Davis v. Prudential Insurance Company of America, 20499.

• Decision Date: 01 June 1964
• Docket Number: No. 20499.,20499.
• Citation: 331 F.2d 346
• Parties: Charlene DAVIS, Appellant, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

331 F.2d 346 (1964)

Charlene DAVIS, Appellant, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA et al., Appellees.

No. 20499.

United States Court of Appeals Fifth Circuit.

April 28, 1964.

Rehearing Denied June 1, 1964.

COPYRIGHT MATERIAL OMITTED

Ernest L. Sample, Jim Vollers, Beaumont, Tex., for appellant.

Quentin Keith, Keith, Mehaffy & Weber, Beaumont, Tex., for appellee Prudential Ins. Co. of America.

Paul R. Owens, Sexton & Owens, Orange, Tex., for appellees Edna L. and Vernon L. Davis.

Before HUTCHESON and BROWN, Circuit Judges, and SIMPSON, District Judge.

HUTCHESON, Circuit Judge.

This is an appeal from a judgment in an interpleader action¹ and various cross actions.² The determination of these disputes requires the application of the Texas community property laws to the proceeds of an insurance policy. Trial was had without a jury, and the court entered judgment in favor of the named beneficiary for the sum deposited in the registry of the court. This was in error since the change of beneficiary from deceased's wife to his mother, becoming a completed gift of the proceeds of a community owned policy on the death of the insured, constituted a transfer of community property in fraud of the decedent's wife.

Glen V. Davis and Charlene E. Davis were married March 11, 1960. On November 14, 1960 the Prudential Insurance Company of America (Prudential) issued a policy of group life insurance on the life of Glen V. Davis, the face value of which was $9000.00. This amount was increased to $11,000.00 on April 1, 1961. The policy provided for additional accidental death benefits equal to the face value of the policy. It was stipulated that Prudential paid a portion of the premiums and the remainder was paid out of the earnings of Glen V. Davis. No one disputes that the policy was purchased with community property. The policy was one of term insurance and had no cash surrender value.

Charlene Davis was the designated beneficiary of the policy until August 29, 1961, when Glen V. Davis named his mother, Edna L. Davis, as Beneficiary. On August 8, 1961, Charlene Davis had filed suit for divorce and custody of their child. A temporary restraining order³ was issued on August 11, 1961, preventing the alienation of all or any portion of the community estate. A hearing on Charlene Davis' application for an award of alimony pendente lite was set for August 17, 1961. This hearing was passed on defendant's motion to August 25, 1961, and on August 24, 1961 the hearing was passed on the court's motion until August 29, 1961. On August 29, 1961 a hearing was held at which Charlene Davis, Glen V. Davis, and his mother, Edna Davis, were present. Alimony pendente lite was fixed at that time, and the following notation was made on the Divorce Docket, "All restraining orders to remain in force". It was on this day after the hearing that Davis changed the beneficiary of his policy. No further proceedings were had in the divorce action.

The court found that during the period of the divorce proceedings terminating with the death of Glen V. Davis the debts of the community exceeded the community assets.⁴

Glen V. Davis died an accidental death on October 19, 1961, from injuries sustained in an automobile wreck. Edna Davis made due proof of loss and claimed the proceeds of the policy. Prudential paid Edna Davis $11,000.00, the face amount of the policy, and withheld payment of the accidental death benefits pending an investigation into the circumstances surrounding the death of the insured. The district court found that Prudential paid the $11,000.00, though it had actual knowledge that Charlene Davis might assert a claim to the proceeds.⁵ Charlene Davis through attorneys made further demands upon Prudential for the proceeds of the policy. Prudential determined that accidental death benefits were payable and filed this interpleader action to resolve conflicting claims to the remaining amount due under the policy. Charlene Davis answered the interpleader action admitting the conflicting claims to the $11,000.00 and cross-claimed against Prudential and in the alternative against Edna Davis for the $11,000.00 representing the face amount of the policy. Prudential claimed against Edna Davis in the event it would be required to pay Charlene Davis $22,000.00. Edna Davis cross-claimed against Charlene Davis asserting her right to the entire proceeds.

