Davencourt at Pilgrims Landing Homeowners Ass'n v. Davencourt at Pilgrims Landing, LC, 2009 U.T. 65, 221 P.3d 234 (economic loss doctrine, developer duties, implied warranty of habitability).

221 P.3d 234 (2009)
2009 UT 65

Davencourt at Pilgrims Landing Homeowners Association, Plaintiff and Appellant,
Davencourt at Pilgrims Landing, LC; LeGrand Woolstenhulme; Michael D. Parry Construction Company, Inc.; and John Does 1-30, Defendants and Appellees.

No. 20070914.
Supreme Court of Utah.
October 2, 2009.


Economic Loss Rule.  Does the economic loss rule prevent recovery by an HOA against a developer for common area construction defects?

The economic loss rule

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*239  A. Richard Vial, Michael B. Miller, Salt Lake City, for plaintiff. Stephen Quesenberry, Charles L. Perschon, Provo, for defendants.  Craig C. Coburn, Zachary E. Peterson, Lincoln W. Hobbs, Julie Ladle, Stanford P. Fitts, William B. Ingram, Aaron C. Jacobs, Salt Lake City, for amici American Institute of Architects, Utah Chapter of the Community Assoc., Community Assocs. Institute, National Assoc. of Home Builders, Utah Valley Home Builders Assoc.

DURHAM, Chief Justice:


¶ 1 Davencourt at Pilgrims Landing Townhome Owners Association (Association) appeals the district court's rulings that granted in part the Motion to Dismiss Complaint filed by Davencourt at Pilgrims Landing, LC, Le Grand Woolstenhulme, and Michael D. Parry Construction Company, Inc. (collectively, Defendants), and that denied the Motion to Amend Complaint and Reinstate Dismissed Claims filed by the Association. We affirm in part and reverse in part. *240 


¶ 2 Davencourt at Pilgrims Landing (the Project) is a planned unit development. The Project is the result of the design and development efforts by Davencourt at Pilgrims Landing, LC (Developer), which is managed by its member, LeGrand Woolstenhulme. To construct the Project, the Developer contracted with Michael D. Parry Construction Company, Inc. (Builder). The Builder constructed, supervised construction, and inspected the Project for quality and compliance with building codes. When finished, the Project included thirty-eight buildings, each of which consisted of three to four attached townhomes, for a total of 145 units with appurtenant common areas.

¶ 3 The Developer planned to sell the 145 units to individual owners, but before doing so, it organized and established by a Declaration of Easements, Covenants, Conditions, and Restrictions (CC & Rs), the Davencourt at Pilgrim's Landing Townhome Owners' Association, a Utah nonprofit corporation. Pursuant to the Declaration, the Association has the obligation and duty to maintain and repair the common areas, which include exterior surfaces and roofs. The Association is also responsible for levying assessments and setting reserves to cover the maintenance and repair of the common areas.

¶ 4 Because no units had been sold at the time of the Association's establishment, the Developer was the initial owner of all the units and the controlling member. Thus the Developer, through Woolstenhulme as the trustee, the president, the secretary, and the treasurer, controlled the Association. The Developer's control of the Association continued until its marketing efforts resulted in the sale of a certain percentage of the units. The Developer then turned over control of the Association to the owners of the units (Unit Owners) and later sold the remaining units.

¶ 5 In selling the units, the Developer used a standard form real estate purchase contract for residential construction in each transaction. Also, the Developer represented and warranted that the Project (1) complied with the building code and had been inspected for such; (2) consisted of high-quality structures; (3) was in good condition and properly and fully maintained; (4) had no faulty workmanship; (5) had no water intrusion, moisture problems, or other material defects; and (6) the Association's budget and monthly assessments were accurate and adequate for future maintenance, repair, and replacement.

¶ 6 A few years after turnover of the Association to the Unit Owners, the Association learned of significant problems with the Project. Water began to seep into the buildings through the foundation, floors, porches, stucco, sidewalls, exterior walls, doors, windows, window boxes, and roofs. The water intrusion caused damage to the buildings in the form of dryrot, mold, staining, and degradation of the stucco. Upon hiring a building envelope specialist, the Association learned that the water intrusion and resulting damage stemmed from faulty design, faulty workmanship, defective materials, improper construction, and/or noncompliance with building codes. The building envelope specialist informed the Association that these flaws and defects, evident in all the buildings, were present in several latent construction defects, including: improper installation of stucco; improper stucco termination points at slabs and foundations; window boxes designed without a drainage plane, allowing water into the building cavity; improper integration of the stucco; missing or inadequate control joints in the stucco to prevent cracking; missing or improper flashings; and missing, incomplete, or improperly installed waterproofing at the foundations and walls of the units.

