                                IN THE

    SUPREME COURT OF THE STATE OF ARIZONA
  CSA 13-101 LOOP, LLC, AN OKLAHOMA LIMITED LIABILITY COMPANY,
                         Plaintiff/Appellant,

                                   v.

LOOP 101, LLC, AN ARIZONA LIMITED LIABILITY COMPANY; PAUL S. ANTON
 AND VALERIE J. CHRISTIE, HUSBAND AND WIFE; OSCAR E. SWANKY AND
HELEN L. SWANKY, AS CO-TRUSTEES OF THE OSCAR E. SWANKY AND HELEN
   L. SWANKY REVOCABLE FAMILY TRUST, CREATED JULY 19, 1997, AS
                             AMENDED,
                         Defendants/Appellees.

                          No. CV-14-0029-PR
                        Filed December 31, 2014

          Appeal from the Superior Court in Maricopa County
             The Honorable John A. Buttrick, Judge (Ret.)
                         No. CV2009-034774
                             AFFIRMED

             Opinion of the Court of Appeals, Division One
                233 Ariz. 355, 312 P.3d 1121 (App. 2013)
                         VACATED IN PART

COUNSEL:

Sean K. McElenney (argued), J. Alex Grimsley, Gregory B. Iannelli, Bryan
Cave LLP, Phoenix, for CSA 13-101 Loop, LLC

Timothy Berg (argued), Carrie Pixler Ryerson, Kevin M. Green, Fennemore
Craig, P.C., Phoenix, for Loop 101, LLC; Paul S. Anton and Valerie J.
Christie; and Oscar E. Swanky and Helen L. Swanky, et al.

Scott B. Cohen, Bradley D. Pack, Engelman Berger, P.C., Phoenix, for
Amicus Curiae Arizona Bankers Association

CHIEF JUSTICE BALES authored the opinion of the Court, in which VICE
CHIEF JUSTICE PELANDER and JUSTICES BERCH, BRUTINEL, and
TIMMER joined.
                 CSA 13-101 LOOP, LLC V. LOOP 101, LLC
                          Opinion of the Court


CHIEF JUSTICE BALES, opinion of the Court:

¶1             When a deed of trust secures a promissory note and the trust

property is sold at a trustee’s sale, A.R.S. § 33-814(A) entitles judgment

debtors, including guarantors, to have the fair market value of the property

credited against the amount owed on the note. We hold that parties may

not prospectively waive this provision.

                                      I.

¶2             Loop 101, LLC (“Loop”) borrowed $15.6 million from

MidFirst Bank in February 2007 to construct an office building.           The

promissory note was secured by a deed of trust and payment was

guaranteed by four individuals. The promissory note, deed of trust, and

guarantee all expressly waived the fair market value provision of A.R.S.

§ 33-814(A).

¶3             Loop defaulted on the loan in June 2009, and MidFirst began

a non-judicial foreclosure under the deed of trust. At the time, nearly $11.2

million remained outstanding on the loan. MidFirst assigned its rights

under the loan and deed of trust to CSA 13-101 Loop, LLC (“CSA”), which

bought the property at a trustee’s sale for a credit bid of $6.15 million. CSA

then sued Loop and the guarantors for a deficiency judgment of

approximately $5 million plus interest.         Loop and the guarantors

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                         Opinion of the Court

counterclaimed against CSA and filed a third-party claim against MidFirst

for breach of the implied covenant of good faith and fair dealing.

¶4           CSA and MidFirst moved to dismiss the claims on the ground

that Loop and the guarantors had waived their right under A.R.S. § 33-814

to a fair market value determination. The superior court denied the motion,

ruling that the parties could not waive this statutory right. After holding

an evidentiary hearing, the court found the fair market value of the

property to be $12.5 million. On cross-motions for summary judgment, the

court ruled that no deficiency existed because the property’s fair market

value exceeded the amount owed on the note.

¶5           The court of appeals affirmed. CSA 13-101 Loop, LLC v. Loop

101, LLC, 233 Ariz. 355, 362 ¶ 24, 312 P.3d 1121, 1128 (App. 2013). We

granted review because whether A.R.S. § 33-814(A)’s fair market value

provision may be waived is a recurring issue of statewide importance. We

have jurisdiction pursuant to Article 6, Section 5(3) of the Arizona

Constitution and A.R.S. § 12-120.24.

