In re Estate of Riley – 12/9/2011

December 28, 2011

Arizona Court of Appeals Division Two Holds That A.R.S. § 14-3952, Which Governs Compromises in the Will and Probate Context, Requires Signatures By all Persons with Beneficial Interests in the Estate.

Joseph and Mary Riley were appointed co-personal representatives of their mother’s estate.  R.J. Riley filed a petition with the probate court to remove Joseph and Mary as co-personal representatives and to appoint John Barkley as the successor personal representative of the estate.  Joseph and Mary resigned and the probate court appointed Barkley.  Barkley objected to an accounting filed by Joseph and Mary with the court and requested a bench trial.  While the trial was pending, Barkley reached agreements with Mary, Joseph, and Kathryn, another sibling.

The agreement between Barkley, Mary, and Joseph contained a term stating it would be presented to the court for approval under A.R.S. §§ 14-3951 and 14-3952 and Barkley sought court approval for both agreements. Nine of the estate’s thirteen beneficiaries objected and, after an evidentiary hearing, the court approved the compromises. This appeal followed the court’s denial of a motion for a new trial and for reconsideration.

On appeal, the Court of Appeals sua sponte raised whether the compromise with Joseph and Mary was void for failing to be executed by all the necessary parties pursuant to § 14-3952(1).  Section § 14-3952(1) states that a compromise that has not been executed by all of the persons with beneficial interests in the estate is void.  In his supplemental briefing, Barkley argued that the statue only required the signatures of the parties to the agreement.  The court rejected this argument, finding that the plain language of the statute dictates that a valid agreement must contain the signatures of all persons with a beneficial interest as well as all persons with claims that will or may be affected by the proposed compromise.

Barkley conceded, and the court found, that the terms of the compromise affected the distribution of the estate as Joseph would disclaim his interest and both Joseph and Mary would partially reimburse the estate for its losses in exchange for the estate withdrawing its objections to the accounting.  Barkley asserted, though, that the signature requirement would render § 14-1201(3) superfluous as that statute already requires that notice be given to all interested persons or their representatives before the court approves a settlement.  The Court of Appeals disagreed, finding that § 14-3952(1) imposes the signature requirement only on all persons having beneficial interests or having claims which will or may be affected by the compromise, which is a subset of those individuals entitled to notice under § 14-1201(3).  Section 14-1201(3) would not be rendered superfluous because a category of interested parties, not covered by § 14-3952(1), would only receive notice through § 14-1201(3). 

The Court likewise rejected Barkley’s argument that the signature requirement would contravene the role of the personal representative in reaching settlements with debtors or obligors.  While recognizing that the purpose of § 14-3952 is to encourage settlements, the Court found that the signature requirement evidences an intent to keep the power to make compromises regarding the structure of the estate in the hands of the estate’s beneficiaries. 

Because § 14-3952(1) plainly requires the objectors to have executed the agreement with Joseph and Mary, the Court of Appeals found that the trial court erred when it approved the compromise.  However, because the objectors previously stipulated to the compromise with Kathryn, the Court of Appeals refused to overturn the trial court’s approval of it. 

The Court of Appeals affirmed in part, vacated in part, and remanded for further proceedings.

Judge Eckerstrom authored the opinion; Judges Howard and Brammer concurred.