Date: Jun 18, 2026

Improper-Conduct Limits on Unjust Enrichment: Wang Electric Confined to Tenant Improvements; Owners Who Arrange Improvements and Pay No One Face Restitution Without Privity

I. Introduction

In MARKHAM v. CAHAVA (Ariz. June 17, 2026), the Arizona Supreme Court addressed a recurring construction-law problem: when a contractor is unpaid by an intermediary entity, can the contractor seek restitution directly from the property owner under unjust enrichment despite the absence of contractual privity?

The case arose out of infrastructure work in a master-planned community, Cahava Springs, developed by related entities (collectively, the “Landowners”). At the Landowners’ request, the Town of Cave Creek formed the Cahava Springs Revitalization District (the “District”), a tax-levying public improvement district under A.R.S. §§ 48-6801 to -6819 (the “Act”). The District contracted with Markham Contracting Co., Inc. (“Markham”) for approximately $13 million of public infrastructure improvements (roads, water lines, and related work). After a dispute, the District stopped paying; arbitration resulted in a judgment of about $6.5 million for Markham against the District.

Markham then sued the Landowners for unjust enrichment, alleging they received the benefit of the infrastructure while not paying enough assessments to fund payment. The superior court dismissed under Rule 12(b)(6), reasoning that under Wang Electric, Inc. v. Smoke Tree Resort, a plaintiff must allege the owner’s improper conduct. The court of appeals reversed, concluding Wang Electric’s “improper conduct” requirement is limited to tenant-improvement cases. The Arizona Supreme Court granted review to resolve whether “improper conduct” is required outside the landlord-tenant-contractor scenario.

II. Summary of the Opinion

The Court adopted Wang Electric, Inc. v. Smoke Tree Resort’s core holding: a landlord is not unjustly enriched by unpaid-for tenant-directed improvements unless the landlord engaged in improper conduct.
The Court held that the improper-conduct requirement does not extend beyond the landlord-tenant-contractor setting.
For cases where an owner itself sought/authorized/acquiesced in improvements arranged through a third party and paid no one for them, unjust enrichment is governed by Murdock-Bryant Constr., Inc. v. Pearson, Flooring Systems, Inc. v. Radisson Group, Inc., and related authority—without any categorical “improper conduct” prerequisite.
The Court found Markham’s pleadings sufficient to survive dismissal and reversed and remanded, vacating the court of appeals’ memorandum decision to substitute its own reasoning.

III. Analysis

A. The Rule the Court Announced (and Its Boundary)

The Court drew a sharp line between two settings:

Tenant-improvement (landlord-tenant-contractor) setting: Under Wang Electric, Inc. v. Smoke Tree Resort, the owner/landlord is not liable in unjust enrichment for tenant-ordered improvements unless the owner engaged in improper, deceitful, or misleading conduct.
Owner-arranged improvement setting: Where the owner sought/authorized/acquiesced in the improvements and paid no one, the absence of contractual privity does not insulate the owner; unjust enrichment may lie under Murdock-Bryant Constr., Inc. v. Pearson and Flooring Systems, Inc. v. Radisson Group, Inc.. No “improper conduct” element is categorically required.

Practically, the Court preserved Wang Electric as a context-specific shield for landlords against becoming de facto guarantors of their tenants’ construction debts, while reaffirming a broader restitution principle: an owner cannot retain solicited benefits without paying anyone for them merely because the work was procured through an intermediary.

B. Precedents Cited (and How They Shaped the Decision)

1. Standards of review and pleading

City of Mesa v. Ryan and Coleman v. City of Mesa: the Court reiterated de novo review of Rule 12(b)(6) dismissals, acceptance of well-pleaded facts as true, reasonable inferences for the plaintiff, and disregard of conclusory statements. This framing mattered because the Court emphasized the case was at the pleading stage, not summary judgment.

