In a matter of first impression, the Arizona Court of Appeals
recently ruled that government claims against contractors and
developers are subject to the time limits set forth in the
Construction Statute of Repose.
The Construction Statute of Repose (CSR) statute prevents
contract-based claims regarding the development or construction of
real property from being asserted more than eight years after
substantial completion. The statute has a “safe harbor”
that allows claims first discovered in the eighth year to be
brought within one year after their discovery. However, in no
instance may a claim be asserted more than nine years after
substantial completion.
The statute covers claims for breach of contract, breach of the
implied warranty, and indemnity.
In the matter of City of Phoenix v. Glenayre Electronics, Inc.,
et al, the Court of Appeals addressed the issue of whether the
City of Phoenix (City) was subject to these time limits.
In 2013, Plaintiff Carlos Tarazon sued the City, and others,
alleging that he had developed mesothelioma as a result of
long-term exposure to asbestos while performing pipe installation
and repair work for the City and numerous other defendants on
various construction projects. The City answered the complaint and
also filed third-party claims for indemnity against 82 developers
and eight contractors.
The City contended that the developers and contractors were
responsible for planning, designing, or constructing various
projects that Mr. Tarazon had worked on between 1968 and 2013. To
the extent that Mr. Tarazon developed mesothelioma while working on
any of those projects, the City contended that it was entitled to
be indemnified for any liability it might ultimately have for the
plaintiff’s illness. Notably, the last project was completed
more than 20 years before Mr. Tarazon brought suit against the
City.
The developers and contractors successfully moved to dismiss the
third-party claims as violating the CSR. The City appealed, arguing
that it was not subject to the time limits because of another
statute that provides that the state and other governmental
entities are not subject to statutes of limitation. The Court of
Appeals rejected this argument, holding that the CSR’s plain
language, unambiguously states that it applies
“notwithstanding any other statute.” The court reasoned
that the legislature, in enacting the CSR almost ninety years after
enacting the statute of limitations exception, had the ability to
exempt the state from the statute of repose and it did not.
The court addressed an interesting secondary issue dealing solely
with the City’s claims against the developers and whether
those claims were “based in contract.” No party
disputed that the City’s claims against the contractors were
based in contract as the City had, in fact, entered into contracts
with the contractors. However, the basis of the indemnity claim
against the developers was less clear.
The City claimed that it was entitled to indemnity from the
developers because it issued various building permits for the
construction projects that were conditioned upon the
developers’ agreement to perform all work in accordance with
certain plans and specifications. Included in the specifications
were the Maricopa Association of Government (MAG) specifications
which, in turn, required the permitee to comply with “all
ordinances,” including a Phoenix ordinance requiring the
developers to indemnify the City from loss.
The City contended that this requirement to indemnify was not based
in contract because it was not a “dickered deal.” The
Court of Appeals rejected this argument as well, finding that the
developers’ agreement to indemnify the City was part of the
quid pro quo for the City having issued the permits.
The City also argued that its claim was not contract-based because
the issuance of building permits was an exercise of its
“police powers.” The Court of Appeals rejected this
argument as well, holding that the City’s power to issue
permits was not at issue. What was at issue was the City’s
claim for the performance of a promise conditioned on issuing the
permits -- the promise to indemnify from loss -- and that claim was
based in contract.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.