Liberty Life Assur. Co. of Boston v. Gilbert

Decision Date13 November 2007
Docket NumberNo. 06-6079.,No. 06-6078.,No. 06-6068.,06-6068.,06-6078.,06-6079.
Citation507 F.3d 952
PartiesLIBERTY LIFE ASSURANCE COMPANY OF BOSTON and Sun Life Assurance Company of Canada (U.S.), Plaintiffs-Appellees/Cross-Appellants (06-6079), v. Lloyd F. GILBERT, Jr., Defendant, Irene K. Wolfe (06-6068); Singer Asset Finance Company, LLC (06-6078), Defendants-Appellants/Cross-Appellees, Stephanie Muschlitz, Defendant-Appellee.
CourtU.S. Court of Appeals — Sixth Circuit

Before: MARTIN, GUY, and CLAY, Circuit Judges.

OPINION

BOYCE F. MARTIN, JR., Circuit Judge.

This Court is faced with the unenviable task of deciphering what would surely be an excellent law school exam question in first-year civil procedure. Liberty Life Assurance of Boston and Sun Life Assurance Company of Canada filed the present interpleader and declaratory relief action in order to determine who was due annuity payments originally received by the decedent, Lloyd Gilbert. Gilbert's ex-wife, Irene Wolff, claims she is due the annuity payments based on her separation agreement with Gilbert. A loan company, Singer Asset Finance Company, claims it loaned Gilbert a substantial sum of money in exchange for a security interest in Gilbert's annuity payments. Finally, Gilbert's daughter, Stephanie Muschlitz, is the named beneficiary on the annuity. We believe the district court correctly decided the numerous legal issues and did not abuse its discretion in weighing the equities, and accordingly affirm its decision.

I.

The district court adequately set out the facts in its order granting summary judgment to Stephanie Muschlitz:

The decedent, Lloyd Gilbert ("Gilbert"), was injured in an accident November 24, 1992, and subsequently filed a lawsuit in the Circuit Court for the City of Virginia Beach, Virginia, in an effort to recover damages for his personal injuries suffered as a result of the accident. The defendants in the Virginia action were insured by Liberty Mutual Insurance Company ("Liberty Mutual") and, in 1995, [Gilbert] entered into a negotiated settlement of his claims. The Settlement Agreement and Release ("the [Settlement] Agreement") entered into between Gilbert and Liberty Mutual provided for an immediate cash payment to Gilbert of $107,000 plus periodic payments of $666 per month for thirty six years commencing November 25, 1995.

The [Settlement] Agreement provided that Liberty Mutual could make a qualified assignment of its liability to make the agreed upon periodic payments, within the meaning of Section 130(c) of the Internal Revenue Code. Liberty Mutual then made such an assignment to Keyport Life Insurance Company ("Keyport"). The [Settlement] Agreement further provided that Liberty Mutual or its assignee could satisfy its obligations under the settlement agreement through the purchase of an annuity. Keyport did, in fact, purchase an annuity from Liberty Life. Keyport is the owner of the annuity and the annuity payments were directed to Gilbert to meet Liberty Mutual's liability to Gilbert for the agreed upon periodic payments. The [Settlement] Agreement further provided that Gilbert does not have the power to "sell, mortgage, encumber, or anticipate the Periodic Payments, or any part thereof, by assignment or otherwise." The original [Settlement Agreement] provided that upon the annuitant's (i.e. Gilbert's) death, payments would be made to the annuitant's estate, but the annuitant was permitted by the terms of the [Settlement Agreement] to change the beneficiary by written request during the annuitant's lifetime.

At the time of Gilbert's injuries in 1992, he was married to Wolff. During the course of Gilbert's personal injury lawsuit, Gilbert and Wolff determined to be divorced and entered into a handwritten [separation] agreement dated June 29, 1995, which purports to obligate Gilbert to pay certain amounts to Wolff "if and when I receive any compensation for the accident dated 11/24/92." Wolff and Gilbert were apparently divorced on June 10, 1999, and the Court's decree incorporated and ratified the June 29, 1995 agreement between Gilbert and Wolff.