¶ 7 The Association also learned that before construction began, the Developer and the Builder had obtained a geo-technical study on the soil and subsurface soils of the Project. The report from the study warned that the Project would rest on collapsible subsurface soils that would cause land subsidence without proper preparation. Following construction, the land subsided. This land subsidence caused severe structural defects to the stucco and cement work and contributed to the water intrusion through the foundation, floors, porches, stucco, sidewalls, 241*241 exterior walls, windows, window boxes, and roofs.

¶ 8 The Association repeatedly requested that the Developer and the Builder repair the defects, but they refused to do so. Because the Association, as required by the CC & Rs, was responsible for repair of these defects in the common areas, it turned to its reserves. But the level of monthly assessments that had been established by the Developer during its control of the Association was inadequate to fund the repair and replacement costs arising from the construction defects. To foot the multi-million dollar repair cost, the Association faced the choice of either imposing a special, unexpected assessment on each unit owner, doing nothing and risk being sued by the unit owners, or obtaining legal redress from the parties responsible. The Association filed suit.

¶ 9 In its complaint, the Association sought recovery of damages from the Developer, Woolstenhulme, the Builder, and John Does 1-30 for fifteen causes of action. The Association asserted these causes of action in the following order: (1) against the Developer, Woolstenhulme, and the Builder: negligence, nuisance, and negligence per se; (2) against the Developer and Woolstenhulme: negligent misrepresentation, misrepresentation and nondisclosure, and breach of fiduciary duties; (3) against the Developer: breach of contract, breach of express and implied warranties, and breach of contract as a third party beneficiary; (4) against the Builder: breach of contract as a third party beneficiary; and (5) against John Does 1-30: negligence, negligent misrepresentation, misrepresentation and nondisclosure, breach of fiduciary duties; and (6) against all defendants: equitable subrogation.

¶ 10 The Defendants filed a motion to dismiss pursuant to rule 12(b)(6) of the Utah Rules of Civil Procedure. The district court granted the motion in part. Citing to the economic loss rule, the district court dismissed the claims for negligence, negligent misrepresentation, negligence per se, and nuisance. The district court also dismissed the claim for breach of implied warranties because Utah law does not recognize such warranties, and it dismissed the claim for breach of express warranty and breach of contract under the merger doctrine. The court denied the motion as to the remaining claims.

¶ 11 Following the issuance of Moore v. Smith, 2007 UT App 101, 158 P.3d 562, and the newly discovered evidence of soil subsidence, the Association filed a Motion to Amend the Complaint and Reinstate Dismissed Claims. In deciding the motion, the district court reviewed the Defendants' original motion to dismiss in light of Moore and the recent cases of Smith v. Frandsen, 2004 UT 55, 94 P.3d 919, and Yazd v. Woodside Homes Corp., 2006 UT 47, 143 P.3d 283. Again citing to the economic loss rule, the district court concluded that the dismissed tort-based claims were precluded and denied the Association's motion. However, the district court granted the Association's alternative motion pursuant to rule 54(b) of the Utah Rules of Civil Procedure to certify its judgment as final. We have jurisdiction over this appeal pursuant to Utah Code section 78A-3-102(3)(j)(2008).


¶ 12 The decision to "grant a motion to dismiss presents a question of law that we review for correctness." Citizens for Responsible Transp. v. Draper City, 2008 UT 43, ¶ 8, 190 P.3d 1245. In reviewing a district court's "order of dismissal entered pursuant to rule 12(b)(6), we `accept the material allegations in the complaint as true and interpret those facts and all reasonable inferences drawn therefrom in a light most favorable to the plaintiff as the non-moving party.'" Moss v. Pete Suazo Utah Athletic Comm'n, 2007 UT 99, ¶ 8, 175 P.3d 1042 (quoting Wagner v. State, 2005 UT 54, ¶ 9, 122 P.3d 599).

¶ 13 We review a district court's denial of a plaintiff's motion to amend a complaint for abuse of discretion. Swan Creek Vill. Homeowners Ass'n v. Warne, 2006 UT 22, ¶ 15, 134 P.3d 1122. "An abuse of discretion may be demonstrated by showing that the district court relied on an erroneous conclusion of law." Kilpatrick v. Bullough 242*242 Abatement, Inc., 2008 UT 82, ¶ 23, 199 P.3d 957 (internal quotation marks omitted).


