Madison v. Groseth (6/5/2012)

June 14, 2012

Arizona Court of Appeals Division One Holds That Under A.R.S. § 33-811(C), a Trustor Waives All Defenses and Objections to a Trustee’s Sale if It Does Not Obtain an Injunction Before the Sale.

In 2006, Plaintiff Madison purchased Property using a loan secured by a Deed of Trust on the Property.  After Madison stopped making payments on the loan, the beneficiary of the Deed of Trust recorded a Notice of Trustee’s Sale and ultimately set it for March 25, 2010.  On February 19, 2010, Madison filed a complaint seeking to enjoin the foreclosure sale and simultaneously recorded a lis pendens on the Property.  She did not, however, seek to preliminarily enjoin the March 25 sale, which went forward. Appellees Cyler and Roxanne Groseth purchased the Property at the sale and when Madison refused to vacate the Property, they obtained a judgment on finding her guilty of forcible detainer and granting them immediate possession of the Property.  On December 7, 2010, Madison filed the instant lawsuit against the Groseths and others alleging various tort claims and seeking the return of the Property plus damages.  The superior court granted the defendants’ motions to dismiss and declared Madison a vexatious litigant, imposing restrictions on her ability to file future suits.  Madison timely appealed.      

The ArizonaAppeals Court affirmed in part and reversed in part.  The Court first held that Madison could not pursue her tort claims – which all stemmed from the trustee’s sale and her objections to that sale – because she had waived those objections by failing to obtain an injunction of the sale as required by A.R.S. § 33-811(C).  That statute states in relevant part:  “The trustor, its successors or assigns, and all persons to whom the trustee mails a notice of a sale under a trust deed pursuant to A.R.S. § 33-809 shall waive all defenses and objections to the sale not raised in an action that results in the issuance of a[n] [injunction of the sale]. . . .” 

The Court rejected Madison’s assertion that the statute did not apply because the Groseths did not prove that the trustee had mailed her a notice of the trustee’s sale, explaining that the plain language of the waiver statute did not require the trustee to comply with the mailing requirements of A.R.S. § 33-809.  In any event, the Court held that Madison was afforded due process because the record established that she received notice of the sale, and in fact filed suit to stop the sale.  The Court also rejected her argument that the waiver provision does not apply because she had filed a lis pendens, explaining that a lis pendens is a procedural device that cannot substitute for an injunction for purposes of avoiding the waiver provision.  See BT Capital, LLC v. TD Service Co. of Ariz., 633 Ariz. Adv. Rep. 38, ¶ 14 (May 4, 2012). The Court rejected Madison’s argument that the waiver provision did not apply because the Groseth’s were not bona fide purchasers, explaining that A.R.S. § 33-811(C) did not impose such a requirement.   

The Court, however, reversed the superior court’s determination that Madison was a vexatious litigant.  The Court adopted the standard for imposing pre-filing restrictions on a vexatious litigant set forth in De Long v. Hennessey which, among other things, requires a court to make “substantive findings as to the frivolous or harassing nature of the litigant’s actions.”  912 F.2d 1144, 1147-48 (9th Cir. 1990).   Because the superior court did not make any findings that either the present case or prior lawsuits were frivolous or demonstrated a pattern of harassment that would justify future restrictions on access to the court, its judgment declaring Madison a vexatious litigant and imposing restrictions could not stand.   

Judge Timmer authored the opinion; Judges Portley and Gould concurred.