Case Information
UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE
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GAIL MICHELMAN, ) No. C10-0271RSL
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Plaintiff, ) v. ) ORDER REGARDING ATTORNEY’S ) FEES, INTEREST, AND DISBURSAL LINCOLN NATIONAL LIFE INSURANCE ) COMPANY, et al. , OF FUNDS
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Defendants. )
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This matter comes before the Court on “Lincoln National’s Renewed Fee Petition” (Dkt. # 114), plaintiff’s “Cross-Motion to Compel Lincoln’s Cure of Deficient Registry Tender” (Dkt. # 118), and “Plaintiff’s Motion to Disburse Funds and to Compel Deposit of Interest” (Dkt. # 119). Having reviewed the memoranda, declarations, and exhibits submitted by the parties, the Court finds as follows:
BACKGROUND
Plaintiff Gail Michelman was the designated beneficiary of a Lincoln National life insurance policy covering her daughter, Elizabeth. When Elizabeth died, Gail’s ex-husband, third-party defendant Irwin Michelman, made a claim for the policy proceeds. Lincoln National notified Gail of the competing claim, admitted that Gail was the named beneficiary and that the policy proceeds were due and payable, and gave the competing claimants thirty days in which to work out their differences. Gail made repeated efforts to obtain information regarding the nature of Irwin’s claim and to convince Lincoln National that she was the only proper claimant.
After three months of unproductive correspondence and the filing of a formal complaint with the Washington Office of Insurance Commissioner, Gail filed this action in state court alleging bad faith, violations of the Washington Consumer Protection Act (“CPA”), and breach of an insurance contract. Lincoln National removed the case to federal court, interpled Irwin as a third-party defendant, and deposited $100,204.61 into the Court’s registry. The Court refused to dismiss Lincoln National from the case, however: plaintiff’s bad faith and CPA claims were independently actionable and had yet to be resolved. Because Lincoln National had properly initiated the interpleader action, the Court found that it could not be held liable under any theory – including breach of contract – for its failure to pay the proceeds of the policy to Gail as the designated beneficiary.
Discovery and dispositive motion practice followed. While much of this effort focused on the way in which Lincoln National handled the competing claims (and was therefore relevant to plaintiff’s bad faith and CPA claims), plaintiff stubbornly insisted on pursuing the argument that the initiation of the interpleader action was improper. The Court ultimately determined that Irwin had no right to any of the insurance proceeds and that, although Lincoln National had engaged in unfair or deceptive practices in handling Gail’s claim, Gail was unable to establish that any damages flowed from these practices. The bad faith and CPA claims were therefore dismissed, and Lincoln National now seeks an award of attorney’s fees incurred in litigating the interpleader action.
DISCUSSION
Lincoln National concedes that the amount paid into the Court’s registry in May 2010 did not include statutory interest payable on the policy proceeds from the time of Elizabeth’s death. The parties agree that the amount owed is $6,694.83.
Fed. R. Civ. P. 22 allows a party facing the potential of multiple liabilities to join as adverse parties all persons holding claims and to require them to resolve their dispute in one action. Although Rule 22 does not authorize an award of attorney’s fees or costs in an interpleader action, “federal courts have continued the former equity practice of allowing fees to interpleading plaintiffs.” Schirmer Stevedoring Co. Ltd. v. Seaboard Stevedoring Corp. , 306 F.2d 188, 193 (9th Cir. 1962).
[T]he availability of attorneys’ fees for interpleader plaintiffs recognizes that by bringing the action, the plaintiff benefits all parties by promoting early litigation on the ownership of the fund, thus preventing dissipation. Because the interpleader plaintiff is supposed to be disinterested in the ultimate disposition of the fund, attorneys’ fee awards are properly limited to those fees that are incurred in filing the action and pursuing the plan’s release from liability, not in litigating the merits of the adverse claimants’ positions. Compensable expenses include, for example, preparing the complaint, obtaining service of process on the claimants to the fund, and preparing an order discharging the plaintiff from liability and dismissing it from the action.
