Lee v. W. Coast Life Ins. Co.

• Decision Date: 31 July 2012
• Docket Number: No. 11–55026.,11–55026.
• Citation: 12 Cal. Daily Op. Serv. 8604,688 F.3d 1004,2012 Daily Journal D.A.R. 10535
• Parties: Robert S. LEE; Gina Stevens; Laura Stevens, Counter–claimants–cross–claimants–Appellants, and Steve Lee; Bobbie Bill Lee; William Lee, Plaintiffs-counter-defendants-cross-defendants, v. WEST COAST LIFE INSURANCE COMPANY, Defendant–counter–defendant–counter–claimant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

688 F.3d 1004

12 Cal. Daily Op. Serv. 8604

2012 Daily Journal D.A.R. 10,535

Robert S. LEE; Gina Stevens; Laura Stevens, Counter–claimants–cross–claimants–Appellants,

and

Steve Lee; Bobbie Bill Lee; William Lee, Plaintiffs-counter-defendants-cross-defendants,

v.WEST COAST LIFE INSURANCE COMPANY, Defendant–counter–defendant–counter–claimant–Appellee.

No. 11–55026.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted May 9, 2012.

Filed July 31, 2012.

Benjamin Blakeman, Esq. and Burton Mark Senkfor, Esq., Law Office of Burton Mark Senkfor, Los Angeles, CA, for the counter-claimants-cross-claimants-appellants.

Brent Dorian Brehm and Glenn R. Kantor, Kantor & Kantor LLP, Northridge, CA, for the plaintiffs-counter-defendants-cross-defendants.

Linda B. Oliver, Reed Smith LLP, San Francisco, CA, for the defendant-counter-defendant-counter-claimant-appellee.

Appeal from the United States District Court for the Central District of California, Percy Anderson, District Judge, Presiding. D.C. No. 2:09–cv–06789–PA–VBK.

OPINION

PAEZ, Circuit Judge:

This case, which involves a dispute over the proceeds of a life insurance policy, raises the following issue: Does the federal interpleader remedy shield a negligent stakeholder from tort liability for its creation of a conflict over entitlement to the interpleaded funds? We hold that it does not, and that a claimant may seek to recover all damages directly and proximately caused by the negligent stakeholder's conduct.

I.

A.

On March 13, 1998, West Coast Life Insurance Company (“West Coast”) issued a life insurance policy with a death benefit of $800,000 to the late Steve Lee, Sr. Steve Sr. was the original owner of the policy. William Lee, Steve Sr.'s brother, was the original beneficiary. In the subsequent years, West Coast received numerous change of ownership and beneficiary forms from members of the Lee family. At issue is a policy change form signed and executed in July 2005, purporting to change the ownership and beneficiaries of the policy to Robert Lee, Bobbie Bill Lee, and Steve Lee, Jr. Bobbie and Steve Jr. are Steve Sr.'s nephews. Robert is Steve Sr.'s grandson.

Robert, Bobbie, and Steve Jr. executed the aforementioned change forms in West Coast's San Francisco office with the help of West Coast's Director of Policy Administration, James Davis. Davis erroneously instructed Bobbie and Robert to sign as the existing owners of the policy, when in fact Steve Jr. was an existing owner and Robert was not. Davis also erroneously failed to ask Steve Jr. to sign a change of beneficiary form which would have transferred a 62.5% interest to Robert as a beneficiary. Nonetheless, Davis witnessed Bobbie and Robert's signatures and West Coast approved and recorded a change of beneficiary as follows: Robert, 62.5%, Steve Jr., 19%, Bobbie, 18.5%. Relying on the validity of the July 2005 changes, Robert paid premiums due on the policy until Steve Sr.'s death approximately four years later.

The Lee family members made several additional, subsequent changes to the policy's ownership and beneficiaries. The final change occurred in December of 2008 when Robert Lee and Gina Stevens became the sole beneficiaries. Steve Sr. died in January 2009. Robert and Gina then submitted claim forms to West Coast. In response, West Coast informed Robert and Gina that the July 2005 changes were improperly executed, and therefore that they had no interest in the policy. In March 2009, upon learning that he retained the interest in the policy that he held in 2005, Bobbie submitted a claim form to West Coast. In April of 2009, West Coast responded by contacting all parties involved regarding the disputed claims, urging them to reach a mutual agreement regarding payment of the insurance policy benefits, and informing them that it would file an interpleader action if no agreement could be reached. The parties were unable to reach an agreement.

B.

In August of 2009, Steve Jr., Bobbie, and William Lee (collectively, “plaintiffs”) filed suit against West Coast in the Los Angeles Superior Court alleging claims for breach of contract and breach of the covenant of good faith and fair dealing under California law. West Coast removed the case to federal court invoking diversity jurisdiction, filed an answer and counterclaim in interpleader ¹, deposited $800,000 plus accrued interest with the district court, and added Gina and Laura Stevens ² as counter-defendants. Robert, Gina, and Laura (collectively, “counterclaimants”) filed counterclaims for negligence and declaratory relief against West Coast, and crossclaims against the plaintiffs.

