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Docket Number

No. 1 CA-CIV 9633.

Attorney(S)

Kalish Forrester, P.C. by Marc Kalish, Phoenix, for plaintiffs/counter-defendants/appellees/cross-appellants. O'Connor, Cavanagh, Anderson, Westover, Killingsworth Beshears, P.C. by Paul M. Miltonberger, John H. Westover and Mark W. Arnett, Phoenix, for defendants/counter-claimants/appellants/cross-appellees. Holloway Thomas, P.C. by James P. Lagattuta, Phoenix, for appellants/cross-appellees.

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Thomas M. & Karen L. Thomas v. William R. & Sandra S. Goudreault — Court of Appeals of Arizona, Division One — October 10, 1989

Factual and Procedural Background

In September 1982 Thomas M. and Karen L. Thomas (the Thomases) leased a single-family residence in Scottsdale from the Goudreault Living Trust, through its co-trustees William R. and Sandra S. Goudreault (the Goudreaults). After an initial one-year term, the parties executed a second lease for four years. The Thomases used the premises as a residence and operated a bakery business there. During the tenancy the Thomases repeatedly complained about the condition of the premises, particularly the heating and air conditioning systems.

In November 1984 the Goudreaults hired Jerry Schroeder to install a reconditioned Gas‑Pac (combined gas heating and electrical air conditioning) unit. In April 1985 a fire originating in that Gas‑Pac substantially damaged the residence. The Thomases lived in the house after some makeshift repairs until surrendering possession on August 31, 1985. Before and during this period the Thomases deducted certain maintenance costs from rent and, after the fire, ceased paying rent.

In July 1985 the Thomases filed a five-count complaint asserting breach of lease and torts including bad‑faith breach of lease, intentional infliction of emotional distress, interference with business expectancies, and negligence. The Goudreaults counterclaimed for overdue rent and conversion. The Thomases also sued the repairman Schroeder for negligent installation and maintenance; those claims were ultimately dismissed without prejudice after Schroeder filed a pro se general denial and did not otherwise defend.

At trial the court directed a verdict for the Goudreaults on the claims arising from the fire. The jury found for the Goudreaults on the Thomases' tort claims for intentional interference with business expectancies and intentional infliction of emotional distress, but found for the Thomases on breach of landlord duties under the Arizona Residential Landlord and Tenant Act and on a claim of retaliatory conduct. The jury found for the Goudreaults on their rent counterclaim. The trial court entered judgment against the Goudreaults for compensatory damages (totaling $55,895 after set‑offs), awarded retaliatory damages of $2,050 pursuant to A.R.S. §§ 33‑1367 and 33‑1381, attorney's fees of $10,000, and taxable costs. Both parties appealed (the Goudreaults as appellants; the Thomases cross‑appealed).

Legal Issues Presented

Whether a landlord's violation of duties to maintain habitable conditions under the Arizona Residential Landlord and Tenant Act (A.R.S. § 33‑1301 et seq.) may give rise to damages for mental suffering.
Whether the parol evidence rule was violated by admission of testimony about oral promises made prior to the second lease.
Whether the tenants were entitled to damages for lost profits (including issues of proof and whether lack of required health permits precluded recovery).
Whether the trial court should have directed a verdict in favor of the landlord on the claim of retaliatory conduct under A.R.S. § 33‑1381.
Whether the trial court properly granted a directed verdict in favor of the landlord on the tenant's negligence claim arising from the fire (standard of care/expert testimony/cause).
Whether the trial court properly ruled that the landlord had no duty to repair or rebuild the premises after substantial impairment caused by fire (interaction of A.R.S. § 33‑1324 and § 33‑1366).

Arguments of the Parties

Goudreaults' Arguments (Defendants / Appellants)

On mental distress damages: The Arizona Residential Landlord and Tenant Act creates contractual remedies only; the jury instruction permitting recovery of tort damages for emotional distress improperly converted statutory/contract duties into tort liability.
Procedurally, the Thomases did not plead emotional distress damages under the Act (except for a separate intentional infliction count), so the award of emotional distress for statutory violations was not properly presented.
Brewer (Oregon) should not be followed; if Brewer is followed, its limitation that emotional distress be recoverable only for landlord's culpable failure should apply, and the trial court's instruction failed to make that culpability distinction.
Parol evidence: The testimony about oral promises violated the parol evidence rule and the Thomases relied on fraud in the inducement which was not pled; any evidence purporting to vary the written lease was inadmissible.
Lost profits: The Residential Landlord and Tenant Act does not apply to parts of rented property used for business; the lost profits instruction was erroneous. In any event, plaintiffs should have been required to prove lost profits "with reasonable certainty" (a requested instruction the court refused).
Unlicensed activity: Because the bakery was operated without a required Maricopa County health permit during the claimed period, the Thomases should be barred from recovering anticipated profits for that period.
Retaliatory conduct: There was no evidence that any threat of eviction was made in retaliation for tenant complaints about the property; the only eviction threats related to nonpayment of rent or to the tenants' threats to pursue self‑help, so the directed verdict should have been granted.
Fire liability/negligence: Plaintiffs failed to present expert testimony establishing the applicable standard of care and causation for air‑conditioning repairmen; without such proof the court properly directed a verdict for defendants on the fire claims.
Duty to rebuild: The trial court correctly held that § 33‑1366, the specific statutory provision addressing fire/casualty, provides the exclusive tenant remedies and does not impose on the landlord an affirmative duty to repair or rebuild the premises after substantial impairment by fire.
Requested award of attorney's fees on appeal under A.R.S. § 12‑341.01 should be considered (they requested fees).

Thomases' Arguments (Plaintiffs / Cross‑Appellants)