Trustees of Directors Guild of Am-Producer Pension Benefits Plans v. Tise, 234 F.3d 415, 426- 27 (9th Cir. 2000) (internal quotation marks and citations omitted) (emphasis in original). Whether to award fees and costs is within the discretion of the district court. San Rafael Compania Naviera, S.A. v. Am. Smelting & Refining Co., 327 F.2d 581, 587 (9th Cir. 1964). There are a number of arguments one could make against awarding fees to an interpleading plaintiff, especially in the first-party insurance context. Any award of attorney’s fees is unusual in the American system absent a statutory basis. Even more unusual is an award of fees in favor of an insurer and against its insured. In the first-party insurance context – unlike the freight disputes giving rise to the decisions in Schirmer Stevedoring and other seminal cases in this area – the stake is generally not diminished when competing claims are asserted against the policy proceeds, thereby reducing the “benefit” of the interpleader action. [2] In fact, the primary, if not the only, beneficiary of an interpleader action in the first-party context is the insurance company. Rather than having to investigate and adjust the competing claims, the insurer simply turns the matter over to the courts to decide what would otherwise be a common and ordinary insurance question: who, in fact, is the policy beneficiary. Even better from the insurance company’s perspective, the initiation of an interpleader action gives the insurer protection against potential liabilities. The rightful beneficiary, on the other hand, now faces the expense of litigation and a delay in the payment of the policy benefits.
Given that an interpleader action in the first-party context overtly furthers the insurer’s interests at the expense of its insured (as Gail explained in her communications with Lincoln National), [3] the courts’ willingness to award attorney’s fees to insurers as a matter of equity is, quite frankly, baffling. This Court is not writing on a clean slate, however. Although equity is the touchstone of the analysis, the Ninth Circuit views interpleading as a boon to the claimants and has stated that “the proper rule” is to award attorney’s fees. Schirmer Stevedoring, 306 F.2d at 194. The Court will, therefore, award fees, but has scrutinized Lincoln National’s petition to ensure that plaintiff pays only those expenses that are reasonably related to the interpleader. [4] In addition, plaintiff will not be required to reimburse Lincoln National for fees expended in its battle with Irwin: Lincoln National had the opportunity to seek fees from that source and chose not to.
CONCLUSION
For all of the forgoing reasons, plaintiff’s motion to compel the deposit of interest is GRANTED and defendant’s motion for an award of fees is GRANTED in part. Lincoln National owes $6,694.83 in statutory interest and is entitled to an award of $6,759.35 in attorney’s fees. IT IS HEREBY ORDERED that the Clerk of the Court shall disburse to Lincoln National Life Insurance Company, through its counsel Medora Marisseau, $64.52 from the Court’s Registry. IT IS FURTHER ORDERED that the remaining funds in the Court’s Registry shall be paid to Gail Michelman, c/o Trust Account of MCBD Law, PLLC, through her attorney Dan’L Bridges.
Dated this 11th day of April, 2011.
A Robert S. Lasnik United States District Judge
[1] Although plaintiff argues that she has not conceded that this number is correct (Dkt. # 118 at 2), she offers no contrary evidence, argument, or calculations. The $6,694.83 figure is, therefore, adopted by the Court and established for purposes of this litigation.
[2] Also contrary to other situations in which interpleaders are common, the rightful beneficiary is 16 often no more culpable for creating the dispute than the insurer. Assuming culpability is the justification for an award of attorney’s fees in this context, the fact that a misinformed, greedy, or 17 vindictive relation asserts a competing claim to life insurance proceeds may support an award of fees 18 against the unsuccessful claimant, but it does not support a finding that either the insurer or the rightful beneficiary should single-handedly bear the costs associated with the contest. 19
[3] In a letter dated November 23, 2009, Gail argued that forcing her to litigate an interpleader 20 action when there was no actual proof to support Irwin’s claims effectively shifted the insurer’s claims- handling burden to her: 21 22 Your last letter admits Lincoln intends on ignoring the plain language of its policy so it can avoid being sued by my ex-husband. Lincoln has acknowledged me as the sole 23 recorded beneficiary and yet it refuses to pay the policy benefits. My ex-husband is not a beneficiary, he was removed from the policy years ago as provided by the policy itself. It 24 would be wrong if my ex-husband sued Lincoln. But it is more wrong for the insurance 25 carrier to put its interest in not being sued over its obligation to pay as promised under the policy.
[4] Because Gail initiated this action, some of the normal expenses related to interpleader did not 23 fall on Lincoln National. In addition, the fees and costs associated with (a) removal of this litigation from state court and (b) the defense of plaintiff’s bad faith and CPA claims are not recoverable. Having 24 reviewed the various motions for summary judgment filed by the parties, the Court finds that 25 approximately 5% of the insurer’s argument therein were linked to the interpleader issues. Plaintiff will, however, be required to reimburse Lincoln National for expenses related to her repeated efforts to pursue her argument that interpleader was improper.