In re Estate of Stephenson

• Court: Arizona Court of Appeals
• Writing for the Court: Portley
• Citation: In re Estate of Stephenson, 173 P.3d 448, 217 Ariz. 284 (Ariz. App. 2007)
• Decision Date: 27 November 2007
• Docket Number: No. 1 CA-CV 06-0785.,1 CA-CV 06-0785.
• Parties: In the Matter of the ESTATE OF Linda K. STEPHENSON, Deceased. Arizona Health Care Cost Containment System, Petitioner/Appellee, v. Gove L. Allen, Trustor of the Estate of Linda K. Stephenson; and American Savings Life Insurance Company, Respondents/Appellants.

173 P.3d 448

217 Ariz. 284

In the Matter of the ESTATE OF Linda K. STEPHENSON, Deceased Arizona Health Care Cost Containment System, Petitioner/Appellee, v. Gove L. Allen, Trustor of the Estate of Linda K. Stephenson; and American Savings Life Insurance Company, Respondents/Appellants.

No. 1 CA-CV 06-0785.

Court of Appeals of Arizona, Division 1, Department A.

November 27, 2007.

Koeller Nebeker Carlson & Haluck LLP by Wade R. Causey, James M. O'Brien, Phoenix, Attorneys for Petitioner/Appellee.

Ramras Law Offices PC by David N. Ramras, Ari Ramras, Phoenix, Attorneys for Respondents/Appellants.

OPINION

PORTLEY, Judge.

¶ 1 This appeal requires us to address whether a secured creditor has to seek permission from the superior court or from the personal representative of an estate before conducting a trustee's sale of property secured by a deed of trust. Because we hold that a secured creditor need not seek permission to conduct a statutory trustee's sale, we reverse the judgment.

FACTS AND PROCEDURAL HISTORY

¶ 2 American Savings Life Insurance Company ("American Savings") loaned Linda Stephenson $30,000, secured by a deed of trust on her Mesa property in 2001, and recorded the deed of trust.

¶ 3 Ms. Stephenson died in February 2003. At the time of her death she owed the Arizona Health Care Cost Containment System ("AHCCCS") for medical benefits provided her. AHCCCS recorded a Notice of Medical Assistance Lien against the Mesa property in June 2004.

¶ 4 AHCCCS, as a creditor, filed a Petition for Formal Probate of Will and Appointment of Personal Representative in July 2004. AHCCCS was appointed personal representative of Stephenson's estate five months later.

¶ 5 Before AHCCCS was appointed personal representative, Gove Allen, trustee under the deed of trust, recorded a notice of trustee's sale in October 2004.¹ He conducted a public trustee's sale on January 18, 2005, and sold the property to American Savings for a credit bid of $34,828.

¶ 6 AHCCCS filed a statement of Inventory and Appraisement in February 2005, which listed the Mesa property as the estate's only real property asset. The statement valued the property at $40,267, and indicated that there were no known encumbrances on the property.

¶ 7 Seven months later, AHCCCS filed a Petition to Recover Assets. AHCCCS requested an order directing Allen and American Savings to return the property to the estate. It argued that Allen wrongfully converted estate assets by conducting the sale without obtaining permission from the personal representative or the court. In addition to the order, the petition sought damages equal to the value of the property and its reasonable attorneys' fees.

¶ 8 American Savings responded, and argued that, as a secured creditor, it had the right to enforce its security and it was not required to first seek permission from the personal representative or the court. American Savings moved for summary judgment, arguing that the probate statutes on which AHCCCS relied did not apply to secured creditors. AHCCCS responded and filed a cross-motion for summary judgment.

¶ 9 The trial court ruled:

The law is clear, A.R.S. Section 14-1302 grants the Court jurisdiction over all subject matter relating to the estates of decedents, including construction of wills and determination of heirs and successors of decedents, and estates of protected persons. In this case, at the time the property of the estate was sold, the estate was under the jurisdiction of the Probate Court in a formal probate proceeding and a Personal Representative was appointed. The Trustee should have sought authority from the Probate Court or the Personal Representative before selling the estate property. The Court further finds that A.R.S. Section 14-3104 and A.R.S. Section 33-811(c) does [sic] not give the Trustee the authority to convert estate property without seeking authority from the Court or the Personal Representative.

The court denied American Savings' motion for summary judgment and granted AHCCCS's cross-motion. The court also ordered that American Savings return $34,838 to Stephenson's estate.

¶ 10 American Savings moved for reconsideration, arguing that the probate code contained no "automatic stay" comparable to the bankruptcy code that required American Savings to refrain from enforcing its security. American Savings also argued that it had no funds to return because it obtained the property through a credit bid. The court denied the motion, as well as AHCCCS's request for attorneys' fees.

