Opinion
1 CA-CV 10-0525
10-20-2011
In the Matter of the Estate of: THOMAS MICHAEL JONES, Deceased. NORTHERN TRUST, N.A., Personal Representative/ Appellee, v. JOAN M. JONES, Claimant/Appellant.
Carson Messinger PLLC by Travis B. Hill Hannah Auckland Attorney for Appellee Phoenix Stevens & Van Cott, PLLC by Laurence B. Stevens and Charles C. Van Cott Attorneys for Appellant Scottsdale
NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED
XCEPT AS AUTHORIZED BY APPLICABLE RULES.
See Ariz. R. Supreme Court 111(c); ARCAP 28(c);
Ariz. R. Crim. P. 31.24
MEMORANDUM DECISION
Not for Publication - (Rule 28, Arizona Rules of Civil Appellate Procedure)
Appeal from the Superior Court in Maricopa County
Cause No. PB2009-000461
The Honorable Richard L. Nothwehr, Judge Pro Tempore
REVERSED
Carson Messinger PLLC
by Travis B. Hill
Hannah Auckland
Attorney for Appellee
Phoenix
Stevens & Van Cott, PLLC
by Laurence B. Stevens
and Charles C. Van Cott
Attorneys for Appellant
Scottsdale
BARKER, Judge
¶1 This case requires the court to decide whether the probate court erred in denying a petition for claim for $5,239.45 against Decedent's estate. For the reasons that follow, we reverse.
Facts and Procedural History
¶ 2Thomas Michael Jones ("Decedent") died on January 15, 2009. He is survived by two children, S. and T., both minors, who were his sole heirs. He also left behind an ex-wife, Joan M. Jones ("Ex-Wife"), who had custody of the children. Decedent and Ex-Wife had divorced approximately two years prior to Decedent's death. Their divorce decree provided that "immediately on entry of the decree dissolving the marriage," the husband's Major League Baseball Group Licensing Program Benefit (the "MLB licensing benefits") "shall be liquidated and divided equally among the parties" except that husband would receive $587 of the wife's share to equalize other aspects of the property division.
¶3 However, Ex-Wife never collected her share of the MLB benefits prior to Decedent's death. Ex-Wife explained that her former husband developed brain cancer during the last year and a half of his life and that instead of discussing the MLB benefits with him directly, she emailed a representative of the company that assisted him with his financial affairs prior to his death, Northern Trust, NA ("Northern"). Specifically, on August 10, 2007, in an email to David A. Highmark of Northern, she stated, "In addition, please let me know when I can pick up the checks for the licensing money owed me (approx. $5500). See divorce decree - Tommy has liquid cash now and has not settled thus far." Ex-Wife stated that Mr. Highmark never got back to her regarding the MLB licensing benefits. It appears that Ex-Wife did not pursue this matter further with Mr. Highmark.
¶4 As mentioned above, Decedent died approximately one-and-a-half years after Ex-Wife's email was sent, on January 15, 2009. Northern was appointed as the personal representative of his estate. The only assets he owned at the time of his death were a residence (the net value of which was zero because it appraised for the same amount of the existing mortgage lien) and personal items (such as furniture, televisions, and household effects, the value of which was approximately $10,000). Ex-Wife, as the guardian of Decedent's children, took possession of these items, as Decedent had instructed the children should receive them prior to his death.
¶5 Prior to his death, Decedent had set up a trust. He had a $500,000 life insurance policy and designated the trust as a beneficiary of the policy. The trust agreement provided that Northern would serve as trustee for the trust upon Decedent's death and that after various expenses were paid and certain requirements were met, his children would receive the money when they were twenty-five.
¶6 As the personal representative to Decedent's estate, Northern filed a "Notice to Creditors pursuant to A.R.S. § 14-3801(B)" with the probate court on February 18, 2009. It also mailed a copy of this notice to Ex-Wife on February 19, 2009.