Mental distress damages: Emotional distress damages are recoverable for violations of the Act without the culpability limitation advocated in Brewer; negligent violation of statutory duties or implied warranty of habitability can give rise to emotional distress damages (they relied on cases such as Stoiber, Dorgan, and Hilder).
Pleadings/procedure: The pretrial statement and trial practice show tort liability for statutory violations and damages were tried by consent; the substance of the pleadings and trial practice permit the recovery sought.
Parol evidence: Oral promises by William Goudreault were admissible to show the second lease was not fully integrated and also to rebut any inference that the parties believed conditions were satisfactory when they signed the second lease.
Lost profits: The Goudreaults knew the Thomases would use the property for a bakery; the lost profits instruction was a proper element of damages when the parties contemplated use for business.
Licensing: They relied on Arizona precedent (Gaertner and related cases) to argue that lack of a license does not necessarily bar recovery, and made other factual arguments concerning causation of the failure to obtain a permit.
Retaliatory conduct: Testimony (e.g., Mr. Thomas's account of a threat to evict in summer 1984 while current on rent) supported a reasonable inference of retaliatory eviction threatening conduct following tenant complaints.
Fire liability: The Thomases argued expert testimony was not required (relying on Rossell v. Volkswagen), and that common‑sense jury assessment could support negligence findings as to the repairman.
Repair duty: The landlord's duty to maintain under A.R.S. § 33‑1324(A) (fit and habitable condition) should require the landlord to repair and restore the premises if the tenant elects to continue occupancy under § 33‑1366(A)(2).
Attorney's fees on appeal: The Thomases also requested attorney's fees on appeal under A.R.S. § 12‑341.01.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
McClure v. Johnson, 50 Ariz. 76 (1937)	In determining whether a claim is tort or contract, courts look to substance over labels.	Used to support treating plaintiffs' claims in tort despite pleading labels and to justify consideration of what was actually tried.
Electrical Advertising, Inc. v. Sakato, 94 Ariz. 68 (1963)	Issues tried by express or implied consent are treated as raised in the pleadings.	Supported the conclusion that tort damages for statutory violations were issues tried by consent and thus properly before the court.
Brewer v. Erwin, 287 Or. 435, 600 P.2d 398 (1979)	Oregon holding that violations of the Uniform Residential Landlord and Tenant Act give rise to a statutory tort, but limited emotional distress awards to cases of landlord culpability (intentional or gross negligence).	Cited as persuasive precedent; the court agreed breaches may give rise to tort claims but rejected Brewer's limitation to culpable conduct, declining to adopt the culpability restriction.
Bellikka v. Green, 306 Or. 630, 762 P.2d 997 (1988)	Related Oregon authority on landlord statutory duties (cited along with Brewer).	Noted as related Oregon authority addressing similar issues of recovery under the Uniform Act.
Stoiber v. Honeychuck, 101 Cal.App.3d 903, 162 Cal.Rptr. 194 (1980)	Holds a tenant may bring tort claims for breach of the implied warranty of habitability; recognizes emotional/annoyance harms as compensable.	Relied upon to show that breach of warranty/statutory obligations can give rise to tort recovery for emotional distress and to support allowing such damages here.
Dorgan v. Loukas, 19 Mass. App. 959, 473 N.E.2d 1151 (1985)	One of other jurisdictions recognizing emotional distress damages in landlord warranty contexts (decision unclear whether tort or contractual consequential damages).	Cited as authority from other jurisdictions; the court noted ambiguity in whether Dorgan rests on tort or contract consequential damages.
Hilder v. St. Peter, 144 Vt. 150, 478 A.2d 202 (1984)	Another case recognizing damages for emotional distress in habitability contexts (again not under Uniform Act).	Referenced among decisions supporting emotional distress recovery for housing defects.
Farr v. Transamerica Occidental Life Ins. Co., 145 Ariz. 1, 699 P.2d 376 (App. 1984)	Emotional distress damages may be awarded for bad faith breach of contract (not limited to intentional infliction tort).	Used to demonstrate that emotional distress can be recoverable in contract-related contexts and that intentional infliction need not be pleaded separately.
Crisci v. Security Insurance Co., 66 Cal.2d 425 (1967)	Discusses concern that permitting mental distress recovery could invite fictitious claims; sets cautionary principle.	Cited for the general reason courts limit mental distress recovery — to avoid opening the door to fictitious claims — and addressed in the court's balancing analysis.
Acadia, California, Ltd. v. Herbert, 54 Cal.2d 328 (1960); Herzog v. Grosso, 41 Cal.2d 219 (1953)	Principles that once property damages are established, emotional distress damages may follow for interference with use and enjoyment of land.	Applied to support that interference with the Thomases' use and enjoyment justified consideration of emotional distress damages once property harm was shown.
United States Fidelity Guaranty Co. v. Olds Bros. Lumber Co., 102 Ariz. 366, 430 P.2d 128 (1967)	Parol evidence rule: evidence of prior/contemporaneous oral agreements cannot vary a fully integrated written agreement.	Used to explain parol evidence doctrine; the court evaluated admissibility of oral promises under this rule and admitted the evidence for permissible purposes.
United California Bank v. Prudential Insurance Co., 140 Ariz. 238, 681 P.2d 390 (App. 1983)	Further authority on the parol evidence rule.	Cited in discussion of parol evidence as a substantive contract rule.
Rental Development Corp. of America v. Rubenstein Construction Co., 96 Ariz. 133, 393 P.2d 144 (1964)	Parol evidence rule is a rule of substantive contract law, not merely evidence law.	Supported the court's characterization of the parol evidence rule and the trial court's rulings on admissibility.
Maxwell v. Aetna Life Ins. Co., 143 Ariz. 205, 693 P.2d 348 (App. 1984)	Failure to request a limiting instruction on admissible evidence precludes reversal for admission of that evidence.	Applied to bar reversal of the trial court's admission of parol evidence because defendants did not request a limiting instruction.
Rancho Pescado, Inc. v. Northwestern Mutual Life Ins. Co., 140 Ariz. 174, 680 P.2d 1235 (App. 1984)	Instruction requiring proof of lost profits "with reasonable certainty" is the correct standard.	The court observed the defendant's requested instruction correctly stated the burden and that the trial court erred in refusing it, though it vacated compensatory damages on other grounds.
Gaertner v. Sommer, 148 Ariz. 421, 714 P.2d 1316 (App. 1986)	An unlicensed party may nonetheless recover under some circumstances where legislature did not clearly prohibit recovery; examines legislative intent.	Discussed by plaintiffs to support recovery despite licensing issues; the court distinguished Gaertner because here the claim sought anticipated future profits for an activity not yet performed and the licensing requirement protected public health.
Mountain States Bolt, Nut Screw Co. v. Best‑Way Transportation, 116 Ariz. 123, 568 P.2d 430 (App. 1977)	Discusses when recovery should be denied for improperly licensed performers; compares to statutory contexts where legislature has expressly precluded recovery.	Used by the court to contrast prior cases where recovery was permitted and to show statutory silence is relevant to the licensing‑recovery balance.
Gibbs v. United Mine Workers of America, 220 F. Supp. 871 (E.D. Tenn. 1963), aff'd 343 F.2d 609 (6th Cir. 1965)	Holds evidence of lost prospective profits based on prospective violation of law (truck weight limits) has no probative value; loss based on illegal future conduct is not compensable.	Applied by analogy to bar recovery of anticipated profits for periods when plaintiffs would have operated without required health permits, balancing public health policy against enforcement interests.
Shelley v. Hart, 112 Cal.App. 231 (1931)	Additional authority on nonrecoverability where future illegal conduct is the basis for prospective profits.	Cited as similar authority supporting the court's conclusion regarding nonrecoverability of profits tied to unlawful future activity.
Rossell v. Volkswagen of America, 147 Ariz. 160, 709 P.2d 517 (1985)	Explains when expert testimony is required: jury may find negligence from expert testimony even when not couched as a deviation from industry standard, but expert testimony may still be required where factual issues are outside common juror understanding.	Distinguished by the court: Rossell did not eliminate need for expert proof where the relevant facts (air‑conditioning repair practices) are outside lay understanding; used to affirm the directed verdict for defendants on the fire claims due to plaintiffs' failure to present requisite expert testimony.
Maricopa County v. Cowart, 106 Ariz. 69, 471 P.2d 265 (1970); Kreisman v. Thomas, 12 Ariz. App. 215, 469 P.2d 107 (1970); Powder Horn Nursery v. Soil Plant Laboratory, Inc., 119 Ariz. 78, 579 P.2d 582 (App. 1978)	Authority supporting the requirement of expert testimony where the standard of care is not within common experience.	Applied to sustain the trial court's conclusion that expert testimony was necessary to establish standard of care/cause and to justify the directed verdict on fire‑related negligence claims.
Pima County v. Heinfeld, 134 Ariz. 133, 654 P.2d 281 (1982)	Specific statutory provisions govern over more general ones.	Used to support the conclusion that the specific remedies in A.R.S. § 33‑1366 for fire/casualty govern over the more general maintenance statute § 33‑1324.

