New York Life Ins. Co. v. Connecticut Development Authority

• Citation: 700 F.2d 91
• Decision Date: 09 February 1983
• Docket Number: D,No. 447,447
• Parties: NEW YORK LIFE INSURANCE CO., Plaintiff-Appellee, v. CONNECTICUT DEVELOPMENT AUTHORITY and Minority Equity Capital Corp., Defendants, and Rupert C. Sterling, Defendant-Appellant. ocket 82-7541.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 91

700 F.2d 91

NEW YORK LIFE INSURANCE CO., Plaintiff-Appellee, v. CONNECTICUT DEVELOPMENT AUTHORITY and Minority Equity

Capital Corp., Defendants,

and

Rupert C. Sterling, Defendant-Appellant.

No. 447, Docket 82-7541.

United States Court of Appeals, Second Circuit.

Argued Nov. 1, 1982.

Decided Feb. 9, 1983.

Carol Y. Kendrick, New York City (Robert A. Kirtland, New York City, on brief), for plaintiff-appellee.

Paulette M. Owens, New York City, for defendant-appellant.

Before FRIENDLY, KEARSE and PRATT, Circuit Judges.

KEARSE, Circuit Judge:

Defendant Rupert C. Sterling appeals from a judgment of the United States District Court for the Southern District of New York, Robert L. Carter, Judge, in this interpleader action brought by plaintiff New York Life Insurance Co. ("New York Life") pursuant to 28 U.S.C. Sec. 1335 (1976) to adjudicate conflicting claims to the cash surrender value of two insurance policies. The judgment, which recited that it was entered with the consent of Sterling, included provisions ordering payment of the cash surrender value of the policies to Sterling, discharging New York Life from any liability to Sterling "with respect to any claim regarding" the policies, and ordering Sterling to discontinue his pending state court action against New York Life. Insofar as the judgment determined the liability of New York Life to pay the cash surrender value of the policies, we affirm. Because the basis for the recitation of Sterling's consent to the discharge of claims other than his contract claim for the cash surrender value of the policies is not clear to us from the record, we remand to the district court for clarification.

I. BACKGROUND

The two insurance policies in question, with a total face value of $500,000, were issued by New York Life to Sterling in 1979. According to New York Life's complaint, one policy listed as one of the beneficiaries defendant Connecticut Development Authority ("CDA"), "as its interest may appear"; the other policy listed as one of its beneficiaries defendant Minority Equity Capital Corp. ("MECCO"), "as its interest may appear." The complaint asserts that the quoted phrase is traditionally used in the insurance industry to describe an assignee or creditor.

The present controversy arose in 1982 when Sterling requested that New York Life pay him the cash surrender value of the two policies. New York Life alleges that it then contacted CDA and MECCO with regard to their interests in the policies and was advised that each claimed an interest in the policy naming it and refused to release its interest, and that accordingly New York Life refused to pay Sterling the cash value of the policies. Sterling thereupon commenced an action in New York State Supreme Court, seeking to recover the cash value of the policies and seeking damages on the ground that New York Life's refusal to pay had wrongfully interfered with Sterling's economic relationships and caused him to lose advantageous business relationships. Sterling demanded damages totaling $3,000,000. ¹

On May 20, 1982, New York Life commenced the present interpleader action against Sterling, CDA, and MECCO, depositing the insurance policies with the court and alleging that neither CDA nor MECCO was a party to Sterling's state court action and that that action could expose New York Life to multiple liability on the policies. The "WHEREFORE" clause of the complaint included requests

1. That each of the defendants be restrained from commencing or continuing any action against the plaintiff for recovery of any benefits under said policies or any part thereof, and

2. That the defendants be required to interplead and settle between themselves their rights to any benefits under the policy, and that plaintiff be discharged from all liability to any of the defendants, except in the amount and manner that the court may deem the defendant or defendants may be entitled to under the terms of the policy; ....

New York Life immediately sought temporary injunctive relief pursuant to 28 U.S.C. Sec. 2361 (1976), restraining all defendants, and particularly Sterling, from prosecuting any action "affecting the property involved in this interpleader action," and sought a permanent injunction against any suit by the defendants "which may affect the property on deposit." (Order To Show Cause dated May 25, 1982, at 2.)

