LEVERAGED LAND CO., LLC v. Hodges

SUPREME COURT OF ARIZONA
En Banc

LEVERAGED LAND COMPANY, L.L.C., ) Arizona Supreme Court
an Arizona limited liability ) No. CV-10-0196-PR
company; and NORMAN MONTGOMERY )
and CHERYL MONTGOMERY, husband ) Court of Appeals
and wife, ) Division Two
) Nos. 2 CA-CV 09-0093
Plaintiffs/Appellants, ) 2 CA-CV 09-0094
) 2 CA-CV 09-0095
v. ) (Consolidated)
)
MICHAEL W. HODGES, an unmarried ) Pinal County
man, ) Superior Court
) No. CV200500270
Defendant/Appellee. )
__________________________________)
)
RAVEN II HOLDINGS, L.L.C., an ) O P I N I O N
Arizona limited liability )
company; and HANNA 120 HOLDINGS, )
L.L.C., an Arizona limited )
liability company, )
)
Intervenors/Appellants, )
)
v. )
)
MICHAEL W. HODGES, an unmarried )
man; DAVID H. CAIN, a married )
man, )
)
Defendants/Appellees. )
__________________________________)
)
DAVID H. CAIN, a married man, )
)
Defendant/Counterclaimant/ )
Appellee, )
)
v. )
)
RAVEN II HOLDINGS, L.L.C., an )
Arizona limited liability )
company; and HANNA 120 HOLDINGS, )
L.L.C., an Arizona limited )
liability company, )
)
Intervenors/Counterdefendants/ )
Appellants. )
__________________________________)
DAVID H. CAIN, a married man, )
)
)
Defendant/Counterclaimant/ )
Appellee, )
)
v. )
)
LEVERAGED LAND CO., L.L.C., an )
Arizona limited liability )
company; and NORMAN MONTGOMERY )
and CHERYL MONTGOMERY, husband )
and wife, )
)
Plaintiffs/Counterdefendants/ )
Appellants. )
__________________________________)
)
DAVID H. CAIN, a married man, )
)
Defendant/Third-Party Plaintiff/ )
Appellee, )
)
v. )
)
BINGHAM ARIZONA LAND, L.L.C., an )
Arizona limited liability )
company, )
)
Third-Party Defendant/ )
Appellant. )
)
__________________________________)

Appeal from the Superior Court in Pinal County
The Honorable William J. O'Neil, Judge

VACATED AND REMANDED
________________________________________________________________

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 Opinion of the Court of Appeals Division Two
224 Ariz. 442, 232 P.3d 756 (App. 2010)

VACATED
________________________________________________________________

QUARLES & BRADY LLP Tucson
By Craig H. Kaufman
Jeremy A. Lite
Attorneys for Leveraged Land Co., L.L.C., Norman
Montgomery, and Cheryl Montgomery

BARRY BECKER, P.C. Phoenix
By Barry C. Becker
Attorney for Michael W. Hodges and David H. Cain
________________________________________________________________

B R U T I N E L, Justice

¶1 Under Arizona Revised Statutes (“A.R.S.”) section 42-

18206 (2010), a tax lien purchaser is entitled to a judgment for

costs and reasonable attorney fees if the delinquent taxpayer

redeems the lien after the purchaser commences a foreclosure

action. We hold that a tax lien purchaser is only entitled to

reasonable attorney fees incurred before the lien is redeemed

and a certificate of redemption issues.

I.

¶2 This protracted litigation began in March 2005, when

Norman and Cheryl Montgomery and Leveraged Land, L.L.C.

(collectively “Leveraged Land”) sued to foreclose Michael

Hodges’ right to redeem a tax lien it had purchased. Hodges

failed to appear after being served by publication, and default

judgment was entered in favor of Leveraged Land in June 2005.

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¶3 In November 2005, Hodges moved to set aside the

default judgment, contending that he was able to redeem the tax

lien and that he had been improperly served. The superior court

denied his motion, but the court of appeals reversed, holding

that Hodges had timely demonstrated his ability to redeem and

remanding to allow him to do so. Leveraged Land Co. v. Hodges,

2 CA-CV 06-0210, 2007 WL 5556356, at *3, 5 ¶¶ 10, 19 (Ariz. App.

Aug, 8, 2009) (mem. decision). After Hodges redeemed the lien,

Leveraged Land filed an amended complaint challenging the

validity of the redemption. The superior court granted Hodges’

subsequent motion for summary judgment, dismissed Leveraged

Land’s amended complaint, and entered a final judgment. The

court of appeals affirmed. Leveraged Land Co. v. Hodges, 2 CA-

CV 09-0057, 2009 WL 3087551, at *6 ¶ 20 (Ariz. App. Sept. 24,

2009) (mem. decision).

