Royal Indemnity Co. v. Kathy Bates ( 2009 )


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  •             IN THE UNITED STATES COURT OF APPEALS
    FOR THE FIFTH CIRCUIT  United States Court of Appeals
    Fifth Circuit
    FILED
    January 16, 2009
    No. 08-40144
    Charles R. Fulbruge III
    Clerk
    ROYAL INDEMNITY COMPANY; FIRST COLONY LIFE INSURANCE
    COMPANY
    Plaintiffs - Appellees
    v.
    KATHY BATES,
    Defendant - Appellee
    v.
    JAMES T KOONCE; STEPHANIE KOONCE; SANDY DIAZ ALVARADO;
    TAMMY STEINBURG; TINA ROBERTSON; DORIS SHIRLEY MEYER;
    ZANNA KOONCE RUSSELL
    Defendants - Appellants
    Appeal from the United States District Court
    for the Eastern District of Texas
    USDC No. 5:06-CV-112
    Before JONES, Chief Judge, JOLLY, Circuit Judge, and MONTALVO,* District
    Judge.
    E. GRADY JOLLY, Circuit Judge:**
    *
    District Judge of the Western District of Texas, sitting by designation.
    **
    Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
    be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
    R. 47.5.4.
    No. 08-40144
    In this statutory-interpleader action, Kathy Ann Bates (“Bates”) and
    James B. Koonce’s heirs (James T. Koonce; Stephanie Koonce Mendez; Sandy
    Diaz Alvarado; Tammy Steinburg; Tina Robertson; and Doris Shirley Meyer,
    individually and as guardian of minors Christina Koonce, Christopher Koonce,
    and Alexander Koonce) claim the same $178,800. The district court granted
    summary judgment in favor of Bates. It granted costs and attorney’s fees to the
    interpleader-plaintiffs—Royal Indemnity Company (“Royal”)1 and First Colony
    Life Insurance Company (“First Colony”)2—for their involvement in these
    proceedings. It denied leave for Koonce’s heirs to file a counter-complaint
    against Royal and First Colony. Koonce’s heirs have appealed from each ruling.
    For the reasons below, the district court erred in granting summary
    judgment in favor of Bates, abused its discretion in granting costs and attorney’s
    fees to Royal and First Colony, but did not abuse its discretion in denying leave
    to Koonce’s heirs to file a counter-complaint. We affirm in part, reverse in part,
    and remand.
    I.
    Royal and First Colony initiated this interpleader action. The disputed
    property is $178,800, proceeds from an annuity that Royal owned with First
    Colony. Royal owned the annuity, through a settlement agreement, because it
    was an insurer:       Royal’s insured, General Motors Corporation (“General
    Motors”), instructed Royal in October 1986 to purchase the annuity to finance
    a settlement agreement between General Motors, another company, and James
    B. Koonce (“Koonce”) and his then-wife Zanna (now Zanna Russell, or “Russell”).
    Under the settlement agreement, Royal’s annuity would finance a series of
    1
    Effective September 2007, Royal Indemnity Company became known as Arrowood
    Indemnity Company. We nevertheless will refer to the entity as “Royal.”
    2
    First Colony’s successor in interest, Genworth Life Insurance and Annuity Company,
    is now party to this action. We nevertheless will refer to “First Colony.”
    2
    No. 08-40144
    payments including: a $2,400 monthly payment to Koonce and Russell, jointly,
    beginning in December 1986 and continuing until the later between Koonce’s
    death and November 2006; and a lump-sum $150,000 payment to Koonce,
    individually, to be paid October 20, 2006.
    As the annuity’s owner, Royal possessed the exclusive right to change the
    annuity’s payees. The procedure for changing payees was set out in the annuity
    contract as follows.
    The Owner [Royal] has the right at any time to
    designate to whom annuity payments will be made.
    Written notice of change must be filed at the home
    office in a form satisfactory to the Company
    [First Colony]. The new designation will then take
    effect as of the date the notice is signed. Such a change
    does not affect any payment made or other action taken
    by the company before the notice is received.