¶7 A variety of communications ensued between Ex-Wife and Northern that will be discussed in greater detail below. However, after confirming that the MLB benefits had been liquidated by the Decedent prior to his death in January 2007, Northern served a Notice of Disallowance of Claim to Ex-Wife on August 27, 2009. Later, Northern explained that there were two reasons it denied Ex-Wife's claim: (1) her claim was untimely and (2) the estate was insolvent.
¶8 Only one other creditor presented a claim against Decedent's estate: Gallagher & Kennedy timely filed a claim for unpaid legal fees in the approximate amount of $4000, which was also disallowed by Northern based on the insolvency of the estate.
¶9 Ex-Wife filed a petition for allowance of claim with the probate court on October 23, 2009. The court held an evidentiary hearing, following which it denied the claim. Ex-Wife moved for reconsideration, which the court denied. We have jurisdiction pursuant to Arizona Revised Statutes ("A.R.S.") section 12-2101(A)(9)(2003).
Discussion
¶10The dispositive issue on appeal is whether the probate court erred in denying Ex-Wife's petition for allowance of claim. The trial court found that the claim was timely, but barred because the estate was insolvent. We are bound by the trial court's findings of fact unless they are clearly erroneous, but we review questions of law de novo. In re Estate of Fogleman, 197 Ariz. 252, 256 n.4, ¶ 8, 3 P.3d 1172, 1176 n.4 (App. 2000). Because we find that the petition for allowance was timely and that the contractual provisions of the trust and the will mandated payment, we reverse as set forth below.
1. Timeliness of the Claim
¶11 Arizona's probate statutes provide clear guidance about what should happen to creditors' claims against a decedent's estate. See A.R.S. § 14-3801 et seq. (2005). Assuming the estate is solvent, claims are to be paid in the order of priority that is established by statute. A.R.S. § 14-3805. Once the personal representative publishes notice to the decedent's creditors (either in the newspaper for unknown creditors or by written notice to all known creditors), A.R.S. § 14-3801, the creditors must present their claims within the time period mandated by statute "or be forever barred" from later asserting them. A.R.S. § 14-3801, -3803(A).
¶12 Although barring untimely-asserted claims "forever" might seem harsh, without such a deadline, there would be no means for the personal representative to properly distribute the estate; the possibility of unknown outstanding debts would cause prior distributions to violate the priority dictated by statute. See A.R.S. § 14-3807(A) ("On the expiration . . . of the time limitations . . . the personal representative shall proceed to pay the claims allowed against the estate in the order of priority prescribed . . . .") (emphasis added).
¶13 Here, the Notice to Creditors was filed on February 18, 2009 and mailed to Ex-Wife on February 19, 2009, making the deadline for Ex-Wife's claim June 19, 2009. See A.R.S. § 14-3801(B) (explaining that claims of known creditors must be presented within four months of the published notice or within sixty days after the mailing or delivery of the notice, whichever is later). Ex-Wife does not appear to challenge the June 19, 2009 deadline, but instead argues that the communications she made to Northern prior to June 19, 2009 provided notice of her claim.
¶14 The trial court agreed with Ex-Wife regarding the timeliness of the claim. Specifically, the probate court noted that although there was a "misunderstanding between [the] pension fund and the licensing benefits," the estate "was aware of the distinction by April 16, 2009." By that time, "[t]he Estate was also aware that [Ex-Wife] had a right to and was making a claim for her share in the licensing benefits." (Emphasis added.)
¶15 On appeal, we defer to the trial court's factual findings that are not clearly erroneous. Fogelman, 197 Ariz. at 256 n.4, ¶ 8, 3 P.3d at 1176 n.4. Thus, we will affirm the trial court's finding of timeliness if there are any facts in the record to support it.
