Albano v. Shea Homes Limited Partnership – 6/30/2011

July 5, 2011

Arizona Supreme Court Holds That A.R.S. § 12-552, the Statute of Repose for Construction Defects, Is Not Subject to Equitable Tolling During the Period Between the Filing of a Putative Class Action and the Denial of Class Certification.

On November 6, 1997, the Town of Gilbert conducted the final inspection of Carriage Lane, a planned community built by Shea Homes Limited Partnership and J.F. Shea Co., Inc. (collectively, “Shea Homes”).  In June 2003, a putative class action against Shea Homes alleging construction defects was filed in superior court (“Hoffman”).  The named plaintiffs moved for class certification in November 2005, and the superior court denied the motion in February 2006.  In May 2006, another group of plaintiffs filed a second action in superior court (“Albano I”), but this case was dismissed because the plaintiffs did not respond to the defendants’ offers to repair, as required by the Arizona Purchaser Dwelling Act, A.R.S. § 12-1363.  After complying with that statute, the second group of plaintiffs filed a third action on November 5, 2007 (“Albano II”), which was removed to federal court.  The Albano plaintiffs filed a fourth action against another defendant (“Albano III”), which was also removed to federal court and consolidated with Albano II

 The defendants moved for summary judgment, arguing that Albano II and Albano III were barred by the eight-year statute of repose in A.R.S. § 12-552.  The district court concluded that a statute of repose like A.R.S. § 12-552 could be subject to equitable tolling under the doctrine of American Pipe and Construction Co., 414 U.S. 538 (1974), which held that a statute of limitations is tolled during the period between the filing of a putative class action and the denial of class certification.  The court also concluded, however, that such tolling saved neither Albano II nor Albano III.  As to Albano III, that action named a defendant different from the defendants named in Hoffman, the putative class action.  As to Albano II, the district court refused to find that equitable tolling applied to the period between the filing of Hoffman in June 2003 and the plaintiffs’ motion for class certification more than two years later.  The plaintiffs appealed the Albano II ruling to the Ninth Circuit, which certified questions to the Arizona Supreme Court.

 The Supreme Court found it necessary to answer only one of the Ninth Circuit’s three questions:  does the class action tolling doctrine of American Pipe apply to the statute of repose for construction defects set forth in A.R.S. §12-552?

 First, the Court examined American Pipe and the policies behind it and noted that most states with class action rules similar to Federal Rule of Civil Procedure 23 have followed American Pipe and adopted a class action tolling rule for statutes of limitations.  Because this case did not involve a statute of limitations, however, the Court found it unnecessary to decide whether such a tolling rule applied in Arizona.

 Other courts are divided on whether the American Pipe tolling doctrine applies to statutes of repose.  The Arizona Supreme Court concluded that the proper focus for answering this question with respect to A.R.S. § 12-552 is the legislative purpose behind that statute.  According to the legislative history and case law interpreting § 12-552, the legislature enacted that statute to limit the “indeterminable period of liability exposure” faced by developers and builders.  And, unlike statutes of limitations, statutes of repose like § 12-552 define substantive rights.  Given the purpose behind § 12-552 and the court-created nature of the American Pipe doctrine, the Court concluded that the tolling doctrine could not be applied to alter the effect of § 12-552.  In this case, because the statute of repose began to run on November 6, 1997, when the Town of Gilbert conducted its final inspection, Albano II, filed ten years later, was barred by § 12-552.

 The Court went on to address the application of Arizona’s savings statute, A.R.S. § 12-504(A), which allows a plaintiff or successor plaintiff to file a new action within six months after an initial action is “terminated in any manner other than by abatement, voluntary dismissal, dismissal for lack of prosecution or final judgment on the merits,” if the initial action was commenced within the applicable limitations period and the period expired before the second action was commenced.  The Court concluded that, even if the savings statute applied to an action otherwise barred by the statute of repose, it could not save Albano II because that action was not commenced within six months of the superior court’s denial of class certification in Hoffman.  The savings statute does not, as argued by the plaintiffs, “allow successive refilings to be tacked together” and thus “does not apply to any new action other than the since-dismissed Albano I filing.”

 Justice Pelander authored the opinion for a unanimous Court.