Society Insurance Co. v. Donna Nystrom ( 2017 )

FILED
NOT FOR PUBLICATION
DEC 4 2017
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
SOCIETY INSURANCE COMPANY, No. 16-16812
Plaintiff-Appellant, D.C. No. 2:13-cv-01007-NVW
v.
MEMORANDUM*
DONNA NYSTROM; et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the District of Arizona
Neil V. Wake, District Judge, Presiding
Argued and Submitted November 16, 2017
Pasadena, California
Before: KOZINSKI and IKUTA, Circuit Judges, and GETTLEMAN,** District
Judge.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Robert W. Gettleman, United States District Judge for
the Northern District of Illinois, sitting by designation.
Fed. R. Civ. P. 22(a)(1) authorizes a stakeholder, such as plaintiff Society
Insurance Company (“Society”), to join “[p]ersons with claims that may expose
[the stakeholder] to double or multiple liability,” and requires such parties to
interplead. The primary purpose of interpleader is “for the stakeholder to protect
itself against the problems posed by multiple claimants to a single fund,” including
double liability as well as the cost of litigation. Michelman v. Lincoln Nat’l Life
Ins. Co., 685 F.3d 887, 894 (9th Cir. 2012) (internal quotations omitted).
In the instant case, Society’s interpleader action was properly filed because
there were two or more claimants of diverse citizenship at the time the suit was
filed. 28 U.S.C. § 1335(a)(1). After Society deposited the funds, the district court
properly dismissed Society with prejudice and enjoined the claimants from
instituting any proceedings affecting the funds. See 28 U.S.C. § 2361.
The district court erred in its sua sponte order (Doc. 126) bringing Society
back into the case, vacating its original orders, dismissing the action, and ordering
the funds returned to Society. That order defeated the purpose of the interpleader
and denied Society the protection to which it was entitled. The original
interpleader action was not premature because at the time of filing there were
multiple claimants with colorable claims to the insurance proceeds, and Society
had conceded coverage by depositing the funds. See Michelman, 685 F.3d at 894.
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That Society is defending its insured in state court under a reservation of rights has
no bearing on the propriety of the interpleader.
Nor did the failure of the claimants to resolve their disputes give the court
grounds to dismiss the action and return the funds to Society, which had been
dismissed with prejudice over a year earlier. A party’s failure to prosecute its
claim may be grounds for dismissal, Fed. R. Civ. P. 41(b), but that was not the
reason given by the court, and it would be an abuse of discretion for the court to
vacate its previous dismissal with prejudice of Society based on the claimants’
failure to prosecute. See Pagtalunan v. Galaza, 291 F.3d 639, 641-644 (9th Cir.
2002) (Dismissal for want of prosecution or failure to comply with a court order is
reviewed for abuse of discretion.).
The district court’s order (Doc. 126) is reversed in all respects. Society is
directed to redeposit the funds (including interest) that it had received from the
court as a result of the district court’s order, and the district court is directed to
dismiss Society with prejudice and proceed consistent with this order.
REVERSED AND REMANDED
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