2. The tenant-improvement line: Wang Electric and its sources

Wang Electric, Inc. v. Smoke Tree Resort: The Court adopted its holding and reasoning for the landlord-tenant-contractor scenario. The Supreme Court also added a supplemental rationale: a landlord’s “residual interest” in improvements at lease end is typically a bargained-for contractual outcome, not necessarily a windfall.
DCB Construction Co. v. Central City Development Co.: Wang Electric relied heavily on this Colorado decision for the “there must be more” approach—owner liability requires not just benefit and nonpayment by a tenant, but improper owner conduct to avoid turning owners into insurers of tenant credit risk. Arizona’s Supreme Court treated this rationale as the “engine” of the Wang Electric rule—and as the reason the rule should not be generalized.
Brannan Sand & Gravel Co. v. Santa Fe Land & Improvement Co. (cited via DCB Construction): stood for the traditional proposition that absent privity, the owner is generally not liable for a non-owner’s contracted improvements. The Arizona Supreme Court used this as part of the explanation for why tenant-improvement claims need a limiting rule, not as a universal bar.
Keefer v. Lavender: cited in Wang Electric for the proposition that a subcontractor without privity generally cannot obtain a personal judgment against an owner even if a mechanic’s lien may exist. In Markham, the Court treated Keefer as supporting background policy, not as imposing an “improper conduct” prerequisite in all non-privity cases.
Blue Ridge Sewer Improvement Dist. v. Lowry & Assocs.: emphasized that unjust enrichment cannot “saddle” property owners with costs they implicitly chose not to incur (in Blue Ridge, owners did not authorize the work required by statute). The Supreme Court used Blue Ridge to distinguish “officious” benefits from benefits the owner sought; it rejected using Blue Ridge as a general privity-based immunity.
Lewis v. Lewis: cited to show that DCB Construction’s improper-conduct requirement is understood as specific to the landlord-tenant-contractor context, supporting the Court’s refusal to expand it.

3. The owner-arranged improvement line: restitution without privity

Murdock-Bryant Constr., Inc. v. Pearson: the cornerstone for the Court’s broader unjust enrichment framework. The Court extracted a functional test for “unjustness”: restitution may be appropriate where (i) the benefit was not intended to be conferred gratuitously, (ii) the benefit was not conferred officiously, and (iii) the owner sought/authorized/acquiesced in receiving it—especially where the owner paid no one. Importantly, Murdock-Bryant shows the obligation is “implied by law” and does not depend on the parties’ intentions about who should pay.
Flooring Systems, Inc. v. Radisson Group, Inc.: confirmed Murdock-Bryant in a typical construction chain. The Supreme Court rejected the argument that a subcontract blocks restitution against a non-privity owner. The decisive consideration was that the owner/agent had sought or accepted the work and had paid no one (or withheld payment). In Markham, the Court used Flooring Systems to reject a privity-based categorical defense and to treat “direct interaction” as evidence of authorization/acquiescence—not a required element.
Williamson v. PVOrbit, Inc., A M Leasing, Ltd. v. Baker, Com. Cornice & Millwork, Inc. v. Camel Constr. Servs. Corp., and Costanzo v. Stewart: cited as supporting authority that unjust enrichment may lie where the owner did not fully pay for subcontractor work and the owner sought/accepted the benefit; and that owner-subcontractor interactions can evidence knowledge/expectations but are not the exclusive path to liability.
Restatement (First) of Restitution § 1 (1937) and Restatement (First) of Restitution § 110 (1937): the Court recognized § 110’s “no restitution merely because a third person fails to perform,” but treated it as a starting point that does not override Arizona’s owner-arranged improvement cases.
Restatement (Third) of Restitution and Unjust Enrichment § 25(2)(a)--(c) (2011): the Court found it consistent with Arizona doctrine, emphasizing limits such as avoiding forced exchanges and not imposing obligations the parties understood the defendant would be free from—while still permitting restitution where the defendant would otherwise retain benefits without paying anyone.

4. Waiver doctrine

Willis v. Bernini: the Landowners’ Act-based public policy argument (bond market instability/unpriceable exposure) was deemed waived because it was not raised below. This underscores that major policy-based limitations on restitution should be litigated with a record, not introduced late on review.

C. Legal Reasoning

The Court’s reasoning proceeded in three key steps:

Define the disputed element: The Court treated unjust enrichment as a five-element claim (from Wang Electric), with the dispute focused on the “no justification” element—i.e., whether retention of benefits was unjustified.
Confine Wang Electric to its problem: The Court explained that Wang Electric was designed to prevent landlords from becoming “unwitting guarantors” of tenant contracts—an equity/predictability concern unique to tenant-ordered improvements. It also noted a landlord’s receipt of tenant-improved premises is generally within the lease’s bargain, further supporting a limited liability rule absent improper conduct.
Reaffirm the non-privity restitution pathway for owner-sought work: For owner-arranged improvements, the Court framed the “unjustness” inquiry as essentially asking: Did the owner seek/authorize/acquiesce in improvements performed non-gratuitously and non-officiously, and did the owner pay no one for them? If yes, retention is unjust under Murdock-Bryant/Flooring Systems, and no categorical “improper conduct” allegation is required.

