772 F.3d 634 (10th Cir. 2014), 14-6006, Aviva Life & Annuity Co. v. White (In re Millennium Multiple Emplr. Welfare Benefit Plan)

Docket Nº:14-6006, 14-6007
Citation:772 F.3d 634
Opinion Judge:McHUGH, Circuit Judge.
Party Name:In re: Millennium Multiple Employer Welfare Benefit Plan, Debtor. AVIVA LIFE AND ANNUITY COMPANY, fka Indianapolis Life Insurance Company, an Iowa insurance corporation, Appellant, v. JERALD WHITE, M.D.; CLAUDIA WHITE; DIOGENES HOLDINGS, INC., Appellees
Attorney:J. Michael Vaughan, Walters Bender Strohbehn & Vaughan, P.C., Kansas City, Missouri (Joseph A. Friedman, Kane Russell Coleman & Logan, P.C., Dallas, Texas, with him on the briefs) for the Appellant. Eric D. Madden, Reid Collins & Tsai, LLP, Dallas, Texas (Brandon V. Lewis, Reid Collins & Tsai, LL...
Judge Panel:Before HOLMES, BACHARACH, and McHUGH, Circuit Judges.
Case Date:November 13, 2014
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit
 
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772 F.3d 634 (10th Cir. 2014)

In re: Millennium Multiple Employer Welfare Benefit Plan, Debtor.

AVIVA LIFE AND ANNUITY COMPANY, fka Indianapolis Life Insurance Company, an Iowa insurance corporation, Appellant,

v.

JERALD WHITE, M.D.; CLAUDIA WHITE; DIOGENES HOLDINGS, INC., Appellees

Nos. 14-6006, 14-6007

United States Court of Appeals, Tenth Circuit

November 13, 2014

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Appeal from the United States District Court for the Western District of Oklahoma. (D.C. No. 5:13-CV-00957-F and 5:13-CV-00958-F).

J. Michael Vaughan, Walters Bender Strohbehn & Vaughan, P.C., Kansas City, Missouri (Joseph A. Friedman, Kane Russell Coleman & Logan, P.C., Dallas, Texas, with him on the briefs) for the Appellant.

Eric D. Madden, Reid Collins & Tsai, LLP, Dallas, Texas (Brandon V. Lewis, Reid Collins & Tsai, LLP, and Kiran A. Phansalkar, Conner & Winters, Oklahoma City, Oklahoma, with him on the briefs) for the Appellee.

Before HOLMES, BACHARACH, and McHUGH, Circuit Judges.

OPINION

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McHUGH, Circuit Judge.

In this consolidated appeal, Aviva Life & Annuity (Aviva) challenges identical orders of the U.S. District Court for the Western District of Oklahoma sitting in its capacity as a bankruptcy appellate court. The district court entered the orders in two directly related cases brought by Aviva in the nature of interpleader pursuant to the Federal Interpleader Act, 28 U.S.C. § § 1335, 2361, and Federal Rule of Civil Procedure 22.1 Aviva argues the court erred by limiting the scope of the interpleader relief granted. Exercising jurisdiction pursuant to 28 U.S.C. § 158(d)(1), we affirm.

I. BACKGROUND

This case arises from the Chapter 11 bankruptcy proceedings of the Millennium Multiple Employer Welfare Benefit Plan (the Millennium Plan).2 Prior to seeking the protection of the bankruptcy court, the Millennium Plan was an employee welfare benefit plan providing medical, disability, long term care, severance, and death benefits. Participants made contributions to the Millennium Plan, which then purchased life insurance policies (Policies) on the lives of the participants from Aviva and other insurance companies.

The Millennium Plan used proceeds derived from the Policies to fund its benefit operations. In the event of the death of an insured participant, the Millennium Plan would receive the death benefit due under the policy. It would then pay death benefits to the participant's heirs in accordance with its obligations under a separate agreement between the Millennium Plan and the participant (Participation Agreement). The Millennium Plan was obligated to pay the premiums on the Policies, regardless of whether participants paid their contributions under the Participation Agreements. Conversely, the Participation Agreements required the Millennium Plan to provide covered benefits, even if Aviva denied coverage under the Policies.