¶ 14 This appeal presents four main issues for our decision. They are (I) whether the district court erred in dismissing the Association's claims of negligence, negligence per se, negligent misrepresentation, and nuisance under the economic loss rule; (II) whether the district court erred in dismissing the Association's implied warranty claim; (III) whether the district court erred in dismissing the Association's contract and express warranty claims under the merger doctrine; and (IV) whether the district court abused its discretion in denying the Association's Motion to Amend the Complaint and Reinstate Dismissed Claims. We address each issue in turn.


¶ 15 The Association argues that the economic loss rule should not apply because: (A) American Towers Owners Ass'n v. CCI Mechanical, Inc., 930 P.2d 1182, 1189 (Utah 1996), has been or should be overruled; (B) the unique relationships in this case make the economic loss rule inapplicable; (C) the alleged damage here falls within the "other property" exception to the economic loss rule; or (D) an independent duty exists outside the scope of the economic loss rule. We reject these first three arguments and then turn to the question of whether an independent duty should be recognized.

A.  The Economic Loss Rule Remains in Force

¶ 16 In arguing for nonapplication of the economic loss rule, the Association questions the continuing validity of American Towers and invites us to overrule this court's prior decision. We decline to do so.

¶ 17 We are aware of the dicta in Grynberg v. Questar Pipeline Co., 2003 UT 8, 70 P.3d 1, which the Association emphasizes. In Grynberg, we stated, "[W]e do not find American Towers Owners Ass'n and SME Industries persuasive authority regarding the current state of the economic loss rule in... Utah." Id. ¶ 49. The Association, however, misinterprets this statement and disregards the development of the economic loss rule in our subsequent cases.

¶ 18 "The economic loss rule is a judicially created doctrine that marks the fundamental boundary between contract law, which protects expectancy interests created through agreement between the parties, and tort law, which protects individuals and their property from physical harm by imposing a duty of reasonable care." SME Indus., Inc. v. Thompson, Ventulett, Stainback & Assocs., Inc., 2001 UT 54, ¶ 32, 28 P.3d 669. "[A]bsent physical property damage [i.e., damage to other property,] or bodily injury," this doctrine prohibits recovery of economic losses. Am. Towers, 930 P.2d at 1189. Economic losses are defined as:

Damages for inadequate value, costs of repair and replacement of the defective product, or consequent loss of profits— without any claim of personal injury or damage to other property ... as well as the diminution in the value of the product because it is inferior in quality and does not work for the general purposes for which it was manufactured and sold.

Id. (alteration in original)(internal quotation marks omitted). In American Towers, this court found the economic loss rule to be "particularly applicable to claims of negligent construction" based on the construction industry's use of "detailed and comprehensive contracts that form" obligations and expectations, and it accordingly adopted the rule. Id.at 1190. Since American Towers, this court has continued to define and limit the scope and applicability of the economic loss rule in the context of construction defect cases.[1]The court of appeals has followed suit.[2]

243*243 ¶ 19 Moreover, even if we were inclined to overrule American Towers, the Utah Legislature in 2008 codified the economic loss rule in Utah Code section 78B-4-513.[3]  With this in mind, we decline the Association's invitation to overrule American Towers.The economic loss rule remains in force and should be applied in accordance with our precedent. We next turn to the Association's arguments regarding the unique relationships that characterize this case.

B.  The Economic Loss Rule Applies Despite Whatever Unique Relationship Exists Among the Association, Developer, Builder, and Unit Owners

¶ 20 The Association contends that because of the unique relationships among the Association, Developer, Builder, and Unit Owners, the economic loss rule does not apply. This scheme of ownership requires the Association, the real party in interest, to bear the burden of maintenance, repair, and replacement of common areas, but leaves the Association outside of the negotiations upon which the economic loss rule is based. We are unpersuaded; this relationship is not unique.

¶ 21 More than a decade ago, a condominium association in American Towers asserted a negligence claim for "problems with the complex's plumbing and mechanical systems." 930 P.2d at 1184. The condominium association alleged that the defendants, which consisted of subcontractors, developers, and architects, "negligently failed `to design, construct, supervise and/or inspect the construction, and/or supply materials for the construction of the Property.'" Id. at 1188. Nonetheless, this court applied the economic loss rule. Id. at 1189-92. In a similar context, the Association now asks us to create an exception to the economic loss rule because the Association had no contract or opportunity to negotiate. For the same reasons this court first adopted and applied the economic loss rule—to promote the obligations and expectations created by contract and to preserve the "intrinsic differences between tort and contract law"—we decline to do so. Id. at 1189 (internal quotation marks omitted).

