Bohart, Matter of, 83-1680

• Decision Date: 09 October 1984
• Docket Number: No. 83-1680,83-1680
• Citation: 743 F.2d 313
• Parties: In the Matter Of James T. BOHART, Bankrupt. The MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, Plaintiff-Appellant, v. James T. BOHART, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 313

743 F.2d 313

In the Matter Of James T. BOHART, Bankrupt.

The MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, Plaintiff-Appellant, v. James T. BOHART, et al., Defendants-Appellees.

No. 83-1680.

United States Court of Appeals, Fifth Circuit.

Oct. 9, 1984.

Locke, Purnell, Boren, Laney & Neely, Larry M. Lesh, Dallas, Tex., for plaintiff-appellant.

Jenkins & Gilchrist, Donald R. Rector, Dallas, Tex., for Bohart.

Walter H. Dunlap, Jr., Dallas, Tex., for appellee Universal Metals & Machinery, Inc.

Philip I. Palmer, Jr., Scot Sauder, Dallas, Tex., for Winston, Trustee.

Appeal from the United States District Court for the Northern District of Texas.

Before GARZA, GARWOOD, and HIGGINBOTHAM, Circuit Judges.

GARWOOD, Circuit Judge:

The Mutual Life Insurance Company of New York ("Mutual") appeals the dismissal of its interpleader action, brought under Fed.R.Civ.P. 22(1) and Bankruptcy Rule 722, and the money judgment against it and in favor of Universal Metals & Machinery, Inc. ("Universal"), a defendant in the interpleader, on the latter's counterclaim in

those proceedings. Appellees are Universal, James T. Bohart ("Bohart"), and Bohart's trustee in bankruptcy (the "Trustee"). The bankruptcy court based its dismissal of the interpleader on laches, finding that the filing of the interpleader was untimely and that such delay caused prejudice to appellees. The judgment for Universal against Mutual was based on Universal's prior garnishment of sums due by Mutual to Bohart as beneficiary of a Mutual life insurance policy. We reverse and remand.

FACTS

The facts leading up to this lawsuit are undisputed. On May 10, 1974, Mutual issued a term life insurance policy in the amount of $350,000 on the life of Jean Bohart. The policy named as beneficiary Mrs. Bohart's husband, James T. Bohart. About five weeks later, Mrs. Bohart died, and Bohart became entitled to the proceeds of the policy. The policy apparently provided several possible alternate "Modes of Settlement" which could be elected by the beneficiary, including installment payments of the policy proceeds. In June 1974, Bohart elected the option providing for him to receive the policy proceeds in monthly payments of $5,000. ¹

On May 8, 1974, two days before Mutual issued the policy on Mrs. Bohart's life, Universal obtained a judgment against Bohart in the Texas district court in Dallas in the amount of $219,000, plus interest at 6.75 percent per annum from September 12, 1972, and costs. Bohart timely appealed this judgment, but never superseded it. None of this judgment has been paid. To recover its judgment, Universal applied for post-judgment writs of garnishment against Mutual in the United States District Court for the Northern District of Texas, Dallas Division, and in the state district court in Dallas, on November 1 and November 4, 1974, respectively. The writs were issued and served on Mutual on these same dates. As authorized by Rule 658a, Texas Rules of Civil Procedure, Universal posted no bond in these garnishments as they were pursuant to subdivision 3 of article 4076, Texas Revised Civil Statutes, providing for garnishment "[w]here the plaintiff has a valid, subsisting judgment."

On November 5, 1974, however, after it had been served with the writs of garnishment, Mutual paid Bohart the policy sums due him for the months of June through October 1974, a total of $25,000. On November 13, Mutual filed garnishee affidavits in the state and federal garnishment suits brought by Universal. In the affidavits, Mutual admitted liability to Bohart for the remaining proceeds of the insurance policy ($325,000) and committed to hold this amount "subject to the further order of the court." Mutual apparently filed no additional pleadings in these garnishment actions. Bohart never intervened in the garnishments. So far as the record reflects, no judgment has been entered in either of the garnishment actions.

A few months after the initiation of the garnishments, however, a complication arose. On March 27, 1975, the Texas Court of Civil Appeals reversed the judgment won by Universal against Bohart and rendered judgment instead that Universal take nothing in that action. Bohart v. Universal Metals & Machinery, Inc., 523 S.W.2d 279 (Tex.Civ.App.--Dallas 1975). Following this decision, on September 30, 1975, Mutual paid Bohart an additional $50,000 representing the monthly insurance payments for the period extending from November 1974 through August 1975.

Shortly thereafter, in October 1975, another creditor of Bohart, Citibank of New York ("Citibank"), filed suit against him in New York state court. In connection with this suit, Citibank applied for an order of attachment against Bohart's property.