¶16 Here, the record reflects that prior to Ex-Wife's April 16, 2009 communication with Northern, she explained to Northern that her ex-husband owed her money as a result of the divorce decree but that he had never paid her the money during his lifetime. Specifically, on April 6, 2009, Ex-Wife emailed Anna Madec of Northern as follows:
Anna-While it is true that this email confused the MLB pension (which had already been liquidated and accounted for during the property settlement) with the MLB licensing benefits (which had never been paid to Ex-Wife), this email does communicate Ex-Wife's intention to seek payment for a debt Decedent had never repaid during his lifetime.
Have you found anything out about the MLB pension or funds? If you have difficulties, maybe Larry can help. Per the divorce decree, it was the last thing to be settled between Tom and myself. It is clearly stated in the decree that we were to divide it equally as part of our settlement. I remember Tom saying he was looking into it, but that he was having difficulty with MLB, not to mention his severe headaches he was having. Shortly after that (our divorce was final only months, Tom then was diagnosed/rushed off for emergency brain surgery) so the issue was never resolved.
¶17 However, as the probate court noted, by April 16, 2009, Ex-Wife clarified that she was seeking the MLB licensing benefits. On April 15, 2009, Ex-Wife sent another email to Ms. Madec explaining that she had located a document from MLB pertaining to the licensing money among Decedent's belongings:
FYI- I found a copy of a document from MLB pertaining to licensing money (approx. $11,000 plus) in an account for Tom. It was something we were to split in the divorce, but it was difficult to receive or there was some glitch w/MLB. I will fax you a copy and maybe between the two fo [sic] us, we can see if it actually exists or not.At this point, the MLB licensing benefits are sufficiently identified by Ex-Wife. Taken in conjunction with Ex-Wife's previous email, Ex-Wife's intent to seek repayment for the MLB licensing benefits was clear.
¶18 On April 16, 2009, Ex-Wife faxed the above-mentioned document to Ms. Madec. The fax summarized the MLB benefits that were due to Decedent as of February 2, 2006 and showed a balance of $11,652.49. On the cover of the fax, Ex-Wife noted, "This is an unresolved issue - see what you can find out. It does exist - still a pending (last) division of assets for our decree (divorce) - have documentation. Tom at one point said it was not obtainable until a later date. Thus, never resolved. I may have Larry Stevens look into it as well. See what you can do - half would go to the trust. Thanks, Joni."
¶19 We find that these facts support the trial court's finding that by April 16, 2009, Northern was on notice that Ex-Wife was "making a claim for her share in the licensing benefits." We next turn to the probate court's findings regarding the insolvency of the estate.
2. The Solvency of the Estate
¶20 Whether the estate was insolvent is a legal question that requires the court to examine and interpret both Arizona statutory law and the contractual provisions of the will and trust. These are both questions of law, which are reviewed de novo. In re Estate of Winn, 214 Ariz. 149, 151, ¶ 7, 150 P.3d 236, 238 (2007) (statutory interpretation); Andrews v. Blake, 205 Ariz. 236, 240, ¶ 12, 69 P.3d 7, 11 (2003) (contract interpretation).
¶21 Northern argues that a separate and independent reason for denying Ex-Wife's claim was that the estate was insolvent. The only physical assets Decedent possessed at the time of his death were a residence without any equity and miscellaneous personal property such as televisions and furniture that were worth approximately $10,000. Ex-Wife took possession of this property as the custodian of Decedent's minor children, leaving Decedent's estate without any assets. Ex-Wife argues that due to the language in the will and trust, the life insurance proceeds should be considered part of Decedent's estate for purposes of this claim. We agree.
A. Statutory Basis of Ex-Wife's Claim
¶22 Arizona statutory law specifically exempts life insurance proceeds from the claims of a decedent's creditors. A.R.S. § 20-1131(A) (exempting life insurance proceeds from creditors); A.R.S. § 14-6101(A) (explaining that life insurance proceeds are nontestamentary, that is, not part of a decedent's estate; "[a] provision for a nonprobate transfer on death in any insurance policy . . . is nontestamentary."); see also May v. Ellis, 208 Ariz. 229, 231-32, ¶¶ 11-13, 92 P.3d 859, 861-62 (2004) (holding that life insurance proceeds payable to beneficiaries other than the decedent are exempt from claims against the decedent's estate). Although Ex-Wife's claim was timely, if the sole basis for her argument was statutory, Northern would not be required to pay her claim using the life insurance proceeds.
