The Arizona Supreme Court cited Wilenchik & Bartness attorney Thomas Lordan for his law review article, “Arizona’s ‘Economic Loss Rule’ and Flagstaff Affordable Housing,” in the case of Sullivan v. Pulte Home Corp., CV-12-0419-PR (Ariz. July 31, 2013).
In Sullivan v. Pulte Home Corp., the Arizona Supreme Court ruled that the “economic loss doctrine” did not prevent homeowners from suing their homebuilder for negligence and construction defects, because the homeowners did not have a contract with the homebuilder, and the economic loss rule only applies to parties to a contract. The “economic loss doctrine” generally bars a plaintiff who had a contract with the defendant from suing “outside” of the contract, i.e. for negligence or another tort, if the plaintiff asks only for monetary or “economic” damages not arising from personal physical injury or physical harm to property (e.g., lost profits). In the Sullivan case, the lawyers for Pulte tried to argue that even though the plaintiff and defendant had no contract, there were still implied contractual remedies at law, and therefore the economic loss rule should apply and prevent the homeowners from suing outside of the contract, i.e. in negligence or in tort. The Supreme Court disagreed, reasoning that “because the Sullivans had no contract with Pulte,” the economic loss doctrine did not bar their claims for negligence and other torts. The Supreme Court emphasized that Arizona takes a narrow approach to the economic loss doctrine, limiting it to “any decreased value or repair costs for a product or property that is itself the subject of a contract between the plaintiff and defendant, and consequential damages such as lost profits.” The court expressly refused to extend the doctrine to non-contracting parties, reasoning that the 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.” The Court concluded, “[l]imiting the doctrine to contracting parties supports those policy considerations[.]” In support of its conclusion the court cited Thomas Lordan’s article, Arizona’s “Economic Loss Rule” and Flagstaff Affordable Housing, wherein Mr. Lordan concluded that “[r]estricting 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 bargain,’ the [economic loss rule] should only apply where there is a bargain to which it might be applied.”