Court's Reasoning and Analysis

The court addressed each listed issue by applying statutory text, the Uniform Residential Landlord and Tenant Act's stated intent, precedent, and policy considerations. The court emphasized fidelity to issues actually tried and examined both procedural and substantive arguments before resolving the merits.

Mental Suffering Damages (Violations of the Act)

The court first resolved procedural objections that emotional distress damages were not properly pleaded by observing the pretrial statement and trial discussions showed tort liability for statutory violations was tried by consent, invoking McClure and Rule 15(b) principles and Electrical Advertising precedent.

On the substantive question the court treated the issue as one of first impression in Arizona. It analyzed A.R.S. § 33‑1305 (remedies to provide "appropriate damages") and the Act's independent duties and prohibitions on contracting away tenant rights (A.R.S. § 33‑1315(A)). The court agreed with the Oregon Brewer court that "damages" under the Uniform Act include compensation for tangible harms that are not necessarily economic, but diverged from Brewer by rejecting Brewer's added limitation that emotional distress damages be confined to landlord culpability (intentional or gross negligence).

The court relied on non‑Uniform Act decisions (e.g., Stoiber) and Arizona authority (Farr) to conclude that emotional distress damages may follow from breach of landlord duties under the Act, even when the breach is not shown to be culpable. The court also rejected the argument that A.R.S. § 33‑1364 (specific remedies when essential services are not supplied) precludes tort recovery for nonculpable failures, explaining that § 33‑1364 does not appear to create exclusive remedies and that other harms (property loss, physical illness, mental suffering) remain recoverable under broader remedial principles and § 33‑1305's direction to apply supplementary principles of law.

Parol Evidence

The court restated the parol evidence rule as substantive contract law and reviewed the trial court's decision to admit testimony about oral promises made prior to the second lease. It concluded (1) plaintiffs had advanced admissible grounds beyond fraud in the inducement (e.g., to show lack of integration and to rebut inferences about property condition) and (2) the defendants failed to request a limiting instruction; under Maxwell that failure precluded reversible error. Thus the court found the trial court acted within discretion in admitting the evidence.

Lost Profits

The court acknowledged the lost profits instruction was appropriate in principle where the parties contemplated business use of the property (citing Restatement (Second) of Property § 10.2(5)) and the lease incorporated the Residential Landlord and Tenant Act. The court also agreed the defendants' requested instruction requiring "reasonable certainty" more accurately stated the burden of proof (Rancho Pescado), but did not decide whether refusal alone would be reversible error.

On the critical issue the court applied the Restatement (Second) of Contracts § 181 and public policy analysis — balancing interests favoring enforcement of contractual consequential damages against the regulatory purpose of licensing statutes. The court found the county health permitting requirement appeared designed to protect public health and, relying by analogy on Gibbs and similar authorities, concluded that anticipated profits for periods when plaintiffs would have operated without the required permit were not recoverable. The court therefore held the trial court erred in allowing recovery for lost profits during the unlicensed period. It permitted the plaintiffs, on remand, to present evidence that any failure to obtain the permit was caused by defendants' conduct.

Retaliatory Conduct (A.R.S. § 33‑1381)

The court considered whether the evidence permitted a finding that a threat to bring an action for possession was retaliatory. The defendants argued the only eviction threats related to nonpayment of rent or responses to tenants' threats of self‑help. The court reviewed testimony (Mr. Thomas's statement that the landlord said "If you do [spray the weeds], I'm going to evict you" while tenants were current on rent) and found that, although susceptible to the defendants' alternative interpretation, the evidence was sufficient to support a reasonable inference of a retaliatory threat. The trial court therefore did not err in submitting the issue to the jury.

Directed Verdict on Fire Liability (Need for Expert Testimony)

The trial court directed a verdict for the defendants on claims arising from the fire because plaintiffs failed to present expert testimony establishing the standard of care for air‑conditioning repairmen and causation. The court distinguished Rossell: Rossell allowed a jury to rely on expert description of defective design without industry standard proof, but did not eliminate the rule that expert testimony is required when the factual issues are beyond ordinary juror knowledge. Applying Rossell and Arizona cases requiring expert proof where necessary, the court concluded lay jurors could not, by common sense alone, determine the proper practices for a Gas‑Pac installer and that the directed verdict was correct.

Duty to Rebuild After Fire (A.R.S. § 33‑1366)

The court analyzed the interaction of A.R.S. § 33‑1324 (landlord duty to maintain fit & habitable premises) and the specific remedies in § 33‑1366 for damage/destruction by fire or casualty. It concluded the legislature intended § 33‑1366 to address the catastrophic fire context and that § 33‑1366 provides the exclusive remedies for substantial impairment by fire. Because § 33‑1366 specifies tenant options (terminate or vacate unusable parts with proportional rent reduction) and does not mandate landlord repair obligations in the catastrophic context, the court held the trial court correctly ruled the landlord had no duty under § 33‑1324 to rebuild after the substantial impairment addressed by § 33‑1366.

Attorney's Fees on Appeal

Both parties requested attorney's fees on appeal under A.R.S. § 12‑341.01. The appellate court exercised its discretion and declined to award fees to either party.

Holding and Implications

The court issued a multi‑part disposition affirming several aspects of the trial court's rulings and vacating others for further proceedings:

Holding: The court affirmed (1) the judgment entered against the defendants for retaliatory damages (A.R.S. §§ 33‑1367 and 33‑1381), attorney's fees and costs; (2) the trial court's directed verdict for the defendants on plaintiffs' claims arising from the fire; and (3) the jury's verdicts for the defendants on plaintiffs' claims for interference with business expectancies and intentional infliction of emotional distress. The court also held that emotional distress damages are recoverable under the Arizona Residential Landlord and Tenant Act for breaches of landlord duties and declined to limit such recovery to only culpable landlord conduct.

However, the court vacated the overall compensatory damages award because of error concerning recovery of lost profits. The court concluded plaintiffs may not recover anticipated profits for periods when they would have been operating without the required health permit; consequently, the compensatory damages award (which was not itemized) was vacated and the matter remanded for a new trial limited to compensatory damages. On retrial, the court ordered that defendants' liability findings that the jury previously made remain in issue except for the lost profits claim, which is open to retrial consistent with the opinion.