                                       II.

¶6           Contract provisions are enforceable unless prohibited by law

or otherwise contrary to identifiable public policy. 1800 Ocotillo, LLC v.

WLB Group, Inc., 219 Ariz. 200, 202 ¶ 7, 196 P.3d 222, 224 (2008). Our law


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values the private ordering of commercial relationships and seeks to protect

parties’ bargained-for expectations.       Id. at 202 ¶ 8, 196 P.3d at 224.

Accordingly, if a contractual term is not specifically prohibited by

legislation, courts will uphold the term unless an otherwise identifiable

public policy clearly outweighs the interest in the term’s enforcement. Id.;

Restatement (Second) of Contracts § 178.

¶7            Consistent with these principles, we have sometimes

observed that waivers of statutory rights may “impliedly” be prohibited.

See Swanson v. Image Bank, Inc., 206 Ariz. 264, 268 ¶ 13, 77 P.3d 439, 443

(2003). Our past decisions have also stated that parties may waive statutory

rights granted solely for the benefit of individuals, Holmes v. Graves, 83 Ariz.

174, 178, 318 P.2d 354, 357 (1957), but rights enacted for the benefit of the

public may not be waived, Elson Dev. Co. v. Ariz. Sav. & Loan Ass’n, 99 Ariz.

217, 224, 407 P.2d 930, 935 (1965). The key inquiry, however, is whether an

identifiable public policy clearly outweighs the interest in enforcing

prospective waivers of particular statutory provisions. See 1800 Ocotillo, 219

Ariz. at 202 ¶ 8, 196 P.3d at 224; Restatement (Second) of Contracts § 178.

¶8            We discern public policy from our constitution, statutes, and

judicial decisions. Wagenseller v. Scottsdale Mem’l Hosp., 147 Ariz. 370, 379,

710 P.2d 1025, 1034 (1985); Restatement (Second) of Contracts § 179.


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                          Opinion of the Court

Statutory provisions are examined in light of the overall legislative scheme,

including its history and purpose. Restatement (Second) of Contracts § 179

cmt. b.   Even when not expressly prohibited, contract terms may be

invalidated “if the legislature makes an adequate declaration of public

policy which is inconsistent with [them].” Shadis v. Beal, 685 F.2d 824,

833-34 (3d Cir. 1982). We therefore turn to the public policy concerns

reflected in § 33-814(A) and the deed of trust scheme more generally.

                                      A.

¶9            In 1971, the Arizona Legislature enacted the deed of trust

scheme, A.R.S. §§ 33-801 to -821, as an alternative to the often cumbersome

mortgage and judicial foreclosure system. In re Krohn, 203 Ariz. 205, 208

¶ 10, 52 P.3d 774, 777 (2002); see generally, Gary E. Lawyer, Note, The Deed of

Trust: Arizona’s Alternative to the Real Property Mortgage, 15 Ariz. L. Rev. 194

(1973). A deed of trust allows for the sale of the property at a trustee’s sale

(often referred to as a non-judicial foreclosure) rather than exclusively

through judicial process. A.R.S. § 33-807. Once the trust property is sold

pursuant to the trustee’s power of sale, the statute limits the lender’s right

to seek a deficiency judgment against the debtor. Deficiency judgments are

barred altogether for most residential properties. A.R.S. § 33-814(G). For

other properties, the debtor may credit the fair market value of the trust


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property against the amount owed on the debt. A.R.S. § 33-814(A). Similar

limits on deficiency judgments exist for debts secured by mortgages. See

A.R.S. §§ 33-727, 33-729(A).

¶10            A.R.S. § 33-814(A) governs deficiency recovery actions

against parties liable on debts secured by deeds of trust. The statute

provides, in relevant part:

       In any such action against such a person, the deficiency
       judgment shall be for an amount equal to the sum of the total
       amount owed the beneficiary as of the date of the sale, as
       determined by the court less the fair market value of the trust
       property on the date of the sale as determined by the court or
       the sale price at the trustee’s sale, whichever is higher.