    When Royal purchased the annuity in 1986, it designated Koonce and
    Russell as the annuity’s payees. Royal did not, however, designate survivor-
    beneficiaries for either individual; and thus the annuity contract specified none.
    In 1995, Koonce sent a signed, notarized letter to the insurance broker
    servicing the annuity contract (Casualty Services, Inc., or “CSI”), in which he
    purported to designate Bates as his survivor-beneficiary. In the same letter,
    Koonce wrote that he had moved to a new address. CSI forwarded the letter to
    Royal. Royal, in turn, instructed First Colony to change the address to which
    First Colony would direct Koonce’s remaining annuity payments.
    Royal did not, however, instruct First Colony to designate Bates as
    Koonce’s survivor-beneficiary. Koonce was not advised by Royal or First Colony
    that Royal had not designated Bates as his survivor-beneficiary. There was no
    further designation.
    Koonce died intestate in July 2005. Annuity payments totaling $186,000
    remained due. Koonce’s heirs claimed the funds. Bates also claimed the funds.
    3
    No. 08-40144
    Royal and First Colony reviewed their records concerning the annuity, and each
    company found in its records a copy of Koonce’s letter purporting to designate
    Bates as his beneficiary. Uncertain whether Koonce’s purported designation was
    effective, Royal and First Colony suspended payment of the annuity and
    initiated this interpleader action to determine who, among Bates, Russell, and
    Koonce’s heirs, is entitled to the $186,000.
    Federal subject-matter jurisdiction is provided under 28 U.S.C. § 1335:
    James T. Koonce resides in North Carolina; Sandy Diaz Alvarado, Tammy
    Steinburg, Tina Robertson, and Doris Shirley Meyer reside in South Carolina;
    and Bates, Russell, and Stephanie Koonce Mendez reside in Texas. Royal and
    First Colony disclaimed all interest in the $186,000. Upon unopposed motion,
    they deposited the funds into the court’s registry.
    II.
    Royal and First Colony began early in the interpleader proceedings to
    produce their records concerning the annuity. The companies produced the last
    of these records in January 2007. Bates and Koonce’s heirs, after reviewing
    these records, sought additional discovery regarding whether Royal ever directed
    First Colony to designate Bates as Koonce’s beneficiary. Royal and First Colony
    did not answer whether Royal ever directed a change in beneficiary. Instead,
    they replied that each company possessed a copy of Koonce’s letter purporting
    to designate Bates as his beneficiary. Whether Koonce’s letter achieved its
    intended purpose was a question, they asserted, for the court.
    The district court, at a September 2007 hearing, attempted to elicit a more
    responsive answer. The companies initially persisted in the noncommittal
    position that they had taken during discovery. When the court pressed them,
    however, the companies said Koonce’s letter “essentially” had effected a change
    in beneficiary. In the light of this representation, Russell and Koonce’s heirs
    moved the district court for leave to file a counter-complaint against Royal and
    4
    No. 08-40144
    First Colony for breach of contract. Royal and First Colony filed a motion for
    summary judgment to extricate themselves from the interpleader action, and
    they requested costs and attorney’s fees. Bates already had filed a motion for
    summary judgment; her motion remained pending.
    While these motions were pending, all parties stipulated that Russell was
    entitled to $7,200 of the interpleaded funds. Two questions remained: (1) how
    to apportion the other $178,800 between the claimants and, possibly, Royal and
    First Colony for their costs and attorney’s fees; and (2) whether to grant leave
    for Koonce’s heirs to file a counter-complaint against Royal and First Colony.
    Noting that Royal and First Colony produced documents in January that
    should have put the Koonce heirs on notice of their proposed counter-complaint;
    that the deadline for filing amended pleadings without leave had passed in July;
    that the deadline for discovery had passed in August; that the Koonce heirs had
    waited until September to move for leave to file a counter-complaint; and that
    the final pretrial conference was scheduled for November, the district court
    denied, as untimely, the motion for leave to file a counter-complaint. It then
    granted summary judgment in favor of Bates and granted in part Royal and
    First Colony’s motion for costs and attorney’s fees, awarding them two-thirds of
    their expenditures. Bates would receive $150,958.55; Royal and First Colony
    collectively would receive $27,841.45; Russell would receive $7,200.00; and
    Koonce’s heirs would receive nothing. Koonce’s heirs appealed, and the district
    court stayed disbursement of the funds pending the appeal.
