Interest or No Interest – Interesting Issue in Arizona Probate Claims
Under Arizona law, at the time of appointment, the personal representative of an estate must provide notice to creditors, known and unknown. For unknown creditors, the personal representative must publish a notice to creditors in a newspaper of general circulation in the county where the decedent lived. For known creditors, the personal representative must give notice by mail or other delivery.
Creditors of the estate then have four months after publication or sixty days after the mailing or other delivery of the notice, whichever is later, to present their claims. A.R.S. § 14-3801. Claims may then be allowed or disallowed by the estate. If disallowed, the creditor can then file a lawsuit to have the Court determine the validity of the claim.
Absent a judgment in another court providing otherwise, “allowed claims bear interest at the legal rate for the period commencing sixty days after the time for original presentation of the claim has expired…” A.R.S. § 14-3806(E). That provision does not differentiate between claims for definite and indefinite amounts. Thus, the probate code is inconsistent with Arizona’s general rule that “prejudgment interest is generally not awardable on unliquidated claims.” Metzler v. BCI Coca-Cola Bottling Co. The Arizona Court of Appeals has now tackled this inconsistency and held that all allowed claims against an estate bear interest.
A liquidated claim is a claim for a sum certain, like the balance due on a promissory note. On the other hand, an unliquidated claim is one that is not for a sum certain, like a claim for emotional distress or pain and suffering.
In its recent decision in Estate of Chalker, the Arizona Court of Appeals held that the Arizona probate code mandates interest on all allowed creditor claims, even if for an unliquidated sum. In this case, the Petitioners were attorneys who represented the decedent in a divorce action in 1994. The decedent owed Petitioners approximately $273,000 in fees and costs. In 1999, Petitioners and decedent entered into a new fee agreement that entitled Petitioners to be paid 50 percent of the decedent’s Fidelity Investment accounts once the accounts were recovered by the estate.
Upon decedent’s passing and the personal representative providing notice, Petitioners filed a timely claim against the Estate. Ultimately, the superior court decided that the 1999 fee agreement did not entitle Petitioners to 50 percent of the Fidelity Investment accounts that were recovered. The superior court held that Petitioners were only entitled to an award in quantum meruit for the fair value of services rendered, but that no interest was to be paid on those awards. Thus, the Court allowed the claim, but refused to add interest on the amount due. Petitioners appealed the ruling.
In reversing the superior court’s decision to deny interest on the amount due, the Court of Appeals, citing A.R.S. § 14-3806(E), reasoned that the plain language of the statute required that allowed claims bear interest. The Court agreed with the Petitioner’s argument that, because the superior court ultimately awarded Petitioner’s fees in quantum meruit (the claim was allowed), the claim must be “paid in the same manner as presently due and absolute claims of the same class” by “bear[ing] interest at the legal rate.”
The Court further reasoned that the statute does not differentiate between liquidated or unliquidated claims. Thus, while the Court acknowledged Arizona’s general rule that is inconsistent with awarding prejudgment interest on unliquidated claims, the Court held that it must apply the given statutory language in the Arizona probate code. As a result of this decision, all allowed creditor claims, whether liquidated or unliquidated, bear interest.
If you have a question about creditors claims in an Arizona probate matter or this recent Court of Appeals decision, or need help administering an estate, please contact us.