Implications: The decision holds that (a) violations of the Arizona Residential Landlord and Tenant Act can give rise to tort recovery for emotional distress damages and such recovery is not limited to cases of landlord culpability, (b) parol evidence may be admissible under the circumstances addressed and failure to request limiting instructions can preclude reversal, (c) lost profits that depend on unlicensed future unlawful activity are not recoverable where public health regulation is implicated, (d) expert proof is required where technical standards and causation are beyond common juror knowledge, and (e) § 33‑1366 provides exclusive remedies for substantial impairment by fire. The court declined to award appellate attorney's fees to either party.

The case is remanded for proceedings consistent with this opinion.

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Thomas M. THOMAS and Karen L. Thomas, husband and wife, Plaintiffs/Counter-Defendants/Appellees/Cross-Appellants, v. William R. GOUDREAULT, and Sandra S. Goudreault, husband and wife, indi

OPINION

HAIRE, Judge, Retired.

This appeal involves a landlord-tenant dispute raising the following issues: (1) whether a landlord's violation of the duties of maintaining habitable conditions as required by the Arizona Residential Landlord and Tenant Act may give rise to damages for mental suffering, (2) whether the parol evidence rule was violated, (3) whether the tenants were entitled to damages for lost profits, (4) whether the trial court should have directed a verdict in favor of the landlord on the claim of retaliatory conduct, (5) whether the trial court properly granted a directed verdict in favor of the landlord on the tenant's negligence claim and (6) whether the trial court properly ruled that the landlord had no duty to repair fire damage or rebuild the premises after destruction of a portion of the residence by fire.

FACTS AND PROCEDURAL HISTORY

In September, 1982, Thomas M. and Karen L. Thomas occupied a single-family residence in Scottsdale under a one-year lease from the owner, the Goudreault Living Trust, through its co-trustees, William R. and Sandra S. Goudreault. Before the expiration of the initial lease term, the parties entered into a second lease for a term of four years. During the course of their tenancy, the Thomases made numerous complaints concerning the condition of the premises which they used as a residence and from which they operated a bakery business. Many of the complaints involved the heating and the air conditioning system for the main house.

In November, 1984, the Goudreaults hired Jerry Schroeder to install a reconditioned Gas-Pac unit, a combined natural gas heating and electrical air conditioning system for the rental property. In April, 1985, the residence was substantially damaged by a fire that originated in the Gas-Pac unit. After some makeshift repairs were done to the house, the Thomases continued to live in it until August 31, 1985, at which time they surrendered possession.

During the course of the lease, the Thomases deducted various amounts from rent for sums that they had paid for maintenance of the property. At some point the Thomases tendered rent that the Goudreaults rejected because they considered it insufficient. Following the fire, the Thomases paid no further rent.

In July, 1985, the Thomases filed a five-count complaint against the Goudreaults in which they asserted a contractual claim for breach of lease and tort claims for bad faith breach of lease, intentional infliction of emotional distress, interference with business expectancies, and negligence. The Goudreaults filed an answer and counterclaimed for overdue rents and for conversion of certain property. The Thomases also filed a complaint against the repairman, Schroeder, for negligent installation and maintenance of the Gas-Pac unit, and against the Goudreaults for their negligent hiring of Schroeder. Schroeder filed, in propria persona, a general denial, but did nothing further in defense of the claim against him. The claims against Schroeder were eventually dismissed without prejudice.

The matter proceeded to a jury trial, and, after the Thomases rested their case, the trial court directed a verdict in favor of the Goudreaults on the Thomases' claims arising from the fire. At the close of all the evidence, the Goudreaults' counterclaim for conversion was withdrawn.

The jury returned a verdict in favor of the Goudreaults on the Thomases' tort claims for intentional interference with business expectancies and intentional infliction of emotional distress. The jury returned a verdict in favor of the Thomases on their claim for breach of the landlord's duties and found that the Goudreaults had acted in retaliation for the Thomases' complaints regarding the condition of the leased property. The jury also found in favor of the Goudreaults on their counterclaim for rent.

Judgment was entered against the Goudreaults for compensatory damages in the amount of $55,895 after allowing a set-off for rent. The court also awarded retaliatory damages of $2,050 pursuant to A.R.S. §§ 33-1367 and 33-1381, attorney's fees in the amount of $10,000 and taxable costs to the Thomases.

The Goudreaults filed a notice of appeal and the Thomases filed a notice of cross-appeal.

DAMAGES FOR MENTAL SUFFERING

After instructing the jury on the duties of a landlord under the Arizona Residential Landlord and Tenant Act, A.R.S. § 33-1301 et seq., (the Act) the trial court, over objection, gave the following instructions:

"If you find that the Goudreault defendants did not comply with their obligations as landlords, then, plaintiffs are entitled to recover damages they may have suffered as a result of that non-compliance. Those damages are limited to the following:

. . . .

"3. Compensation for mental suffering, anguish, discomfort or annoyance caused by the landlord's failure to maintain the leased property in the required condition. . . .

The Goudreaults argue that this instruction erroneously permitted the jury to award tort damages for breach of a landlord's statutory duties under the Act. They contend that the Act creates only contract remedies.

Before addressing the issue of tort recovery for violations of the Act, we first consider some procedural arguments raised by the Goudreaults. They contend that the claims the Thomases raised in connection with the Act sought only contract damages and note that the original complaint fails to claim damages for emotional distress except with respect to a specifically pleaded count for intentional infliction of emotional distress.

We find this argument unpersuasive because the pretrial statement clearly sets forth as a contested issue of fact and law whether the Goudreaults were liable in tort for any acts or omissions in connection with their duties as landlords and assuming such tort liability, what damages plaintiffs were entitled to recover. It is also clear from the discussion between court and counsel concerning motions for directed verdict that the Thomases sought damages in tort arising out of the breach of the landlord's duty under the Act.

In determining whether a tort or contract claim has been pled, the court must look to the substance of the allegations, not the labels attached to them. McClure v. Johnson, 50 Ariz. 76, 86, 69 P.2d 573, 577 (1937). Further, the trial court granted the Thomases the right to amend Count II for bad faith breach of contract to tortious breach of a landlord's duties. There was no amendment. However, when issues not specifically raised in the pleadings are tried by express or implied consent of the parties, they will be treated as though they had been raised in the pleadings. Rule 15(b), Arizona Rules of Civil Procedure. The failure to formally amend pleadings will not affect the judgment based on competent evidence. Electrical Advertising, Inc. v. Sakato, 94 Ariz. 68, 381 P.2d 755 (1963).

We conclude that the record in this case, particularly the pretrial statement and the arguments made to the trial court in connection with motions for directed verdict and jury instructions, indicates that the right to recover tort damages for statutory violations was clearly an issue tried in this case.

Whether tort damages may be recovered for violations of the Act is a question of first impression in Arizona. The Goudreaults assert that the Act adds certain terms and conditions to a rental agreement as a matter of law creating contractual rather than tort liability. They note that the Act contains gap filler provisions for terms and conditions that may be missing in the rental agreement. See, e.g., A.R.S. § 33-1314(B) (amount of rent); A.R.S. § 33-1314(C) (time and place of payment); and A.R.S. § 33-1314(D) (length of tenancy).

