Farris v. Advantage Capital Corp.

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

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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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