County of Maricopa v. Walsh & Oberg Architects, Inc.

Court of Appeals of Arizona
494 P.2d 44, 16 Ariz. App. 439 (1972)

ELI5:

Rule of Law:

Under the doctrine of economic waste, when the cost to repair a defect in a construction project is grossly and unreasonably disproportionate to the benefit to be obtained or the value of the property, the measure of damages is the diminution in value of the structure, not the full cost of repair.

Facts:

The County of Maricopa hired Walsh and Oberg Architects, Inc., (Architect) to design a county complex with an underground parking garage.
The Architect's plans for the concrete slab over the garage specified it should be "impermeable" and required the addition of a substance called Anti-Hydro, which contains calcium chloride.
Aluminum electrical conduits were specified to be embedded within this concrete slab.
After construction, the calcium chloride reacted with the aluminum conduits, causing corrosion and expansion that cracked the concrete slab.
The cracks in the slab allowed moisture to leak into the underground parking garage below.
A complete repair to make the slab waterproof as originally specified would cost between $350,710 and $498,169, with approximately 75% of that cost dedicated to removing and replacing landscaping on top of the slab.
An alternative solution to manage the leakage and prevent further corrosion—involving drip pans, a cathodic protection system, and new wiring—was estimated to cost $107,358.

Procedural Posture:

The County of Maricopa sued both the Architect and the construction contractor in an Arizona trial court for damages resulting from design defects.
Following a trial, the court granted judgment in favor of the contractor but found the Architect liable.
The trial court awarded the County $107,358 in damages against the Architect, concluding that awarding the full cost of repair would constitute economic waste.
The County of Maricopa, as appellant, appealed the trial court's judgment solely on the amount of damages to the Court of Appeals of Arizona, naming the Architect as the appellee.

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Issue:

Does the economic waste doctrine permit a court to award damages based on the cost of mitigating defects rather than the full cost of repair when the cost of repair is grossly and unreasonably disproportionate to the benefit achieved?

Opinions:

Majority - Jacobson, Judge

Yes. The economic waste doctrine permits a court to award damages based on a lesser amount than the full cost of repair where that cost is imprudent and unreasonable compared to the benefit. The general rule for breach of a construction contract is the cost to complete the work according to the contract. However, an exception exists to avoid economic waste, which occurs when defects cannot be remedied without tearing down and rebuilding at a cost that is grossly disproportionate to the result. In such cases, damages are measured by the difference in value between the structure as built and the structure as contracted. Here, the court found sufficient evidence that spending over $350,000, largely on removing and replacing landscaping, to achieve a perfectly waterproof garage roof was economic waste when the problem could be functionally managed for about one-third of the cost. While the cheaper solution may be less aesthetically pleasing, given the utilitarian purpose of a garage, the trial court was justified in concluding that the massive expenditure for a perfect repair was unreasonable.

Analysis:

This case provides a clear application of the 'economic waste' doctrine as a significant limitation on the standard 'cost of repair' measure of damages in construction law. It establishes that a court may reject a plaintiff's demand for perfect performance if achieving it would be unreasonably expensive and wasteful. The ruling emphasizes a pragmatic, economic approach, balancing the injured party's expectation interests against the principle of avoiding grossly inefficient remedies. This precedent guides future construction defect cases by allowing courts to award damages for functional, albeit imperfect, solutions when the cost of a 'perfect' fix is grossly disproportionate to the benefit gained, particularly where the building's core purpose is not substantially impaired.

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