Judge rejects Prop. 209 challenge

PHOENIX — A judge has slapped down efforts by a group of lenders, debt collectors and their attorneys to void new voter-approved protections from creditors.

Maricopa County Superior Court Judge John Blanchard rejected arguments by challengers to Proposition 209 that a provision of what outstanding debts were affected are so “vague” and “unintelligible” to make the entire law legally unenforceable. He said there’s nothing confusing about it.

In fact, Blanchard said the language in the new law that attorney Brett Johnson is challenging 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, the judge 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.

Rodd McLeod, spokesman for Healthcare Rising Arizona which got the measure on the ballot and secured its approval, praised the ruling.

“We voted to lower interest rates on medical debt and protect people’s homes,” he said in a prepared statement. “Greedy debt collectors and their lawyers trying to overturn the will of the people should get the message.”

The measure was advertised 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 could be seized under garnishment actions.

Johnson, in his legal arguments, acknowledged his clients were unhappy with what voters had approved.

“By increasing the exemptions and reducing the garnishment rates on all 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, that left Johnson to raise legal arguments about one provision that has to do with the effective date: 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, 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.

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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, Prop209 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.

“To be sure, Prop 209 is complex,” the judge acknowledged. And he said there is bound to be “some element of uncertainty and confusion” following such a comprehensive change.

But Blanchard wasn’t buying Johnson’s arguments that the language crossed the line.

“Opposition and generalized confusion regarding a new and complex re-work to Arizona garnishment and collection laws does not make that legislation unconstitutionally vague,” he wrote. “Legislation is not vague simply because it is new and untested.’’

And the judge specifically rejected an alternative request by foes of the law that if he won’t void the entire thing that he declare that the measure and its limits affect only new debts, even if a garnishment proceeding began after Dec. 5.

“Plaintiffs request that the court rewrite Prop 209 to limit its scope through a more restrictive interpretation of the savings clause,” Blanchard wrote.

“In essence, plaintiffs’ request for declaratory relief is asking the court to change the words of the law to confirm a more favorable interpretation of Prop 209,” he continued, meaning one that would exempt the new limits on what lenders can do from more situations. And the judge said he wasn’t going to do that.’’

“It is not the function of the courts to rewrite statutes,” Blanchard said.

The new ruling affects more than just the lenders, debt collectors and their attorneys who sought want legal relief. Johnson also filed his lawsuit on behalf of two homeowner associations which routinely go to court to collect unpaid dues from homeowners and have current garnishment proceedings underway.

There was no immediate response from Johnson.

The success of the measure could spawn similar efforts in other states.

“Before now, voters had never taken up medical debt on a statewide ballot measure,” Kelly Hall, executive director of the national Fairness Project said in a statement following voter approval here. Her organization bills itself as supporting “progressive ballot measures.”

“Arizonans have charted a path forward to take on predatory lenders through direct democracy,” she said. “We look forward to working with citizens in other states who want to pass more ballot measures to protect working families from exploitative lending practices.”