¶ 22 We cannot ignore the contract expectations that exist among the Unit Owners, the Developer, and the Builder. "[T]o conclude otherwise would essentially impose the plaintiff['s] `economic expectations upon parties whom the [plaintiff] did not know and with whom [it] did not deal and upon contracts to which [it was] not a party.'" SME Indus., Inc., 2001 UT 54, ¶ 35, 28 P.3d 669 (quoting Am. Towers, 930 P.2d at 1192).

¶ 23 Furthermore, the Association's argument erodes the basis for the existence of the economic loss rule—the distinction between tort and contract law. Exempting strangers to a contract from the economic loss rule would convert a contract cause of action into one for tort. For example, although a purchaser of a home cannot recover economic losses under a negligence claim against a subcontractor, the logic behind the Association's argument would require recovery because the purchaser had no contract or opportunity to negotiate. Any existing contract action between the purchaser and the contractor and the contractor and subcontractor would no longer govern if a tort cause of action for negligence were permitted. The nature of these relationships does not alter the economic loss rule merely because a plaintiff had no contract or opportunity to negotiate a contract. A contrary rule would frustrate the economic expectations of the contracting parties and undermine the intrinsic differences in contract and negligence law.

C.  Construction Components Integrated into a Finished Product Do Not Constitute "Other Property"

¶ 24 The Association also argues that the economic loss rule does not apply because the alleged widespread physical damage to the units and common areas caused by water intrusion through leaky roofs, foundations, 244*244 and siding, falls under the "other property" exception of the economic loss rule. Specifically, the Association asserts the exception applies because components of a townhome, such as a roof or foundation, retain their separate characteristics.

¶ 25 Where a defect causes physical damage to "other property," the economic loss rule will not bar recovery. See Am. Towers, 930 P.2d at 1191. Although this court has never precisely defined what constitutes "other property," we have previously decided the specific issue before us. Proposing a similar argument, the condominium association in American Towers likewise sought the exception of "other property" by alleging that "its members suffered damage to walls, wall coverings, carpeting, wall hangings, curtains, and other furnishings." Id. We rejected this argument because "[t]his deterioration of the complex does not qualify for the `damage to other property' exception to the economic loss doctrine" where the "`property' was the entire complex itself that was constructed as an integrated unit under one general contract." Id. As an integrated product the owners "bought finished products—dwellings—not the individual components of those dwellings. They bargained for the finished products, not their various components. The [allegedly defective component] became an integral part of the finished product and, thus, did not injure `other' property." Id. (quoting Casa Clara Condo. Ass'n v. Charley Toppino & Sons, Inc., 620 So.2d 1244, 1247 (Fla.1993)).

¶ 26 Likewise, the Unit Owners here did not separately bargain for and purchase individual components when they acquired their townhomes. Rather, each purchased a finished product, which included the integral components of the roof, the foundation, and the siding. To contend that these integral components somehow retain a separate character apart from the final product of the townhome goes too far. The "other property" exception to the economic loss rule therefore does not apply in this case.

D.  The Existence and Scope of Independent Duties

¶ 27 Where the economic loss rule is at issue, the "initial inquiry" becomes "whether a duty exists independent of any contractual obligations between the parties." Hermansen v. Tasulis, 2002 UT 52, ¶ 17, 48 P.3d 235. If we find that an independent duty exists under the law, "the economic loss rule does not bar a tort claim `because the claim is based on a recognized independent duty of care and thus does not fall within the scope of the rule.'" Id. (quoting Town of Alma v. Azco Constr., Inc., 10 P.3d 1256, 1263 (Colo.2000)). "The question of whether a duty exists is a question of law" and involves the "examination of the legal relationships between the parties," "an analysis of the duties created by these relationships," and "policy judgments applied to relationships." Yazd v. Woodside Homes Corp., 2006 UT 47, ¶¶ 15, 17, 143 P.3d 283 (internal quotation marks omitted).

¶ 28 In the context of construction defect cases, Utah courts have found independent duties in a variety of relationships.[4] The Association argues that four independent duties exist among the parties. We address each in turn.

