Cal-Am v. Edais ( 2021 )

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
CAL-AM PROPERTIES INC, Plaintiff/Appellant,
v.
EDAIS ENGINEERING INC, Defendant/Appellee.
No. 1 CA-CV 20-0279
FILED 4-15-2021
Appeal from the Superior Court in Maricopa County
No. CV2017-012518
The Honorable Timothy J. Thomason, Judge
AFFIRMED
COUNSEL
Dickinson Wright PLLC, Phoenix
By Stephen E. Richman, Bennett Evan Cooper, Samuel L. Lofland
Counsel for Plaintiff/Appellant
Clark Hill PLC, Scottsdale
By Christopher D.C. Hossack
Counsel for Defendant/Appellee
CAL-AM v. EDAIS
Decision of the Court
MEMORANDUM DECISION
Judge Cynthia J. Bailey delivered the decision of the Court, in which
Presiding Judge Paul J. McMurdie and Judge Lawrence F. Winthrop joined.
B A I L E Y, Judge:
¶1 Appellant Cal-Am Properties, Inc. (“Cal-Am”) appeals the
superior court’s grant of summary judgment to Edais Engineering, Inc.
(“Edais”) on its negligence claim. For the following reasons, we affirm.
FACTS AND PROCEDURAL HISTORY
¶2 Cal-Am develops and operates RV resorts and mobile-home
parks throughout the country, including a resort it leases in Yuma
(“Property”). In 2015, Cal-Am hired a contractor to design and construct a
banquet/concert hall on the Property. The contractor retained Edais to
survey and place construction staking for the new building. Cal-Am later
discovered that the hall had been built in the wrong location on the
Property.
¶3 In 2017, Cal-Am sued Edais for, as relevant here, negligence,
alleging Edais staked the Property incorrectly, which in turn prevented Cal-
Am from adding eight RV spaces to the Property. 1 It sought damages for
the diminution in its business value. 2
¶4 Edais moved for partial summary judgment on the issue of
damages, and Cal-Am cross-moved for partial summary judgment on the
1 Cal-Am’s complaint also included claims for breach of contract, breach of
the implied warranty of workmanship/habitability, negligent
misrepresentation, breach of the implied covenant of good faith and fair
dealing, and private nuisance. The court granted summary judgment in
favor of Edais on the negligence, breach of contract, and duty of
workmanship claims, and the parties stipulated to dismiss the negligent
misrepresentation count with prejudice.
2 The parties advise that some form of an arbitration proceeding has been
instituted against the contractor, but provide no further information
concerning the nature of those claims, the damages sought nor the status of
such proceeding.
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CAL-AM v. EDAIS
Decision of the Court
issue of Edais’s liability. Edais then moved for summary judgment on all
claims, arguing in relevant part that Cal-Am’s negligence claim failed
because Cal-Am only sought recovery of purely economic damages and
Edais did not owe a duty to Cal-Am to prevent those damages.
¶5 After a hearing, the superior court denied both motions for
partial summary judgment but granted in part Edais’s motion for summary
judgment and dismissed Cal-Am’s negligence claim. It found that Edais
only owed a duty to prevent physical damage to the Property, and Cal-Am
did not present evidence that physical damage occurred. After considering
Cal-Am’s supplemental brief on the physical damage issue, the court
affirmed its ruling.
¶6 The parties stipulated to dismiss the remaining claims and the
superior court entered judgment in favor of Edais on the negligence claim.
Cal-Am timely appealed. We have jurisdiction pursuant to Article 6,
Section 9, of the Arizona Constitution, and A.R.S. § 12-2101(A)(1).
DISCUSSION
¶7 Cal-Am argues the court erred by granting summary
judgment because: (1) it is entitled to recover solely economic damages; and
(2) the court erroneously construed the claim as one for purely economic
loss.
I. Standard of Review
¶8 We review the trial court’s grant of summary judgment de
novo. Jackson v. Eagle KMC L.L.C., 245 Ariz. 544, 545, ¶ 7 (2019).
II. Whether Cal-Am was entitled to recover purely economic damages.
¶9 Cal-Am argues the superior court erred because: (1) a party
who is not in privity may recover purely economic damages from a
negligent professional; (2) its ruling conflicts with the Arizona Supreme
Court’s limitation of the economic-loss doctrine to parties in privity; and (3)
it relied on the wrong Restatement provision for a limitation on recovery of
economic damages.
¶10 To maintain an action for negligence, a plaintiff must show
the defendant owed the plaintiff a duty. Gipson v. Kasey, 214 Ariz. 141, 143,
¶ 11 (2007). “Duties of care may arise from special relationships based on
contract, family relations, or conduct undertaken by the defendant,” id. at
145, ¶ 18, and from public policy considerations, id. at ¶ 23. A duty is not
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CAL-AM v. EDAIS
Decision of the Court
presumed, and foreseeability is not a factor in determining whether a duty
exists. Quiroz v. ALCOA INC., 243 Ariz. 560, 563, ¶ 2 (2018).
¶11 Cal-Am first argues that Edais owed it a duty pursuant to
Restatement (Second) of Torts § 299A, which provides that generally, “one
who undertakes to render services in the practice of a profession or trade is
required to exercise the skill and knowledge normally possessed by
members of that profession or trade in good standing in similar
communities.” In support of its argument, Cal-Am cites Donnelly
Construction Co. v. Oberg/Hunt/Gilleland, 139 Ariz. 184 (1984) and Gipson v.
Kasey, 214 Ariz. 141 (2007).