Id.

¶11            The fair market value provision applies equally to guarantors

and borrowers. Id. Moreover, the statute does not draw distinctions based

on the resources or sophistication of the parties, nor does it distinguish

between commercial and residential transactions. “[S]o long as the subject

properties fit within the statutory definition, the identity of the mortgagor

as either a homeowner or developer is irrelevant.” Mid Kan. Fed. Sav. &

Loan Ass’n of Wichita v. Dynamic Dev. Corp., 167 Ariz. 122, 128, 804 P.2d 1310,

1316 (1991).

¶12            The fair market value provision, as well as the deed of trust

framework generally, accords with Arizona’s long-recognized public

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policy of protecting debtors. Cf. Forbach v. Steinfeld, 34 Ariz. 519, 526-27, 273

P. 6, 9 (1928) (noting that “the public policy of the state” is to maintain

important legal protections for debtors). In line with this public policy,

Arizona’s deed of trust framework streamlines the foreclosure process but

maintains protections for borrowers and the public.            It does this by

protecting against artificially increased deficiency judgments.

¶13           The fair market value provision, unlike the anti-deficiency

statutes, does not bar deficiency judgments altogether. Compare A.R.S.

§ 33-814(A) (reducing deficiency by property’s fair market value), with

A.R.S. §§ 33-729(A), 33-814(G) (prohibiting deficiency judgments). But the

statutes share a common purpose of protecting borrowers.                 Section

33-814(A) protects against artificially inflated deficiencies by preventing

windfalls resulting from below-market credit bids. The anti-deficiency

statutes prevent artificial deficiencies resulting from forced sales and

further protect certain borrowers from exposing other assets to the risk of

default. Baker v. Gardner, 160 Ariz. 98, 101, 770 P.2d 766, 769 (1988). Thus,

both the fair market value provision and anti-deficiency protections serve

to alleviate the harmful effects of economic recession on borrowers. Cf. Mid

Kan., 167 Ariz. at 127, 804 P.2d at 1315 (“As with virtually all anti-deficiency

statutes, the Arizona provisions were designed to temper the effects of


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economic recession on mortgagors by precluding artificial deficiencies

resulting from forced sales.”) (internal quotation marks omitted).

                                      B.

¶14           We must next decide whether the public policy of preventing

artificial deficiencies outweighs the interest in enforcing the waiver

provisions here. See Restatement (Second) of Contracts § 178. Routine

waiver of A.R.S. § 33-814(A) would seriously disrupt the statute’s public

purpose of preventing artificial deficiencies and protecting borrowers.

Consistent with the statute’s purpose and the overall statutory scheme, we

hold that A.R.S. § 33-814(A)’s fair market value provision cannot be

prospectively waived.

¶15           When Loop defaulted on its debt, CSA (or its predecessor in

interest, MidFirst Bank) could have obtained a judgment for the entirety of

the outstanding debt by suing on the note alone. A.R.S. § 33-722 (mortgagee

may elect between action on the debt or foreclosure of the mortgage given

to secure it); Baker, 160 Ariz. at 106, 770 P.2d at 774 (“[U]nder § 33-722 a

creditor can elect to forego [sic] foreclosure and sue on the note in all cases

except those involving the mortgages and deeds of trust to which the anti-

deficiency statutes apply.”). But CSA chose to foreclose and seek recovery

under the deed of trust scheme. Because this scheme “is a creature of


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statutes,” Krohn, 203 Ariz. at 208 ¶ 9, 52 P.3d at 777, CSA is limited to the

recovery the statutes provide. See Register v. Coleman, 130 Ariz. 9, 14, 633

P.2d 418, 423 (1981) (“When a statute creates a right and also creates a

remedy for the right created, the remedy thereby given is exclusive.”). And

because the deed of trust scheme strips borrowers of many of the

protections afforded under the mortgage laws, we strictly construe the

statutes in favor of borrowers. Patton v. First Fed. Sav. & Loan Ass’n of Phx.,

118 Ariz. 473, 477, 578 P.2d 152, 156 (1978).

¶16           Unlike some real property statutes, A.R.S. § 33-814(A) is silent

as to advance waiver. Cf. A.R.S. § 33-729(A) (providing for anti-deficiency

protection “notwithstanding any agreement to the contrary”). CSA argues

we should read this omission as the legislature’s implied endorsement of

waiver. Cf. Ballesteros v. Am. Standard Ins. Co. of Wis., 226 Ariz. 345, 349

¶ 15, 248 P.3d 193, 197 (2011) (declining to construe an insurance statute to

require a Spanish language form where other statutes explicitly require it).