The remedy section of the Act makes no distinction between damages recoverable for the landlord's non-compliance with the rental agreement and the landlord's non-compliance with his obligation to maintain fit premises pursuant to the Act. See A.R.S. § 33-1361(B). The Goudreaults conclude that this indicates legislative intent that the same damages are available for breach of the statute as for breach of the rental agreement. They conclude that while tort liability may exist independently from remedies available under the Act, the Act does not create duties, the violation of which imposes tort liability.

Oregon, like Arizona, has adopted the Uniform Residential Landlord and Tenant Act, and to date is the only jurisdiction that has addressed the precise issue before us. See generally Annot. 6 A.L.R. 4th 528 (1981). In Brewer v. Erwin, 287 Or. 435, 600 P.2d 398 (1979), the Oregon Supreme Court held that violations of the Act give rise to a statutory tort. See also Bellikka v. Green, 306 Or. 630, 762 P.2d 997 (1988). The Oregon court found that emotional distress damages are recoverable for a landlord's culpable failure to maintain the statutory conditions of habitability of the premises.

The Goudreaults argue that Brewer should not be followed and alternatively, if Brewer is followed, the court's instruction in the instant case failed to distinguish between culpable and non-culpable conduct and was therefore an incorrect statement of the law.

The Thomases contend that emotional distress damages are recoverable for violations of the Act without the limitation imposed in Brewer. They rely on cases from other jurisdictions that hold that negligent violation of a landlord's statutory duties and the implied warranty of habitability can give rise to damages for emotional distress. See Stoiber v. Honeychuck, 162 Cal.Rptr. 194, 101 Cal.App.3d 903 (1980); Dorgan v. Loukas, 19 Mass. App. 959, 473 N.E.2d 1151 (1985); Hilder v. St. Peter, 144 Vt. 150, 478 A.2d 202 (1984). See also M. Moskovitz, The Implied Warranty of Habitability: A New Doctrine Raising New Issues, 62 Cal.L.Rev. 1444 (1974). These cases do not involve the Uniform Residential Landlord and Tenant Act. Further, in Dorgan and Hilder it is unclear whether the decisions are based upon tort or extend the concept of "consequential damages" in contract to include damages for emotional distress for breach of an implied warranty of habitability.

In adopting its version of the Uniform Residential Landlord and Tenant Act, Arizona enacted that Act's expression of intent concerning the administration of remedies:

"The remedies provided by this chapter shall be so administered that the aggrieved party may recover appropriate damages. The aggrieved party has a duty to mitigate damages." (Emphasis added.) A.R.S. § 33-1305(A).

The Act imposes duties upon a landlord independent of duties imposed by a lease. Further, it prohibits the parties to a lease from restricting the rights and remedies provided to tenants by the Act. A.R.S. § 33-1315(A).

The Act provides that a tenant, a landlord or another aggrieved party may recover "damages" or "actual damages" for violations of different sections of the Act. As the Oregon Supreme Court noted in Brewer, there is no guidance in the Act as to whether these terms are intended to be distinguishable from each other. Compare, e.g., A.R.S. § 33-1361(B) with A.R.S. § 33-1367. See Brewer, 287 Or. at 444, 600 P.2d at 404. The terms are not defined in the Act nor further explained except for the general directive of A.R.S. § 33-1305 that remedies are to be administered to provide "appropriate" damages.

We agree with the Brewer court that the key to determining the type of "damages" or "actual damages" contemplated under the Act is to determine the type of harm in the setting of a normal residential rental transaction that can reasonably be said to lie within the contemplation of the protections afforded by the Act. Brewer, at 445, 600 P.2d at 405-406. We further agree with the Oregon court that these terms refer to compensation for tangible harm resulting from a statutory violation that may not necessarily be economic harm. Brewer at 446, 600 P.2d at 407. However, we do not agree with the remainder of the Brewer analysis that "damages" and "actual damages" do not encompass emotional distress for failure to provide essential services unless the landlord has acted intentionally or was grossly negligent.

The Oregon court reached this conclusion because it was of the opinion that an award for emotional distress where a landlord's acts are not culpable would be inconsistent with certain provisions of the Act. Specifically, the court pointed to O.R.S. 91.805, Arizona's A.R.S. § 33-1364.

Subsection A of A.R.S. § 33-1364 provides that where a landlord "negligently" or "deliberately" fails to supply an essential service, a tenant may elect either to procure those services himself and deduct the cost from the rent, recover damages for diminution of the fair rental value or procure substitute housing, discontinue rent and charge the landlord for the difference between the rent and the cost of substitute housing not to exceed 25% of the rent. In addition, subsection B provides that when the landlord has acted "deliberately", the tenant may recover the reasonable and actual cost of substitute housing not to exceed the rent.

We are not persuaded that A.R.S. § 33-1364 is intended to create exclusive remedies either for non-culpable or culpable failure to provide essential services.

For example, if by failing to provide these services, a landlord causes the tenant to incur loss of property, e.g., spoiled food in a refrigerator or physical illness, the tenant would not be prevented by A.R.S. § 33-1364 from seeking to recover damages for these injuries. Likewise if the injury caused is discomfort, anxiety or other mental distress, we are not persuaded that A.R.S. § 33-1364 precludes recovery. We reach this conclusion in light of A.R.S. § 33-1305 which makes supplementary principles of law applicable under the Act and A.R.S. § 33-1305 which directs the administration of remedies so that "appropriate damages" be awarded.

The comment to § 1.105 of the Uniform Act (A.R.S. § 33-1305) states that:

". . . whether tort action, specific performance or equitable relief, is available is determined not by this section but by specific provisions and supplementary principles." 7A Uniform Laws Annotated at 436 (1985).

In Stoiber v. Honeychuck, 101 Cal.App.3d 903, 162 Cal.Rptr. 194 (1980), the California Court of Appeals, quoting M. Moskovitz, The Implied Warranty of Habitability: A New Doctrine Raising New Issues, 62 Cal.L.Rev. 1444, 1470-71 (1974), stated:

"Generally, the residential tenant who has suffered a breach of the warranty [of habitability] does not lose money. He instead cannot bathe as frequently as he would like or at all if there is inadequate hot water; he must worry about rodents harassing his children or spreading disease if the premises are infested; or he must avoid certain rooms or worry about catching a cold if there is inadequate weather protection or heat. Thus discomfort and annoyance are the common injuries caused by each breach and hence the true nature of the general damages the tenant is claiming."

Id. at 915-6, 162 Cal.Rptr. at 199.

The court concluded that a tenant may state a claim in tort against his landlord for damages resulting from breach of an implied warranty of habitability. Id. at 918-9, 162 Cal.Rptr. at 201.

The Goudreaults argue that Stoiber stands only for the proposition that bringing an action for breach of warranty of habitability does not preclude the tenant from also suing in tort. They argue that the Thomases were unsuccessful in their claim for intentional infliction of emotional distress and that there was no other tort upon which to award damages for emotional distress.

In Stoiber, the tenants had asserted claims for nuisance, intentional infliction of emotional distress, negligence, constructive eviction, and unlawful business practices before the trial court. The appellate court reversed the trial court's ruling that a contract action for breach of warranty of habitability was the tenant's exclusive remedy. While this is the holding in the case, we do not view the court's opinion in Stoiber as being as limited as the Goudreaults suggest.

