Equitable Life Assur. Soc. of the U.S. v. Porter-Englehart, PORTER-ENGLEHART

• Decision Date: 09 December 1988
• Docket Number: PORTER-ENGLEHART,No. 88-1683,88-1683
• Citation: 867 F.2d 79
• Parties: The EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, Plaintiff, Appellee, v. Sandra, et al., Defendants. Sandra Porter-Englehart, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 79

867 F.2d 79

The EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES Plaintiff, Appellee, v. Sandra PORTER-ENGLEHART, et al., Defendants Sandra Porter-Englehart, Defendant, Appellant.

No. 88-1683.

United States Court of Appeals First Circuit.

Heard Dec. 9, 1988.

Decided Feb. 8, 1989.

Denis Frauenhofer, for appellant.

Hrant H. Russian, Cambridge, Mass., for defendants-appellees Merle Joy Englehart, individually and as Trustee under the Last Will and Testament of Manfred O. Englehart, John O. Englehart, William L. Englehart, Andrew D. Englehart and Colleen A. Englehart.

Donald R. Peck, with whom David R. Schmahmann and Nutter, McClennen & Fish, Boston, Mass., were on brief, for appellee Equitable Life Assur. Soc. of the U.S.

Before BOWNES, BREYER and SELYA, Circuit Judges.

SELYA, Circuit Judge.

Like William Shakespeare's account of King Ferdinand of Navarre and his much-befuddled lords, this too is a case of "Love's Labour's Lost." But unlike the Princess of France, we do not enjoy the luxury of consigning suitors to some forlorn and naked hermitage whilst we postpone our answer for a twelvemonth and a day. The tale which confronts us, and our resolution of it, follows. The parties, agreeing on little else, acknowledge that the substantive law of Massachusetts controls.

I. WHERE THERE'S A WILL

The underlying controversy pits first wife against second in a rancorous internecine struggle within the family Englehart. The paterfamilias, Manfred Owen Englehart Jr., was a mathematician employed by Factory Mutual Engineering Corporation (FM). He and his first wife, Merle, had four children before they were divorced on July 24, 1969. Notwithstanding the divorce, Manfred executed a last will and testament (Will) in December 1973, bequeathing his residuary estate to Merle as trustee for their children. The Will (excerpted in relevant part in the appendix hereto) delineated the terms and conditions of the trust.

In or about February 1974, FM extended group insurance coverage to Manfred under a pair of policies issued by the Equitable Life Assurance Society of the United States (Equitable): Group Life Policy No. 3738 and Group Accidental Death and Dismemberment Policy No. 3738D. Each policy contained a promise to pay $69,000 in the event of a "covered" death. The employee was given the right to name the beneficiaries. On October 18, 1974, Manfred married Sandra Porter-Englehart. They settled in Newton, Massachusetts. The marriage was bereft of issue, but under Mass.Gen.L. ch. 191, Sec. 9, it revoked the Will. ¹ From aught that appears of record, Manfred knew nothing of the statute or of its effect. He executed no new will.

On January 28, 1976, Manfred inserted identical beneficiary designations in the two insurance policies, to wit:

Pay 70% of the proceeds of this policy to the Trustee named in my Last Will and Testament. Pay 30% of the proceeds to my wife, Sandra Porter-Englehart. If there is no Last Will and Testament or if either portion is unclaimed after one year from the date of death, pay any unclaimed portion to my estate.

Within six months, tragedy struck. Manfred was killed in a traffic accident. The policies afforded coverage.

II. COURTSHIP OF A SORT

Equitable paid Sandra her 30% share of the group life proceeds on August 15, 1980. It did not pay over the 30% share of the accidental death benefit at that time. Instead of making further disbursements, Equitable brought the instant interpleader action. The complaint alleged that the remaining insurance proceeds were subject to conflicting claims: Merle contended that a 70% share under each policy should be paid to her as trustee for the children, in pursuance of the beneficiary designations; Sandra argued that these sums should be paid into Manfred's estate (of which she was administratrix), to pass through intestacy, since remarriage had invalidated the 1973 Will and therefore, in her view, vitiated the beneficiary designations. Contemporaneous with the start of suit, Equitable deposited into the district court's registry $117,300--an amount representing the residual 70% of the life policy and the entire value of the accidental death policy. The protagonists answered the complaint, and Sandra counterclaimed against Equitable for unfair practices.

Because no one contended that material facts were in dispute anent entitlement, disposition of the merits under Fed.R.Civ.P. 56 appeared appropriate. The parties cross-moved for summary judgment. The district court awarded Sandra the 30% share of the accidental death policy, finding that her right to that money was not in fact contested. Equitable Life Assurance Soc'y of the United States v. Porter-Englehart, No. 80-2586-N (D.Mass. Apr. 12, 1985) (the April 12 Order). In a subsequent decision, the district court found "no indication of bad faith" on the insurer's part, granted judgment for Equitable on Sandra's counterclaims, ordered its fees paid, and dismissed it from the action. Equitable Life Assurance Soc'y of the United States v. Porter-Englehart, No. 80-2586-N (D.Mass. May 30, 1985) (the May 30 Order).