¶23 However, Ex-Wife's claim is not based on the probate statutes; she argues that the provisions of Decedent's will and trust created a contractual obligation that required Northern to use the life insurance proceeds to pay her claim. We now turn to these provisions.
B. Contractual Basis of Ex-Wife's Claim
¶24 Ex-Wife argues that certain provisions in Decedent's will and trust require the trustee to pay the "proper charges" and "allowable claims" using the trust funds if the assets in Decedent's estate are insufficient. Ex-Wife relies upon the following provision in Decedent's will:
Northern is both the trustee of the trust and the personal representative of Decedent's estate.
My Personal Representative shall pay all expenses of my last illness and funeral, costs of administration including ancillary, costs of safeguarding and delivering devises, and other proper charges against my estate (excluding debts secured by real property or life insurance). . . . If, however, the cash and readily marketable assets in the principal of the residue of my estate are insufficient to make the foregoing payments in full, my Personal Representative shall certify the amount of the insufficiency to the then acting trustee under the trust agreement hereafter mentioned for payment.(Emphasis added.) The term "proper charges" is not defined by the will.
Ex-Wife also relies on the following trust provisions:
Upon the death of the Settlor, if the Settlor has no probate estate, or to the extent that the cash and readily marketable(Emphasis added.) The trust does not define the term "claims allowable." Neither the will nor the trust leave payment to the discretion of the trustee or the personal representative; both mandate payment of "proper charges" and "allowable claims."
assets in the principal of the residue of that Settlor's probate estate are insufficient, the Trustee shall make the following payments.
The Trustee shall pay the expenses of the Settlor's last illness and funeral, costs of administration including ancillary, costs of safeguarding and delivering devises, claims allowable against Settlor's estate (excluding debts secured by real property or life insurance), and pre-residuary devises under Settlor's will if the will contains a residuary devise to this trust. . . . The Trustee may make payment directly or to the personal representative of Settlor's estate, as the Trustee deems advisable.
¶25 Our goal in interpreting a contract is to discern and enforce the parties' intent, which we do by considering the "plain meaning" of the words in the context of the contract as a whole. Grosvenor Holdings, L.C. v. Figueroa, 222 Ariz. 588 593, ¶ 9, 218 P.3d 1045, 1050 (App. 2009); see also A.R.S. § 14-1102(B)(2) (explaining that one of the purposes of Arizona's probate law is "[t]o discover and make effective the intent of a decedent in distribution of his property"). We "'apply a standard of reasonableness' to contract language." State ex rel. Goddard v. R.J. Reynolds Tobacco Co., 206 Ariz. 117, 120, ¶ 12, 75 P.3d 1075, 1078 (App. 2003). In addition, "we read words in the context in which they are used, and [considering] the purposes sought . . . by the agreement." Id. at ¶ 13 (internal quotations omitted).
¶26 We begin by noting that Decedent certainly had the power to create a trust document that would direct his trustee not to pay "claims allowable against Settlor's estate," if that is what he wanted. However, Decedent specifically directed that the trustee "shall pay" such claims with the insurance proceeds if assets in the estate "are insufficient." That is the case here.
¶27 In interpreting contracts, we must give meaning to every word. Chandler Med. Bldg. Partners v. Chandler Dental Grp., 175 Ariz. 273, 277, 855 P.2d 787, 791 (App. 1993) ("A contract must be construed so that every part is given effect, and each section of an agreement must be read in relation to each other to bring harmony, if possible."). Although neither document defines the term "allowable claim," in the context of probate law, "allowable claims" are claims that have not been rejected by the personal representative (for such reasons as untimely filing). See A.R.S. § 14-3806(A) (explaining that timely filed claims that are rejected by the personal representative are "disallowed," while those that are not rejected by the personal representative are deemed "allowed.").