1.  Neither the Builder, the Developer, Nor Woolstenhulme, in Their Respective Expertise and Relationships, Owe the Nonpurchasing Association an Independent Duty

¶ 29 First, the Association asks us to extend and apply the independent duty that a contractor-seller owes to a home purchaser. 245*245 Because of the distinctions in expertise and relationships at issue, we decline to do so.

¶ 30 In Yazd, we ruled that a contractor-seller owes an independent duty to a home purchaser to disclose known material information regarding the real property. 2006 UT 47, ¶ 35, 143 P.3d 283. In imposing this duty, we identified two important concepts. First, we emphasized that a contractor-seller possesses "a high degree of knowledge and expertise" compared to a home buyer. Id. ¶ 24; see also Smith v. Frandsen, 2004 UT 55, ¶ 18, 94 P.3d 919 ("[T]he law imputes to builders and contractors a high degree of specialized knowledge and expertise with regard to residential construction."). Second, we recognized a relationship wherein "the disparity in skill and knowledge" between a home buyer and contractor-seller leads the home purchaser to rely on the contractor-seller's expertise. Yazd, 2006 UT 47, ¶ 24, 143 P.3d 283. Privity of contract between a contractor-seller and a home purchaser, as in Yazd, illustrates this relationship. Id.Nonetheless, privity of contract is not necessary where a direct relationship exists. See Hermansen, 2002 UT 52, ¶ 14, 48 P.3d 235 (ruling that despite the lack of privity, a real estate agent owes an independent duty to a purchaser based on the "direct relationship between buyers, a real estate broker, and his agent"). These two concepts applied to each of the defendants before us reveal that no independent duty exists between Defendants and the Association.

¶ 31 Although we recognize in this case that Defendants possess a high degree of knowledge and expertise, the defects alleged limit the relevant knowledge and expertise to the Builder. As in Yazd, the Builder is deemed to have a high degree of knowledge and expertise. The Association argues that the Developer possesses a similar knowledge and expertise. In Loveland v. Orem City Corp., we imposed a duty of care upon a developer to disclose to the purchaser latent conditions that made subdivided lots unsuitable, based on the developer's expert knowledge of which lots were suitable for construction. 746 P.2d 763, 769 (Utah 1987). In this case, however, the defects pled relate to the construction of the townhomes. Because the Builder constructed the townhomes, the Developer cannot be deemed to possess the degree of knowledge and expertise necessary for an independent duty.

¶ 32 There is, however, the question of the alleged soil subsidence. The Developer allegedly received a report on a geo-technical survey prior to construction. Since this report of potential soil subsidence would or should have been taken into account in the development of the townhomes, these allegations could establish facts for which the Developer would possess a high degree of knowledge and expertise necessary for an independent duty. Notwithstanding the alleged knowledge and expertise of the Builder or the Developer on this question, however, the Association lacks the requisite relationship with either.

¶ 33 Knowledge and expertise alone do not establish an independent duty; privity or a direct relationship is also required. The Association has no privity of contract or a direct relationship that would lead it to rely on any of the Defendants. Unlike Yazd, the Builder here was not the seller. Rather, the Developer contracted with the Builder to construct the townhomes, and the Developer sold them. Moreover, the Unit Owners, not the Association, purchased the townhomes from the Developer. These arrangements limit privity of contract to the Builder and the Developer or to the Unit Owners and the Developer. The Association lacks any kind of relationship with the Builder. And while the Association has a relationship with the Developer and Woolstenhulme, in that they created and subsequently ran the Association until the Unit Owners took control, this relationship presents no reliance based on a disparity of expertise. Accordingly, no independent duty arises under the expertise and relationship that a contractor-seller owes a home purchaser.

2.  The Limited Fiduciary Duty Owed by a Developer in Control of a Homeowner's Association Falls Outside the Scope of the Economic Loss Rule

¶ 34 The Association next argues that the district court erred where it ruled that the Developer and Woolstenhulme owed 246*246 no duty or that "any duty the developer had to the homeowners association would essentially be to itself." The Association emphasizes that because the Developer and Woolstenhulme established and initially operated the Association, they owed the Association a fiduciary duty that lies outside the economic loss rule. We agree to an extent with the Association.