    At oral argument before this court, Royal and First Colony elaborated on
    the position that they had adopted during the September 2007 hearing. They
    clarified that effecting a change in beneficiary involved two steps: (1) approving
    of or consenting to a payee’s request for such a change, and (2) Royal designating
    the survivor-beneficiary as payee. Koonce’s 1995 letter “essentially” effected a
    change in beneficiary because Royal and First Colony had approved of or
    5
    No. 08-40144
    consented to it when, in 2007, they chose not to contest its validity. The only
    step remaining was for Royal to direct First Colony to designate Bates as payee.
    Royal “would have” directed First Colony to designate Bates as payee, but Royal
    did not do so because it became aware of competing claims to the annuity
    payments. Instead, Royal and First Colony filed this interpleader action.
    III.
    “We review the district court’s grant of summary judgment de novo,
    applying the same standard as the district court.” E.g., Golden Bridge Tech.,
    Inc. v. Motorola, Inc., 
    547 F.3d 266
    , 270 (5th Cir. 2008).
    The ultimate question is whether the payments due under Royal’s annuity
    contract now belong to Bates or to Koonce’s heirs. The payments belong to Bates
    if she was Koonce’s designated beneficiary. If there was no properly designated
    beneficiary at the time of Koonce’s death, the proceeds belong to Koonce’s heirs.
    In 1995, Koonce sent CSI a letter, in which he purported to designate
    Bates as his beneficiary. CSI forwarded this letter to Royal. Royal and First
    Colony found a copy of this letter in their records after Koonce died. When, in
    early 2007, Bates and Koonce’s heirs asked Royal and First Colony whether
    Royal ever directed First Colony to designate a beneficiary for Koonce, the
    companies replied they did not contest the 1995 letter’s effectiveness.       In
    September 2007, when the district court asked the companies whether Koonce’s
    letter effected a change in beneficiary, they took a somewhat more definite
    position. They answered, “[e]ssentially yes.”
    Nevertheless, they did not answer “yes.” As the annuity contract’s terms
    demonstrate, their reluctance to answer that Koonce’s letter effected a change
    in beneficiary was well-founded. Under the plain terms of the annuity contract,
    “The Owner [Royal] has the right at any time to designate to whom annuity
    payments will be made.” Koonce possessed no similar right. His 1995 letter
    purporting to designate Bates as his beneficiary under the annuity accordingly
    6
    No. 08-40144
    did not actually do so. Only Royal, the annuity’s owner, could designate Bates
    as Koonce’s beneficiary.
    As counsel for Royal and First Colony explained at oral argument,
    designating Bates as Koonce’s beneficiary—which Royal did not do—is different
    from approving of or consenting to Koonce’s request. Royal approved of or
    consented to Koonce’s request in early 2007, when it wrote in response to
    interrogatories and requests for admission that it did not contest the
    effectiveness of Koonce’s 1995 letter. Royal “would have” designated Bates as
    Koonce’s beneficiary, but it and First Colony instead filed this interpleader.
    Because Bates has never been designated as Koonce’s beneficiary under
    the annuity, Bates is not Koonce’s beneficiary. Koonce’s heirs are entitled to the
    funds. See TEX. PROBATE CODE § 37 (“[W]henever a person dies intestate, all of
    his estate shall vest immediately in his heirs at law.”). They have stipulated to
    a per stirpes disbursement.
    IV.
    We now turn to address whether this award is subject to a setoff for
    Royal’s and First Colony’s costs and attorney’s fees. “It is well settled that a
    district court has the authority to award costs, including reasonable attorney’s
    fees, in interpleader actions.” Corrigan Dispatch Co. v. Casa Guzman, S.A., 
    696 F.2d 359
    , 364 (5th Cir. 1983). Awarding costs is a matter of judicial discretion.
