Irwin v. Principal Life Ins. Co.
| Decision Date | 10 December 2005 |
| Docket Number | No. 04-4052-JAR.,04-4052-JAR. |
| Citation | 404 F.Supp.2d 1271 |
| Parties | Donald IRWIN, Plaintiff, v. PRINCIPAL LIFE INSURANCE CO., Raytheon Aircraft Co., and Raytheon Aircraft Co. Employee Benefit Trust, Defendants. Principal Life Insurance Co., Counterclaimant, v. Donald Irwin, and Cathi A. Irwin, Counterdefendants. |
| Court | U.S. District Court — District of Kansas |
Stanley R. Ausemus, Stanley R. Ausemus, Chtd., Emporia, KS, for Plaintiff.
Charles B. Jellinek, Bryan Cave LLP, St. Louis, MO, Lynn S. McCreary, Bryan Cave LLP, Kansas City, MO, Ross W. Townsend, Terry L. Mann, Martin, Pringle, Oliver, Wallace & Bauer, LLP, Wichita, KS, for Defendants.
Kevin M. McMaster, McDonald, Tinker, Skaer, Quinn & Herrington, PA, Wichita, KS, for Counter Defendants and Counter Claimant.
Phillip L. Turner, Turner & Turner Law Firm, Topeka, KS, for Plaintiff and Counter Defendants.
Rebecca Sue Jelinek, Bryan Cave LLP, Kansas City, MO, for Defendants, Counter Defendants and Counter Claimant.
The Court now considers Principal Life Insurance Company's (Principal) Motion to Interplead Funds (Doc. 101), and Motion for Attorneys' Fees (Doc. 116). Principal initially filed its motion to interplead funds due under the group life insurance policies at stake in this case, in the amount of $172,000, plus 4% interest, on August 12, 2005. It requested that upon payment of the funds into the Court, it be dismissed with prejudice from the lawsuit. All parties responded to the motion. Both Donald Irwin (Donald) and Cathi Irwin (Cathi) responded separately that they do not contest interpleading the funds, nor the principal sum of money. However, they both dispute the rate and time period upon which interest should be charged on the proceeds. Raytheon Aircraft Co. (RAC) and Raytheon Aircraft Company Employee Benefit Trust (RACEBT) filed a response arguing that if Principal is dismissed from the case, they should be as well.1 Finally, Principal filed a Motion for Order Regarding Attorneys' Fees (Doc. 116) that Donald and Cathi both oppose. The Court granted Principal's Motion to Interplead the Principal sum of $172,000 into an interest-bearing account (Docs. 137, 138, 144) and must now determine the applicable interest rate, the term of interest, and the question of attorneys' fees. As described more fully below, the Court grants the remainder of Principal's Motion to Interplead Funds and requires it to deposit a sum of interest derived from the applicable interest rate on proceeds left on deposit with Principal on December 17, 2003, plus 1%, during the period between December 17, 2003 and October 4, 2005. Furthermore, the Court grants Principal its costs and attorneys' fees associated with the filing of the interpleader action. The Court denies both Donald and Cathi's requests for attorneys' fees made in their respective responses to Principal's Motion for an Award of Attorneys' Fees.
On October 14, 2003, Cathi filed a petition for divorce from Stephen Irwin (Stephen) in Butler County, Kansas District Court. That same day, the Butler County District Court entered an ex parte Temporary Order (TRO), pursuant to Cathi's request, prohibiting Stephen from changing the beneficiary of his life insurance. At the time, Stephen was insured under group life insurance policies (the Plan) issued by Principal. The Plan specifies that RAC is the plan administrator and plan sponsor of the group life insurance policies. RACEBT is the policyholder of the group life insurance policies. At the time he enrolled in the Plan, Stephen designated Cathi as the primary beneficiary of the life insurance policies and his mother, Sandy Wassner, as a secondary beneficiary. On November 9, 2003, Stephen signed a form attempting to change the primary beneficiary on his life insurance policies. He listed Donald, his father, as the primary beneficiary, and Cathi as the secondary beneficiary. On December 17, 2003, Stephen died. No divorce decree was ever entered by the Butler County District Court.
Cathi submitted a claim for death benefits available under Stephen's life insurance policies dated January 2, 2004, which was eventually forwarded by RAC to Principal for disposition. Principal stamped this form and a copy of Stephen's death certificate "Received" on February 16, 2004, On February 16, 2004, the rate of interest on death proceeds left on deposit with Principal was 3%.