¶ 35 We have yet to consider what, if any, duty a developer owes where it establishes and initially controls a homeowners association. The Association urges us to impose a broad fiduciary duty under the Utah Revised Nonprofit Corporation Act. See Utah Code Ann. §§ 16-6a-101 to -1705 (2005). The Act requires directors and officers of a nonprofit corporation to discharge their duties in good faith, with the care of an ordinarily prudent person in a like position under similar circumstances and according to the best interests of the corporation. Id. § 16-6a-822. While the Act may serve as a basis for imposing a broad fiduciary duty in a nonprofit setting, the inherent conflict that a developer faces in promoting and marketing property for a profit, while simultaneously ensuring the interests of a homeowners association and its members, causes us to look elsewhere.

¶ 36 The Restatement (Third) of Property offers guidance. It recognizes that a developer owes certain limited duties to an association and its members. Section 6.20 of the Restatement provides:

Until the developer relinquishes control of the association to the members, the developer owes the following duties to the association and its members:
(1) to use reasonable care and prudence in managing and maintaining the common property;
(2) to establish a sound fiscal basis for the association by imposing and collecting assessments and establishing reserves for the maintenance and replacement of common property;
(3) to disclose the amount by which the developer is providing or subsidizing services that the association is or will be obligated to provide;
(4) to maintain records and to account for the financial affairs of the association from its inception;
(5) to comply with and enforce the terms of the governing documents, including design controls, land-use restrictions, and the payment of assessments;
(6) to disclose all material facts and circumstances affecting the condition of the property that the association is responsible for maintaining; and
(7) to disclose all material facts and circumstances affecting the financial condition of the association, including the interest of the developer and the developer's affiliates in any contract, lease, or other agreement entered into by the association.

Restatement (Third) of Property: Servitudes § 6.20 (2000) (emphases added). We agree with this articulation of the duties owed in such a relationship and adopt this section of the Restatement.

¶ 37 We also embrace the Restatement's concept of the fine line drawn between a typical fiduciary duty and this limited fiduciary duty. This concept arises from the nature of the developer's relationship with the association and its members. The Restatement expounds that "[t]reating the developer and its appointees to the board as trustees overstates the fiduciary component of the relationship." Id. cmt. a. Given the developer's self-interest, "[t]he developer cannot be expected to act solely in the interests for the association and the homeowners. Conflicts of interest are inherent in the developer's role while it retains control of the association." Id. While the developer thus should not be a fiduciary in the broadest sense, we are nonetheless convinced that the developer's control in this nonprofit association requires certain interests of the members and the association be protected. See id. This is achieved by the limited fiduciary duty.

¶ 38 In adopting this limited fiduciary duty, we recognize that it constitutes a newly-recognized independent duty of care in Utah. This recognition comports with our past treatment of independent duties. For example, we have imposed an independent duty on real estate agents, who, "though not occupying a fiduciary relationship," are "expected 247*247 to be honest, ethical, and competent" and have a "direct relationship" with purchasers. Hermansen, 2002 UT 52, ¶¶ 14, 22-23, 48 P.3d 235. The limited fiduciary duty between a developer and an association or its members also constitutes a type of special relationship that gives rise to an independent duty. See, e.g., Grynberg v. Agri Tech, Inc., 10 P.3d 1267, 1271 (Colo.2000) (citing to cases wherein fiduciary relationships, such as attorney-client relationship, physician-patient relationship, or insurer-insured relationship, "automatically trigger[ed] independent duties of care"). And despite the recovery of what would otherwise be considered economic loss damages, claims arising under a fiduciary duty, similar to fraud claims, lie outside the scope of the economic loss rule. See Town of Alma, 10 P.3d at 1263 ("[S]ome torts are expressly designed to remedy pure economic loss (e.g., professional negligence, fraud, and breach of fiduciary duty)."). Therefore, because a limited fiduciary duty constitutes an independent duty of care, tort claims brought under this duty fall outside the scope of the economic loss rule. See Hermansen, 2002 UT 52, ¶ 17, 48 P.3d 235.

¶ 39 This limited fiduciary duty does not permit any and all tort claims to be brought. Instead, only those tort claims that stem from this independent, limited fiduciary duty are permitted. Recovery by the Association is therefore restricted to the common areas. The Association may only bring its claims for negligence and negligent misrepresentation in relation to the Developer's and Woolstenhulme's failures to use reasonable care and prudence in managing and maintaining the common property, to establish a sound fiscal basis for the Association by imposing and collecting assessments and establishing reserves for the maintenance and replacement of common property, and to disclose all material facts and circumstances affecting the condition of the property that the Association is responsible for maintaining. See Restatement (Third) of Property: Servitudes § 6.20(1)-(2), (6) (2000). Consequently, the claims of negligence per se and nuisance, which the Association predicated respectively on noncompliance with the building code and the intrusion of water, do not arise from the fiduciary duty and are thus precluded by the economic loss rule.