At the May 28, 1982 hearing on New York Life's injunction motion, only counsel for New York Life and counsel for Sterling appeared. The district judge announced that he had received word from CDA that it no longer asserted any claim with respect to the policy that had listed it as a beneficiary. As to MECCO, no one appeared or had communicated with the court in its behalf. New York Life therefore proposed that a default be entered as to both CDA and MECCO and that it pay Sterling the cash value of the policy that named CDA within a few days and pay Sterling the cash value of the policy that named MECCO when MECCO's default had become established. After a colloquy among the court, P. Michael Madden, appearing as New York Life's counsel, and Paulette M. Owens, Sterling's counsel, in which Owens appeared to agree to this course of action, the court requested, and Madden undertook to submit, a proposed order. ²

On June 16, 1982, the court entered the judgment that is the subject matter of the present appeal. ³ After reciting preliminary facts, including the defaults of CDA and MECCO, the judgment stated in pertinent part as follows:

The defendant, Rupert C. Sterling, appearing through counsel, consented to the entry of an order granting the relief sought by the plaintiff, New York Life Insurance Company, in this action pursuant to 28 U.S.C. Secs. 1335, 2361 and F.R.Civ.P. 22 and 65, conditioned upon payment of the cash surrender values of the two life insurance policies on deposit with this court. It is therefore

ORDERED that each of the defendants in this case, Connecticut, Minority Equity and Rupert C. Sterling be and hereby is, pursuant to 28 U.S.C. Secs. 1335 and 2361, permanently enjoined from instituting and/or prosecuting any proceeding in any state or United States court affecting the property involved in this interpleader action and on deposit with this court; and it is

FURTHER ORDERED that the plaintiff, New York Life, be and hereby is discharged from any liability to any of the defendants in this action with respect to any claim regarding New York Life policies # 36 815 574 and # 36 750 645 on the life of Rupert C. Sterling except as is ordered by this court; and it is

FURTHER ORDERED that the defendant Rupert C. Sterling discontinue and or dismiss the action in the Supreme Court of the State of New York for the County of New York, entitled Rupert C. Sterling against the New York Life Insurance Company, Index No. 10751/82; ....

Sterling has appealed from the judgment, ⁴ contending principally (1) that he did not consent to the judgment, and (2) that any interpleader judgment was inappropriate because there was only one claimant, i.e., Sterling, to the fund.

II. DISCUSSION

A. Interpleader Relief as to the Cash Surrender Value of the Policies

Under 28 U.S.C. Sec. 1335, a district court has jurisdiction of any civil action of interpleader involving money or property worth $500 or more where two or more adverse claimants, of diverse citizenship as defined in 28 U.S.C. Sec. 1332, ⁵ "are claiming or may claim to be entitled to such money or property," if the plaintiff has deposited the money or property with the court. In such an action, the court is to "hear and determine the case, and may discharge the plaintiff from further liability," may enter a permanent injunction restraining the claimants from proceeding in any state or United States court in a suit to affect the property, and may "make all appropriate orders to enforce its judgment." 28 U.S.C. Sec. 2361. Normally an interpleader action is concluded in two stages, the first determining that the requirements of Sec. 1335 are met and relieving the plaintiff stakeholder from liability, and the second adjudicating the adverse claims of the defendant claimants; this bifurcation is not mandatory, however, and the entire action may be disposed of at one time. See 3A J. Moore & J. Lucas, Moore's Federal Practice paragraphs 22.14, (2d ed. 1982).

The proceedings below were largely within this framework. The insurance policies listed, on their respective faces, CDA and MECCO as beneficiaries, and New York Life's complaint alleged that CDA and MECCO had refused to release their interests. In response to New York Life's injunction motion, Sterling acknowledged that CDA and MECCO had refused to release their alleged interests in the policies. (Affirmation of Paulette M. Owens, dated May 28, 1982, at p 11 ("Owens Aff.").) In these circumstances, CDA and MECCO were properly designated as "adverse claimants" who "may claim" the proceeds of the policies. Their subsequent defaults did not make the interpleader action inappropriate but merely expedited its conclusion by obviating the normal second stage. ⁶ Judgment discharging the stakeholder in an interpleader action may, of course, be delayed or denied if there are serious charges that the stakeholder commenced the action in bad faith. See 3A J. Moore & J. Lucas, supra, p 22.02, at 22-7; cf. Companion Life Ins. Co. v. Schaffer, 442 F.Supp. 826 (S.D.N.Y.1977). In the present action, Sterling's opposition to New York Life's injunction motion charged that New York Life had listed CDA and MECCO as beneficiaries of the policies without Sterling's knowledge or consent (Owens Aff. p 7), for reasons of its own "greed and self-interest" (id. p 23). Had CDA or MECCO participated in the action and contested Sterling's right to receive the cash surrender value of the policies, and had Sterling pursued his assertions as to New York Life's bad faith, the district court would have been required to deal with these...