On February 24, 2004, Marlene Brown, a human resources specialist at RAC, sent Kay Root of Principal a facsimile attaching the change of beneficiary form from November listing Donald as the primary beneficiary. This was the first time Principal had received this form. On April 1, 2004, Donald submitted a claim for the same death benefits with Brown and she forwarded the claim to Principal. On May 14, 2004, Diane Nelson of Principal sent a letter to counsel for Donald, referring to a letter he had sent the company on May 4, asking Principal to "reconsider its position with respect to the beneficiary designation." In that letter, Nelson states: "It remains Principal Life's position ... that the original beneficiary designation is controlling absent any clear authority to the contrary." On June 4, Nelson sent a letter to both claimants stating that it was continuing to review the claims. Principal never paid the $172,000 in group life insurance proceeds to either Donald or Cathi.
Donald filed a diversity suit in this Court under Kansas insurance law on May 19, 2004. Principal filed a motion to dismiss based on ERISA preemption of Donald's claim. Rather than dismiss the case, this Court construed plaintiff's claim as an ERISA claim under 29 U.S.C. § 1132(a)(1)(B). Principal filed a counterclaim in interpleader under Fed.R.Civ.P. 22 and joined Cathi as a defendant so that the Court could determine the conflicting claims of Donald and Cathi, and of Principal's rights and obligations. Cathi filed a counterclaim against Principal for the benefits due under the Plan, and under 29 U.S.C. 1132(a)(3), arguing that Principal failed to place the disputed funds in an interest-bearing account at the time of Stephen's death, as directed by the Plan.
Cathi and Donald both filed responses addressing the appropriate rate of interest to be applied to the insurance proceeds in this case. Both claimants advocate imposing prejudgment interest on the proceeds. Donald proposes the Kansas statutory prejudgment interest rate of 10%2 while Cathi proposes the Kansas statutory prejudgment interest rate or the monthly average of the prime rate during the time the funds should have been paid.3 Further, Cathi argues that interest should be paid by Principal beginning on the date of Stephen's death on December 17, 2003, until the time that the proceeds are actually distributed, while Donald and Principal agree that February 16, 2004, is the proper date from which interest should accrue.
ERISA does not expressly provide for prejudgment interest, but prejudgment interest is available in ERISA cases at the Court's discretion.4 Although federal law usually would control the prejudgment interest rate on a federal claim, Tenth Circuit cases look to state law in determining the prejudgment interest rate in ERISA cases.5 Prejudgment interest is designed to compensate a wronged party for the period during which the party was denied the full use and benefit of money.6 " "7 Currently, the prejudgment interest rate in Kansas is 10%.8
The Court must also consider cases dealing with prejudgment interest in interpleader cases.9 The Ninth Circuit developed three factors to consider whether interest should be awarded on interpleaded funds:
(1) whether the stakeholder unreasonably delayed in instituting the action or depositing the fund with the court; (2) whether the stakeholder used the fund for his benefit and would be unjustly enriched at the expense of the claimants who have claim to the fund; and (3) whether the stakeholder eventually deposited the fund into the court's registry.10
This action was instituted in the first instance by Donald on May 19, 2004, under Kansas insurance law. According to the summary judgment record, the suit was filed prior to Principal reaching a firm decision as to who the rightful beneficiary under the terms of the Plan was, and before it was able to complete an investigation of the competing claims. In fact, Principal sent a letter to both claimants on June 4, 2004, stating that it was still reviewing the claims. Principal filed a motion to dismiss the complaint approximately two months later on July 20. The entire basis for the motion to dismiss was that ERISA preempted Donald's state law claims. Principal filed its Answer and counterclaim in interpleader on December 6, 2004 — less than one month after the Court denied its motion to dismiss by construing Donald's claims as arising under ERISA.11
The Court finds that Principal did not unreasonably delay in instituting this action. It had not even concluded its internal investigation of the competing claims to the proceeds when Donald filed his Complaint. Within three weeks of this Court's Order construing Donald's Complaint as arising under ERISA, Principal filed its counterclaim in interpleader. Cathi urges that the mere act of filing the motion to dismiss constituted a dilatory motive on Principal's part. The Court finds no such evidence. Principal filed its motion to dismiss under the belief that the entire action by Donald was preempted. Principal has filed no dispositive motions advocating awarding the insurance proceeds to one claimant or the other. Although the Court...
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...to whether the interpleading plaintiff is entitled to attorney fees.” 33 F.Supp.3d 1041Id. (citing Irwin v. Principal Life Ins. Co., 404 F.Supp.2d 1271, 1279 (D.Kan.2005) ).The objecting defendant in Kridner had not opposed the prior motion to deposit funds. Id. The court stated that even i......
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...to whether the interpleading plaintiff is entitled to attorney fees.” [33 F.Supp.3d 1041] Id. (citing Irwin v. Principal Life Ins. Co., 404 F.Supp.2d 1271, 1279 (D.Kan.2005)). The objecting defendant in Kridner had not opposed the prior motion to deposit funds. Id. The court stated that eve......
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