Attorney Fees in Breach of Implied Warranty Lawsuits

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 ).

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 them $297,800.

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 business.

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