward that the Implied Warranty is imputed into a construction contract
and runs to subsequent purchasers. Indeed, the Court cited Woodward for
the principle that “[a] claim for breach of the implied warranty sounds in
contract.” Lofts, 218 Ariz. at 575 ¶ 5. Also consistent with Woodward, the
Court held that a subsequent homebuyer who lacked contractual privity
with a non-vendor builder could nevertheless sue the builder for breach of
the Warranty. See id. at 577–78 ¶¶ 13–19. The only reason for addressing
privity was because the Court treated the Implied Warranty as a contract
term.
¶12 Finally, since deciding Lofts, we have reiterated Woodward’s
characterization of the Implied Warranty as a contract term. See Sullivan v.
Pulte Home Corp. (Sullivan II), 232 Ariz. 344, 346 ¶ 13 (2013) (“[The] law
imputes [the] warranty into [a] construction contract and allows
subsequent purchasers a cause of action.” (citing Woodward, 141 Ariz. at
516)). We again confirm that description here.
II. Barmat does not apply
¶13 Citing Barmat v. John & Jane Doe Partners A-D, 155 Ariz. 519
(1987), Sirrah argues that because the Implied Warranty is imposed by law,
breach of the Warranty cannot give rise to a contract-based fee award. We
disagree.
¶14 Barmat addressed whether a legal malpractice claim “arises
out of a contract” for purposes of awarding fees under § 12-341.01(A). Id.
at 520. The clients there argued that § 12-341.01(A) applied because the law
implies a contract between lawyer and client, which includes a covenant of
competent and ethical representation. Id. at 521. After noting that the law
implies contracts in several professional relationships and some
nonprofessional ones, such as innkeeper-guest and common carrier-
passenger, the Court concluded that the legislature did not intend § 12-
341.01(A) to reach tort claims arising from these relationships. Id.
¶15 The Court labeled a contract implied in law as a “legal
fiction,” id. at 522, created “without regard to expressions of assent by either
words or acts,” id. at 521 (citation and internal quotation marks omitted).
Such contracts “aris[e] from relationships between professionals and their
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Opinion of the Court
clients and from other special relationships” and “the law imposes special
duties [owed] to all within the foreseeable range of harm as a matter of
public policy.” Id. at 522. Because “[t]he essential nature of actions to
recover for the breach of such duties” is one arising from tort rather than
contract, § 12-341.01(A) does not apply. Id. at 523.
¶16 Barmat does not apply here. First, breach of the Implied
Warranty is a contract claim, not a tort claim. See Woodward, 141 Ariz. at
515-16; cf. A.R.S. § 12-552(A), (C) (providing a statute of repose for suits
“based in contract” including “any action based on implied warranty
arising out of the contract or the construction, including implied warranties
of habitability, fitness or workmanship”). Barmat applies to determine
whether a tort claim arising from a relationship characterized by an implied-
in-law contract can authorize a fee award; it does not apply to contract
claims.
¶17 Second, Barmat did not address whether § 12-341.01(A)
authorizes fees on a claim for breach of a duty imputed by law as a term of
an express contract. Rather, the case concerned the proper interpretation of
“implied contract” as used in § 12-341.01(A). Barmat, 155 Ariz. at 522
(“[T]he oft-used statutory phrase ‘contract express or implied’ has no single
meaning and ‘requires interpretation and definition.’” (citation omitted)).
And Barmat did not suggest that fees are unavailable on claims for breach
of an implied-in-law term of an express contract. Cf. id. (approving decision
in Sparks v. Republic Nat’l Life Ins. Co., 132 Ariz. 529 (1982), that claim for
breach of the implied-in-law covenant of good faith and fair dealing
imputed into an insurance contract “arises out of a contract” under § 12-
341.01(A)).
