Kenly v. Miracle Properties

• Citation: 412 F. Supp. 1072
• Decision Date: 07 May 1976
• Docket Number: No. Civ. 76-127,Civ. 76-127
• Parties: Zona KENLY, Plaintiff, v. MIRACLE PROPERTIES, an Arizona Limited Partnership, et al., Defendants. MIRACLE PROPERTIES, an Arizona Limited Partnership, et al., Cross-Claimants, v. BENEFICIAL STANDARD MORTGAGE INVESTORS, a California Real Estate Investment Trust, et al., Cross-Defendants. BENEFICIAL STANDARD MORTGAGE INVESTORS, a California Real Estate Investment Trust, et al., Cross-Claimants, v. DEVELOPMENT SALES CORPORATION, an Arizona Corporation, et al., Cross-Defendants. MIRACLE PROPERTIES, an Arizona Limited Partnership, et al., Cross-Claimants, v. Bruce BABBITT, as Attorney General of the State of Arizona, et al., Cross-Defendants.
• Court: U.S. District Court — District of Arizona

412 F. Supp. 1072

Zona KENLY, Plaintiff, v. MIRACLE PROPERTIES, an Arizona Limited Partnership, et al., Defendants.

MIRACLE PROPERTIES, an Arizona Limited Partnership, et al., Cross-Claimants, v. BENEFICIAL STANDARD MORTGAGE INVESTORS, a California Real Estate Investment Trust, et al., Cross-Defendants.

BENEFICIAL STANDARD MORTGAGE INVESTORS, a California Real Estate Investment Trust, et al., Cross-Claimants, v. DEVELOPMENT SALES CORPORATION, an Arizona Corporation, et al., Cross-Defendants.

MIRACLE PROPERTIES, an Arizona Limited Partnership, et al., Cross-Claimants, v. Bruce BABBITT, as Attorney General of the State of Arizona, et al., Cross-Defendants.

No. Civ. 76-127, Phx. WPC.

United States District Court, D. Arizona.

May 7, 1976.

John C. Hughes of Hughes & Hughes, P. C., Phoenix, Ariz., for plaintiff.

F. William Sheppard of Jennings, Strouss & Salmon, Phoenix, Ariz., for defendants.

Philip A. Robbins of Robbins, Green, O'Grady & Abbuhl, Phoenix, Ariz., for defendants and cross-claimants.

Before KILKENNY, Senior Circuit Judge, EAST, Senior District Judge, and COPPLE, District Judge.

MEMORANDUM AND ORDER

COPPLE, District Judge.

Plaintiff filed suit in this court challenging the constitutionality of a Deed of Trust sale pursuant to A.R.S. § 33-801 et seq.¹ The court's jurisdiction was invoked pursuant to 28 U.S.C. §§ 1343, 2201, 2202, 2281, 42 U.S.C. § 1983. A three-judge court was convened pursuant to 28 U.S.C. § 2284.

The plaintiff, Zona Kenly, has an interest in the property at issue by virtue of her status as a beneficiary in certain real estate trust for which U. S. Life is the trustee. That property was transferred out of the U. S. Life trust and was made subject to the Deed of Trust at issue herein. The defendant Beneficial Standard Mortgage Investors is the holder of the first beneficial interest under the Deed of Trust. The defendant, William F. Sheppard, is the trustee under the aforementioned Deed of Trust. Cross-claimants, Miracle Properties, Julian J. Blum, Michelle Blum, Barry L. Shuart, Phyllis E. Shuart and Development Sales Corporation are second beneficiaries under the Deed of Trust.

Both the plaintiff and the cross-claimants contend that the sale of the property under the Deed of Trust is a violation of their constitutional right to due process of law in that they allege they have been denied adequate notice and an adequate hearing on the underlying merits. The threshold question is whether the acts of a private trustee pursuant to A.R.S. § 33-801 et seq., constitute state action.

Plaintiff places heavy reliance upon Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972), and North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U.S. 601, 95 S.Ct. 719, 42 L.Ed.2d 751 (1975). We are of the opinion that such reliance is misplaced. Fuentes, supra, and North Georgia Finishing, Inc., supra, involved the taking of property to satisfy debt to which it bore no relationship. In the instant case we are concerned with private contractual arrangements which govern the very property at issue. In these circumstances it is not the power of the state which is being invoked but, rather, the private agreement itself which regulates the relationship. Adams v. Southern California First National Bank, 492 F.2d 324 (9th Cir. 1973), cert. denied 419 U.S. 1006, 95 S.Ct. 325, 42 L.Ed.2d 282 (1974).² In Adams, supra, the Ninth Circuit found no state action even though California had passed into law the self-help repossession provisions of the Uniform Commercial Code. More importantly, the two circuit courts that have considered the issue have found that statutory provisions regulating and permitting Deeds of Trust do not convert the actions of the trustee into state action. Barrera v. Security Building & Investment Corporation, 519 F.2d 1166 (5th Cir. 1975); Bryant v. Jefferson Federal Savings and Loan Ass'n, 166 U.S.App.D.C. 178, 509 F.2d 511 (1974). The reasoning of both of these cases follows that of Adams, supra. A number of state courts have reached the identical conclusion as to lack of state action in the statutory regulation of Deeds of Trust. Coffey Enter. Realty & Devel. v. Holmes, 233 Ga. 937, 213 S.E.2d 882 (1975); Federal National Mortgage Ass'n v. Howlett, 521 S.W.2d 428 (Mo.1975); U. S. Hertz, Inc. v. Niobrara Farms, 41 Cal.App.3d 68, 116 Cal.Rptr. 44 (1974); cf. Strutt v. Ontario Savings and Loan Association, 28 Cal.App.3d 866, 105 Cal.Rptr. 395 (1973).