In an opinion reported at 213 F. Supp. 235, the district court held that the change of beneficiary did not constitute a fraud upon the rights of Charlene Davis, nor was the change prohibited by the restraining order issued in the divorce proceedings. The district court ordered that the money in the registry of the court be paid to Edna Davis after deductions for costs and Prudential's attorney's fees. No complaint is made as to the payment of attorney's fees and that portion of the district court's judgment is affirmed.

Charlene Davis asserts her right to the entire proceeds on what may be condensed into two grounds. One, the designation of Edna Davis as beneficiary, and the subsequent completed gift to her of the proceeds of the policy was ineffectual as a transfer of community property since it was in fraud of the wife's rights, and therefore beyond the managerial powers that a husband has over community property. Two, the designation and by implication the transfer were in violation of the restraining order issued in the divorce proceedings and, therefore, void. We will consider the last ground first.

There is no merit in the contention that this change of beneficiary and transfer of proceeds were void because in violation of injunctive orders. As will be discussed fully below, the transaction was one involving community property and would, therefore, fall within the ban of the restraining order if the order was in force at the death of the husband. For the purposes of appellant's argument we will assume that some injunctive restraint on Glen Davis' power of alienating community property was effected by the order of August 29, 1961, "All restraining orders to remain in force".⁶

Appellant has cited no authority, nor have we been able to discover any, which indicates that an effect of an injunction issued under the circumstances here present is to void the prohibited transfer of property so that the party in whose favor the injunction was issued has merely to plead and prove the fact of the injunction and of the transfer to recover against a transferee. Injunctions may be enforced by contempt proceedings, damage actions, or actions to enforce a penalty included within the injunctive order,⁷ but they do not, under the circumstances here, operate to void the transfer they prohibit in a suit by the protected party against the transferee.

The appellant's first ground, that the transfer constituted a transfer of community property in fraud of the rights of the wife is meritorious, though we do not agree that once fraud has been established the wife is entitled to the entire proceeds.

The Texas opinions have long recognized that the husband as community manager has the power to make gifts of community property to third persons, absent fraud on the rights of his wife.⁸ The difficulty in applying this rule, as in applying most other rules of law, comes in determining the meaning of its key words, property and fraud. How inclusive are these terms? Is the bundle of rights characterized as an insurance policy property or something else? Is fraud to be given a strict or a liberal construction?

The most difficult of these problems, the nature of the rights represented by an insurance policy purchased with community funds has long been bothersome to the courts. The Texas decisions in this area have been considered irreconcilable by some,⁹ while others profess to see a thread of consistency ordering the apparent chaos.¹⁰ The Texas Supreme Court, in Brown v. Lee, Tex., 371 S.W.2d 694 (1963) has saved us from another excursion into this morass of decisions and revisions. Brown v. Lee was a suit to determine title to the proceeds of several insurance policies purchased with community property. The insured husband and the beneficiary wife died in a common disaster. The contestants were the heirs of the husband and wife. The court held the right to receive insurance proceeds at a future but uncertain date is property.¹¹ This is property

"in the nature of a chose in action which matures at the death of the insured. * * * When purchased with community funds, the ownership of the unmatured chose logically belongs to the community, unless it has been irrevocably given away under the terms of the policy, i. e., where the purchase has, without fraud, foreclosed any right to change the named beneficiary * * *. The proceeds at maturity are likewise community in character, except where the named beneficiary is in fact surviving, in which case a gift of the policy rights to such beneficiary is presumed to have been intended and completed by the death of the insured."¹²

The policy purchased by the Davises was one in which Glen Davis retained the right to change the beneficiary until he died. The right to receive the insurance proceeds in the future was community property until the gift of the matured chose was completed by the death of the insured. The gift was, therefore, one of community property.

The value of the gift is not measured by the premiums paid after the change of beneficiary nor is the gift valueless since the policy had no cash surrender value. The assertion of both of these points, the first by Edna Davis and the latter by Prudential, mistakenly place the time of the giving at the time of the change of beneficiary. The value of the gift must be measured at the time the gift was completed, i. e., at the death of the insured. At that time the value of the gift was equal to the value of the proceeds of the policy.¹³

The issue now is to determine whether a gift of the proceeds of this...