Developers and Homebuilders: The Ramifications of Yanni v. Tucker Plumbing, Inc.

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On November 20, 2013, Division Two of the Arizona Court of Appeals issued its opinion in Yanni v. Tucker Plumbing, Inc., 2013 Ariz. App. LEXIS 235.    While the opinion was a victory of sorts for the real estate and construction industry generally in Arizona, the opinion could have long-term ramifications to developers and home builders.    In short, the opinion could encourage more direct suits by homeowners against developers and homebuilders – including potential class actions, as was the situation in Yanni – for defects in the construction of homes arising out of defective and substandard work by subcontractors.

The pertinent facts in Yanni are quite simple.  In 2012, Mr. Yanni and “other similarly situated homeowners” filed suit (described as a “construction defect state-wide class action”) against two subcontractors for breach of the implied warranty of workmanship and habitability arising out of the subcontractors’ alleged use of defective plumbing components in the construction of their homes.   The plaintiffs alleged that the subcontractors had used various plumbing parts “not suitable for their service environment” and that the subcontractors had “failed to follow acceptable construction and/or building practices” in connection with their work on the homes.

The trial court granted summary judgment to the subcontractors, agreeing with the subcontractors that only parties and privies to contracts can bring claims for beach of the implied warranty of workmanship and habitability.    The Court of Appeals agreed after going through an analysis of why the doctrine should not be extended to claims against subcontractors, participants in the construction of the homes with whom the homeowners (or their predecessors) never had a direct contractual relationship.

For the construction and real estate industry in general, the ruling was a positive one in this regard:   as a general proposition, further expansion of the scope of the “judicially created” doctrine of the implied warranty of workmanship and habitability is hardly ideal for those who are involved in the development and construction of residential projects and properties.    But the potential effect of this ruling down the road merits some attention.    Indeed, the Court of Appeals itself expressly flagged the potential impact:

Nothing in this decision precludes Yanni from pursuing relief for any deficiencies in [the subconractors’] work.   As noted by our supreme court in Lofts, a party who is not permitted to bring an implied warranty cause of action against a subcontractor still may sue a developer, general contractor, or vendor, who may then seek indemnity from other responsible parties or assign its claim to the plaintiff.

In other words, for the developers, homebuilders, and general contractors – those who are or were in a direct contractual relationship with homeowners (or their predecessors) – the effect of the Yanni holding could result in these parties being dragged into more litigation than they otherwise would have had to address had the Yanni panel held that direct suits against subcontractors under these types of facts were permissible.    Yanni indeed now gives the next group of homeowners faced with similar fact patterns the judicial mandate that they must first sue those with whom they are or were in privity for these types of claims, forcing the developers, general contractors and vendors to then go after the subcontractors via an action for indemnity or otherwise.    The net result for the developers, et al.:   more litigation, which is obviously not an ideal development.