Supreme Court of Arizona

Case no.: CV-25-0036-PR
Date filed: June 17, 2026

The Arizona Supreme Court has ruled that a project owner who receives improvements performed by a subcontractor and pays no one for those improvements may be liable to the subcontractor. Even in the absence of improper conduct, the owner is not insulated from unjust enrichment liability by the lack of contractual privity.

A group of investors (the landowners) was developing a master-planned residential community on property they owned in Cave Creek. Upon the landowners’ petition, and in accordance with an Arizona statute, the town of Cave Creek approved a tax-levying public improvement district (the district) to finance and construct infrastructure such as roads and water lines. The district was authorized to impose special assessments against the property and to sell bonds. Landowner representatives served on the district’s governing board.

The district entered into a contract with Markham Contracting Co. Inc. to construct $13 million of improvements. The landowners were not parties to that agreement. Disputes developed, and the district stopped paying Markham. The matter went to arbitration, leading to a judgment of approximately $6.5 million in favor of Markham against the district.

Markham Contracting sued the landowners for unjust enrichment, seeking recovery of the arbitration award. The contractor alleged the landowners had failed to pay the special assessments the district needed to fund the infrastructure. Markham claimed that the landowners had received valuable improvements without paying anyone and had therefore been unjustly enriched.

The Maricopa County Superior Court dismissed the unjust enrichment claim. The superior court agreed with the landowners that, in the absence of improper conduct, they could not be held liable for unjust enrichment to a party with whom they had no contract. The Arizona Court of Appeals reversed the dismissal. Improper conduct was not required in this situation. The landowners appealed.

The Supreme Court of Arizona said that state precedent regarding improper conduct and unjust enrichment recovery arose from the landlord-tenant-contractor relationship. It did not address the contractual arrangements found on most construction projects. The court called this “an issue of statewide importance.”

The court said that in the typical owner-contractor-subcontractor arrangement, the only improper conduct requirement for unjust enrichment recovery is the project owner’s retention of improvements without payment to any party:

“A subcontractor who performs pursuant to a contract and with the expectation of compensation is, by definition, neither acting gratuitously nor thrusting an unwanted benefit on the owner, so long as the owner sought, authorized or acquiesced in receiving the improvements. The unjustness inquiry is, therefore, satisfied whenever an owner in that circumstance pays no one for the work.”

The court also noted, “[T]he unjustness inquiry turns on a straightforward question: did the owner seek, authorize, or acquiesce in receiving improvements that someone performed without gratuitous intent, and did it pay no one for them? If so, the owner’s retention of the benefit without compensating the party whose work produced it is unjust.”

The court did not use this term, but the improvement district was essentially functioning as a finance-design-build prime contractor to the property developers.

This relationship between property owners, developers, and an improvement district is common. Owners should be mindful that even though they might control the governing board of the district, they fail to pay the district’s assessments on the property at their own peril.

Participants:
For Markham Contracting: Karen A. Palecek; Scottsdale, Arizona
For Cahava Springs Phase I: Timothy J. Berg; Phoenix, Arizona
For American Subcontractors Association (Amici Curiae): Michael J. Holden
Before: Judges Timmer, Lopez, Bolick, Beene, Montgomery, King, and Cruz
Opinion by: Chief Justice Timmer
Outcome: Court of Appeals ruling affirmed on separate grounds; matter remanded

Source: Attach the complete opinion or decision PDF here.