Cook v. Orkin Exterminating Co., Inc – 5/19/2011

May 24, 2011

Arizona Court of Appeals Division One Holds That the Expertise of a Party to an Arms-Length Commercial Transaction Does not Create a Fiduciary Relationship Obligating That Party to Act for the Other Party’s Benefit.

In 1987, Jordan and Tacie Cook (the “Cooks”) built a home in Cave Creek, Arizona.  Shortly thereafter, they discovered it was infested with termites.  After the Cooks’ builder filed for bankruptcy, Arizona Insurance Contractors (“AIC”) arranged for Orkin to provide exterminating services at the Cooks’ home.  During the following eighteen years, Orkin treated the Cook’s home approximately nineteen times.  The Cooks allege that each time Orkin treated the termites, it promised the treatment would be effective.  Each time, however, the termites returned.  In 2008, the Cooks filed an action against Orkin alleging claims for breach of contract, breach of the implied covenant of good faith and fair dealing, breach of warranty, breach of fiduciary duty, negligence, negligent and intentional misrepresentation, and fraud.  Orkin eventually moved for summary judgment on the grounds that the Cooks’ tort claims were barred by the economic loss rule, that Orkin owed no fiduciary duty to the Cooks, and that Orkin had not breached the Agreement.  The superior court entered partial judgment for Orkin, concluding that the Cooks had failed to establish facts giving rise to a claim for breach of fiduciary duty and that their tort claims were barred by the economic loss rule.  The Cooks timely appealed.

On appeal, the Arizona Court of Appeals upheld summary judgment in Orkin’s favor on the Cooks’ breach of fiduciary duty claim, concluding that Orkin did not owe a fiduciary duty to the Cooks.  In Arizona, commercial transactions generally do not create a fiduciary relationship unless one party agrees to serve in a fiduciary capacity.  In this case, Orkin agreed only to provide exterminations services to the Cooks and the Cooks presented no evidence that Orkin agreed to serve as the Cooks’ fiduciary or that the parties’ relationship involved any of the hallmarks of a fiduciary association.  Rejecting the Cooks’ contention that their relationship with Orkin was different than a traditional, arms-length commercial services contract because Orkin had more specialized knowledge about termite extermination than the Cooks, the Court of Appeals concluded that Orkin did not owe the Cooks a fiduciary duty and that the superior court had thus properly granted summary judgment for Orkin on the Cooks’ breach of fiduciary duty claim. 

The Court also upheld summary judgment as to the Cooks’ tort claims, concluding that, under Arizona’s economic loss rule, the Cooks are limited to their contractual remedies for purely economic loss arising from Orkin’s alleged failure to adequately perform its promises under their agreement.  In Arizona, whether the economic loss rule applies depends upon context specific policy considerations and the underlying policies of tort and contract law.  Considering the relevant contract and tort law policies at issue in this case, the Court of Appeals determined that the economic loss rule limits the Cooks’ claims in this case to those in contract.  According to the Court, the contract law policy of upholding the parties’ expectations favors limiting the Cooks’ claims to those in contract and, where there has been no injury besides that to the subject property, there is no strong policy reason to impose tort liability.  Because the Cooks are seeking remedies for purely economic loss from Orkin’s alleged failure to adequately perform its promises under the agreement, the Court determined that the economic loss rule bars their tort claims.

Judge Winthrop authored the opinion; Judges Hall and Thompson concurred.