Mutual was served with this order on October 8 at its New York office and on October 10 filed in that proceeding its "affidavit of garnishee pursuant to order of attachment," admitting that it held $275,000 of policy proceeds payable at $5,000 a month to Bohart. Mutual filed no additional pleadings in that suit. On January 30, 1976, Citibank obtained a judgment against Bohart in the amount of $368,275.46 and in early February 1976 a judgment was entered against Mutual in Citibank's attachment suit. This latter judgment required Mutual to pay all sums presently owing to Bohart and "all future sums to become payable to James T. Bohart, in the sums of $5,000.00 per month, at such times and in such a manner as they will have become payable to James T. Bohart until such sums will, if possible, satisfy the ... demand against James T. Bohart ...." Mutual complied with the judgment and on March 1, 1976 paid the sheriff of New York County, New York the payments due September 17, 1975 through February 17, 1976, a total of $30,000. In accordance with the attachment judgment, Mutual made $5,000 payments, totaling $25,000, on the seventeenth day of each of the months of March, April, May, June, and July 1976. Bohart did not intervene in these attachment proceedings. Nor did Universal, which apparently first found out about them a few days prior to May 18, 1976. Citibank never intervened in the Texas garnishment proceedings (it is not shown when it learned of them).

Universal's suit against Bohart remained pending, having been appealed to the Texas Supreme Court. In an opinion dated March 10, 1976, apparently before Mutual's second payment on Citibank's attachment suit, the Texas Supreme Court reversed the judgments of both lower courts, remanding Universal's action against Bohart to the district court for a new trial. Universal Metals & Machinery, Inc. v. Bohart, 19 Tex.Sup.Ct.J. 212 (---. ---, 1976). On June 23, 1976, however, the Texas Supreme Court, on motion for rehearing, withdrew its prior action, reversed the decision of the Court of Civil Appeals, and in all things affirmed the district court's judgment for Universal against Bohart. Universal Metals & Machinery, Inc. v. Bohart, 539 S.W.2d 874 (Tex.1976). Shortly before this June 23 decision by the Texas Supreme Court, however, yet another complication occurred. On May 14, 1976, Bohart's creditors instituted an involuntary bankruptcy proceeding against him in the United States District Court for the Northern District of Texas. He was adjudicated a bankrupt on June 9, 1976. In connection with the bankruptcy action, Bohart and the Trustee also made claims to the insurance proceeds. Bohart apparently claimed the proceeds were exempt under article 21.22 of the Texas Insurance Code. There is no evidence that Bohart had ever previously claimed the proceeds were exempt or that Mutual was aware of his claim in this regard prior to filing its interpleader in January 1977.

By July 1976, Mutual had paid $75,000 of the policy benefits to Bohart and $55,000 to Citibank. Mutual made no further payments. Of the $75,000 received by Bohart, $25,000 was paid after service of the garnishment writs and before Mutual's answer in those proceedings, and $50,000 was paid after the judgment of the Court of Civil Appeals and before either the Citibank attachment proceedings or the March 1976 initial opinion of the Texas Supreme Court. Of the $55,000 paid Citibank, $10,000 or $15,000 was paid after initiation of the bankruptcy proceedings against Bohart, including $5,000 which was paid after the June 23, 1976 final decision by the Texas Supreme Court. The remainder of the payments to Citibank were made after both its attachment and the judgment of the Court of Civil Appeals and before the bankruptcy and the June 23, 1976 Texas Supreme Court decision.

On January 14, 1977, Mutual filed a bill of interpleader under Bankruptcy Rule 722 and Fed.R.Civ.P. 22(1) in Bohart's involuntary bankruptcy proceeding. In connection with its interpleader, Mutual deposited with the bankruptcy court and the Trustee all then accrued payments due on or after

                August 17, 1976 on the insurance benefit payable to Bohart.  On the filing of the interpleader, the bankruptcy court entered an order restraining Citibank and Universal from further prosecuting their respective attachment and garnishment suits against Mutual.  The defendants answered Mutual's complaint and counterclaimed for recovery of the insurance proceeds:  the Trustee claimed the proceeds as Bohart's trustee in bankruptcy;  Universal claimed the proceeds, without any deduction for Mutual's payments to Bohart and Citibank, based upon Universal's post-judgment writs of garnishment;  and Bohart claimed the proceeds as his exempt property.  Citibank moved to dismiss the interpleader on jurisdictional grounds.  After their answers, however, the defendants entered into a settlement agreement among themselves which was approved by the bankruptcy court.  As part of the settlement, the Trustee purchased for $64,729.44 the judgment against Mutual entered in Citibank's attachment suit. 2   In addition, the Trustee, Bohart, and Universal agreed that each would receive one third of any recovery from Mutual.  They

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