In Stoiber the court recognized that breach of a landlord's implied contractual duties (implied warranty of habitability) and statutory obligations gives rise to a cause of action in tort. Id. at 918-9, 162 Cal.Rptr. at 201. Contra Abram v. Litman, 150 Ill. App.3d 174, 103 Ill.Dec. 349, 501 N.E.2d 370 (1986). While not every breach of a statutory duty gives rise to a cause of action for tort, we find that the types of harm protected under the Act provide a basis for tort recovery for mental distress caused by the breach. We conclude that allowing such recovery is consistent with Arizona case law regarding damages for mental distress.

In Farr v. Transamerica Occidental Life Ins. Co., 145 Ariz. 1, 699 P.2d 376 (App. 1984), this court held that emotional distress damages could be awarded in an action for bad faith breach of an insurance contract. We rejected the argument that because there was no intentional infliction of emotional distress and no outrageous conduct the plaintiffs were not entitled to an instruction on emotional distress. It is not necessary to assert intentional infliction of emotional distress as the exclusive tort to recover damages for emotional or mental distress.

The primary reason for precluding recovery of mental distress damages is that to permit such recovery could open the door to fictitious claims. See Crisci v. Security Insurance Co., 66 Cal.2d 425, 434, 58 Cal.Rptr. 13, 19, 426 P.2d 173, 179 (1967). We concluded in Farr that once a claimant has proven a loss of property, he can also recover damages for emotional distress. This principle is well established when the loss involves an interference with real property rights such as a tortious interference with the use and enjoyment of land. See Acadia, California, Ltd. v. Herbert, 54 Cal.2d 328, 5 Cal.Rptr. 686, 353 P.2d 294 (1960); Herzog v. Grosso, 41 Cal.2d 219, 259 P.2d 429 (1953). The principle that once property damages have been established, emotional distress damages may follow is similarly applicable in the instant case, since without question the alleged acts of the Goudreaults constituted an interference with the Thomases' use and enjoyment of the leased property.

A tenant who is not provided with necessary services and maintenance of the leased premises as required under the Act suffers property damage because the value of his leasehold is decreased by the absence of adequate water, heat, cooling or proper maintenance of the building. However, the more immediate damage that he suffers is the annoyance and discomfort of living in inadequate housing. See Stoiber, 101 Cal.App.3d 903, 162 Cal.Rptr. 194 (1980); Brewer, 287 Or. 435, 600 P.2d 398 (1979); Hilder, 144 Vt. 150, 478 A.2d 202 (1984). Whether this condition was intentionally or negligently caused by the landlord is not relevant to the actual damages suffered by the tenant.

Accordingly, while we agree with Brewer's holding that breaches of the Act can give rise to a claim in tort for emotional distress damages, we disagree that such recovery should be limited to situations involving a landlord's "culpable" violation of the Act. We find no error in the trial court's jury instruction that compensatory damages could include recovery for mental suffering, anguish, discomfort or annoyance caused by the Goudreaults' failure to maintain the leased property in the required condition.

PAROL EVIDENCE

The parol evidence rule prevents the use of evidence of prior or contemporaneous oral agreements to vary, contradict or enlarge a fully integrated, written agreement. United States Fidelity Guaranty Co. v. Olds Bros. Lumber Co., 102 Ariz. 366, 368, 430 P.2d 128, 130 (1967); United California Bank v. Prudential Insurance Company, 140 Ariz. 238, 268, 681 P.2d 390, 420 (App. 1983). It is not a rule of evidence; it is a rule of substantive contract law. Rental Development Corp. of America v. Rubenstein Construction Co., 96 Ariz. 133, 136-137, 393 P.2d 144, 146 (1964).

The Thomases sought to introduce evidence that prior to the execution of the second lease William Goudreault made various promises to the Thomases about work and repairs that he would effect on the premises. The Goudreaults moved in limine to preclude such evidence on grounds that it violated the parol evidence rule. The trial court denied the motion.

The Goudreaults argue that the only ground raised by the Thomases and considered by the trial court concerning the applicability of the parol evidence rule was that the evidence was admissible to demonstrate fraud in the inducement. They argue that the Thomases sought to establish that the only reason they signed the second written lease was because of the oral representations made by William Goudreault. The Goudreaults point out that fraud had not been pled and that the issue of fraudulent inducement to enter the lease was not properly before the court. Rule 9(b), Arizona Rules of Civil Procedure. See Echols v. Beauty Built Homes, Inc., 132 Ariz. 498, 500, 647 P.2d 629, 631 (1982); Spudnuts v. Lane, 131 Ariz. 424, 426, 641 P.2d 912, 914 (App. 1982). The Goudreaults also note that the Thomases did not seek to rescind the contract based on purported fraud in the inducement, but sought damages for breach of the lease.

On appeal, the Thomases do not argue that the testimony was admissible to show fraud in the inducement. They assert that evidence of William Goudreault's promises was offered to show that the second lease was not an integration. See United States Fidelity 102 Ariz. at 368-69, 430 P.2d at 130. They also contend that it was offered to rebut an inference from their willingness to enter into the second lease that the condition of the property was not as bad as their trial testimony made it sound.

Our review of the record indicates that the Thomases' arguments to the trial court were not limited to fraud in the inducement. They also argued that the evidence was admissible for the reasons stated above.

The record also indicates that the Goudreaults did not ask for a limiting instruction to preclude the use of the evidence to vary the terms of the second lease. Their failure to do so precludes this court from finding reversible error in the admission of that evidence. Maxwell v. Aetna Life Ins. Co., 143 Ariz. 205, 214, 693 P.2d 348, 357 (App. 1984). We conclude that the evidence was properly admitted by the trial judge.

LOST PROFITS

The trial court instructed the jury that if it found that the defendants had not complied with their obligation as landlords, it could award the plaintiffs damages that included:

"[T]he loss of anticipated business profits which resulted from the landlord's default, and which the landlord at the time the lease was made could reasonably have foreseen would be caused by the . . . default. . . ."

This is a proper element of damages if the parties contemplated that the property would be used for business purposes. Restatement (Second) of Property, Landlord and Tenant, § 10.2(5) (1977).

The Goudreaults knew that the Thomases would operate a bakery business from the premises. Nevertheless, the Goudreaults argue that the lost profits instruction was in error because the Arizona Residential Landlord and Tenant Act does not apply to those portions of the rented property used for business purposes. The second lease which was in effect during the time for which lost profits were claimed specifically adopts the Arizona Residential Landlord and Tenant Act as the governing law. Thus, even if the Act were not applicable to a lease for a residence used for commercial purposes, the parties incorporated its provisions in the contract.