Plaintiff attempts to avoid the impact of Barrera, supra; Bryant, supra; Adams, supra, by noting that in each of these cases the courts found that the right of sale pursuant to a Deed of Trust had always existed in the common law. Plaintiff argues that such a right did not exist at common law in Arizona.

We first observe that as the court in Adams, supra, noted³ the presence or lack of a common law origin for the conduct which is codified is only one of the facts to be weighed and it is not per se dispositive of the issue. Deeds of Trust are essentially private contractual relationships which tie a given debt to a given parcel of property. The examination of whether a given power existed at the common law is thus directed to the issue of whether the remedy is essentially private in nature. Prior to 1901 Deeds of Trust were permitted as private contractual arrangements in Arizona,⁴ Schwertner v. Provident Mut., etc., Ass'n, 17 Ariz. 93, 148 P. 910 (1915). From 1901 until 1971 the legislature of Arizona forbade by statute the foreclosure of Deeds of Trust through the remedy of a private sale. See, Note, The Deed of Trust: Arizona's Alternative to the Real Property Mortgage, 15 Ariz.L.Rev. 194 (1973). As a matter of public policy the Arizona legislature regulated these essentially private transactions through that method for 70 years. In 1971 it changed the manner in which it regulates Deeds of Trust. We are of the opinion that state regulation of what is an essentially private contractual arrangement does not turn that particular area into state action. Jackson v. Metropolitan Edison Company, 419 U.S. 345, 95 S.Ct. 449, 42 L.Ed.2d 477 (1974); Adams, supra. It follows, therefore, that a change from one form of regulation to another does not create state action.⁵

Plaintiff also argues that the extensive regulation provided for by the statute so involves the state that the entire transaction under the Deed of Trust becomes state action. Plaintiff supports this argument by pointing to the fact that the statute: places limitations upon the type of person or organization that may be a trustee,⁶ the provision that good title passes upon sale,⁷ the depositing of any excess funds with the clerk of the superior court,⁸ and the good faith immunity of the trustee.⁹ We disagree with plaintiff's conclusion. Extensive regulation in and of itself does not create state action. Jackson, supra; Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 92 S.Ct. 1965, 32 L.Ed.2d 627 (1973); Fletcher v. Rhode Island Hospital Trust National Bank, 496 F.2d 927 (1st Cir. 1974), cert. denied, 419 U.S. 1001, 95 S.Ct. 320, 42 L.Ed.2d 277 (1974); Bond v. Dentzer, 494 F.2d 302 (2nd Cir. 1974), cert. denied, 419 U.S. 837, 95 S.Ct. 65, 42 L.Ed.2d 63 (1974). Plaintiff must demonstrate "a sufficiently close nexus between the State and the challenged action of the regulated entity so that the action of the latter may be fairly treated as that of the State itself." Jackson, supra, 419 U.S. at 351, 95 S.Ct. at 453, 42 L.Ed.2d at 484. We find that the regulations imposed by the state of Arizona are for the protection of all parties involved in the transaction. The state has provided for the protection of the parties by regulating the individuals who may perform the acts of a trustee. These regulations do not impose the state's will upon the parties contracting for a Deed of Trust but, rather, the state only regulates the procedure to, so far as it can, eliminate possible unqualified or incompetent trustees. See, Turner v. Impala Motors, 503 F.2d 607 (6th Cir. 1974); Adams, supra. The statute in no way clothes the trustee with traditional state powers. We see no nexus between a private sale pursuant to contract and the powers conferred by statute in establishing limitations in an attempt to insure qualified trustees. Jackson, supra.

Plaintiff urges upon the Court the argument that the involvement of the Clerk of the Superior Court¹⁰ in the Deed of Trust transaction creates state action. We suspect that plaintiff is attempting to fit the instant fact situation into the one found in Turner v. Blackburn, 389 F.Supp. 1250 (3-judge court) (W.D.N.C.1975). The two cases are not similar. In Turner, supra, the clerk makes factual determinations as to the adequacy of notice and the opportunity for a hearing. No such judicial function is vested in the Clerk of the Superior Court under the Arizona Deeds of Trust statute. We are of the opinion that the Clerk of the Superior Court performs only ministerial functions under the Arizona statute and that such functions have no relationship to the alleged constitutional deprivations.¹¹

The conclusion, we think, is inescapable: A.R.S. § 33-801 et seq., does not transform the actions of private parties into state action.¹²

IT IS ORDERED:

1. The temporary restraining order is quashed.

2. The federal claim is dismissed with prejudice. Insofar as the complaint may allude to possible pendent state claims they are dismissed without prejudice.

1 A.R.S. § 33-801 through A.R.S. § 33-821 constitute the Arizona statutory provisions governing the use of Deeds of Trust.

2 As Judge Trask noted in Adams, supra at 330-1:

"Statutes and laws regulate many forms of purely private activity, such as contractual relations and gifts, and subjecting all behavior that conforms to state law to the Fourteenth Amendment would emasculate the state action concept."

3 ". . . we do not consider it conclusive that section 9503 of the California Commercial Code...