D. Application to Markham’s Allegations

Applying the above framework, the Court held Markham stated a claim:

The Landowners allegedly petitioned to form the District to finance improvements benefiting their property and entered a development agreement reflecting their intent to obtain and fund infrastructure.
Markham’s contract with the District showed the work was not intended as gratuitous.
The Landowners, like the benefited parties in Murdock-Bryant Constr., Inc. v. Pearson and Flooring Systems, Inc. v. Radisson Group, Inc., allegedly sought and arranged for the improvements and then paid no one for the value Markham provided (to the extent assessments were not paid).
Because this is not the tenant-improvement scenario, Wang Electric did not require an allegation of “improper conduct.”

E. Impact

1. Doctrinal clarity: two-track unjust enrichment in construction benefit cases

The decision supplies a clearer map for Arizona unjust enrichment claims in construction settings:

Track 1 (tenant improvements): A claimant must show improper conduct by the landlord/owner to recover (Wang Electric, Inc. v. Smoke Tree Resort adopted).
Track 2 (owner-sought improvements through intermediaries): The claimant need not show improper conduct; focus shifts to authorization/acquiescence, non-gratuitous/non-officious conferral, and whether the owner paid no one (Murdock-Bryant Constr., Inc. v. Pearson; Flooring Systems, Inc. v. Radisson Group, Inc.).

2. Consequences for owners using districts, agencies, and special-purpose entities

Owners who pursue improvements via entities such as improvement districts, development agreements, or other financing vehicles should expect that the absence of contractual privity will not necessarily defeat restitution claims if the owner is the real beneficiary and the owner (or its financing structure) results in no one being paid for the work.

At the same time, the Court signaled potential limiting principles that may be developed on a fuller record, including whether imposing restitution would create a forced exchange, conflict with an understood allocation of obligations, or fail the “authorization/acquiescence” requirement—concepts echoed in Restatement (Third) of Restitution and Unjust Enrichment § 25(2)(a)--(c) (2011).

3. Litigation posture: pleading sufficiency and fact development

Because this case was decided on a motion to dismiss, the Court emphasized that owners may still contest unjust enrichment elements on remand, including whether enrichment is truly “unjustified” under the Murdock-Bryant/Flooring Systems framework. The decision therefore expands access to discovery and merits adjudication rather than guaranteeing plaintiff recovery.

IV. Complex Concepts Simplified

Unjust enrichment: A claim seeking restitution when someone receives a benefit at another’s expense and it would be unfair, in equity and good conscience, to keep it without compensating the provider.
Contractual privity: A direct contract relationship between two parties. This decision reiterates that lack of privity does not automatically bar unjust enrichment.
“Improper conduct” (in the Wang Electric sense): Misleading, deceitful, or otherwise improper behavior by a landlord/owner that would make it unfair to deny restitution for tenant-ordered improvements. The Court confined this requirement to the landlord-tenant-contractor context.
“Officiously” conferred benefit: A benefit thrust on someone without their encouragement or acquiescence. If the owner did not seek or accept the work, restitution is less likely because equity does not force someone to pay for an unwanted, unsolicited benefit. The Court used Blue Ridge Sewer Improvement Dist. v. Lowry & Assocs. as the example.
Rule 12(b)(6) dismissal: A procedural ruling that tests whether the complaint states a claim. The Court held Markham’s allegations, if true, could support relief, so dismissal was improper.

V. Conclusion

MARKHAM v. CAHAVA both entrenches and cabins Wang Electric, Inc. v. Smoke Tree Resort: Arizona now expressly adopts Wang Electric’s rule that landlords are not liable in unjust enrichment for tenant-improvement debts absent improper conduct, but the Court refuses to export that rule to owner-driven development arrangements.

The decision re-centers Arizona unjust enrichment analysis for owner-arranged improvements on the practical equities articulated in Murdock-Bryant Constr., Inc. v. Pearson and Flooring Systems, Inc. v. Radisson Group, Inc.: if an owner sought or accepted non-gratuitous work and then paid no one for it, the owner may be required to make restitution, even without contractual privity and even absent “improper conduct.”