The Goudreaults also argue that the trial court erred by not requiring a higher burden of proof with respect to lost profits. The Goudreaults requested an instruction that required the plaintiffs to prove the amount of their damages for lost profits "with reasonable certainty." This instruction was refused. Instead, the jury was instructed that the plaintiffs could recover damages for lost profits "reasonably proved by the evidence." The defendants' requested instruction correctly states the plaintiffs' burden of proof and should have been given. See, e.g., Rancho Pescado, Inc. v. Northwestern Mutual Life Ins. Co., 140 Ariz. 174, 184, 680 P.2d 1235, 1245 (App. 1984). We need not decide, however, whether the trial court's failure to correctly instruct the jury on this issue constitutes reversible error, since, as subsequently discussed in this opinion, the jury's award of damages for lost profits must be reversed on a different basis.

The Goudreaults contend that because the bakery business was being operated by the Thomases without a permit from the Maricopa County Health Department as required by law, the Thomases should not be permitted to recover loss of anticipated profits. The Thomases failed to obtain a permit until December, 1986, after the termination of their lease. They sought lost profits for the retail portion of their business from November, 1984 to October, 1986 and for lost profits from their wholesale business from December, 1986 to May, 1987.

The Thomases rely on two Arizona cases to support their entitlement to recover profits for a service performed without an appropriate license. In Gaertner v. Sommer, 148 Ariz. 421, 714 P.2d 1316 (App. 1986), the parties had entered into a contract in which the unlicensed plaintiff had agreed to sell a motorhome for the defendants. After holding that the plaintiff was not exempt from A.R.S. § 32-1180, which requires the licensing of all dealers of recreational vehicles, the court held that the plaintiff-dealer was nonetheless entitled to be paid his commission. The basis for the court's holding was that the legislature had not "clearly demonstrated" its intent to prohibit the maintenance of an action by an unlicensed dealer when it enacted the licensing statutes. Id. at 423, 714 P.2d at 1318.

In Gaertner, the court relied on Mountain States Bolt, Nut Screw Co. v. Best-Way Transportation, 116 Ariz. 123, 568 P.2d 430 (App. 1977) which involved certificates of convenience and necessity issued by the Arizona Corporation Commission to regulated trucking companies. The court held that Best-Way was entitled to be paid for transportation services previously performed, including those performed in violation of its certificate, stating:

". . . [I]f the acts to be performed under the contract are themselves illegal or contrary to public policy, or if the legislature has clearly demonstrated its intent to prohibit maintenance of a cause of action, then recovery should be denied. However, none of these circumstances is present here.

* * * * * *

"Clearly the legislature could expressly have precluded any recovery by deficiently licensed carriers. It has done so in the case of actions by improperly licensed contractors. A.R.S. § 32-1153. There is no similar statutory provision here. Appellant has not advanced any compelling policy, such as the avoidance of fraud . . . which would be served by barring any recovery whatsoever in these circumstances." Id. at 124-125, 568 P.2d at 431-432.

Unlike Gaertner and Best-Way, this case does not involve a situation where one party has obtained services and seeks to avoid payment for those services. Instead, it is a claim for loss of anticipated profits that the plaintiffs might have earned by engaging in the future in an activity for which they had no license.

In Gibbs v. United Mine Workers of America, 220 F. Supp. 871 (E.D.Tenn. 1963) aff'd. 343 F.2d 609 (6th Cir. 1965) rev'd on other grounds 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966), a federal district court held that claims for anticipated future profits in a trucking business could not be predicated upon the concept that in the performance of the business the trucker would violate highway weight limitations. The trial court stated:

"The issue here is as to the probative value of the evidence of the loss of prospective profits when based upon prospective violation of truck weight laws. The court is of the opinion that such evidence has no probative value."

Id. at 880.

The Restatement (Second) of Contracts § 181 (1981) defines the effect of the failure to comply with a licensing statute on the enforceability of a contract. It provides:

"If a party is prohibited from doing an act because of his failure to comply with a licensing, registration or similar requirement, a promise in consideration of his doing that act or of his promise to do it is unenforceable on grounds of public policy if

"(a) the requirement has a regulatory purpose, and

(b) the interest in the enforcement of the promise is clearly outweighed by the public policy behind the requirement."

Comment b to § 181 states that a requirement having a regulatory purpose may be regarded as sufficiently substantial to preclude enforcement, while a regulation designed simply as a revenue raising tool may not preclude enforcement. Comment c to § 181 states that if a court determines that a license requirement is for regulatory purposes, it could then weigh the interests favoring enforcement of the promise with the public policy behind the regulation.

Although we find little evidence in the record to aid us in our consideration, it appears that the licensing requirement was designed to protect the public health rather than to raise revenue. See A.R.S. § 36-184; and A.C.C. R9-8-119A. Thus, we must weigh the interests for allowing consequential damages for the landlord's breach of the lease against the public policy of protecting the public health.

The Thomases sought recovery for anticipated profits, i.e., unearned profits. Unlike the parties in Gaertner and Best-Way, they had not performed and no recipient of their services was trying to avoid payment. We find the rationale of Gibbs applicable to the instant case. Further, in balancing the policy of protecting the public health against allowing the recovery of anticipated profits for an unlawful activity that was restricted because of a landlord's breach of contract, we find the interest in protecting the public health by requiring inspection and licensing the more important consideration. Accordingly, we conclude that the trial court erred by allowing recovery for lost profits during the time that the Thomases were without a license. On remand, the Thomases shall not be precluded from presenting evidence, if such be the fact, that their failure to obtain the necessary permit was caused by the defendant's conduct.

RETALIATORY CONDUCT UNDER A.R.S. § 33-1381

A.R.S. § 33-1381 prohibits a landlord from increasing rent, decreasing services or bringing or threatening to bring an action for possession in retaliation for a complaint by a tenant in violation of A.R.S. § 33-1324.

The trial court instructed the jury:

"A landlord may not threaten to bring an action for possession in retaliation for the tenants having complained to the landlord of a violation of the landlord's obligation to maintain the premises."

The Goudreaults argue that the trial court committed reversible error in giving this instruction over objection and by denying their motion for directed verdict on the issue. They contend that there was no evidence at trial to support the claim that the Goudreaults threatened to bring any action for possession in retaliation for a complaint by the tenants of a violation of the Act. They acknowledge that there was evidence from which the jury could find that the Thomases complained of violations and that Goudreault threatened to bring an action for possession for the Thomases' failure to pay the rent. However, they argue that there was no evidence that a threat to bring an action for possession was in retaliation for a complaint about the condition of the property.

A.R.S. § 33-1381(C) provides:

"Notwithstanding subsections A and B of this section, a landlord may bring an action for possession if either of the following occurs:

. . . .

2. The tenant is in default in rent."

The Goudreaults acknowledge that there was one instance of testimony concerning a threat of eviction that was not directly predicated on the tenant's failure to pay rent. Mr. Thomas testified as follows:

"Q. Tom, at any time that you were living at 88-18 North Scottsdale Rd., did Mr. Goudreault threaten you with an eviction?

"A. Yes, he did.

"Q. When?

"A. When we had got the bids and I was trying to get the weeds cleaned up and he said he wasn't going to do it, he was going to send out the boys to cut it down and I told him if I had gotten the bids, let's get it sprayed and he didn't want to spray it. I told him I was going to go ahead and he told me, `If you do, I'm going to evict you.'

