Hatch Dev., LLC v. Solomon, 741 Ariz. Adv. Rep. 9 (App. Div. I, June 21, 2016) (J. Gemmill)

PARTY WITHOUT FAULT DISCHARGING OBLIGATION OF ANOTHER AT FAULT IS ENTITLED TO COMMON LAW INDEMNITY/INDEMNITY CLAIM NOT BARRED BY STATUTE OF LIMITATIONS WHERE PARTIES TO UNDERLYING CLAIM STIPULATED TO TOLLING STATUTE DURING SETTLEMENT NEGOTIATIONS

Plaintiff landowner Hatch settled a lawsuit for water damage to a third party Hunt's property that emanated from faulty work by the defendant Solomon on Hatch's land. The lawsuit by Hunt against Hatch was filed, negotiations began, then the lawsuit was dismissed for lack of prosecution and thereafter a settlement was reached. Hatch then sued the Solomon for indemnity. Hatch's motion for summary judgment was granted by the trial court and affirmed by the Arizona Court of Appeals.

Here it is uncontroverted that Solomon is solely at fault for the water damage (improper trenching and leaving a manhole cover off) and is the proper party to bear the cost of settling the Hunt's property damage claim. While the two year statute of limitations (ARS sec. 12-542(3)) on claims arising out of the water damage had run before Hatch settled with Hunt, under Restatement (First) of Restitution sec. 78(b)(ii) plaintiff's indemnity claim survives.  

The Restatement provides that where a party discharges an obligation caused by another and  has a “justifiable belief” that the obligation still exists at the time of discharge, indemnity against the person at fault stands. Here it was uncontroverted that Hatch and Hunt were agreeing to toll the applicability of the statute of limitations in support of continued settlement negotiations. It was undisputed that Hunt and Hatch agreed that if settlement failed Hunt could refile the lawsuit and Hatch would not raise the statute of limitations as a defense. This agreement created a justifiable belief in Hatch that the obligation to Hunt for property damage still existed at the time of settlement.

Finally, a party must be without fault to recover under a common law theory of indemnity. Here while Hatch failed to get proper city approval for the sewer work, this failure was not the cause of the water damage. Because the defendant could not show how getting the proper approval would have prevented him from leaving the manhole cover off and not properly trenching he could not prove proximate causation. The plaintiff was faultless and liable only due to his status as a landowner.