But here the omission cuts both ways, as the legislature also has expressly

allowed waiver in other statutes. See, e.g., A.R.S. § 33-819 (allowing parties

to waive deed of trust provisions when deed is not given to secure a

contract). Because the legislature has sometimes allowed and sometimes

prohibited waiver in the deed of trust statutes, the omission of a term


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                    CSA 13-101 LOOP, LLC V. LOOP 101, LLC
                             Opinion of the Court

addressing waiver in § 33-814(A) is not conclusive as to the legislature’s

intent.

¶17              As discussed above, ¶¶ 9 - 13, supra, the fair market value

protection of A.R.S. § 33-814(A) furthers the public interest of preventing

artificial deficiencies and protecting borrowers generally. Such deficiencies

harm not only individual debtors but also the regional economy.                Cf.

DeBerard Props., Ltd. v. Lim, 976 P.2d 843, 849 (Cal. 1999) (explaining that a

“key purpose” of California’s anti-deficiency law “is to stabilize the state’s

economy, to the benefit of all”). This identifiable public policy weighs

heavily against the interest in enforcing the waiver provisions of the

contracts here.

¶18              The Restatement (Third) of Property further counsels against

allowing waiver. Section 8.4 provides fair market value protection similar

to that in A.R.S. § 33-814(A):

          If it is determined that the fair market value is greater than the
          foreclosure sale price, the persons against whom recovery of
          the deficiency is sought are entitled to an offset against the
          deficiency in the amount by which the fair market value, less
          the amount of any liens on the real estate that were not
          extinguished by the foreclosure, exceeds the sale price.

Restatement (Third) of Property: Mortgages § 8.4(d). Absent controlling

authority to the contrary, we generally follow the Restatement when it sets

forth sound legal policy. Krohn, 203 Ariz. at 210 ¶ 18, 52 P.3d at 779.

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¶19           Like Arizona’s statute, Restatement § 8.4 is silent as to

advance waiver of its provisions. But the comment explains that “[a]ny

agreement in or created contemporaneously with the mortgage documents

by which any person against whom a deficiency may be sought purports to

waive the protection of this section is ineffective.” Restatement (Third) of

Property: Mortgages § 8.4 cmt. b. If advance waiver were permitted, “most

mortgage forms would routinely incorporate waiver language and the

impact of this section would be significantly weakened.” Id. Reporters’

Note. And by barring waivers by both guarantors and borrowers, the

Restatement “seeks to ensure that its primary goal of preventing unjust

enrichment of the mortgagee is not subverted by the routine exaction of

waivers from guarantors and sureties.” Id.

¶20           CSA argues that the Restatement’s prohibition of waiver is

inapposite because § 8.4 is modeled after statutes expressly prohibiting

waiver. The Reporters’ Note does state that the section is “consistent with”

California and Pennsylvania statutes that expressly prohibit waiver. Id.

(citing Cal. Civ. Code. § 2953 and 42 Pa. Cons. Stat. § 8103(e)). We note that

Reporters’ Notes are not endorsed by the American Law Institute, but

instead reflect the views of the Reporter. See, e.g., American Law Institute,

Capturing the Voice of the American Law Institute: A Handbook for ALI Reporters


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and Those Who Review Their Work 45 (2005) (“Unlike the Introduction,

Introductory Notes, black letter, and Comment (including Illustrations), the

Reporter’s (or Reporters’) Notes are regarded as the work of the Reporter

(or Reporters).”). But more importantly, the Reporters’ observation that

§ 8.4 is “consistent with” these statutes does not make the provision rise or

fall with the language of those statutes. Rather, the text of § 8.4, like that of

A.R.S. § 33-814(A), is silent as to waiver. The comment therefore indicates

that § 8.4 bars waiver even without express language to that effect.