"Q. That was in the summer of '84?

"A. Summer of '84."

At the time the Thomases were current on their rent.

The Goudreaults argue that the only reasonable inference from the quoted testimony was that the threat of eviction was in response to Thomases' threat that he was going to improperly avail himself of self-help remedies under the Act. There was also evidence that this threat came shortly after Mr. Thomas wrote a letter to Mr. Goudreault demanding numerous repairs and threatening legal action or self-help remedies. Further, Mr. Thomas had testified that the Goudreaults' plan to solve the weed problem about which he had complained since 1983 was inadequate and that self help was not improper. Although susceptible to defendant's interpretation, we find the evidence sufficient to support a reasonable inference that the threat of eviction was a retaliatory action.

CROSS-APPEAL — DIRECTED VERDICT WITH RESPECT TO LIABILITY FOR THE FIRE

The trial court concluded that the Thomases had failed to prove, through expert testimony, the standard of care applicable to air conditioning and heating system repairmen. Therefore, the court concluded that if there could be no showing that Schroeder (the repairman) was negligent, the Goudreaults could not be held liable for his negligence. The Thomases argue that the trial court later shifted its focus and upheld the directed verdict on grounds that no causation had been proven.

A review of the entire argument indicates that the trial court reaffirmed its conclusion that the absence of expert testimony to establish the standard of care for a reasonable air conditioning repairman and whether the alleged defects would have been obvious to an experienced repairman were necessary elements missing from plaintiff's case.

The Thomases rely on Rossell v. Volkswagen of America, 147 Ariz. 160, 709 P.2d 517 (1985) for the proposition that expert testimony was not necessary. They argue that there is no proper standard of care for the air conditioning industry as a whole that can be used to determine negligence. Thus, they argue that expert testimony was not needed to prove Schroeder's negligence.

In Rossell v. Volkswagen of America the defendant manufacturer had claimed that plaintiff's proof was deficient because the plaintiff's expert testimony didn't establish that the defendant had deviated from the accepted standard of care in the automobile industry. However, that is not the situation presented in the instant case.

In Rossell the court decided that a jury was entitled to find a manufacturer negligent in the manner described by the plaintiff's expert witnesses even though that testimony was not a description of a deviation from the accepted standard of care in the industry. Based on the plaintiff's expert testimony, the jury found Volkswagen negligent in designing the vehicle. This is unlike the situation of the instant case. In the instant case there was no expert evidence as to what a reasonable air conditioning repairman should have known, noticed, or recognized nor what he should have done concerning the problems with the Gas-Pac unit.

The Thomases argue that a jury through its common sense could have determined that Schroeder had acted negligently. We are of the opinion that a lay person unfamiliar with practice in the air conditioning industry could not by simple use of common sense determine what a repairman should have done. The Arizona Supreme Court stated in Rossell,

"We do not disturb the rule that in determining what is `reasonable care,' expert evidence may be required in those cases in which factual issues are outside the common understanding of jurors."

Id. at 167, 709 P.2d at 524.

We conclude that the trial court was correct in granting the directed verdict in light of the Thomases' failure to provide the needed expert testimony. See Maricopa County v. Cowart, 106 Ariz. 69, 471 P.2d 265 (1970); Kreisman v. Thomas, 12 Ariz. App. 215, 469 P.2d 107 (1970); Powder Horn Nursery v. Soil Plant Laboratory, Inc., 119 Ariz. 78, 579 P.2d 582 (App. 1978).

DUTY TO REBUILD THE PREMISES

A.R.S. § 33-1366(A) provides the remedies available to a tenant in case of damage to or destruction of the dwelling unit by fire or casualty. That statute provides:

"If the dwelling unit or premises are damaged or destroyed by fire or casualty to an extent that enjoyment of the dwelling unit is substantially impaired, the tenant may do either of the following:

"1. Immediately vacate the premises and notify the landlord in writing within 14 days thereafter of his intention to terminate the rental agreement, in which case the rental agreement terminates as of the date of vacating.

"2. If continued occupancy is lawful, vacate any part of the dwelling unit rendered unusable by the fire or casualty, in which case the tenant's liability for rent is reduced in proportion to the diminution in the fair rental value of the dwelling unit."

The Thomases contend that the trial court's ruling that the Goudreaults had no duty to repair the premises after the fire was incorrect because it ignored the responsibilities placed on the landlord by A.R.S. § 33-1324(A).

A.R.S. § 33-1324(A) requires a landlord to maintain the leased premises in a fit and habitable condition. The Thomases contend that although the landlord obviously must be given a reasonable time to do so, he must repair and restore the premises if a tenant elects to continue occupancy pursuant to A.R.S. § 33-1366(A)(2) after substantial impairment caused by fire. The Thomases' reliance on A.R.S. § 33-1324(A) ignores the distinction that the legislature apparently intended to draw between remedies allowed for breach of A.R.S. § 33-1324, which are set forth in A.R.S. § 33-1361, and the remedies allowed when the problem is catastrophic and caused by fire or other casualty. See A.R.S. § 33-1366.

A.R.S. § 33-1361 clearly does not contemplate the "substantial impairment" discussed in § 33-1366. Had the legislature intended to impose a burden upon the landlord to repair the premises when substantial impairment is caused by fire, it could have easily provided for this in § 33-1366. A.R.S. § 33-1366, as a specific statute addressing this issue, must govern over a more general statute which arguably could be applicable. See, e.g., Pima County v. Heinfeld, 134 Ariz. 133, 134, 654 P.2d 281, 282 (1982).

We conclude that A.R.S. § 33-1366 provides the exclusive remedies available to a tenant in the event that substantial impairment of the use of the premises is caused by fire.

ATTORNEY'S FEES ON APPEAL

Both parties have requested attorney's fees on appeal pursuant to A.R.S. § 12-341.01. In the exercise of our discretion, we decline to award either party attorney's fees on appeal.

SUMMARY

The judgment entered against the defendants for retaliatory damages, attorney's fees and costs is affirmed, together with the trial court's entry of a directed verdict in favor of the defendants on plaintiffs' claim for fire damages. The jury's verdicts for the defendants on plaintiffs' claims for interference with business expectancies and for intentional infliction of emotional distress are also affirmed.

In reviewing the judgment, we note that the jury awarded a total amount of compensatory damages without specification of the amounts awarded on the various elements of plaintiffs' damages claims. Because of errors committed by the trial court concerning the recovery of damages for lost profits, the compensatory damages award must be vacated and the matter remanded for a new trial consistent with this opinion on the issue of compensatory damages. Upon retrial, the liability of the defendants on all claims found in plaintiffs favor by the jury shall not be in issue except as to plaintiffs' claim for lost profits.

The matter is remanded for further proceedings.

CONTRERAS, P.J., and EUBANK, J., concur.

Note: Retired judge LEVI RAY HAIRE was authorized to participate in this appeal by order of the Chief Justice of the Arizona Supreme Court pursuant to Ariz. Const. art. 6, § 20, and A.R.S. § 38-813.

THOMAS v. GOUDREAULT