Royal Indemnity Co. v. Kathy Bates , 307 F. App'x 801 ( 2009 )

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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.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.”
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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.
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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
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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
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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
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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
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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
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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.
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