SUPREME COURT OF ARIZONA.
En Banc
MARIAN B. FARRIS, an unmarried ) Arizona Supreme Court
woman, ) No. CV-07-0114-CQ
)
Plaintiff, ) United States
) District Court
v. ) No. CIV06-01238-PHX-PGR
)
ADVANTAGE CAPITAL CORPORATION, a )
New York corporation, )
) O P I N I O N
Defendant. )
)
__________________________________)
Certified Question from the
United States District Court for the District of Arizona
The Honorable Paul G. Rosenblatt, Judge
Question Answered
________________________________________________________________
GALLAGHER & KENNEDY, P.A. Phoenix
By David W. Lunn
Attorneys for Marian B. Farris
FENNEMORE CRAIG, P.C. Phoenix
By Janet Weinstein
James D. Burgess
Janice Procter-Murphy
Attorneys for Advantage Capital Corporation
________________________________________________________________
R Y A N, Justice
¶1 Arizona law permits a party to a legal “action
affecting title to real property” to file a lis pendens with the
county recorder. Ariz. Rev. Stat. (“A.R.S.”) § 12-1191(A) (2003
& Supp. 2006). The filing provides notice to interested persons
that the property is subject to litigation.
¶2 The United States District Court for the District of
Arizona has asked us whether a creditor’s action under Arizona’s
version of the Uniform Fraudulent Transfer Act (“UFTA”), A.R.S.
§§ 44-1001 to -1010 (2003), to void a debtor’s allegedly
fraudulent transfer of real property and thus make the property
available for the payment of a debt or judgment, is an action
“affecting title to real property” under the lis pendens
statute. We accepted jurisdiction of the certified question
because the answer “may be determinative of the cause [] pending
in the certifying court.” A.R.S. § 12-1861 (2003). Our answer
to the question is yes.
¶3 The District Court’s certification order details the
relevant facts. Advantage Capital Corporation (“Advantage”) is
a licensed securities brokerage firm. In December 2005,
Advantage terminated the employment of Charles Bolton, a
registered representative. Advantage customers later complained
to the company that some $649,000 was missing from their
accounts. In 2006, Advantage sued Bolton in superior court to
recover the missing funds. The suit also named Bolton’s wife
and Marian B. Farris, Bolton’s mother, as defendants. Advantage
alleged that the sale of the Boltons’ residence to Farris in
September 2005 was a fraudulent transfer and sought to void the
sale. See A.R.S. § 44-1007(A)(2) (providing for the avoidance
of a transfer “to the extent necessary to satisfy [a] creditor’s
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claim”). At the same time, Advantage filed a lis pendens
against the property. See A.R.S. § 12-1191(A). Farris, in
turn, filed a suit in superior court seeking removal of the lis
pendens and damages. Advantage subsequently removed Farris’s
action to the District Court based on diversity jurisdiction.
¶4 The District Court’s certified question followed. We
have jurisdiction under Article 6, Section 5(6), of the Arizona
Constitution and A.R.S. § 12-1861.
¶5 We interpret statutes to “give effect to the
legislature’s intent.” Parrot v. DaimlerChrysler Corp., 212
Ariz. 255, 257, ¶ 7, 130 P.3d 530, 532 (2006) (internal
quotation omitted). A statute’s plain language is the best
indicator of legislative intent, and we will not “engage in
other means of statutory interpretation” unless a statute is
ambiguous. Id. (explaining that a statute is unambiguous “when
it admits of only one meaning”) (internal quotation and
citations omitted).
¶6 Arizona’s lis pendens statute provides as follows:
In an action affecting title to real property, the
plaintiff at the time of filing the complaint, or
thereafter, and the defendant at the time of filing
the defendant's pleading when affirmative relief is
claimed in such pleading, or thereafter, may file in
the office of the recorder of the county in which the
property is situated a notice of the pendency of the
action or defense.
A.R.S. § 12-1191(A). The crucial question, in determining the
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propriety of a lis pendens, is whether the underlying action
“affect[s] title to real property.” Id.
¶7 Arizona’s version of the UFTA provides rights to
creditors against debtors who evade their financial
responsibilities. Under the UFTA, a creditor is a “person who
has a claim.” A.R.S. § 44-1001(3). The UFTA broadly defines
the term “claim” to include “a right to payment, whether or not
the right is reduced to judgment, . . . disputed, undisputed,
legal, equitable, secured or unsecured.” A.R.S. § 44-1001(2);
see also Kaufmann v. M & S Unlimited, L.L.C., 211 Ariz. 314,
317, ¶ 9, 121 P.3d 181, 184 (App. 2005). A creditor may seek
relief “against a transfer . . . under this article . . . [by]
[a]voidance of the transfer . . . to the extent necessary to
satisfy the creditor’s claim.” A.R.S. § 44-1007(A)(2).