¶4 While Leveraged Land’s appeal of the summary judgment

was pending, it filed a request under § 42-18206, seeking

$153,182 in costs and attorney fees incurred in litigating

issues related to the tax lien foreclosure, including a

substantial amount incurred after Hodges’ redemption. The

superior court awarded Leveraged Land $1500, ruling that the

requested amount was “unreasonable” and further noting that it

was not “inclined to award costs for the unsuccessful appeal.”

A divided panel of the court of appeals reversed, finding that

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the superior court had abused its discretion in awarding

Leveraged Land only $1500, and holding that Leveraged Land was

entitled under § 42-18206 to costs and reasonable attorney fees

incurred in contesting the redemption. Leveraged Land Co. v.

Hodges, 224 Ariz. 442, 449-50, 451 ¶¶ 25, 29, 232 P.3d 756, 763-

64, 765 (App. 2010).

¶5 We granted Hodges’ petition for review because the

scope of the attorney fees provision in this statute is a matter

of first impression and statewide importance. We have

jurisdiction under Arizona Constitution Article VI, Section 5(3)

and A.R.S. § 12-120.24.

II.

A.

¶6 The question before us is whether § 42-18206 permits

recovery of attorney fees and costs for litigation that occurs

after a taxpayer’s redemption. We review de novo the

interpretation of a statute, aiming to effect the legislature’s

intent. See Zamora v. Reinstein, 185 Ariz. 272, 275, 915 P.2d

1227, 1230 (1996). When, as here, the statutory language is not

clear, we consider not only the text, but also other factors

such as the statute’s context, subject matter, and history.

Id.; see also Ariz. Dep’t. of Revenue v. Action Marine, Inc.,

218 Ariz. 141, 143 ¶ 10, 181 P.3d 188, 190 (2008).

¶7 Section 42-18206 states:

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 Any person who is entitled to redeem under article 4
of this chapter may redeem at any time before judgment
is entered, notwithstanding that an action to
foreclose has been commenced, but if the person who
redeems has been served personally or by publication
in the action, or if the person became an owner after
the action began and redeems after a notice is
recorded pursuant to § 12-1191, judgment shall be
entered in favor of the plaintiff against the person
for the costs incurred by the plaintiff, including
reasonable attorney fees to be determined by the
court.
The court of appeals noted that this statute neither places a

“temporal limit” on recoverable fees nor limits eligibility for

fees “to certain matters and not others.” Leveraged Land, 224

Ariz. at 448 ¶ 21, 232 P.3d at 762. We agree that no express

limitations appear in the statute and that a plaintiff is

entitled to “fully and reasonably” litigate the validity of a

delinquent taxpayer’s redemption. Id. at 449 ¶ 24, 232 P.3d at

763. We do not agree, however, that the legislature intended

§ 42-18206 to relieve the tax lien purchaser from the financial

risk accompanying such litigation by awarding fees incurred

after the redemption.

¶8 Although the legislature did not expressly place

temporal and subject matter restrictions in the text of §42-

18206, such restrictions are apparent from the context of the

statutes governing tax lien redemption. See Action Marine,

Inc., 218 Ariz. at 143 ¶ 10, 181 P.3d at 190 (observing that we

read statutes as a whole, considering context). The legislature

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has created a process for the redemption of tax liens.

Initially, a landowner pays his past-due taxes and redeems the

property through a non-judicial, ministerial event, complete

when the county treasurer issues a certificate of redemption.

See A.R.S. § 42-18154(A). Once redemption is complete, the tax

lien purchaser is eligible to recover costs and fees incurred in

the foreclosure action. See A.R.S. § 42-18206 (if owner

redeems, judgment shall be entered in favor of lien purchaser).

¶9 Because the redemption is complete when the

certificate of redemption issues, an action challenging the

validity of a redemption that has already occurred is not part

of the redemption. See, e.g., Friedemann v. Kirk, 197 Ariz.

616, 617 ¶ 1, 5 P.3d 950, 951 (App. 2000) (validity of tax lien

redemption challenged in quiet title action); see also Green v.

United States, 434 F. Supp. 2d 1116, 1125 (D. Utah 2006) (same).

Rather, the post-redemption litigation, whether a new legal

proceeding or, as here, an amended complaint in the ongoing

foreclosure action, is separate from the redemption. Therefore,

it is not part of the legal action to which § 42-18206 refers.

