Morones v. Horne
On May 24, 2012, the Arizona Center for Law in the Public Interest, along with the Morris Institute of Justice, filed a lawsuit challenging the legislature's sweep of $50 million from the Court Ordered Trust Fund set up to benefit Arizonan's hurt by the foreclosure crisis as part of the National Mortgage Foreclosure Settlement.
Arizona currently has the highest foreclosure rate in the country. In March 2012, there were 9,497 foreclosure filings, the equivalent of 1 in every 300 housing units. Arizona, along with Nevada, has the highest rate of distressed property transactions in the country.
In response to this crisis, the Arizona Attorney General, Tom Horne, joined with attorneys general from forty-eight other states and the United States government to bring a civil action against Ally/GMAC Mortgage, Bank of America, CitiMortgage, JP Morgan Chase and Wells Fargo, the five largest loan servicers in the United States. The plaintiffs in that litigation filed a complaint in federal district court in the District of Columbia that alleged that the defendants had violated numerous federal and state laws in the manner in which they originated and serviced single family residential mortgages.
Shortly after the action was filed, a national settlement was successfully negotiated by the parties and on April 4, 2012, a Consent Judgment that memorialized and documented the terms of that settlement was entered by the district court.
Under the Consent Judgment, the Arizona Attorney General is to receive $97,784,204 in settlement funds. The Consent Judgment sets forth the allowable uses of these settlement funds and states that the Attorney General as trustee “shall” deposit the funds with the State Treasurer and the funds “shall” be held in a separate “Court Ordered Trust Fund.” That didn't stop the Arizona legislature, however, which decided that it would raid the trust fund in an effort to balance its budget.
On May 1, 2012, the Arizona Legislature passed its budget bill for fiscal year 2012, which Governor Brewer signed on May 7, 2012. That budget bill directed the Attorney General to transfer $50 million from the Court Ordered Trust Fund to the state's general fund.
The lawsuit seeks to stop that transfer on several grounds, including breach of trust. On October 10, 2012, Judge Mark H. Brain issued an order dismissing the case. Judge Brain's order held that the Consent Judgment did not demonstrate an intent to create a trust and that even if it did, the Attorney General's authority to negotiate a settlement would not allow him to create such a trust. A copy of the Order is available below.
The Center filed a Petition for Special Action with the Arizona Court of Appeals on October 26, 2012 and the court heard oral argument on that petition on November 26, 2012. In a "Decision Order" issued March 12, 2013, the court of appeals accepted jurisdiction but denied petitioner's request for relief. The court held that the settlement funds belonged to the state and that the attorney general could not "unilaterally" restrict the use of the funds. The court did not address the petitioners' constitutional argument that the fund sweep could not lawfully be included in the budget bill. It also rejected the petitioners' separation of powers argument because, it concluded, the attorney general and legislature were now in agreement about the transfer of the funds. Petitioners sought review from the Arizona Supreme Court; however, on September 24 2013, the Court declined review.