West Coast moved for partial summary judgment, which the district court granted in West Coast's favor as to its interpleader claim and on the claims sounding in contract. The plaintiffs and counterclaimants then reached a settlement to distribute the interpleaded funds amongst themselves, and the district court entered an order approving the distribution. The district court, without prompting by the parties, then amended its summary judgment order to grant summary judgment in West Coast's favor as to counterclaimants' claim for attorney's fees, ruling that West Coast's liability for attorney's fees incurred in litigating over ownership of the stake was “cut off” by the interpleader action. The district court concluded that counterclaimants' negligence claim against West Coast was the only claim remaining to be tried. ³

At the pretrial conference, the district court asked the parties to brief what damages counterclaimants could recover should they succeed on the merits of their negligence claim. Counterclaimants argued that their damages included the amount of the insurance proceeds allocated to the plaintiffs pursuant to their settlement ($290,000) and the attorney's fees incurred in litigating their claims against the plaintiffs.⁴ At a subsequent pretrial conference, the parties stipulated to a trial on a record consisting of written declarations and stipulated facts, and to West Coast's filing of a motion for a judgment as a matter of law under Federal Rule of Civil Procedure 52(c).⁵

The district court subsequently granted West Coast's motion. The court did not address the merits of counterclaimants' negligence claim, reasoning that they had failed to allege any cognizable damages flowing from West Coast's alleged negligent conduct.⁶

Counterclaimants timely appealed. We have jurisdiction under 28 U.S.C. § 1291, and we reverse.

II.

“In reviewing a judgment following a bench trial, this court reviews the district court's findings of fact for clear error and its legal conclusions de novo.” Price v. U.S. Navy, 39 F.3d 1011, 1021 (9th Cir.1994) (citing Tonry v. Sec. Experts, Inc., 20 F.3d 967, 970 (9th Cir.1994)). “The same standard applies to the district court's involuntary dismissal of a claim under Rule 52(c).” Id. (citations omitted). When deciding a motion under Rule 52(c), the district court is “not required to draw any inferences in favor of the non-moving party; rather, the district court may make findings in accordance with its own view of the evidence.” Ritchie v. United States, 451 F.3d 1019, 1023 (9th Cir.2006).

III.

Both Rule 22 and the interpleader statute allow a party to file a claim for interpleader if there is a possibility of exposure to double or multiple liability. 28 U.S.C. § 1335; Fed.R.Civ.P. 22(a)(2). “The purpose of interpleader is for the stakeholder to ‘protect itself against the problems posed by multiple claimants to a single fund.’ ” Mack v. Kuckenmeister, 619 F.3d 1010, 1024 (9th Cir.2010) (quoting Minn. Mut. Life Ins. Co. v. Ensley, 174 F.3d 977, 980 (9th Cir.1999)); see also Michelman v. Lincoln Nat'l Life Ins. Co., 685 F.3d 887, 894 (9th Cir.2012). “This includes protecting against the possibility of court-imposed liability to a second claimant where the stakeholder has already voluntarily paid a first claimant. But it also includes limiting litigation expenses, which is not dependent on the merits of adverse claims, only their existence.” Mack, 619 F.3d at 1024 (citation omitted).

“An interpleader action typically involves two stages. In the first stage, the district court decides whether the requirements for [a] rule or statutory interpleader action have been met by determining if there is a single fund at issue and whether there are adverse claimants to that fund.” Id. at 1023 (quoting Rhoades v. Casey, 196 F.3d 592, 600 (5th Cir.1999)). “If the district court finds that the interpleader action has been properly brought the district court will then make a determination of the respective rights of the claimants.” Id. at 1023–24 (citation omitted).

“The protection afforded by interpleader takes several forms. Most significantly, it prevents the stakeholder from being obliged to determine at his peril which claimant has the better claim....” Wright, supra, 3d § 1702; see also id. at § 1704 (“[I]t is thought that the stakeholder should not be compelled to run the risk of guessing which claimants may recover from the fund.”). By contrast, interpleader protection generally does not extend to counterclaims that are not claims to the interpleaded funds. “Certainly when the stakeholder is an interested party and when one of the claimants asserts that the stakeholder is independently liable to him, the interposition of a counterclaim is appropriate. Indeed, in most instances of this type, the counterclaim will be compulsoryand the court will exercise supplemental jurisdiction over it ...” Wright, Miller & Kane, Federal Practice & Procedure: Civil 2d § 1715 (1986) (footnote omitted); see also44B Am. Jur. 2d Interpleader § 4 (“Interpleader is a procedural device not intended to alter substantive rights. It is not [the] function of an interpleader rule to bestow upon the stakeholder immunity from liability for damages that are unrelated to the act of interpleading, such as negligence in preserving the fund.”) (footnotes omitted).

The...