Minnesota Mut. Life Ins. Co. v. Gustafson

• Decision Date: 25 May 1976
• Docket Number: No. 75C868.,75C868.
• Citation: 415 F. Supp. 615
• Parties: The MINNESOTA MUTUAL LIFE INSURANCE COMPANY, a Minnesota Corporation, Plaintiff, v. Maxine M. GUSTAFSON et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

415 F. Supp. 615

The MINNESOTA MUTUAL LIFE INSURANCE COMPANY, a Minnesota Corporation, Plaintiff, v. Maxine M. GUSTAFSON et al., Defendants.

No. 75C868.

United States District Court, N. D. Illinois, E. D.

May 25, 1976.

James T. Otis, Dennis M. Wilson, Ward A. Meythaler Price, Cushman, Keck, Mahin & Cate, Chicago, Ill., for plaintiff.

Alan S. Ganz, Hackbert, Rooks, Pitts, Fullager & Pouse, Jerome N. Zurla, Joseph J. Hasman, Peterson, Ross, Rall, Barber & Seidel, Chicago, Ill., for defendants.

MEMORANDUM OPINION

WILL, District Judge.

Plaintiff, Minnesota Mutual Life Insurance Company, brought this interpleader action pursuant to 28 U.S.C. § 1335 to determine whether the $20,000 proceeds of a life insurance policy issued by it to the insured, J. Shannon Gustafson, should be distributed to his ex-wife or his children. This case was consolidated with other interpleader actions concerning the proceeds of other insurance policies of the insured, and on June 24, 1975, was dismissed pursuant to a settlement agreement. Plaintiff now requests an award of $1,809.49 for attorneys' fees and other disbursements.¹ We deny this request.

I. APPLICABILITY OF ERIE v. TOMPKINS

Illinois courts have held that a stakeholder in an interpleader action is not entitled to an award of attorneys' fees out of the fund. Metropolitan Life Insurance Co. v. Kinsley, 269 Ill. 529, 109 N.E. 1011 (1915). Thus, the first issue which we must examine is whether, under the doctrine of Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), we are required to follow Illinois law and deny the award of fees in this action. Under this doctrine, a federal court "in diversity cases may not, as to non-federal matters, disregard state law in matters of substantive rights." 1A J. Moore, Federal Practice ¶ 0.304 at 3049 (2d ed. 1974).

Most courts that have examined the issue of awarding fees in interpleader actions under 28 U.S.C. § 1335 (statutory interpleader) have never addressed the issue of the law of the forum state, but have simply allowed fees, referring to the traditional equity power of the federal courts. See Globe Indemnity Co. v. Puget Sound Co., Inc., 154 F.2d 249, 250 (2d Cir. 1946), 7 C. Wright & A. Miller, Federal Practice & Procedure § 1719 at 490 (1972), and cases cited in 48 A.L.R.2d 190 (1956). Those courts which have addressed the issue — in cases in which the law of the forum state prohibits awards of fees to the stakeholder —have reached contrary results. Compare Palomas Land & Cattle Co. v. Baldwin, 189 F.2d 936, 938 (9th Cir. 1951) with Aetna Life Insurance Company v. Johnson, 206 F.Supp. 63 (N.D.Ill.1962) (Judge Campbell), Illinois Bankers Life Assurance Corp. v. Blood, 69 F.Supp. 705 (N.D.Ill.1947) (Judge Campbell), and Danville Building Association v. Gates, 66 F.Supp. 706 (E.D.Ill.1946) (Judge Lindley).

In Palomas, the Ninth Circuit, notwithstanding California law to the contrary, awarded fees to the stakeholder in a statutory interpleader action. The court held that, since the case arose under a federal statute and was heard and determined by a federal court, federal rather than state law should govern. Examining the applicable federal law, the court concluded that fees could be awarded in a section 1335 interpleader action.

Judge Campbell, in Aetna Life Insurance Company, rejected the reasoning of Palomas and stated that he was compelled, under the Erie doctrine, to follow Illinois law prohibiting the awarding of fees in interpleader actions. He asserted that the enactment of 28 U.S.C. § 1335 did not create a new federal remedy but merely extended the jurisdiction of the federal courts in applying a traditional equitable remedy. Thus, he concluded, an interpleader action brought pursuant to section 1335 is indistinguishable from an interpleader action brought under the diversity statute, 28 U.S.C. § 1332. He held therefore that the issue of a stakeholder's right to receive attorneys' fees in a section 1335 action is a matter of state substantive law and, under Erie, must be governed by the law of the forum state. He cautioned that a contrary holding, allowing attorneys' fees when the applicable state law prohibited it, would defeat the policy of Erie by creating federal common law and lead to forum shopping.