¶ 40 Accordingly, we hold that the Developer and Woolstenhulme owed an independent duty to the Association, and we reverse the district court on this point. The Association may bring its claims for negligence and negligent misrepresentation against the Developer and Woolstenhulme insofar as the claims stem from the limited fiduciary duty owed.[5]  On remand, certain factual questions regarding the scope of the fiduciary duty should be resolved, including when the Developer and Woolstenhulme relinquished control of the Association, an act that would mark the termination of the duty owed.

3.  Utah Does Not Recognize an Independent Duty to Conform to the Building Code

¶ 41 The Association urges us to adopt an independent duty to build in conformity with the building code. Although two other state courts have adopted a similar duty, we are not persuaded to do so in Utah.

¶ 42 In Kennedy v. Columbia Lumber & Manufacturing Co., the Supreme Court of South Carolina held that a builder may be liable to a home buyer for a negligence claim where the builder violates an applicable building code. 299 S.C. 335, 384 S.E.2d 730, 737 (1989). Although the court noted that "a violation of a building code violates a legal duty," it did so with no analysis. Id. Instead it relied on its state court of appeals' decision in Kincaid v. Landing Development Corp., 289 S.C. 89, 344 S.E.2d 869 (Ct.App.1986)248*248Our review of Kincaid reveals that the court of appeals made no such mention of a legal duty; rather the court ruled that a trial court erred in charging a jury that violations of a standard building code is negligence per se. See 344 S.E.2d at 871-72. In Association of Apartment Owners of Newtown Meadows v. Venture 15, Inc., the Supreme Court of Hawaii adopted the approach of Kennedy. 115 Hawai`i 232, 167 P.3d 225, 288 (2007). That court likewise noted that "a violation of a building code violates a legal duty." Id.(internal quotation marks omitted). But instead of undertaking its own analysis, the court relied on Kennedy for the proposition. Id.

¶ 43 From our own analysis, we do not believe that building codes create an independent legal duty for purposes of avoiding the economic loss rule. The inquiry into "the existence and scope of the duty owed the plaintiff by the defendant," Yazd, 2006 UT 47, ¶ 11, 143 P.3d 283, includes a determination of who owes the duty, what the duty owed is, and to whom the duty is owed. A per se rule is inappropriate.

¶ 44 No common-law duty exists that creates a duty to conform to building codes. Turning to statute, the Uniform Building Standards Act lays the foundation for building codes. See Utah Code Ann. §§ 58-56-1 to -20 (2007 & Supp.2008). Although section 58-56-8 creates a statutory basis for compliance with building codes, it does not by itself create the duty argued for by the Association. The plain language of that section indicates that material violations of the code occur when done "in a manner to jeopardize the public health, safety, and welfare." Id. § 58-56-8(2) (2007). Consequently, the statute exists to promote safety, rather than to aid in the recovery of damages. Moreover, assuming a duty is owed under the statute, that duty is to the public. If a statutory duty is to exist that lies outside the scope of the economic loss rule, we leave it to the decision of the legislature, as has been done in other states. See Comptech Int'l, Inc. v. Milam Commerce Park, Ltd., 753 So.2d 1219, 1221-23 (Fla.1999) (upholding statutory cause of action that provides for recovery of damages as the result of violation of the state building codes). Given the paucity of decisions and the lack of a statutory basis under Utah law, we decline to rule that an independent duty exists under the building code. Therefore, the district court properly dismissed the Association's claim for negligence per se.

4.  Utah Does Not Recognize an Independent Duty to Act Without Negligence in the Construction of a Home

¶ 45 The last independent duty the Association asks us to recognize is a duty to act without negligence in the construction of a home. The district court refused to make the "extraordinary leap" of adopting this independent duty. We likewise decline.

¶ 46 In seeking this independent duty, the Association again misinterprets our case law. Once more emphasizing the dicta in Grynberg v. Questar Pipeline Co. that American Towers is not "persuasive authority regarding the current state of the economic loss rule in ... Utah," 2003 UT 8, ¶ 49, 70 P.3d 1, and our adoption in Hermansen of Colorado's independent duty analysis, 2002 UT 52, ¶ 17, 48 P.3d 235, the Association contends that we abandoned the economic loss rule as set forth in American Towers and expressly adopted Colorado's interpretation. We have not. Although we have agreed with Colorado regarding the independent duty analysis, we have not abandoned our own line of cases interpreting and applying the economic loss rule. Nor do we wholly adopt all of the independent duties recognized by Colorado.