¶8 The UFTA does not require a creditor to reduce a claim
to a judgment before seeking to void a debtor’s allegedly
fraudulent transfer of property. The UFTA allows the levy of
execution when a creditor has obtained a judgment, but does not
require a judgment before a creditor may seek relief from an
allegedly fraudulent transfer, including avoidance. Compare
A.R.S. § 44-1007(B) (allowing the levy of execution “if a
creditor has obtained a judgment”), with id. § 44-1007(A)(2)
(allowing creditor to seek avoidance of a transfer).
¶9 The transfer of real property requires the transfer of
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title, necessarily affecting how title is held. Accordingly,
the remedy provided by the plain language of the UFTA answers
the question of whether a fraudulent transfer claim “affect[s]
title” under A.R.S. § 12-1191(A). The UFTA allows a court to
undo a transaction, thus, returning title to its rightful owner.
A.R.S. § 44-1007(A)(2). Judicially determining the identity of
the holder of title necessarily “affect[s] title.”
¶10 This interpretation comports with the intent of both
the UFTA and the lis pendens statute as demonstrated by the
language of these statutes. The UFTA limits a creditor’s rights
against property taken by a “good faith transferee who took for
value or from any subsequent transferee.” A.R.S. § 44-
1008(B)(2). Thus, a subsequent sale by a transferee without a
lis pendens may cut off the creditor’s right, and the court’s
power, to undo the prior transfer. Tucson Estates, Inc. v.
Superior Court (Homeowners’ Ass’n of Tucson Estates), 151 Ariz.
600, 604, 729 P.2d 954, 958 (App. 1986) (noting that one purpose
of a lis pendens is to prevent “‘third persons from acquiring,
during pendency of the litigation, interests in the property
which would prevent the court from granting suitable relief or
such as would vitiate a judgment subsequently rendered in the
litigation’”) (citation omitted). Without the creditor’s lis
pendens, evasive debtors may secure the benefit of their
fraudulent transfers and impede collection. See A.R.S. § 44-
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1004(A)(1) (noting that a transfer is fraudulent as to a
creditor when it is made with intent to “hinder, delay or
defraud any creditor”). The UFTA does not contemplate such a
result. See Hullett v. Cousin, 204 Ariz. 292, 295, ¶ 11, 63
P.3d 1029, 1032 (2003) (“[T]he UFTA’s purpose is to protect
creditors.”) (citation omitted).
¶11 Farris nevertheless maintains that a valid lis pendens
requires that a litigant have an “interest” in obtaining the
property; consequently, a lis pendens is appropriate only when a
party seeks to establish a personal legal claim to the property.
As explained above, nothing in A.R.S. § 12-1191(A) so limits a
lis pendens. Cf. Tucson Estates, 151 Ariz. at 604, 729 P.2d at
958 (“[W]e believe that the legislature’s only purpose in
enacting the lis pendens statute was to require that a notice be
recorded in order for the doctrine to apply. We see no intent
to restrict or delineate the types of actions to which the
doctrine applies.”). As a result, the lis pendens statute
applies in fraudulent transfer actions seeking avoidance of a
transfer of real property.
¶12 The Arizona cases on which Farris relies do not
support her contention. For example, Farris cites two opinions
holding that a lis pendens is inappropriate after the filing
party had forgone the remedy of specific performance of a real
estate contract or filed a lis pendens in an action on a debt.
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In West Pinal Family Health Center, Inc. v. McBryde (Holmes),
the court recognized that a lis pendens is crucial to securing a
party’s right to specific performance, that is, to ensuring that
the court could restore title to the rightful owner. 162 Ariz.
546, 549, 785 P.2d 66, 69 (App. 1989). But when a party forgoes
the very remedy that affects title, a lis pendens is not
appropriate. Id. In Mammoth Cave Production Credit Ass’n v.
Gross, a party filed a lis pendens in an action on a debt, which
the court held was not permissible under A.R.S. § 12-1191(A)
because no relief concerning the title to real property was
sought. 141 Ariz. 389, 392, 687 P.2d 397, 400 (App. 1984).
¶13 West Pinal Family Health and Mammoth Cave stand for
the proposition that a lis pendens is not a tool for a litigant
to secure a potential money judgment by tying up a debtor’s real
property. On the other hand, an action seeking to void a
fraudulent transfer does not implicate this concern because the
creditor is not seeking to prevent a debtor from validly
liquidating assets. The avoidance remedy instead seeks to
transfer title back to a debtor who has wrongfully disposed of
property to avoid creditors.