¶21           Like the Arizona deed of trust scheme, Restatement § 8.4

seeks to protect against artificially increased deficiencies. And consistent

with Arizona law, the Reporters’ Note recognizes that allowing waiver

would result in lenders routinely exacting this term as a matter of course.

See Forbach, 34 Ariz. at 526, 273 P. at 9 (“If the [lender] has the right to

demand a waiver of statutory rights, he will almost certainly do it, and the

[debtor] generally is in no position to protect himself.”); see also Brunsoman

v. Scarlett, 465 N.W.2d 162, 167 (N.D. 1991) (“The rights and defenses

granted debtors by the anti-deficiency judgment law would be largely

illusory if a prospective creditor could compel a prospective debtor to

waive them at the time the mortgage is executed.”). Thus, allowing waiver




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would seriously disrupt the public purpose of A.R.S. § 33-814(A)’s fair

market value protection.

                                     C.

¶22            CSA urges us to follow other jurisdictions that have

interpreted their fair market value statutes to allow waiver. Most directly

on point is LaSalle Bank Nat’l Ass’n v. Sleutel, 289 F.3d 837 (5th Cir. 2002),

recently endorsed by the Texas Supreme Court in Moayedi v. Interstate

35/Chisam Rd., L.P., 438 S.W.3d 1, 6 (Tex. 2014). In LaSalle Bank, the Fifth

Circuit interpreted a Texas statute that, like Arizona’s, provides for a fair

market value credit but is silent as to advance waiver. 289 F.3d at 839 - 40

(discussing Tex. Prop. Code Ann. § 51.003). Although the borrower argued

that allowing waiver would violate the public policy of protecting

borrowers from unfair lending practices, the court held that this concern

did not apply to transactions between lenders and guarantors. Id. at 841.

The court also found dispositive the fact that the Texas Legislature had

addressed waiver in other statutes. Id. In agreeing with LaSalle Bank, the

Texas Supreme Court added that it would prohibit waiver of a statutory

right only when its legislature clearly proscribes such waivers. Moayedi, 438

S.W.3d at 6.




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                 CSA 13-101 LOOP, LLC V. LOOP 101, LLC
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¶23           LaSalle Bank and Moayedi are distinguishable from this case in

material respects. First, unlike the Texas statute, A.R.S. § 33-814(A) applies

both to borrowers and guarantors.          The public policy of protecting

borrowers thus applies with equal force to guarantors and is relevant to our

analysis. Second, although our legislature has expressly prohibited waiver

in other statutes, it also has expressly allowed it. Neither LaSalle Bank nor

Moayedi addressed whether other Texas statutes expressly allow waiver,

but the fact that Arizona statutes do means we cannot draw a determinative

inference from the omission in A.R.S. § 33-814(A). Finally, unlike the Texas

Supreme Court, we do not require that the legislature “speak clearly” to

prohibit waiver, Moayedi, 438 S.W.3d at 6, but can instead find that a statute

impliedly prohibits it as a matter of public policy.

¶24           Because the identifiable public policy served by A.R.S.

§ 33-814(A) clearly outweighs the interest in enforcing prospective waiver

terms, we hold that such terms are unenforceable. We note, however, that

our holding does not preclude a borrower from agreeing, after a non-

judicial foreclosure commences, not to seek a fair market value

determination.     See A.R.S. § 33-814(A) (“A written application for

determination of the fair market value of the real property may be

filed . . . .”) (emphasis added). Though some statutory rights may not be


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                          Opinion of the Court

waived prospectively, a party may still forgo enforcing them in litigation.

Cf. Forbach, 34 Ariz. at 527, 273 P. at 9 (distinguishing prospective waiver of

statute of limitations from borrower’s decision not to raise the defense once

the action has commenced).

                                     III.

¶25           We vacate paragraphs 12 - 24 of the court of appeals’ opinion,

affirm the superior court’s judgment, and award attorney fees to Loop and

the guarantors pursuant to A.R.S. § 12-341.01.




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