Attorney Fees in Breach of Implied Warranty Lawsuits
As of August 2017, the winning party
in a breach of implied warranty lawsuit in Arizona is entitled to
reasonable attorney fees from the losing side.
In an August 2017 opinion, the Arizona
Supreme Court ruled that attorney fees shall be awarded to the
prevailing party in a lawsuit alleging a breach of the implied
warranty of workmanship and habitability. The court ruled that the
awarding of attorney fees can stem from either the fee provision in
the construction contract or in Arizona law (A.R.S. § 12-341).
Read the Supreme Court's
Sirrah Enterprises, LLC vs. Wunderlich
This article appeared in the
September 2017 issue of "The Construction Advisor"
published by Lang & Klain, P.C.
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Background. Mr. and Mrs. Wunderlich
contracted with Sirrah Enterprises to build a basement in their
home. After Sirrah completed the project, the Wunderlichs, claiming
construction defects, refused to pay the full contract.
Sirrah sued the Wunderlichs for the unpaid
balance. The Wunderlichs counter-sued for breach of contract, breach
of the covenant of good faith and fair dealing, and, most notably,
breach of the implied warranty of workmanship and habitability.
After a trial in Superior Court, the jury
awarded Sirrah $31,400 on its claim for the unpaid balance. The jury
also found in Sirrah's favor for the Wunderlichs' claims of breach
of contract and breach of the covenant of good faith.
However, the jury found in the Wunderlichs'
favor on their claim for breach of the implied warranty and awarded
In addition, the judge determined that the
Wunderlichs were the prevailing party and, under the fee provision
in their construction contract, awarded them attorney fees.
Sirrah appealed the award of attorney fees.
The award was upheld by the Arizona Court of Appeals and by the
Arizona Supreme Court. In its opinion, the Supreme Court stated:
"Because the warranty is imputed into the
construction contract, it is a term of the contract. Any claim for
breach of that term arises from the contract. The successful party
therefore qualifies for fees under a controlling contractual fee
provision or, barring that, [A.R.S.] § 12-341." (Emphasis added.)
Important for Contractors
The Sirrah decision is a case of
good-news-bad-news for contractors.
The bad news: If you come out on the short
end of a breach of implied warranty lawsuit, you can expect to be on
the hook for the winner's attorney fees. Also, because the implied
warranty allows you to be sued on workmanship issues not only by the
party with whom you contracted but also any subsequent owners
(within the applicable statute of limitations), you could be liable
for the attorney fees of plaintiffs with whom you have never done
The good news: The decision also raises the
stakes for would-be plaintiffs. Knowing that an unsuccessful lawsuit
will obligate them to pay your attorney fees might make them think
twice about filing a weak lawsuit against you.
Related Article: Duty to Perform Good
Workmanship Extends Beyond Parties to Contract