On March 22, 1999, Gilbert entered into a "Loan Application and Loan Agreement," with Merrick Bank pursuant to which Gilbert received $51,105.00. In the loan agreement, the defendant/counter plaintiff, Singer Asset Finance Company, is listed as the "processing agent." Singer is also Merrick Bank's assignee of the loan agreement. In the agreement, Gilbert agrees to repay the "loan," in 240 monthly payments of $666.00 each, commencing on May 25, 1999 and concluding on April 25, 2019.

As required by the loan agreement, Gilbert pledged and granted a security interest to Merrick Bank [— subsequently assigned to Singer —] in the periodic payments to which he was entitled under the settlement agreement and annuity contract. UCC-1 financing statements were filed in North Carolina and Tennessee in an effort by Singer to perfect its security interest in the collateral (i.e. the periodic payments). Gilbert also executed an irrevocable durable power of attorney appointing Singer as his attorney-in-fact, granting Singer sole and absolute rights to deal with the periodic payments, including the right to change the beneficiary designation. Gilbert, also pursuant to the loan agreement, opened a bank account with Wachovia Bank, directed his annuity payments to said account, and gave Singer power of attorney to access deposits made to said bank. Gilbert further notified Liberty of a change of address to a post office box which, though being in the name of Gilbert, was controlled by Singer. When Gilbert entered into the loan transaction, Singer sent to the attorney for Gilbert's ex-wife, Irene Wolff, a check in the amount of $3,015.84. The cover letter sent with the check indicates that it "represents payment of garnishment per agreement dated 6/29/95 on the above referenced account." The account referenced is the case number for the divorce of Gilbert and Wolff.

Other than the handwritten agreement between Gilbert and Wolff dated 6/29/95, Gilbert never executed any documents to assign the receipt of any proceeds to Wolff. When Wolff did not receive any further payment from Gilbert, she filed a motion to show cause against him in the Circuit Court of the City of Virginia Beach on December 8, 2000. Gilbert failed to appear for the show cause hearing, and on August 10, 2001, an Amended Judgment Order was entered in the divorce case, granting Wolff judgment against Gilbert in the amount of $34,947.61, plus $1,260.00 in attorneys fees and costs of $ 83.48. A garnishment summons was issued on December 18, 2001 and served on Liberty Life, and Liberty Life, in its February 20, 2002, answer to the garnishment summons, notified the Circuit Court of its intention to "withhold from Mr. Gilbert any monthly periodic payments which become due under the Policy following receipt of the Garnishment Summons until further notice from the court."

On December 29, 2000, despite his agreement with Merrick (and Singer), Gilbert requested that Liberty Life change the beneficiary on his annuity to his daughter, Stephanie Muschlitz. By letter dated November 12, 2001, Liberty Life acknowledged the change of beneficiary designation to the annuity. Gilbert died on September 23, 2003. No probate estate has been opened for Gilbert.

Gilbert made all required payments to Singer under the loan agreement until February 2002, except for the payments for September and October, 2001. He made no payments after February, 2002. On May 10, 2002, Singer filed suit against Gilbert in the Chancery Court for Hancock County, Tennessee seeking judgment against Gilbert "in an amount not to exceed $150,000" and for an injunctive relief prohibiting Gilbert from exercising dominion over the periodic payments. Singer's state court complaint stated causes of action based on theories of breach of the loan agreement, conversion and unjust enrichment against Gilbert. An amended complaint added Keyport as a party defendant and sought injunctive relief and declaratory relief. Liberty Life filed this action in the Court on November 18, 2002, to determine to whom annuity benefits are payable, Wolff and Singer having both notified Liberty Life of claimed entitlement to a portion of the annuity payments, and Muschlitz laying claim to the entirety of the annuity payments as Gilbert's beneficiary.

The district court granted summary judgment in favor of Muschlitz, as discussed below. In its July 6, 2006 Order, the district court ordered an accounting of the payments made by Liberty into the district court's escrow account to determine which payments were made before Gilbert's death, and which were made after. The payments made before his death were ordered payable to his estate, and those made after were ordered payable to Muschlitz, as the named beneficiary upon Gilbert's death.

II.
1. Standard of Review

We review a district court's grant of summary judgment de novo. Monette v. Electronic Data Sys. Corp., 90 F.3d 1173, 1176 (6th Cir.1996). Summary judgment is appropriate if, pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, "the pleadings, depositions, answers to interrogatories, and admissions on file, together...

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