Our Take on City of Phoenix v. Glenayre Electronics, Inc.

Time runs against the King, at least when it comes to contract-based claims against construction companies in Arizona. On May 10, 2017, the Arizona Supreme Court issued its opinion in City of Phoenix v. Glenayre Electronics, Inc., CV-16-0126-PR, affirming the Rule 12(b)(6) dismissal of the City’s contract-based indemnification claims against eight contractors as time-barred under A.R.S. § 12-552(A). The Court ruled that the venerable doctrine of nollum tempus occurit regii.e., “time does not run against the King,” as codified in A.R.S. § 12-510—yields to Arizona’s eight-year statute of repose for contract-based claims against developers and contractors. The Court also ruled that, as the developers were merely permittees, there was no contractual relationship between the City and the developers and the statute of repose therefore did not bar the City’s claims against them.

Background

In 2013, Carlos Tarazon sued the City of Phoenix and others for injuries he allegedly suffered from exposure to asbestos while installing and repairing water piping for the defendants. He died of mesothelioma during the lawsuit. The City filed a third-party complaint against eight contractors and 82 developers, alleging they agreed to defend it against negligence claims arising from the projects.

As to the contractors, the City based its claims on the indemnity provision of its water infrastructure contracts with them. Because no such contracts existed with the developers, the City invoked Phoenix City Code § 31-40, which applied to the developers in their capacity as permittees and states that permittees will “indemnify . . . the City . . . from all suits . . . arising out of or in connection with any act or omission of the permittee . . .” Notably, the permits themselves incorporated the developers’ project plans and specifications, which had terms obligating the developers to “observe and comply with . . . all laws and ordinances,” among other things.

The contractors and developers moved under Rule 12(b)(6) to dismiss the third-party complaint for failure to state a claim upon which relief can be granted, contending the City’s indemnity claims were time-barred by A.R.S. § 12-552(A). That statute, enacted in 1989 to limit what the Arizona Supreme Court once described as the “indeterminable period of liability exposure” for developers and contractors, provides in part that “[n]otwithstanding any other statute, no action or arbitration based in contract may be instituted or maintained against a person who develops . . . , or performs or furnishes the . . . construction . . . of an improvement to real property more than eight years after substantial completion of the improvement . . . .” Here, the eight-year period had elapsed before the City filed its third-party complaint.

For its rejoinder, the City propounded two principal arguments. First, it argued that Arizona law exempts it from all statutes of repose. For that argument, the City relied on A.R.S. § 12-510, aptly entitled “Exemption of state from limitation,” which is the latest in a long line of Arizona statutes codifying the doctrine of nollum tempus occurit regi: “time does not run against the King.” Section 12-510 states that “Except as provided in § 12-529 [which deals with actions involving trust land and navigable water ways], the state shall not be barred by the limitations of actions prescribed in [chapter 5 of Title 12].” The City also relied on City of Bisbee v. Cochise County, a 1938 decision in which our Supreme Court observed that § 12-510’s predecessor “is merely a legislative recognition and approval” of the nollum tempus rule and that “statutes of limitation do not and should not apply to the state, in the absence of an express declaration to the contrary by the Legislature.” Second, the City argued that, as to the developers, their indemnity obligation arose not under contract but under City Code § 31-40.

Rejecting the City’s arguments, the superior court dismissed its indemnity claims under Rule 12(b)(6). It found the City’s claims against both the contractors and the developers were time-barred under A.R.S. § 12-552(A). Division One affirmed.

Issues

The City’s petition for review presented the Arizona Supreme Court with the issue of whether, as the lower courts had found, A.R.S. § 12-510 yields to A.R.S. § 12-552(A). The Court also was called upon to determine whether the lower courts were correct in finding the indemnity language of City Code § 31-40 was contractual in nature, such that A.R.S. § 12-552(A) barred the City’s claims against the developers.

Rulings

The Court answered the first question in the affirmative, finding the phrase “[n]otwithstanding any other statute” in § 12-552(A), if given its plain meaning, “makes clear that the statute of repose controls over other, potentially conflicting state laws.” In so ruling, the Court rejected the City’s argument that the phrase was not an express and definite declaration by the Legislature that the statute of repose applies to governmental entities, as the Bisbee Court had instructed was necessary, and that the Legislature could have met that standard either (i) by placing another exception in the text of section § 12-510, just as it had for § 12-529 or (ii) by expressly declaring in § 12-522 that the state and its political subdivisions are subject to its provisions. The Supreme Court found the Legislature was not bound to either of those reasonable “avenues” and could proceed instead by using the “notwithstanding any other statute” language.

Notably, although the Supreme Court turned first to the statutory language, the tone and tenor of the decision suggest that it found some of the legislative history of § 12-522 even more compelling. In 1992, the Arizona Legislature added subsection G to that statute, which stated the eight-year limitation period begins to run on September 15, 1989 for “any improvement to real property that was substantially complete on before” that date. As the Court characterized the legislative history, the catalyst for the amendment was the Central Arizona Water Conservation District’s desire to bring a lawsuit for negligent construction of the underground piping necessary to transport water to central Arizona. Those claims would have been time-barred under the eight-year statute of repose absent the amendment. Thus, the Supreme Court inferred that the Legislature, by amending § 12-522 for the ostensible purpose of tolling a government entity’s claims, acknowledged the statute of repose applies to government entities.

However, with respect to the second issue, the Supreme Court went on to find the Court of Appeals erred in holding that City Code § 31-40 gives rise to a contractual indemnification obligation on the part of the developers. Having found there was no contractual relationship, the Supreme Court concluded the statute of repose did not apply to the developers’ claims. As a result, the Supreme Court reversed the superior court’s dismissal of the indemnity claims against the developers and vacated that portion of the court of appeals’ decision in which it found the indemnity claims against the developers were “based in contract.”

Comments

We suspect the Supreme Court’s decision in Glenayre that A.R.S. § 12-510 yields to the eight-year statute of repose embodied in A.R.S. § 12-552(A) will come as a surprise to many governmental entities in Arizona, especially given § 12-510’s sweeping—and, arguably, unambiguous—language and its express acknowledgment of only one exception. As a practical matter, the cities and other political subdivisions of the State will have to begin monitoring their potential contract-based claims against contractors and developers much more carefully to ensure that the eight-year limitations period does not elapse before they take action. 

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