¶ 47 In Town of Alma v. Azco Construction, Inc., the Colorado Supreme Court adopted the economic loss rule and the accompanying independent duty analysis. 10 P.3d 1256, 1264 (Colo.2000). The court then sought to reconcile its previous line of cases in which negligence claims for property damage had been allowed. Id. at 1265-66. In doing so, the court reasoned that Cosmopolitan Homes, Inc. v. Weller, 663 P.2d 1041 (Colo.1983),imposed an independent duty on a builder to act without negligence in the construction of a home. Town of Alma, 10 P.3d at 1265-66. This assertion was, however, more a result of post hoc rationalization to save precedent than anything else. See A.C. Excavating v. Yacht Club II Homeowners 249*249 Ass'n, 114 P.3d 862, 871 (Colo.2005) (Kourlis, J., dissenting) (noting that Cosmopolitan Homes as precedent is similar to a "large, venerable tree[] allowed to stand in the midst of a new thoroughfare" and is "inconsistent with the development of the law in this court"). "[M]easured against the economic loss rule," see id. at 870, we cannot adopt this duty. While protecting homebuyers may be a good public policy justification to impose a duty, the parties in this case simply lack the legal relationship necessary to find a duty. See Yazd, 2006 UT 47, ¶ 15, 143 P.3d 283. Therefore, we conclude that the district court properly rejected the independent duty to act without negligence in the construction of a home.

¶ 48 Having analyzed each of the proposed independent duties, we hold that the district court erred because a limited fiduciary duty existed, and we thus reverse the district court's dismissal of the Association's negligence and negligent misrepresentation claims against the Developer and Woolstenhulme. We, however, affirm the district court's remaining conclusion that no other duty existed, and we hold that it properly dismissed the negligence claims against the Builder and the negligence per se and nuisance claims against Defendants.


¶ 49 The Association next asserts that the district court erred by dismissing the claim for breach of implied warranties. The district court correctly noted that this court has yet to recognize such a claim in the sale of a new residence; we do so now.

¶ 50 Utah courts have historically refused to recognize an implied warranty of workmanlike manner and habitability in the context of new residential sales.[6] In American Towers Owners Ass'n v. CCI Mechanical, Inc., the court explained its refusal:

The main policy reasons behind extending an implied warranty of habitability to residential leases are the unequal bargaining position of the parties and the prospective tenant's limited ability to inspect and repair the property. These policy reasons are not present to the same degree in the purchase of residential property. The purchaser has the right to inspect the house before the purchase as thoroughly as that individual desires, and to condition purchase of the house upon a satisfactory inspection report. Further, if there are particular concerns about a home, the parties can contract for an express written warranty from the seller. Finally, if there are material latent defects of which the seller was aware, the buyer may have a cause of action in fraud. Therefore, the circumstances presented to the purchaser of a residence are not closely analogous to those of a relatively powerless lessee ....

930 P.2d 1182, 1193 (Utah 1996) (omission in original)(quoting Maack v. Res. Design & Constr., Inc., 875 P.2d 570, 582-83 (Utah Ct.App.1994)). After reviewing the state of the case law from around the country, we conclude that our rule has become an anachronism.

¶ 51 During the first half of the twentieth century, the doctrine of caveat emptor in new residential construction led courts to reject implied warranties. Underlying this almost universal doctrine was the theory of equal bargaining power in contract and the ability and opportunity to inspect. 12 Thompson on Real Property § 99.06(a)(2) (David A. Thomas ed., 2d Thomas ed.2008). With the boom in post-World War II construction, the tide changed. Id. In the late 1950s, the first American court recognized an implied warranty in the sale of a new home. Vanderschrier v. Aaron, 103 Ohio App. 340, 140 N.E.2d 819, 821 (1957). Other courts followed suit in the 1960s.[7]  By the 1980s, the 250*250 minority became the majority. See Conklin v. Hurley, 428 So.2d 654, 656 n. 2 (Fla.1983) (citing to thirty-three states that recognize an implied warranty of habitability of new homes).

¶ 52 Today, by common law or statutory law, an overwhelming majority of jurisdictions recognize

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HOA resources and laws annotated
HOA resources and laws annotated