By T. Robert Finlay, Esq.

Unfortunately, we have some very bad news to report regarding the industry’s constitutional challenge to AB 130.

The court dismissed the industry’s constitutional challenge to California Civil Code § 2924.13 on jurisdictional grounds, holding that the action is barred by Eleventh Amendment sovereign immunity because the named defendant, the California Attorney General, lacks any sufficiently direct connection to enforcing the statute. The court relied heavily on Whole Woman’s Health and Geo Group. The court found that § 2924.13 is enforced through borrower-initiated civil proceedings—not by the Attorney General—and rejected plaintiffs’ attempts to invoke the Ex parte Young exception through theories of indirect enforcement (including perjury statutes, the UCL, and DFPI authority) as too attenuated to establish the necessary enforcement nexus.   The court found that the perjury enforcement and 17200 was too indirect.  Because the Attorney General was not a proper defendant under Ex parte Young, the court lacked jurisdiction over the claims and dismissed the complaint without leave to amend as futile. With the case dismissed, the request for a preliminary injunction was denied as moot.

Essentially, the court ruled that industry groups and impacted parties like our plaintiffs have no way to challenge the constitutionality of a law.

Where do we go from here?  We are discussion options with the industry groups and plaintiffs, but we essentially have three options:

  • Appeal.  We have 29 days to appeal to the 9th circuit.  While we are discussing an appeal with the industry groups and plaintiffs, we do not expect that there will be sufficient financial resources to pursue and appeal.
  • Join a BR case and raise the same constitutionality and retroactivity arguments.  Most lenders holding impacted subordinate liens have held off on foreclosing hoping for some clarification from the courts or the legislature.  As a result, there are not a ton of foreclosures or pending litigation involving AB 130.  That said, we suspect that will change in the future and we can get involved that way.  However, the individual lender in a BR case may not want to foot the bill for a constitutional challenge and appeal.  As a result, they will likely need the industry to provide support.  Another challenge is that we need to find a case early to make sure the constitutionality and retroactivity arguments are properly plead to set the stage for the appeal.  If you have a borrower-initiated AB 130 lawsuit, please reach out so we can discuss with your counsel.
  • Legislative Fix.  We will be discussing legislative options in light of today’s ruling; but expect that we will need to wait until next year for any legislative fix.

We believed (and still believe) that the law is unconstitutional.  Unfortunately, the Judge took the easy way out, side stepping the more difficult legal issues in front of him.

I am happy to hop on a call to discuss the decision or how this impacts your subordinate liens.  Thank you.

 

  1. Robert Finlay, Esq. is CMA general counsel and a founding partner in Wright, Finlay & Zak. He can be reached at rfinlay@wrightlegal.net.