¶28 Based on this definition, we find that "allowable claim" refers to claims that are timely filed and that would otherwise qualify for payment but for the insolvency of the estate. Under this definition, Ex-Wife's claim qualifies. Because her claim should not have been rejected by the personal representative (based on the language in the will and trust), the fact that it was disallowed in this instance does not transform Ex-Wife's claim into a "disallowed claim." That reading would allow the personal representative to defeat the mandates of the will and trust — the personal representative "shall pay" — simply by improperly denying all claims.
3. Other Issues
¶29 Four issues remain; specifically, we address (1) the tax provisions of the trust, (2) whether Ex-Wife was paid "in kind," (3) whether the trust is a party to this appeal, and (4) Ex-Wife's request for attorneys' fees.
A. Tax Provisions of the Trust
¶30 The probate court, in deciding to deny Ex-Wife's petition, mentioned a tax provision in the trust: "Assets or funds otherwise excludable from the Settlor's gross estate for federal estate tax purposes shall not be used to make the foregoing payments." Ex-Wife argues that the court "erred as a matter of law in implicitly concluding that [Decedent's] gross estate for federal tax purposes did not include the life insurance proceeds in the Trust." Citing to Treasury Regulations § 20.2042-1(b), Ex-Wife argues that the estate included the life insurance proceeds to the extent necessary "to pay taxes, debts or other expenses chargeable against the estate." Ex-Wife is correct; this provision does not create a prohibition against payment, in light of the will and trust provisions.
B. Whether Ex-Wife Had Already Been Paid "In Kind"
¶31 Northern argues that Ex-Wife had already received payment for her claim in the form of the personal property she took possession of as the guardian of Decedent's minor children. This property was worth approximately $10,000. However, Ex-Wife's claim entitled her to payment in her personal capacity, not as the custodian of her children. See A.R.S. § 14-3906(A)(1) (providing that a "specific devisee is entitled to distribution of the thing devised to him."). Thus, Ex-Wife did not receive payment for her claim by taking possession of Decedent's personal property; she did so only as the custodian of her minor children.
C. Whether the Trust Is a Party to This Appeal
¶32 Northern also argues that the trust was neither a party to the estate action below nor a party to this appeal. Northern does not cite any Arizona authority for this proposition, and it appears to run counter to Arizona Rule of Civil Procedure 17(a), which provides that a trustee is the proper party to represent the beneficiaries of a trust. Nor does Northern assert any prejudice if this is a technical defect. Thus, we find no reversible error.
D. Attorneys' Fees
¶33 Ex-Wife requests her attorneys' fees and costs below and on appeal based on A.R.S. § 12-341.01(A) ("In any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees."). Ex-Wife argues that the present dispute arises from the settlement agreement relating to her divorce. Northern responds that A.R.S. § 12-341.01(A) is inapplicable because this action relates to probate administration. Even if § 12-341.01(A) applies, "[o]ur authority to award fees under section 12-341.01(A) is discretionary." Deutsche Credit Corp. v. Case Power & Equip. Co., 179 Ariz. 155, 164, 876 P.2d 1190, 1199 (App. 1994). We decline to award fees to Ex-Wife in this case, given the matters at issue here. Thus, we exercise our discretion to deny Ex-Wife attorneys' fees.
Conclusion
¶34 For the reasons set forth above, we reverse the probate court’s denial of Ex-Wife’s petition for $5,239.45 against Decedent’s estate. Ex-Wife is entitled to her costs on appeal.
DANIEL A. BARKER, Judge CONCURRING: ANN A. SCOTT TIMMER, Presiding Judge PATRICK IRVINE, Judge