LEVERAGED LAND COMPANY, LLC v. Hodges

ECKERSTROM, Presiding Judge,

dissenting.

¶ 34 Under our state’s statutory scheme, a party with the ability to redeem a tax lien is entitled to do so at any time before a foreclosure judgment is entered, § 42-18206, and, in the event judgment is entered after service by publication, within one year of the judgment. Sw. Metals Co. v. Snedaker, 59 Ariz. 374, 380, 389, 129 P.2d 314, 317, 321 (1942). If a redemption is made, the redeeming party is bound to reimburse the tax lien holder for all the taxes paid plus an annual interest rate determined by auction, which cannot exceed sixteen percent. See A.R.S. §§ 42-18053CA), 42-18114, 42-18118(A)-(B), 42-18153(A), 42-18155(A). In the absence of a redemption, a tax lien holder may initiate a foreclosure action in order to obtain title to the property. A.R.S. §§ 42-18201, 42-18204.

¶ 35 This scheme erects a delicate balance that both encourages the purchase of tax liens, thereby ensuring the state receives the taxes it is owed, while simultaneously providing ample opportunity for owners of homes or other property to ultimately retain their property by redemption. In the context of this scheme, the purpose of the attorney fee provision in § 42-18206 is apparent: to make tax lien holders whole for any legal fees they incurred in taking the steps necessary to foreclose before the property owner demonstrated, by taking specific statutory steps, the ability and intent to redeem. See Hunt Inv. Co. v. Eliot, 154 Ariz. 357, 361-62, 742 P.2d 858, 862-63 (App.1987) (affirming substantially reduced fee award under predecessor statute to § 42-18206 when record supported conclusion that requested fees were “unnecessary or unreasonable”).

¶ 36 In short, § 42-18206 logically allows the tax lien holder to recover from the redeeming property owner necessary fees and costs that could have been spared by an earlier redemption on the part of the property owner. In my view, the majority’s broad interpretation of § 42-18206 so as to require the redeeming party to essentially pay all attorney fees, of any species, non-frivolously incurred by the tax lien holder in a foreclosure action — including those fees incurred in unsuccessful, discretionary, contested litigation such as that here — upsets this delicate balance. I, therefore, respectfully dissent.

¶ 37 The majority reaches the result it does today by following the “plain language” of § 42-18206.11 On its face, the language of this statute supports such a broad construction — its wording does not expressly limit the type of fees included in its purview. But, I cannot agree that the vague term “reasonable attorney fee” conveys as plain a meaning as that ascribed to it by my colleagues. In my view, our understanding of a “reasonable attorney fee” in this context — and whether that phrase unambiguously includes fees for all types of litigation as the majority suggests — must be informed by the statutory scheme within which § 42-18206 is embedded. See Estate of Hernandez v. Ariz. Bd. of *453Regents, 177 Ariz. 244, 251, 866 P.2d 1330, 1337 (1994); see also Hayes v. Cont’l Ins. Co., 178 Ariz. 264, 268, 872 P.2d 668, 672 (1994) (when ambiguous, court looks to “statute’s context; its language, subject matter, and historical background; its effects and consequences; and its spirit and purpose” to determine legislative intent).

¶ 38 The majority correctly observes that we do not interpret statutes so as to create an absurd result. See Lake Havasu City v. Mohave County, 138 Ariz. 552, 557, 675 P.2d 1371, 1376 (App.1983). Yet, I fear the majority’s construction of the statute creates precisely that. Notably, § 42-18206, by its express terms, is triggered only upon the successful redemption of the property by its owner. Based on the majority’s construction of the provision, the redeeming property owner must pay for all of the lien holder’s attorney fees that are non-frivolously incurred, including those incurred, as here, to pursue several unsuccessful legal challenges to the redemption. If, on the other hand, a tax lien holder raises a successful challenge to the redemption, it receives no compensation for its fees at all.

¶ 39 Thus, under the majority’s interpretation, § 42-18206 is uniquely designed to shift the tax lien holder’s cost of unsuccessful litigation onto the prevailing redeeming party, thereby creating clear incentives for the lien holder to vigorously challenge, through litigation, the property owner’s right to redeem. From the perspective of the tax lien holder, an aggressive and expensive litigation posture would have the salutary effect of discouraging redemption by property owners unable to afford both their own litigation costs and those of the lien holder. I cannot agree that the legislature intended to so encourage litigation, to reward non-meritorious legal arguments, or to erect unnecessary, and potentially substantial, financial barriers for delinquent property owners to come current on their taxes.