¶12 Restatement § 299A does not establish a duty between Cal-
Am and Edais. Although Section 299A sets the standard of care for design
professionals, it does not establish a duty, otherwise formulated as “the
relation between individuals which imposes upon one a legal obligation for
the benefit of the other.” Markowitz v. Ariz. Parks Bd., 146 Ariz. 352, 355
(1985) (quoting William Lloyd Prosser & W. Page Keeton, The Law of Torts
§ 53, at 356 (5th ed. 1984)). The question of whether a defendant has
breached the standard of care arises only after the court has determined that
the defendant owed a duty to the plaintiff. See id. at 356; Gipson, 214 Ariz.
at 144, ¶ 17. Thus, the question is not whether Edais had to comply with
Restatement § 299A by “exercis[ing] the skill and knowledge normally
possessed by members of that profession or trade in good standing in
similar communities,” but instead, whether Cal-Am and Edais had the type
of relationship that would require Edais to conform to that standard of care.
¶13 Donnelly does not establish that Edais owed Cal-Am a duty.
In Donnelly, the Arizona Supreme Court stated that “[d]esign professionals
have a duty to use ordinary skill, care, and diligence in rendering their
professional services . . . [that] extends to those with whom the design
professional is in privity . . . and to those with whom he or she is not.”
Donnelly, 139 Ariz. at 187. However, the Donnelly court reached its
determination about duty based on a now-rejected foreseeability
framework, ultimately holding that “design professionals are liable for
foreseeable injuries to foreseeable victims which proximately result from their
negligent performance of their professional services.” Id. at 188 (emphasis
added); see Gipson, 214 Ariz. at 144, ¶ 15 (holding “foreseeability is not a
factor to be considered by courts when making determinations of duty”).
Because Gipson explicitly rejected the foreseeability framework as it
pertains to the existence and scope of a duty, 214 Ariz. at 145, ¶ 23, Donnelly
cannot support Cal-Am’s argument that Edais owed it a duty of due care.
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CAL-AM v. EDAIS
Decision of the Court
¶14 Relying on Flagstaff Affordable Housing Ltd. Partnership v.
Design All, Inc., 223 Ariz. 320, 327, ¶¶ 35-37 (2010), Cal-Am asserts that our
supreme court approvingly cited Donnelly and “recognized the continuing
vitality of Donnelly as to the liability in negligence of design professionals.”
However, Flagstaff Affordable Housing involved an architect who was in
privity of contract with the property owner. 223 Ariz. at 321, ¶ 3. Here, in
contrast, Cal-Am did not contract with Edais. See id. at 328, ¶ 40 (stating
“Architect’s duties with regard to Owner’s project existed only because of
the contract between the parties”). Cal-Am also asserts that Gipson and
Quiroz each mentioned Donnelly and “never disapproved of the design
professionals’ duty recognized in Donnelly.” However, Cal-Am’s view is
belied by Quiroz, in which the court cited Donnelly as an example of duty
based on a foreseeable plaintiff, and expressly stated “[p]ost-Gipson, to the
extent our prior cases relied on foreseeability to determine duty, they are
no longer valid.” 243 Ariz. at 564-65, ¶¶ 10, 12.
¶15 Here, the superior court correctly relied on Restatement §
324A to determine Edais’s liability to a third party like Cal-Am because Cal-
Am did not own the Property. Section 324A provides that:
One who undertakes, gratuitously or for consideration, to
render services to another which he should recognize as
necessary for the protection of a third person or his things, is
subject to liability to the third person for physical harm
resulting from his failure to exercise reasonable care to protect
his undertaking, if
(a) his failure to exercise reasonable care increases the risk of
such harm, or
(b) he has undertaken to perform a duty owed by the other to
the third person, or
(c) the harm is suffered because of reliance of the other or the
third person upon the undertaking.
(Emphasis added). Section 324A reflects Arizona courts’ reluctance to
recognize a “general duty to exercise reasonable care for the purely
economic well-being of others, as distinguished from their physical safety
or the physical safety of their property.” Lips v. Scottsdale Healthcare Corp.,
224 Ariz. 266, 268, ¶ 11 (2010). Apart from § 299A, Cal-Am fails to cite any
basis for Edais’s liability to Cal-Am for purely economic harm, and we find
none. The court did not err by relying on Restatement § 324A to find that
Edais did not owe Cal-Am a duty to avoid purely economic harm.
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CAL-AM v. EDAIS
Decision of the Court
III. Whether the superior court erred by construing Cal-Am’s claim as
one for purely economic loss.
¶16 Cal-Am argues the superior court erred by construing its
claim as one for purely economic loss. It contends the placement of a
building in the wrong place is quintessentially “physical,” and that the
wrongful placement alleged here impaired the Property’s use.
¶17 Cal-Am’s argument is misplaced. Cal-Am specifically stated
that it sought “damages for the diminution in its business value, not the
diminution in value of its real property interest,” and it only alleged that
Edais “negligently physically altered Cal-Am’s property.” Harm to Cal-
Am’s business does not constitute physical harm, and Cal-Am did not own
the Property. Further, Cal-Am failed to provide any evidence of physical
harm to the Property. Thus, even if negligently staking the Property could
constitute physical harm—an issue we do not decide—the superior court
did not err by construing Cal-Am’s claims as purely economic and granting
Edais’s motion for summary judgment.
CONCLUSION
¶18 For the foregoing reasons, we affirm the superior court’s grant
of summary judgment in favor of Edais.
AMY M. WOOD • Clerk of the Court
FILED: AA
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