¶18 Third, the Implied Warranty does not arise from a
professional relationship or other special relationship like those discussed
in Barmat. Although implied by law, the Warranty is imputed into an
express contract for home construction. See Woodward, 141 Ariz. at 516. As
with the duty of good faith and fair dealing, also imputed by law into all
express contracts, the Warranty is “as much a part of a contract as are the
express terms.” See Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement
Masons Local No. 395 Pension Tr. Fund, 201 Ariz. 474, 490 ¶ 59 (2002).
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SIRRAH ENTERPRISES, LLC V. WAYNE WUNDERLICH, ET UX.
Opinion of the Court
¶19 The court of appeals has taken a different standpoint on
Barmat’s impact on claims for breach of the Implied Warranty. In Sullivan
v. Pulte Home Corp. (Sullivan I), 231 Ariz. 53, 62 ¶ 48 (App. 2012), vacated in
part on other grounds, 232 Ariz. 344 (2013), the court found that because
Barmat decided that § 12-341.01(A) does not apply to implied-in-law
contracts, and the Implied Warranty is implied by law, § 12-341.01(A) does
not apply to Implied Warranty claims. See also N. Peak Constr., LLC v.
Architecture Plus, Ltd., 227 Ariz. 165, 167, ¶ 7, 170 ¶ 26 (App. 2011) (applying
the same analysis to deny a fee award on a claim for breach of an implied
warranty of reasonable skill and diligence given by a design professional to
a construction contractor). In the case now before us, the court of appeals
reaffirmed the Sullivan I analysis but distinguished that case because, unlike
the situation here, the builder and homeowners in Sullivan I lacked privity
of contract. Sirrah, 240 Ariz. at 168 ¶¶ 14–15.
¶20 The flaw in the court of appeals’ analysis is that the Implied
Warranty does not create an implied-in-law contract between a builder and
a homeowner. See id. ¶ 14 (describing the Sullivan I homeowners’ claim for
breach of the Implied Warranty as “based solely on a contract implied-in-
law”). The Warranty is a term imputed by law into an express contract and
can be enforced by subsequent homeowners. See Woodward, 141 Ariz. at
516. Section 12-341.01(A) therefore authorizes a fee award for the successful
party on a claim for breach of the Implied Warranty because the claim
“arises out of” an express contract.
¶21 We disapprove Sullivan I and North Peak Construction, LLC to
the extent they conflict with our decision.
¶22 Sirrah asserts that our stance will result in dissimilar
treatment of attorney fee applications depending on whether the claim for
breach of the Implied Warranty was brought by an original or subsequent
homeowner. Not so. Section 12-341.01(A) does not have a privity
requirement for claims “arising out of” a contract. (In contrast, the parties
must be in privity to enforce a contractual fee provision.) Cf. Lacer v. Navajo
Cty., 141 Ariz. 392, 394 (App. 1984) (determining a party was entitled to fees
“if judgment in its favor is based upon the absence of the contract sued
upon”). The Implied Warranty arises out of the construction contract; that
characteristic does not change simply because the law effectively assigns
the Warranty to subsequent homeowners. Just as a claim asserted by an
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Opinion of the Court
original homeowner in privity with a builder can arise from contract, so too
can a claim asserted by a subsequent homeowner.
III. The propriety of fees on review
¶23 We agree with the court of appeals that the trial court
properly awarded attorney fees to the Wunderlichs. The parties’ contract
requires a fee award to the successful party on a claim “to enforce any term
or provision.” Section 12-341.01(A), a discretionary fee provision, does not
alter the parties’ mandatory fee provision. See A.R.S. § 12-341.01(A) (stating
that the provision “shall not be construed as altering, prohibiting or
restricting present or future contracts . . . that may provide for attorney
fees”). As we have stated, the Implied Warranty is a term of the contract.
As the successful party in the claim to enforce the Warranty, the
Wunderlichs were entitled to their reasonable attorney fees. The trial court
did not err in awarding them fees.
CONCLUSION
¶24 We vacate the court of appeals’ opinion and affirm the trial
court judgment. Upon compliance with ARCAP 21(b), we award the
Wunderlichs their reasonable attorney fees on appeal.
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