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August 2011

Win for Contractors and Design Professionals in Arizona Supreme Court as Court Holds that Equitable Tolling Does Not Apply to Arizona Statute of Limitations for Construction Defect Cases

   The Arizona Supreme Court ruled that equitable tolling under American Pipe, as expanded by its progeny, does not apply to Arizona's eight year statute of repose in Albano, et al v. Shea Homes Limited Partnership, et al., Case No. CV-11-0006-CQ. 

   American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) and its progeny, Crown, Cork & Seal Co., Inc. v. Parker, 462 U.S. 345 (1983), and Bridges v. Department of Maryland State Police, 441 F.3d 197 , 211 (4th Cir.2006), among others, hold that statutes of limitation are tolled with respect to unnamed putative class members in class action litigation.

   In Albano, Alfred Albano and two other homeowners in a Gilbert, Arizona subdivision sought 9th Circuit review of the Arizona District Court's judgment in favor of developer Shea Homes Limited Partnership. The District Court held that the tolling rule of American Pipe and its progeny applied in Arizona, but under the circumstances of the case, the Albano's claims were still time barred.

   On appeal, the Ninth Circuit acknowledged the Supreme Court of Arizona never has determined whether the rule of American Pipe and its progeny applies to state class actions filed in its courts and, more specifically, to state class actions subject to a statute of repose.  Accordingly, it held, "Because we do not know how the Supreme Court of Arizona would apply American Pipe tolling to the circumstances before us and because these questions of law present important matters of public policy for the State of Arizona, we conclude that the most prudent course is to certify these matters to the Supreme Court of Arizona."

   The 9th Circuit Court of Appeals thus remanded and certified the following questions to the Arizona Supreme Court: (1) Does the filing of a motion for class certification in an Arizona court toll the statute of limitations for individuals, who are included within the class, to file individual causes of action involving the same defendants and the same subject matter?  (2) If so, does this class-action tolling doctrine apply to statutes of repose, and more specifically, to the statute of repose for construction defects set forth in Arizona Revised Statutes ("A.R.S.") § 12-552? and (3) If the doctrine applies to statutes of repose, and specifically § 12-552, may a court weigh the equities of the case in determining whether, and to what extent, an action is tolled?

   Without addressing each of the questions individually, the Arizona Supreme Court answered that class-action tolling does not apply to statutes of repose. ("...[W]e assume without deciding that the timely filing of a class action complaint in Arizona tolls the applicable statute of limitations for all non-named putative class members from the date the complaint is filed until an order denying class certification is entered. We answer the second certified question in the negative and, therefore, find it unnecessary to answer the third question.")

   In considering whether equitable tolling was consistent with the legislative intent of the statute of repose, the Court stated, "Applying class action tolling to this case would thus permit a lawsuit to be commenced nearly ten years after substantial completion of the improvement. Tolling the statute here to permit such a result is simply not consistent with the legislative scheme of § 12-552." Instead, it held the intent of the statute of repose was to provide a drop-dead date for new claims.

   The Court further held that if the Arizona state legislature intended for the statute of repose to be tolled, it would amend the statute to state as much. Accordingly, the American Pipe rule, as expanded by its progeny, does not apply to toll the Arizona statute of repose in construction defect litigation.  
   This decision is beneficial for contractors and design professionals in Arizona as the Supreme Court has now confirmed that Arizona's eight-year statute of repose is a legislative immunity from suit.  Cases filed after the deadline will be absolutely barred.