¶14 Farris also asks the Court to consider opinions from
other jurisdictions that she claims support her argument.
Farris candidly acknowledges, however, that authorities around
the country diverge on this point, with most courts opposing her
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position.1 Even so, that some courts agree with Farris’s
argument is not a reason for us to disregard plain statutory
language. Further, some of the cases on which Farris relies
simply do not support her position.
¶15 To the extent that Farris urges us to adopt the
reasoning of the Massachusetts Court of Appeals and the United
States Bankruptcy Court for the Middle District of Florida
(applying Florida law) requiring that a creditor wait until he
or she has obtained a judgment before filing a lis pendens, we
decline to do so given the plain language of Arizona’s statutes.
See In re Cameron, 359 B.R. 823, 824 (Bankr. M.D. Fla. 2006);
see also Shrewsbury v. Seaport Partners, Ltd. P’ship, 826 N.E.2d
203, 207 (Mass. App. Ct. 2005).
¶16 Other cases offer little support. For example, Psaki
v. Ferrari, 546 A.2d 1127 (Pa. Super. Ct. 1988), does not help
Farris. There the court rejected the lis pendens filed by a
creditor against a third party’s property based on a debt of
1
E.g., Sports Shinko Co., v. QK Hotel, LLC, 457 F. Supp. 2d
1121, 1130 (D. Haw. 2006) (“A fraudulent conveyance action
seeking such relief is seeking statutory avoidance of a real
property transfer; the Court finds that such an action directly
affects the title of real property pursuant to the lis pendens
statute and Hawaii Supreme Court precedent . . . .”); see also
Kirkeby v. Superior Court (Fascenelli), 93 P.3d 395, 399-400
(Cal. 2004) (holding that because a “fraudulent conveyance
claim[,] . . . if successful, may result in the voiding of a
transfer of title of specific real property[,] [b]y definition,
the voiding of a transfer of real property will affect title to
or possession of real property”).
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another. Id. at 1128. In Psaki, however, the lis pendens was
filed against property that was never the subject of litigation;
no action to avoid the transfer to the third party had been
commenced. Id. Moreover, Pennsylvania did not adopt its
version of the UFTA until 1993, four years after Psaki was
decided. 1993 Pa. Legis. Serv. 70 (West).
¶17 Likewise, National City Bank, Indiana v. Shortridge,
689 N.E.2d 1248 (Ind. 1997), is of no help to Farris. The court
there considered whether it was an abuse of process for a
plaintiff’s lawyers to file a successive lis pendens while a
judicial decision on a prior lis pendens was pending. Id. at
1252-54. Although the court suggested that, in Indiana, a lis
pendens is available only to “a person with an in rem interest
in property,” nothing in the court’s discussion of Indiana law
considered a statute like Arizona’s. Id.
¶18 To be sure, A.R.S. § 12-1191(A) is not a license to
litigants to freeze their opponents’ real property and in some
cases may be subject to abuse. Indeed, the legislature has
recognized as much in A.R.S. § 33-420. Under that statute, one
who
causes a document asserting [a] claim to be recorded
. . . knowing or having reason to know that the
document is forged, groundless, contains a material
misstatement or false claim or is otherwise invalid is
liable to the owner or beneficial title holder of the
real property for the sum of not less than five
thousand dollars, or for treble the actual damages
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caused by the recording, whichever is greater, and
reasonable attorney fees and costs of the action.
A.R.S. § 33-420(A).
Further,
[a] person purporting to claim an interest in, or a
lien or encumbrance against, real property, who causes
a document asserting such claim to be recorded . . .
knowing or having reason to know that the document is
forged, groundless, contains a material misstatement
or false claim or is otherwise invalid is guilty of a
class 1 misdemeanor.
Id. § 33-420(E). However, because an action under A.R.S. § 44-
1007(A)(2) for avoidance plainly affects title to real property,
our statutes authorize a creditor to file a lis pendens under
the circumstances presented by this case.
¶19 Therefore, in answer to the District Court’s certified
question, we hold that an action under Arizona’s version of the
UFTA seeking to void an allegedly fraudulent transfer of real
property is one “affecting title to real property” under A.R.S.
§ 12-1191(A), the lis pendens statute.
_______________________________________
Michael D. Ryan, Justice
CONCURRING:
_______________________________________
Ruth V. McGregor, Chief Justice
_______________________________________
Rebecca White Berch, Vice Chief Justice
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_______________________________________
Andrew D. Hurwitz, Justice
_______________________________________
W. Scott Bales, Justice
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