Proposition 209 was voter initiative approved by the citizens of the State of Arizona in the November 2022 election (“Prop 209"). According to reputable sources, Prop 209 was funded by California special interest groups and unions who used Arizona as a test case due to the ease of running a voter initiative, before rolling out the initiative in other States. Prop 209 was advertised by those who ran the initiative as a way to fight back against predatory medical debt. Unfortunately, the marketing campaign for Prop 209 did not accurately represent its ultimate impact on the law.
The language of Prop 209 was not limited to medical debt, but instead amended multiple garnishment and exemption statutes rendering nearly one-half of all Arizona citizens, including homeowners in community associations, judgment-proof. Prop 209 amended existing law to incorporate, among other things, the following changes:
- The maximum withholding in garnishment was reduced from 25% to 10% of the judgment debtor's disposable income;
- The minimum withholding in garnishment was reduced from 15% to 5%;
- Exemption on earnings were increased from 30 times minimum wage per week to 60 times minimum wage, preventing garnishment of wages unless the judgment debtor makes more than approximately $50,000 per year (which excludes nearly half of the population of the State); and
- The homestead exemption was increased from $250,000 to $400,000, with an automatic increase each year.
The Arizona Creditors Bar Association, Inc., in conjunction with several other plaintiffs, including Desert Ridge Community Association and Augusta Ranch Community Master Association, filed a Complaint against the State of Arizona seeking a temporary restraining order, as well as a permanent injunction preventing the enforcement of Prop 209 as unconstitutionally vague. The litigation focused on the language of the savings clause. The savings clause purports to make application of the statutory changes adopted by Prop 209 prospective only. The language of the Savings clause reads as follows:
This act applies prospectively only. Accordingly, it does not affect the rights and duties that matured before the effective date of this act, contracts entered into before
the effective date of this act or the interest rate on judgments that are based on a written agreement entered into before the effective date of this act.
The Plaintiffs alleged that Prop 209 was unconstitutionally vague because of the contradictions
among the various provisions of the Savings clause. The Savings clause identifies three ways in
which pre-Prop-209 debts will be exempt from application of the initiative: (1) Prop 209 does not affect rights and duties that matured before its effective date; (2) Prop 209 does not affect contracts entered into before its effective date; and (3) Prop 209 does not affect the interest rate on judgments that are based on written agreements entered into before its effective date.
Plaintiffs argued that two of the exemptions are tied to the date the relevant contract is
entered, but one of the exemptions deals with noncontractual actions. Because garnishment actions are considered distinct actions in Arizona, separate from the underlying judgment, a new garnishment imposes new duties arising after the effective date of Prop 209. Thus, the noncontractual element of the Savings clause effectively un-saves all garnishment actions that
would otherwise be exempt from application of Prop 209 according to the date the underlying
contract was entered. Consequently, despite the language of the Savings clause asserting that Prop 209 will apply prospectively only, the language exempting only rights and duties that matured prior to the effective date renders the Savings clause impossibly contradictory.
The trial court failed to focus on the contradiction created by the three applications of the Savings clause and instead focused exclusively on the language exempting rights and duties based on their “maturity" date. The trial court determined that the language exempting rights and duties that matured prior to the effective date was not itself unconstitutionally vague. Consequently, the trial court denied the Plaintiffs' request for an injunction.
Although on its face the pending appeal may not appear to directly raise issues related to community associations, in application, this case will have a tremendous impact on community associations in Arizona. Moreover, if information is correct that Arizona was the first target of a nationwide push to enact similar laws throughout the Country, it has the potential to have a devastating impact everywhere a similar law is passed. Community Associations are only able to function if they have tools that enable them to collect the assessments that fund them. Assessments are the life blood of any community association. And collecting those assessments is a primary objective of any community association. Prop 209 directly impacts the ability of community associations to collect assessments they are owed.
Amicus Brief
Court: Court of Appeals of Arizona
Brief Author: Chad Gallacher, Esq., Austin Baillio, Esq., and Garren Laymon, Esq., of Maxwell & Morgan, P.C., under the supervision of Brian Morgan, Esq., CCAL of Maxwell & Morgan, Arizona.
Filed: August 7, 2023
CAI Amicus Review Panel:
Mr. Robert Diamond, Esq., CCAL, Co-Chair of Amicus Committee (VA)
Mr. Edmund Allcock, Esq., CCAL, Co-Chair of Amicus Committee (MA)
Mr. Augustus Shaw, Esq., CCAL, CCAL BOG Liaison (AZ)
Mr. David Ramsey, Esq., CCAL (NJ)
Ms. Gabriella Comstock, Esq., CCAL (IL)
Ms. Alexis Firehawk, Esq. (AZ)
Ms. Olga Tseliak, Esq. (VA)
Mr. Thomas Slaton, Esq. (FL)