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Arizona debt lawsuit blocked by state Court of Appeals

By Howard Fischer
Capitol Media Services

PHOENIX -- The state Court of Appeals has rebuffed efforts by lenders, debt collectors and attorneys to void a voter-approved law designed to protect Arizonans from creditors.
A three-judge panel said they found no merit to claims that a provision of Proposition 209 was "vague and unintelligible, something challengers said made the entire measure unenforceable. And that allegation alone, their attorney argued, should free the creditors from having to obey the entire law that voters approved in 2022 by a margin of nearly 3-1.
Judge Maria Elena Cruz, writing for the panel, acknowledged that laws can be declared void for vagueness when it does not provide someone with "ordinary intelligence'' a reasonable opportunity to avoid violating the statute as well as guidance on what standards would be used to determine that.
"However, a statute is not vague merely because it is susceptible to more than one interpretation,'' she wrote. "Nor is a statute unconstitutionally vague because one of its terms is not explicitly defined.''
And in this case, Cruz wrote, there is little doubt about the meaning of the questioned clause about the requirements of Proposition 209 being prospective only -- the one the challengers said made the whole statute invalid.
The measure was promoted to voters primarily as a way to cap annual interest medical debt at no more than 3%. That compares with prior law at 10%.
But it includes far more.
For example, it allows anyone who declares bankruptcy to protect to $400,000 in the value of a home, up from $240,000.
Similarly, up to $15,000 of possessions are shielded from seizure by creditors. That figure is now $6,000. And up to $25,000 in equity in a motor vehicle also is protected, compared with $12,000 under the old law.
And then there's a provision limiting the amount of someone's disposable income that can be seized under garnishment actions.
Attorney Brett Johnson, representing the challengers, acknowledged in his legal arguments that his clients were unhappy with what voters had approved.
"By increasing the exemptions and reducing the garnishment rates on (ITALICS) all (ROMAN) types of debt, Prop 209 effectively makes a substantial amount of outstanding debt in Arizona uncollectable because many judgment debtors' assets are no longer reachable through these collection actions,'' he said.
But with the measure approved by the time the lawsuit was filed, that left Johnson to try to have it voided on legal grounds. And that meant raising legal arguments about one provision that has to do with the effective date.
What's called the "Savings Clause'' of the measure spells out that it applies prospectively only, meaning it does not affect contracts entered into and legal actions prior to Dec. 5, 2022, the date the election results were certified and it was formally declared enacted. That comports with constitutional provisions which says state law cannot interfere with existing contracts.
Johnson, however, said that's not enough. He said that language only creates "fatal confusion'' in what is and is not affected.
Consider, he said, what happens in a case where a debt was incurred before the effective date but that the lender has not yet started garnishment actions.
Johnson said it is so confusing that those who deal with such debt actions have offered different interpretations of how all of that applies. And that "ambiguity,'' he argued, will harm everyone connected with debt collections.
"In addition to increasing borrowing costs because lender will be less likely to legally collect what they are owed in a timely manner, Prop 209 creates substantial confusion for creditors, debtors, garnishees, attorneys, courts, judges and anyone else involved with the debt collection process,'' he argued.
And Johnson said that creditors who don't interpret the initiative language correctly can be held liable under laws governing the activities of debt collectors.
Maricopa County Superior Court Judge John Blanchard, who heard the initial case, found no merit in the claim.
He pointed out that the challenged language already exists in a 1986 version of a similar law. And yet, he said, lawyers and the courts have managed to work with it for years.
What's really behind the effort, Blanchard said, is political.
"While the scope of the law is wide-ranging and impacts important and long-standing processes for collecting debts, the language at issue is neither vague nor unintelligible,'' he wrote. Instead, Blanchard said, the arguments advanced by Johnson really boil down to why the lenders and others think the initiative should have failed at the ballot box.
"That time, however, has passed,'' the judge said. "The voters have approved Prop 209.''
And they did so in November by a margin of nearly 3-1.
The appellate court, in its new ruling, was no more sympathetic. And Cruz, in writing the decision, also took challengers to task for arguing that the clause and its wording about when it applied could not be understood.
"Applying statutes 'prospective only' has deep roots in Arizona,'' Cruz wrote. She even pointed out out that the first state legislature in 1913 spelled out that no law is retroactive unless expressly declared to be.
"Given the statute's long existence, it's no surprise that Arizona courts have developed a rich body of of case law implementing its limitation on lawmaking,'' he judge wrote.
In fact, the judge pointed out, the crafters of Prop 209 even provided three examples of when it does not apply, avoiding the confusion that Johnson claimed.
And Cruz said there was another fatal flaw in the efforts by creditors to use the claim of vagueness to try to quash the entire Proposition 209 and its limits.
She said that any bid to strike down an entire law -- what Johnson was asking the court to do here -- requires a showing that it is unconstitutional in all situations. And the law impacts all sorts of issues including wage garnishments, exemptions for homestead, motor vehicles and property, seizing funds held in bank accounts, and interest on medical debt.
"Yet the judgment creditors challenged only the Savings Clause's application to wage garnishment,'' the judge said, and not the rest of the statute. But that's just the beginning, Cruz wrote.
"And they challenged only the Savings Clause's applications to particular wage garnishments -- those where judgment being enforced was obtained pre-act but the garnishment proceeding it initiated post-act,'' she continued. "Further, the judgment creditors challenged only the Savings Clause's application to a narrow set of pre-act judgments -- those stemming from contracts formed prior to the act's effective date.''
What that means, Cruz said, is they had no basis to even try to strike down the entire Proposition 209.
There was no immediate response from Johnson.
On X and Threads: @azcapmedia