Cal-Am Props., Inc. v. Edais Eng’g Inc. – 5/23/2022

July 26, 2022

Arizona Supreme Court holds that design professionals lacking privity of contract with project owners do not owe a duty to those owners to reimburse them for economic harm.

A landowner hired a developer to manage a construction project on the landowner’s property.  The developer entered a contract with a contractor to design and construct the project.  The contractor entered a separate contract with a surveyor to, among other things, place construction stakes to mark the location of the project.  The surveyor incorrectly placed the stakes, forcing the developer to adjust its plan and reducing the value of the project.  The developer sued the surveyor, asserting claims against it including negligence to recover its economic losses.  The trial court granted summary judgment for the surveyor on the developer’s negligence claim.  The court of appeals affirmed, holding that the surveyor owed no duty to the developer.

The Supreme Court affirmed.  It explained that, although its 1984 decision, Donnelly, held that a design professional, such as a surveyor, has a duty of care extending beyond those with whom it shares contractual privity to those whom injury is foreseeable, the Court since rejected Donnelly’s approach in its 2018 Gipson decision, holding that foreseeability is not an appropriate factor in assessing duty.  

The Court therefore analyzed the duty issue under the post-Gipson duty framework in which duties arise from special relationships or public policy.  A duty stemming from a special relationship requires a preexisting relationship between the parties, which the developer and the surveyor did not share.  The Court declined to otherwise recognize a categorical special relationship between design professionals and owners and emphasized that no liability to a plaintiff exists when a defendant’s relevant undertaking is with and for an entity other than the plaintiff.  Next, the Court assessed whether a duty arose from public policy.  It stated statutes are the primary source of public-policy-derived duties, but, for a statute to create a duty, (1) the plaintiff must be within the class of persons to be protected by the statute, and (2) the harm must be of the type the statute sought to protect against.  The Court noted that the statutes cited by the developer failed to meet the two-prong test.  Although the Court cautioned restraint in declaring public policy in the absence of legislative guidance, it also looked to Restatement sections consistent with Arizona law cited by the developer but concluded the provisions cited failed to create a duty under the circumstances presented.

Finally, the Court explained that although the developer’s negligence claim against the surveyor failed as a matter of law, the fall of Donnelly and the foreseeability analysis did not insulate design professionals from the legal consequence of their negligence.  However, the remedies in such instances sound in contract, rather than tort. 

Justice Lopez authored the unanimous opinion.