Arizona Supreme Court Holds That Prejudgment Interest Awarded under Arizona Rule of Civil Procedure 68(g) Is Interest on a Judgment Rather Than Interest on an “Obligation.”

Marisol Metzler sued BCI when she slipped and fell on water leaking from a refrigerator owned and operated by BCI.  Metzler made an offer of judgment for $150,000, but BCI rejected the offer.  A jury awarded Metzler $1,500,000.  The trial court also awarded $347,672.16 as a sanction under Rule 68(g) for BCI’s failure to accept the offer of judgment.  After several appeals, the trial court entered a final judgment in Metzler’s favor for $2,135,867.03, including prejudgment interest at 10% under A.R.S. § 44-1201(A).  BCI argued that the appropriate rate was 1% plus the prime rate under A.R.S. § 44-1201(B).  The trial and Arizona Court of Appeals rejected BCI’s argument.

The Supreme Court reversed, explaining that under prior versions of § 44-1201, the interest rate was 10% for any loan, indebtedness, judgment, or other obligation.  After the legislature’s amendment in 2011, only loans, indebtedness, and other obligations were subject to a 10% interest rate.  Judgments became subject to 1% plus the prime rate.  

In overturning the Court of Appeals, the Supreme Court held that the term “other obligation” was subject to multiple interpretations and was therefore ambiguous.  The Court further explained that because “other obligation” is a general term that follows a list of specific items, “other obligation” must apply only to things of the same nature or class as “loan” and “indebtedness.”  Therefore, because a loan and indebtedness are examples of money lent at interest, whereas prejudgment interest under Rule 68(g) depends on a judgment for its existence, prejudgment interest is not an “other obligation” under § 44-1201(A) that is subject to a 10% interest rate.  Instead, the lower rate applicable to judgments applies.

Given the Court’s ruling, and because the amount tendered by BCI was greater than the amount of prejudgment interest owed, the Court did not address a second issue of whether a tender of the full amount of a damage award ends the accrual of additional prejudgment interest.

Vice Chief Justice Pelander authored the opinion; Chief Justice Bales, Justice Berch, Justice Brutinel, and Justice Timmer concurred.