    Phillips Petroleum Co. v. Hazlewood, 
    534 F.2d 61
    , 63 (5th Cir. 1976). The
    following factors are relevant to determining whether to award costs to an
    interpleader-plaintiff: (1) whether the case is simple; (2) whether the
    interpleader-plaintiff performed any unique services for the claimants or the
    court; (3) whether the interpleader-plaintiff acted in good faith and with
    diligence; (4) whether the services rendered benefitted the interpleader-plaintiff;
    and (5) whether the claimants improperly protracted the proceedings. See
    7
    No. 08-40144
    7 Charles Alan Wright, Arthur R. Miller, & Mary Kay Kane, Federal Practice
    and Procedure § 1719 (3d ed. 2001).
    We think the district court abused its discretion in holding that Royal and
    First Colony’s actions merit the equitable relief of recovering their costs and
    attorney’s fees. Royal was responsible for much of the uncertainty surrounding
    whether Bates was Koonce’s beneficiary. Royal and First Colony received
    Koonce’s letter purporting to designate Bates as his beneficiary in 1995. Royal
    and First Colony failed to communicate with Koonce about the validity of the
    purported designation.    Koonce reasonably could have expected that the
    designation had been effective. Royal and First Colony have not offered a single
    reason for their failure to communicate with Koonce about the purported
    designation in 1995, or at any time before Koonce’s death. Their prompt action,
    one way or the other, may well have prevented this litigation.
    Even in this litigation, Royal and First Colony have protracted proceedings
    by giving a series of nonresponsive answers to discovery requests. The claimants
    repeatedly asked Royal and First Colony whether Royal ever had designated
    Bates as Koonce’s survivor-beneficiary. Royal and First Colony repeatedly
    dodged this question, answering instead only that the companies each possessed
    a copy of Koonce’s letter purporting to designate Bates as beneficiary and that
    neither company contested the letter’s effectiveness. A straightforward “no”
    could have shortened or even terminated these proceedings long ago.
    Because Royal and First Colony’s actions in 1995 are in part responsible
    for causing this litigation, and their nonresponsive answers in 2007 are in part
    responsible for protracting this litigation, rewarding their endeavors with costs
    and attorney’s fees was an abuse of discretion.
    V.
    The Koonce heirs also appeal from the denial of their motion for leave to
    file a counter-complaint against Royal and First Colony. “A pleading must state
    8
    No. 08-40144
    as a counterclaim any claim that—at the time of its service—the pleader has
    against an opposing party if the claim: (A) arises out of the transaction or
    occurrence that is the subject matter of the opposing party’s claim; and (B) does
    not require adding another party over whom the court cannot acquire
    jurisdiction.” FED. R. CIV. P. 13(a)(1). “The court may permit a party to amend
    a pleading to add a counterclaim if it was omitted through oversight,
    inadvertence, or excusable neglect or if justice so requires.” FED. R. CIV. P. 13(f).
    Permitting a party to amend a pleading to add an omitted counterclaim is a
    matter of judicial discretion. Rohner, Gehrig & Co. v. Capital City Bank, 
    655 F.2d 571
    , 576 (5th Cir. 1981). We review for abuse of discretion. 
    Id. Here, Royal
    and First Colony produced their records concerning the
    annuity contract before the end of January 2007. Koonce’s heirs did not move
    the district court for leave to file a counter-complaint, in which they would have
    alleged breach of contract, until September 2007. The deadline for amended
    pleadings had passed in July, and the deadline for discovery had passed in
    August. As counsel for Koonce’s heirs explained at the final pretrial conference
    in November 2007, the reason for the heirs’ delay was inattention. The district
    court held that, under Rohner, the Koonce heirs’ actions did not merit leave to
    file the counter-complaint.
    We have reviewed the pertinent parts of the record, and we conclude that
    the district court did not abuse its discretion in so holding.
    VI.
    For the foregoing reasons, we REVERSE the judgment in favor of Bates,
    Royal, and First Colony; AFFIRM the district court’s denial of leave to the
    Koonce heirs to file a counter-complaint; and REMAND for entry of an
    appropriate judgment, not inconsistent with this opinion, in favor of the Koonce
    heirs.
    AFFIRMED in part; REVERSED in part; and REMANDED.
    9