The Millennium Plan held the Policies for the collective benefit of all participants. It used the benefits paid under the Policies, along with the proceeds of loans taken against the cash surrender value of the Policies, as the primary source of funds for its various benefit operations. Thus, the participants were neither the legal owners nor the beneficiaries of the Policies. Instead, the Policies were owned by the Millennium Plan and benefits paid under the Policies, as well as the proceeds of loans secured by the Policies, were pooled for the collective benefit of all participants. In

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turn, the participants were entitled to only the benefits provided under the Participation Agreements.

Several groups of participants and employers in multiple states brought lawsuits against the Millennium Plan, Aviva, and other insurance companies under a variety of legal theories. The claims asserted in these lawsuits were based on allegations that the defendants fraudulently induced the participants to enter into the Participation Agreements. Of importance to this appeal, Jerald White, Claudia White, and Diogenes Holdings, Inc. (collectively, the Whites) brought suit in Tennessee state court against the Millennium Plan, Aviva, and other insurance providers for fraud, negligent misrepresentation, civil conspiracy, violations of the Tennessee Insurance Code, violations of the Tennessee Consumer Protection Act, accounting malpractice, breach of fiduciary duty, unjust enrichment, and constructive and resulting trust (the White Litigation).3 The Whites alleged agents of Aviva fraudulently induced them to enter into the Participation Agreements with the Millennium Plan by representing the Participation Agreements complied with section 419A(f)(6) of the Internal Revenue Code. Specifically, the Whites claimed Aviva's agents told them they could invest tax-deductible amounts in the Millennium Plan and later withdraw their investment tax-free. As the result of a 2005 Internal Revenue Service (IRS) audit, the Whites discovered the Participation Agreements did not comply with IRS regulations. The IRS served the Whites with a Notice of Deficiency, seeking more than $760,000 in taxes and penalties based on their participation in the Millennium Plan. The White Litigation seeks compensatory and punitive damages from Aviva, the Millennium Plan, and other insurers.

Faced with the participant law suits, the Millennium Plan filed a Chapter 11 petition with the bankruptcy court and removed the White Litigation to federal court. As part of the bankruptcy proceedings, the Millennium Plan's bankruptcy trustee sued Aviva, alleging the Policies were property of the bankruptcy estate and Aviva should be ordered to tender the cash value of the Policies to the bankruptcy court. See 11 U.S.C. § 542 (requiring an entity in possession of property belonging to a debtor in bankruptcy to deliver such property to the bankruptcy trustee). By doing so, the Millennium Plan exercised ownership over the Policies.

In response, Aviva sought interpleader relief before the bankruptcy court and the U.S. District Court for the Western District of Oklahoma. According to Aviva, it would be subject to duplicative liability if forced to surrender the cash value of the Policies to the Millennium Plan's bankruptcy trustee, while simultaneously facing claims of ownership over the Policies from the participants. Aviva therefore sought an order " requiring the [participants] . . . to interplead any and all claims or potential claims they have asserted or may assert against [the] Policies and against Aviva relating to its obligations under [the] Policies." Additionally, Aviva sought " injunctive relief enjoining the [participants] from initiating or prosecuting any claims or proceedings against Aviva in any other Court affecting or which may affect those obligations, in order to protect Aviva from further exposure to potential dual liability and multiple, vexatious litigation."

Ultimately, the bankruptcy court entered an order granting Aviva leave to deposit into the court registry the amount

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of $6,822,331.44, which was the net cash surrender value of the Policies owned by the Millennium Plan, including the Policies insuring the Whites. This effectively settled the Millennium Plan's claims of ownership over the Policies.

With respect to the participants' claims against the Millennium Plan, the bankruptcy trustee distributed the assets of the bankruptcy estate, including the $6,822,331.44 cash value of the Policies, in accordance with the approved liquidation plan. Under the plan, the Whites received a distribution in full satisfaction of their claims against the Millennium Plan and its trustee. The Whites then moved to amend their complaint in the White Litigation...

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