Arizona Supreme Court Holds Construction-Related Statute of Repose Applies to Public Entities and Bars Claim
Arizona Revised Statutes (A.R.S.) § 12-552, also known as the Statute of Repose, requires a party to bring a contract action relating to the design, engineering, or construction of improvements to real property within eight years of substantial completion of the work (or nine years if the claim involves latent defects discovered in the eighth year after substantial completion). The statute requires the claim to be brought within this time period even if the claim arose long after project completion. Put more simply, Arizona law imposes a strict deadline of either eight or nine years on the assertion of contract-based claims arising out of construction projects.
Arizona also subscribes to the common-law rule of nullum tempus occurit regi, or “time does not run against the king.” This rule is codified into Arizona statutes at A.R.S. § 12-510. The rule relieves public entities from the burden of having to file civil lawsuits within the time limitation applicable to private citizens. The Statute of Repose has clearly prevented private parties from filing lawsuits more than eight or nine years after substantial completion of a construction project, even if the claim was not discovered until long after completion. But it has been unclear whether the Statute of Repose also applied to public entities, given the common-law rule and its codification.
That question was answered in the affirmative by the Arizona Supreme Court on May 10, 2017, when it issued its ruling in City of Phoenix v. Glenayre Electronics, Inc. The Court held that the Statute of Repose does apply to public entities. The case turned on two issues. First, although the City of Phoenix argued that A.R.S. § 12-510 and the common law should control and the Statute of Repose should not be applied to the City’s claims, the defendant contractors argued that the Statute of Repose’s prefatory language “notwithstanding any other statute” constituted a specific legislative declaration that the general public-entity exemption did not apply. The Court found the contractors’ argument persuasive.
Second, the Court noted that the Legislature amended the Statute of Repose in 1992 in an apparent effort to save claims by a public entity (the Central Arizona Water Conservation District) that otherwise would have been time-barred if the statute as written at the time applied to public entities. Since there would have been no need for the Legislature to amend the statute if its intent had been for the statute not to apply to public entities, the Court reasoned that the Statute of Repose applies to public entities.
The Court’s decision did not foreclose all of the claims the City asserted in the lawsuit. Some of the claims the City asserted arose out of contracts, but others arose out of permits issued under a City ordinance. The Court held the City of Phoenix could pursue the indemnity claims that were based on a city ordinance rather than a contractual relationship. The Court found that the Statute of Repose applies to claims arising out of contracts, and because the indemnity claims against the developers arose out of a city ordinance, those claims were not subject to the statute.
Public entities in Arizona, and those either dealing with them on real estate projects or engaged by them to provide design or construction-related services, should consider how this decision affects their existing and prospective relationships and potential claims. If you have questions about these developments or related issues, please contact a member of the Phoenix Real Estate Industry Team at Lewis Roca Rothgerber Christie LLP.