Background
Cahava Springs is a master-planned residential community in Cave Creek, Arizona, developed by a group of related landowner entities. To finance and build public infrastructure — roads and water lines — the Landowners petitioned the Town of Cave Creek to form the Cahava Springs Revitalization District, a statutory public improvement district authorized to levy special assessments and issue bonds. The District, governed by a board of Landowner representatives, then contracted with Markham Contracting Co., Inc. to construct the infrastructure for approximately $13 million. The Landowners were not parties to that contract.
A dispute arose between the District and Markham during construction. The District stopped paying, and the parties proceeded to arbitration, which produced an award of roughly $6.5 million in Markham’s favor against the District. With that judgment in collection, Markham then sued the Landowners directly for unjust enrichment, alleging that they had received the benefit of the infrastructure improvements without paying for them, having also failed to pay sufficient assessments to fund Markham’s work.
The Maricopa County Superior Court dismissed Markham’s complaint under Rule 12(b)(6), holding that under the court of appeals’ 2012 decision in Wang Electric, Inc. v. Smoke Tree Resort, Markham was required to allege “improper conduct” by the Landowners to sustain an unjust enrichment claim. The court found that allegation absent. The court of appeals reversed, holding that Wang Electric‘s improper-conduct requirement was limited to the landlord-tenant-contractor context. The Arizona Supreme Court granted review to resolve the question statewide.
The Court’s Holding
The Arizona Supreme Court unanimously affirmed the court of appeals’ disposition — though it vacated that court’s memorandum decision and substituted its own reasoning. The Court first adopted Wang Electric‘s holding that a property owner is not liable in unjust enrichment for tenant-directed improvements absent some improper conduct, adding its own additional rationale: a landlord who receives improved premises upon lease termination obtains only what it bargained for, not a windfall, which further explains why no compensation obligation runs to the contractor absent wrongdoing.
The Court then held that Wang Electric‘s improper-conduct requirement does not extend beyond the landlord-tenant-contractor scenario. Where an owner itself seeks improvements, arranges for a third party to carry them out, and then pays no one for the completed work, the standard framework from Murdock-Bryant Construction, Inc. v. Pearson and Flooring Systems, Inc. v. Radisson Group, Inc. governs. Under that framework, the unjustness inquiry turns on a single question: did the owner seek, authorize, or acquiesce in receiving improvements performed without gratuitous intent, and did it pay no one for them? If so, retaining the benefit without compensation is unjust — no showing of improper conduct is required.
Applying that standard to Markham’s complaint, the Court held that dismissal was improper. The Landowners petitioned to create the District to improve their own property, agreed to fund the improvements through assessments, and allegedly reaped the benefit of Markham’s work while paying no one for it. The Court reversed the dismissal and remanded for further proceedings, leaving open for development on remand whether the facts as proven satisfy all elements of unjust enrichment.
Key Takeaways
- Wang Electric‘s improper-conduct requirement is confined to the landlord-tenant-contractor context; an Arizona property owner who arranges for improvements to its own land and pays no one for them faces potential unjust enrichment liability without any showing of wrongdoing.
- The dispositive inquiry under Murdock-Bryant and Flooring Systems is whether the owner sought, authorized, or acquiesced in the improvements (so the benefit was not conferred officiously) and paid no one for the resulting work — direct contractual privity between the owner and the performing contractor is not required.
- A public improvement district’s statutory financing structure does not, on its own, insulate landowner-beneficiaries from equitable claims; the Act contains no provision preempting restitution remedies, and silence in the statute does not supply immunity.
- Policy arguments about disrupting bond-financing markets were waived by the Landowners for not having been raised below, and the Court signaled that, even if considered, the Murdock-Bryant/Flooring Systems framework’s own limiting principle — liability only for owners who sought or acquiesced in the work — addresses the concern.
Why It Matters
This decision clarifies a significant fault line in Arizona unjust enrichment law that had divided courts since Wang Electric. Contractors and subcontractors who perform work at the direction of an intermediary — a public district, a special-purpose entity, a development vehicle — now have a clearer path to recovery directly against the ultimate beneficiary landowner when the intermediary defaults and the owner has paid no one. The ruling is particularly consequential for the public improvement district context, where the party that contracts for construction (the district) and the party that benefits from it (the landowner) are structurally separated.
For property developers who use statutory financing districts, the decision signals real exposure: arranging for infrastructure improvements through a district and then failing to fund adequate assessments to cover contractor payments may support an unjust enrichment claim by the unpaid contractor against the landowner directly. Counsel advising clients in community facilities districts, revitalization districts, or similar improvement district structures should evaluate whether their clients’ conduct — petitioning for district formation, executing development agreements, and agreeing to assessments — could satisfy the Murdock-Bryant/Flooring Systems threshold if contractors go unpaid.