The district court issued its endmost opinion on May 31, 1988. Equitable Life Assurance Soc'y of the United States v. Porter-Englehart, No. 80-2586-N (D.Mass. May 31, 1988) (D.Ct.Op.). The court ruled that the 1973 Will, although legally revoked by Manfred's remarriage, nonetheless sufficed to create a valid nontestamentary trust when read in conjunction with the policies' beneficiary designations. Id. at 5. The court noted that Manfred was already married to Sandra--and the Will thus dysfunctional--when he drafted the designations. Since Manfred "surely would not have created a void designation ab initio," id. at 7, the judge interpreted the phrase "[i]f there is no will" to mean "if the will is non-existent," not "if the will is incapable of being probated." Id. Accordingly, Sandra's motion for summary judgment was denied and Merle's was allowed. Sandra appealed.

III. THE NEED TO INTERPLEAD

The district court found that it had jurisdiction under 28 U.S.C. Sec. 1335. ² Sandra concedes that she and Merle (an Oregonian) are of diverse citizenship and that their claims apparently conflict. She urges, however, that the district court should have declined to hear the case because Merle's proper remedy lay in probate court; and asserts, alternatively, that Merle's claims are frivolous and thus not truly adverse. To resolve these, and other, matters we must shake the dust from a number of the frowstier opinions of the Massachusetts Supreme Judicial Court (SJC).

A.

It is hornbook law that a life insurance policy "is not a will but a contract entered into between the insured on one side, and the insurance company...." Davis v. New York Life Ins. Co., 212 Mass. 310, 312, 98 N.E. 1043 (1912). The policy proceeds are to be paid to the beneficiary designated therein. "Manifestly money so paid does not pass 'by will, or by the laws regulating intestate succession.' " Tyler v. Treasurer and Receiver General, 226 Mass. 306, 307, 115 N.E. 300 (1917) (quoting Massachusetts tax laws). It follows, then, that satisfying the beneficiary is the contractual responsibility of the insurer, not the fiduciary responsibility of the administratrix. See 5 M. Rhodes, Couch on Insurance 2d Sec. 29:26 (Rev. ed. 1984); cf. Gould v. Emerson, 99 Mass. 154, 157 (1868) (life insurance benefits not considered to be general assets in hands of administrator). Here, contract law will determine whether the proceeds belong to the estate or to the named trustee. Given that the case slips neatly within the section 1335 integument, the district court, we believe, was wholly competent to hear and determine the question.

The precedents cited by appellant do not speak for a contrary proposition. They hold only that federal courts should dismiss interpleader actions when federal adjudication would disrupt ongoing state proceedings--a concept with which we can readily agree. See, e.g., Home Indemnity Co. v. Moore, 499 F.2d 1202, 1205 (8th Cir.1974); Koehring Co. v. Hyde Construction Co., 424 F.2d 1200, 1205 (7th Cir.1970); Equitable Life Assurance Soc'y v. Cooper, 328 F.Supp. 1126, 1127 (W.D.Okla.1971). Yet, the case at bar is at a sizable remove: since life insurance policies must be paid directly to the designated beneficiary rather than distributed through the probate estate, a federal declaration concerning such proceeds in no way interferes with the work of the probate court. By asserting that the money should be paid to the estate so that the administratrix may determine who receives it, appellant begs the threshold question of the estate's entitlement.

B.

Sandra's second argument strikes us as bizarre. The fact that the district court, after due deliberation, awarded the 70% shares to Merle seems irrefutable evidence that the trustee's claims, whether or not successful on appeal, are far from frivolous. After all, to support an interpleader action, the adverse claims need attain only "a minimal threshold level of substantiality." 7 C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure Sec. 1704 (2d ed. 1986) at 504 (footnote omitted). "[I]t is immaterial whether the stakeholder believes that all claims against the fund are meritorious. Indeed, in the usual case, at least one of the claims will be very tenuous." Id. (footnote omitted). The threat of possible multiple litigation--not necessarily the likelihood of duplicative liability--justifies resort to interpleader. See, e.g., Underwriters at Lloyd's v. Nichols, 363 F.2d 357, 365 (8th Cir.1966) (interpleader statute designed not only to protect stakeholders from multiple liability but also to save them from expense of multiple litigation). These are unexacting standards--and Merle's offering clears the jurisdictional bar with room to spare. ³

IV. A MATTER OF TRUST

Manfred's intent is not legitimately in issue. The district court found, and appellant's counse...