Business Buyers & Sellers Beware in 2019

A word of caution as you scan the business horizon for 2019. Depending on which side of a judgment you land on, it’s either a significant asset or obligation. Like a statute of limitations for filing a lawsuit, judgments in Arizona have a lifespan during which they can be enforced. When the enforcement period runs out, a judgment expires and is forevermore unenforceable — unless, before the deadline, it is renewed through a fairly simple process of filing a judgment renewal affidavit or, much less commonly, by filing a new complaint and essentially “suing on the judgment.” For decades, the enforceable lifespan of Arizona judgments has been five years from the date the judgment was entered; renewal affidavits had to be filed during the 90-day window that ends on the five-year anniversary date of the judgment’s entry.

On August 3, 2018, without much fanfare, Arizona’s judgment renewal statutes were amended to extend the enforceable lifespan of Arizona judgments from five to 10 years. Those amendments included a corresponding bump for the judgment renewal window; judgment renewal affidavits must now be filed within the 90 days immediately before the 10-year anniversary of the judgment’s entry.

The statutory amendments don’t say anything about judgments that were entered before, but were still enforceable on, the amendment date. The more prevalent view is that a judgment not expired as of the August 3rd amendment date (even if it would have expired the day after) will now be enforceable for 10 years, rather than five, from the date it was entered. However, that prevalent view isn’t the law; there won’t be a clear and certain answer to that question until a court answers it.

A bump from five to 10 years seems simple, but the consequences can be significant for both judgment creditor and judgment debtor when it comes to buying and selling a business, entering a partnership or purchasing real property. In one sense, those consequences just doubled. Consider the following scenarios:

Purchasing a business: Due diligence finds no judgment liens against the business’s real property because the two judgments entered against the business in October 2013 weren’t renewed, and now, more than five years old, they expired. Probably not so; that real property may now be encumbered by those judgment liens until October 2023.

Purchasing real property: The title report and related title policy speak to a nonrenewable judgment just over five years old as though the title insurance won’t have to take it into account. Prior to August 3rd, this was a much safer assumption; not so today.

Selling a business: The business assets include a few judgments entered in September 2013 that never got renewed. The seller shouldn’t undervalue the business by assuming those judgments are dead, gone and worthless — they may well be valuable assets until at least September 2023, and, even then, renewed for another 10 years.

Entering into a partnership with a judgment debtor: Someone who has waited to enter into a partnership with a judgment debtor until some four-year-old judgments expire and the risk falls away must keep a watch on those old judgments for 10 years after they were entered, not five.

Judgment creditors, in light of the unsettled question about whether the five- or 10-year timeline applies to judgments that straddle the amendment date, should be careful when deciding whether to renew such a judgment on a five-year schedule, 10-year schedule, or both. The situation that has been created presents a number of confusing pitfalls.

While the more conservative answer is both, if the correct deadline is the 10-year mark, one of the affidavits must be filed during the 90-day window before that 10-year mark. Filing a renewal affidavit early or late is ineffective to renew it. Because the time period for successive renewals runs from the last renewal (not from judgment entry, as with the first renewal), just using a five-year renewal schedule (and filing early in that 90-day window) could result in “stacking” the 90-day windows in a way that makes the second renewal too early if the correct renewal deadline is the 10-year mark (that is, it could result in a filing that is more than 90 days before the correct deadline). Unfortunately, when renewing, too early is too bad (that is, it is ineffective).

At the present time, anyone involved in a transaction in which there is a judgment on the books should take a closer look at the judgment and remember that it now probably means business for 10 years, not five. As always, it is wise to consult with an attorney on the sticky questions that changes in the law always bring about.  

Joseph Cotterman is a shareholder in the law firm of Gallagher & Kennedy. He has almost 30 years of experience advising and representing clients in business bankruptcy, corporate restructuring, commercial and foreclosure litigation, and judgment enforcement/collection issues. He has served as a presenter, author, and instructor on topics relating to bankruptcy law and procedure, foreclosure, and collection litigation in many industries.