PHOENIX — The state Court of Appeals has rebuffed efforts by lenders, debt collectors and attorneys to void a voter-approved law designed to protect Arizona consumers.
A three-judge panel found no merit to the challengers’ claims a provision of Proposition 209 was “vague and unintelligible” and therefore unenforceable. Voters approved the law in 2022 by a margin of nearly 3-1.
Judge Maria Elena Cruz, writing for the panel, acknowledged that a law can be declared void for vagueness when it does not provide someone with “ordinary intelligence’’ a reasonable opportunity to avoid violating the statute, and doesn’t give 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.’’
In this case, Cruz wrote, there is little doubt about the meaning of the questioned clause, which says the requirements of Proposition 209 are prospective only.
The measure was promoted to voters primarily as a way to cap annual interest on 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, up from $6,000. And up to $25,000 in equity in a motor vehicle also is protected, compared with $12,000 under the old law.
There is also 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 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 wrote.
But because the measure was approved by the time the lawsuit was filed, that left Johnson to try to have it voided on legal grounds. He raised legal arguments about the provision, called the “Savings Clause,” that has to do with the effective date.
It spells out that the law 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 that say state law cannot interfere with existing contracts.
Johnson said that’s not enough. He said the 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 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 it all applies. That “ambiguity’’ will harm everyone connected with debt collections, he argued.
“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 wrote.
Creditors who don’t interpret the initiative language correctly can be held liable under laws governing the activities of debt collectors, Johnson said.
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. Lawyers and the courts have managed to work with it for years, the judge said.
“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,’’ Blanchard wrote.
Instead, the judge 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.’’
The appellate court, in its new ruling, was no more sympathetic.
Cruz, in writing the decision, also took challengers to task for arguing that the clause and its wording could not be understood.
“Applying statutes ‘prospective only’ has deep roots in Arizona,’’ Cruz wrote. The first Arizona state legislature in 1913 spelled out that no law is retroactive unless expressly declared to be, she pointed out.
“Given the statute’s long existence, it’s no surprise that Arizona courts have developed a rich body of case law implementing its limitation on lawmaking,’’ Cruz said.
In fact, the judge pointed out that the crafters of Prop. 209 provided three examples of when it does not apply.
Cruz said there was another fatal flaw in creditors’ efforts to use the claim of vagueness to try to quash the entire proposition and its limits.
She said any bid to strike down an entire law requires a showing that it is unconstitutional in all situations.
In this case, the law affects 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.
“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.