After examining Judge Campbell's decisions in Aetna and Blood and the other relevant decisions, we conclude that the Erie doctrine is not applicable in these cases. Judge Campbell's reasoning is basically syllogistic: (1) Erie requires a federal court to apply state law whenever a state substantive right is involved; (2) since 28 U.S.C. § 1335 did not create a new federal right but merely expanded federal jurisdiction, actions under this section involve substantive rights; (3) therefore, a federal court should apply state law in section 1335 interpleader actions. Although this syllogism is logical, we believe it is too mechanical. The Supreme Court in Hanna v. Plumer, 380 U.S. 460, 467, 85 S.Ct. 1136, 1141, 14 L.Ed.2d 8, 14 (1965) held that under Erie "choices between state and federal law are to be made not by application of any automatic `litmus paper' criterion, but rather by reference to the policies underlying Erie." Accordingly, instead of simply labeling the issue "substantive" or "procedural," and then applying Erie, we should examine the issue of allowance of fees under section 1335 in terms of the policies underlying Erie.

In Hanna, the Court stated that the twin aims of the Erie rule were to discourage forum-shopping and to avoid the inequitable administration of the laws. Hanna v. Plumer, supra, 380 U.S. at 468, 85 S.Ct. at 1142, 14 L.Ed.2d at 15. In regard to the first policy—discouragement of forum-shopping —it is unlikely that a federal rule which differs from state law concerning the allowance of fees will result in a deliberate selection of a federal forum over a state forum. Statutory interpleader is primarily designed for cases in which there are multistate defendants. Section 1335 requires that two or more of the adverse claimants have diverse citizenship.² Further, 28 U.S.C. § 2361, the procedural counterpart of section 1335, allows for nationwide service of process in section 1335 actions.³ Consequently, most federal statutory interpleader actions could not be brought in a state court since that court could not acquire jurisdiction over at least one of the claimants. See 7 C. Wright & A. Miller, supra § 17.19 at 491. A federal rule in regard to fees that was different from the applicable state law, therefore, would not encourage significant forum-shopping.

A different federal rule would not frustrate the second policy of Erie: the avoidance of an inequitable administration of the laws. Since the type of action ordinarily brought pursuant to section 1335 could not be brought in state court, different standards in federal and state courts as to the allowance of fees will not result in a denial of equal protection for some stakeholders. Although it can be argued that the allowance or disallowance of fees should not depend on the fortuity of the diverse citizenship of the claimants, it is clear that Congress, by enacting statutory interpleader allowing stakeholders to bring claimants of diverse citizenship into one forum, created an action distinct from state law interpleader. It is thus not inequitable to apply a federal standard in a uniquely federal proceeding.

We conclude, therefore, that since the application of a different federal standard will not frustrate the policies underlying Erie, we are not compelled to follow Illinois law as to the awarding of fees. This determination, however, does not resolve the ultimate issue whether we should award fees to plaintiff's counsel. To decide that issue, we must determine the proper federal standard concerning the award of fees.

II. FEDERAL STANDARD IN REGARD TO ALLOWANCE OF FEES

As noted above, most federal courts have held that it is within their discretion to award attorneys' fees in statutory interpleader actions. James Talcott, Inc. v. Allahabad Bank Ltd., 444 F.2d 451, 468 (5th Cir. 1971), 3A J. Moore, supra ¶ 22.162 at 3144. Normally, courts will award such fees to a disinterested stakeholder who deposits the disputed fund with the court. Id. at 3144-45. They reason that attorneys' fees should be awarded to such a stakeholder because he is promoting litigation to expeditiously resolve conflicting claims and is thereby securing the proper application of the fund. Schirmer Stevedoring Co., Ltd. v. Seaboard Stevedoring Corp., 306 F.2d 188, 193 (9th Cir. 1962). Further, they assert that, since the existence of the conflicting claims is not due to the fault of the stakeholder, he should not have to pay the fees in order to guard himself against harassment. Schirmer Stevedoring Co., Ltd. v. Seaboard Stevedoring Corp., supra, Klebanoff v. Mutual Life Insurance Company of New York, 246 F.Supp. 935, 950 (D.Conn.1965), rev'd on other grounds, 362 F.2d 975 (2d Cir. 1966), Massachusetts Bonding & Insurance Company v. Antonelli Construction Co., Inc., 173 F.Supp. 391, 392 (D.Mass.1959). Finally, the courts suggest that the stakeholder helps the judicial process by bringing all claimants into one forum and assisting the court in resolving the disputed claims. Pennsylvania Fire Insurance Co. v. American Airlines, Inc., 184 F.Supp. 145, 146 (E.D.N.Y.1960).

Commentators also recommend the awarding of fees to a disinterested stakeholder. See 3A J. Moore, supra ¶ 22.162 and 7 C. Wright & A. Miller, supra ¶ 17.19. Professor Moore argues that the stakeholder helps the claimant by depositing the fund in court and thereby guaranteeing the prevailing claimant's immediate satisfaction without the need of execution proceedings. Furthermore, he contends that awards of attorneys' fees are of little consequence to the fund because they are usually nominal. 3A J. Moore, supra ¶ 22.162 at 3148-49.

Although most courts and commentators...