¶ 40 The majority suggests that any other approach would discourage tax lien holders from litigating questions fully and reasonably. But, the presumption that each party bears his or her own attorney fees expended in discretionary litigation, Bennett v. Baxter Group, Inc., 223 Ariz. 414, ¶ 19, 224 P.3d 230, 235 (App.2010), creates the appropriate incentive for all parties to litigate only when the chance of prevailing on the legal question justifies the expense. Moreover, nothing in our statutory scheme suggests that the tax lien holder is the favored party at any stage in the proceedings. See Harbel Oil Co. v. Steele, 83 Ariz. 181, 185, 318 P.2d 359, 362 (1957) (noting policy in favor of property redemption).

¶ 41 The majority holds that plaintiffs are entitled to all attorney fees unless, at the time they were expended, the right of the other party to redeem was “apparent to all concerned ... [and] further resistance was unreasonable.”12 Not only is there no authority for that particular standard, I believe this approach to be misguided for two reasons. First, assuming arguendo there is an analytical difference between legal arguments raised when it is apparent that they will be unsuccessful and the frivolous claims enumerated in A.R.S. § 12-349(A), trial courts and parties will be forced to grapple with this unclear distinction at length, and a significant amount of financial and judicial resources will be consumed in ancillary proceedings to determine which unsuccessful arguments were “sufficiently ... meritorious” to be compensable.

¶ 42 Second, I believe the majority mistakes the relatively simple determination of reasonableness called for by the statute-such as whether the rate charged by the plaintiffs attorney and the hours expended in seeking the foreclosure were reasonable— with the separate, more complex issue of the reasonableness of the scope of litigation. Given the mandatory nature of the fee award and the straightforward issues typically presented in an action to foreclose a right to redeem — namely, whether the parties served with process have timely paid the money *454required to redeem — I think it most unlikely the legislature contemplated the propriety of shifting fees incurred for contested, discretionary litigation or believed the phrase “reasonable attorney fee” would need any modification to clarify the nature of the attorney fees authorized by § 42-18206. I would therefore hold that § 42-18206 entitles a plaintiff to recover only those attorney fees and costs reasonably incurred in seeking to foreclose a plaintiffs right to redeem, but not those fees incurred in discretionary litigation opposing the redemption.13 At minimum, I would hold, as a matter of law, that legal fees spent pursuing unsuccessful legal arguments are not “reasonable” within the meaning of § 42-18206.

¶ 43 In my view, the issue raised by LLC does not turn on debatable questions of public policy but may instead be resolved by way of a sensible statutory construction that avoids absurdity and effectuates the intent of the legislature. I have no doubt that the Depression-era legislators who enacted the predecessor statute to § 42-1820614 did not intend to penalize redeeming parties — -including those attempting to prevent foreclosure of their family home — by making them pay their opponent’s unsuccessful, discretionary litigation expenses. I therefore cannot join with that portion of my colleagues’ opinion relating to LLC’s fees.

¶ 44 Similarly, the “apparent ... [and] unreasonable” and “sufficiently ... meritorious” tests the majority announces find no support in either the language of § 42-18206 or the context of the statutory framework within which § 42-18206 resides. The extant statutory scheme relating to tax lien purchases, foreclosure, and redemption is an elegant system that carefully structures financial incentives. That system, I fear, will be significantly damaged by today’s decision, which renders § 42-18206 an anomalous, litigation-breeding provision. I agree with the eogently written majority opinion in all other respects.

. Although the majority quotes from Southwest Metals to suggest a plaintiff is entitled to "all that he has expended” in the event of a redemption, that case did not address or resolve the fee issue now before this court. 59 Ariz. at 391-92, 129 P.2d at 322. Read in context, our supreme court’s comment in Southwest Metals was merely intended to contrast the full recovery of the plaintiff, Snedaker, with the proportionate recovery of a non-party, Colvocoresses, who had an interest in the foreclosed property by virtue of his ownership of a portion of stock in the dissolved corporation that was the named defendant. Id. at 377-78, 391-92, 129 P.2d at 316, 321-22. The fact-specific passage from which the quotation is drawn was merely intended to advise the trial court on how to proceed if a redemption occurred upon remand. Id. at 390-91, 129 P.2d at 322. The Southwest Metals court was not engaging in statutory interpretation in this passage, and there are no broad legal principles to be drawn from it.

. In this way, the majority supplements the "plain language" of the statute with a judicial definition of the term "reasonable.” Its alternative formulation of the test is whether the plaintiffs objections to redemption “were sufficiently reasonable and meritorious to justify expenditure of the fees.”

. Despite the extensive litigation in this particular case, our statutes do not anticipate contested legal issues arising from redemption. For instance, A.R.S. § 42 — 18154(A) provides that “if the county treasurer is satisfied that the person has the right to redeem the tax lien, and if the person pays the amount due, the county treasurer shall issue to the person a certificate of redemption.” Redemption thus appears to be primarily an administrative matter.

. 1931 Ariz. Sess. Laws, ch. 103, § 48.