Yesterday was a good day for homeowners in Arizona, yet in a very quiet way. Often in the law, it is the seemingly bone-dry incremental progress that can change the whole chess game. I think most lawyers have expended some effort trying to explain their exuberance over a seemingly tiny development to audiences including our own clients who are distinctively, “meh?” about it. These kind of “victories” don’t lend themselves to splashy headlines, but they are the steady workhorses of our system of law. One great appellate decision can wipe out hundreds of wrongly decided trial court decisions in a single bound.
We discussed a couple of important decisions by the Arizona Court of Appeals last year, the Stauffer case (deigning to read the unambiguous language of the Arizona statute prohibiting the recording of documents against real property that are false, groundless, forged, contain material misstatements, or are otherwise invalid, and recognize a very common sense principle that an owner of real property had a stake in bringing claims for false documents recorded against his own property, whether that real property was subject to a deed of trust or not), and Steinberger v. McVey, in which the dismissal on the pleadings (another whole story in itself, the perversion of notice pleading that had been going on in an apparent attempt to roughshod foreclose as many Arizona homes as possible) of various homeowner claims related to false authority, and false claims to the Note and Deed of Trust, and procedural an substantive unconscionability in modification terms and loan terms were at least reversed and remanded, with a reminder of the long-standing and inviolate principle that a plaintiff’s facts in a Complaint are taken as true , as long as they plausibly suggest facts and law supporting the claims, and are not just bald recitals of the claims with no supporting facts.
So the bank losers in the Steinberger case petitioned for the Arizona Supreme Court to review the case on almost every claim, imperiously claiming that the sky would essentially fall if the law were evenly applied in a pragmatic sense. Why, argued the petitioners, should lofty bankers, aka loan servicers (especally loan servicers acting like shifty carnival-style grifters in conducting bait-and-switch modifications) have to be subject to the same negligence principles as everybody else. Because after all, so the argument seemed to go, why should the homeowner’s sole banker contact, cloaked -at least seemingly, to the homeowner– as the decision-making authority authorized to decide the fate of the homeowner getting kicked to the curb, on a whim, why should this “Decider” have to tell the truth to the people it wielded such ill-deserved power over. Remember, I am not exaggerating when I report that these loss mitigation employees sported such dubious resumes as being ex-convicts, GED-educated (at best) temporary employees hired by the banks in droves with no underwriting experience, no managerial experience, no prior job experience above a minimum-wage type gig and who were so cheaply bought off that a simple Olive Garden gift card would suffice to provide the incentive to deny and purge en masse numerous home owner loan modifications. Your home for an unlimited pasta bowl. Let them eat cake.
Yesterday, the Arizona Supreme Court denied the petition for review. As such, Steinberger stands as the highest decision of an Arizona court on the specific issues raised in Steinberger and how they could maintain a claim for negligence per se, and other unfair practices. One can draw an inference that these cases were not incorrectly decided, or at least not sufficiently to warrant the oversight of the Arizona Supreme Court.
Why should the federal court care? Because Arizona state courts are the highest authority on state law claims. When a federal court is deciding an issue of state law (exercising supplemental jurisdiction) it must estimate what the highest state court would hold on that issue. The Arizona Supreme Court stopped short of hearing and reaffirming the holdings of both Stauffer and Steinberger. But what this means is that those cases stand as the highest law, with the inference if not the imprimatur of the Arizona Supreme Court’s stamp of, if not approval, definitely not disapproval.