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Arizona State Univ. v. Arizona State Ret. Sys - 5/11/2017

Arizona Court of Appeals Division One holds that an obligation to refund an overpayment accrues prejudgment interest at 10% per year.

ASU had previously succeeded in challenging a payment it made to ASRS in the court of appeals.  Upon remand, the superior court ordered that ASRS repay the money with interest at a rate of 4.25% per year, the statutory rate owed on a judgment.  ASU appealed that order, arguing that the interest was on an “indebtedness” that did not rely on the subsequent entry of judgment against ASRS and so should be charged 10% per year.  The statute setting pre- and postjudgment interest rates establishes a rate of 10% per annum for a “loan,” “indebtedness” or “other obligation” and a rate of the prime rate plus 1% (here, 4.25%) for a “judgment.” 

The Court of Appeals reversed and ordered the superior court to award prejudgment interest at a rate of 10%.  The Court of Appeals held that the superior court must look to the fundamental nature of the underlying obligation to determine which interest rate applies.  Because ASRS had treated the money as a debt owed by ASU, the court ruled that the repayment of that money should also be “indebtedness” under the statute, and so the rate of 10% applied.  Although ASU had to receive a judgment in order for ASRS to repay the indebtedness, the underlying indebtedness did not depend on the judgment for its existence.

Judge Swann delivered the unanimous opinion, in which Judges Cattani and Kessler concurred.

Disclosure: Osborn Maledon attorneys were involved with this case.

Posted by: Randy McDonald

Posted On: 6/5/2017