¶10 Nor does the purpose of § 42-18206 support the broad

construction the court of appeals gave it. See Leveraged Land,

224 Ariz. at 454 ¶¶ 43-44, 232 P.3d at 768 (Eckerstrom, J.,

dissenting). The legislature intended to encourage the

redemption of tax liens through a simple administrative

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procedure, see A.R.S. § 42-18154(A), and to minimize the risks

of purchase by providing for fees and costs in the event of

redemption, see Hunt Inv. Co. v. Eliot, 154 Ariz. 357, 360, 742

P.2d 858, 861 (App. 1987) (when property owners redeem,

purchasers “will be made whole by recovery of all their costs

and attorney’s fees”). Nevertheless, the purchase of a tax lien

is an investment “involv[ing] inherent risks.” Ritchie v.

Salvatore Gatto Partners, L.P., 223 Ariz. 304, 308 ¶ 13, 222

P.3d 920, 921, 924 (App. 2010). Although the potential payoff

is ownership of the subject property for the price of the past

due taxes, the risk of buying a tax lien lies in the possibility

that the delinquent taxpayer will redeem. See Eliot, 154 Ariz.

at 361, 742 P.2d at 862 (lien purchasers risk possibility of

redemption for opportunity to “benefit greatly”). Thus, § 42-

18206 protects against a loss to the purchaser from pre-

redemption litigation, but it does not ensure a profit. Nor

should it subsidize unlimited litigation to contest redemption

in pursuit of that profit.

¶11 The purpose of the statute is merely to make a tax

lien purchaser whole if the landowner redeems. Leveraged Land

agrees that a lien purchaser is entitled to fees and costs under

§ 42-18206 only if redemption occurs. Thus, success in post-

redemption litigation voids the redemption and makes the tax

lien purchaser ineligible for costs and fees under the statute.

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Only tax lien purchasers whose challenges fail, therefore, are

entitled to recover. Unlike the award of pre-redemption

attorney fees, allowing post-redemption attorney fees results in
1
awarding fees to the losing party.

¶12 Thus, interpreting § 42-18206 to allow post-redemption

fees and costs skews the statute to subsidize unsuccessful

litigation. Such a reading creates an incentive for protracted

and potentially meritless litigation. It allows tax lien

purchasers to coerce landowners otherwise able to redeem to

forfeit their property by the threat of continued litigation

conducted at the landowners’ expense. We discern neither a

legislative intent nor any sound policy reason to award fees for

a losing argument, especially when doing so encourages

protracted litigation, discourages redemption, and interferes

with litigants’ and the courts’ interests in finality. See N.

Valley Emergency Specialists, L.L.C. v. Santana, 208 Ariz. 301,

303 ¶ 9, 93 P.3d 501, 503 (2004) (court will not construe

statutes in a manner leading to absurd results). If a tax lien

1
To justify its proposed reading, Leveraged Land repeatedly
refers to § 42-18206 as a statute that awards fees to a “losing”
party. Unlike unsuccessful post-redemption litigation, failure
to foreclose does not involve espousing a legally incorrect
argument; it simply means the rightful owner exercised his or
her right to redeem. Moreover, failing to foreclose is not
“losing” in a practical sense. The lien holder recovers his or
her pre-redemption expenditure plus interest in the event of
redemption, and the only thing “lost” is the opportunity to own
the property.
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purchaser thinks the value of the land, coupled with the

probability of success on the merits, justifies further

litigation to challenge the redemption, the lien purchaser may

pursue additional litigation; but neither the text of § 42-18206

nor sound policy supports requiring the landowner to subsidize

that litigation.

B.

¶13 The entitlement to costs and attorney fees under § 42-

18206 arises at the time of redemption and relates to work

performed before the treasurer’s certificate of redemption

issues. In cases such as this, in which the parties engaged in

substantive litigation before the certificate issued, we leave

it to the sound discretion of the trial court to determine how

much of the plaintiff’s costs and fees were reasonable. See

Associated Indem. Corp. v. Warner, 143 Ariz. 567, 570-71, 694

P.2d 1181, 1184-85 (1985) (trial courts have substantial

discretion in awarding attorney fees). We expressly decline to

adopt either party’s position that any fees incurred after

Hodges manifested his intent to redeem by filing an affidavit

under Arizona Rule of Civil Procedure 59(j) were presumptively

reasonable or unreasonable.

III.

¶14 For the reasons set forth above, we vacate the court

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of appeals’ opinion and remand this case to the superior court

to award reasonable attorney fees consistent with this opinion.

_____________________________________
Robert M. Brutinel, Justice

CONCURRING:

_____________________________________
Rebecca White Berch, Chief Justice

_____________________________________
Andrew D. Hurwitz, Vice Chief Justice

_____________________________________
W. Scott Bales, Justice

_____________________________________
A. John Pelander, Justice

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