¶ 11 The court entered judgment, and American Savings appealed. We have jurisdiction pursuant to A.R.S. § 12-2101(J) (2003).

DISCUSSION

¶ 12 Summary judgment may be granted when "there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." Ariz. R. Civ. P. 56(c). In reviewing a motion for summary judgment, we determine de novo whether any genuine issues of material fact exist and whether the trial court properly applied the law. Eller Media Co. v. City of Tucson, 198 Ariz. 127, 130, ¶ 4, 7 P.3d 136, 139 (App.2000). In interpreting a statute, we look first to its language. Canon Sch. Dist. No. 50 v. W.E.S. Constr. Co., 177 Ariz. 526, 529, 869 P.2d 500, 503 (1994). If the statutory language is unambiguous, we give effect to the language and do not use other rules of statutory construction in its interpretation. Janson v. Christensen, 167 Ariz. 470, 471, 808 P.2d 1222, 1223 (1991). Statutory interpretation is an issue of law we review de novo. State Comp. Fund v. Superior Court, 190 Ariz. 371, 374, 948 P.2d 499, 502 (App. 1997).

¶ 13 American Savings argues that the trial court erred in finding that it was required to seek authority from the court or the personal representative before selling the property that secured its loan. American Savings contends that, under the probate statutes and case law, secured creditors have a choice of remedies after the death of a debtor, including the option of enforcing the security without first seeking permission. AHCCCS responds that the probate court has plenary power over the estate, and agrees that secured creditors have the option of enforcing their security separate from or instead of initiating probate. AHCCCS asserts, however, that secured creditors do not have the authority to ignore an open probate proceeding.

¶ 14 The Arizona Probate Code treats secured creditors differently from other claimants. Section 14-3104 provides that claims against the decedent's estate or successors cannot be brought until a personal representative has been appointed and that between the time of appointment and distribution of the estate, "all proceedings and actions to enforce a claim against the estate are governed by the procedure prescribed by this chapter." A.R.S. § 14-3104 (2005). The statute concludes by expressly stating, "[t]his section has no application to a proceeding by a secured creditor of the decedent to enforce his right to his security except as to any deficiency judgment which might be sought therein." Id.

¶ 15 Based on the statutory language, secured creditors do not have to use probate proceedings to enforce any security, even after the appointment of a personal representative. AHCCCS argues that this statute means only that unsecured creditors cannot enforce a claim against the estate until the appointment of a personal representative, but that a secured creditor has a choice to enforce its security prior to the opening of probate or to proceed within probate. Such an interpretation ignores the fact that the plain language declaring the statute inapplicable to enforcement proceedings by secured creditors also makes inapplicable to secured creditors that portion of the statute declaring that the probate proceedings govern all actions to enforce a claim after the appointment of the personal representative.

¶ 16 Other probate statutes also treat secured creditors differently from other creditors. Section 14-3803 declares that all claims against a decedent's estate will be barred unless brought within a specific timeframe. A.R.S. § 14-3803(A) (2005). The statute, by its own terms, "does not affect or prevent . . . any proceeding to enforce any mortgage, pledge or other lien upon property of the estate." Id. § 14-3803(D)(1). Similarly, A.R.S. § 14-3812, while prohibiting the execution of any judgment against the property of the estate, provides that the restriction "shall not be construed to prevent the enforcement of mortgages, pledges or liens upon real or personal property in an appropriate proceeding." A.R.S. § 14-3812 (2005).

¶ 17 The method of paying secured claims within a probate proceeding is addressed in A.R.S. § 14-3809 (2005). If a secured creditor surrenders the security, the secured claim is paid on the basis of the amount allowed. Id. If the creditor exhausts the security before receiving payment, the claim is paid on the amount allowed less the fair value of the security, and if the creditor does not have the right to exhaust the security or has not done so, the claim is paid on the amount allowed less the value of the security determined according to the terms of the agreement pursuant to which the security was delivered to the creditor or by the creditor and personal representative. Id. The personal representative may pay all or part of an encumbrance, renew any obligation secured by the encumbrance, or convey the assets to the creditor in satisfaction of the lien if doing so would be in the best interest of the estate. A.R.S. § 14-3814 (2005).

¶ 18 This court has previously considered §§ 14-3809 and 14-3814 in Binder v. Fruth, 150 Ariz. 21, 721 P.2d 679 (App.1986). In Binder, secured creditors submitted to the personal representative an unsecured claim for the amount due on a note; the note represented a loan to the decedent and had been secured by a deed of trust on a time share condominium. Id. at 22, 721 P.2d at 680. The...