United States Fire Insurance v. Asbestospray, Inc.United States Fire Insurance v. Asbestospray, Inc.
Weitz & Luxenberg, P.C., John J. Preefer, New York, N.Y., for Appellants, Frederick W. Whitaker and Weitz & Luxenberg, P.C. in No. 98-1154.
Klett Lieber Rooney & Schorling, James Lewis Griffith, Philadelphia, PA, Wolf, Block, Schorr & Solis-Cohen LLP, William G. Frey (Argued), Virginia Lynn Hogben, Philadelphia, PA, for United States Fire Insurance Company and The North River Insurance Company, Appellees in Nos. 98-1153 and 98-1154, and Appellants in No. 98-1854.
Cooper & Tuerk, LLP, Carl E. Tuerk, Jr. (Argued), Baltimore, MD, Levy Phillips & Konigsberg, LLP, Stanley J. Levy, New York, N.Y., for Mayor & City Council of Baltimore, Appellees.
Greitzer and Locks, Gene Locks, Martin Greitzer, Jonathan W. Miller (Argued), Philadelphia, PA, for Eugene Borofsky, Appellee.
Before: SLOVITER and ALITO, Circuit Judges, and ALARCON, Senior Circuit Judge.*
ALITO, Circuit Judge:
Before us are two consolidated appeals. In the first, Stich, Angelí, Kreidler, Brownson and Ballou, P.A. (“Stich, Angelí”), Frederick Whitaker (“Whitaker”)
In the second appeal, the Insurers challenge the District Court’s August 28, 1998 Order dismissing their statutory interpleader action for laches and for lack of jurisdiction. The Insurers also contest the District Court’s ruling that the Insurers waived certain attorney-based privileges. We hold that the District Court possessed jurisdiction over the interpleader action, and therefore reverse the District Court’s dismissal for lack of jurisdiction. With respect to the laches defense, we hold that the District Court erred in calculating the length of the Insurers’ delay in filing the interpleader action and that the Court improperly failed to provide the Insurers with an opportunity to present evidence regarding the reasons for the delay. We therefore vacate the District Court’s dismissal based on laches and remand for further proceedings. Finally, we conclude that the Insurers did not waive their attorney-based privileges and we therefore reverse the District Court’s contrary ruling.
I.
A.
U.S. Fire and North River are excess insurers of Asbestospray Corporation and related entities (collectively, “Asbestospray”), all of which now are bankrupt. Asbestospray is a defendant in over 27,000 personal injury suits pending in courts throughout the country. In addition to the contingent liabilities posed by these 27,000 suits, the Mayor and City Council of Baltimore (“Baltimore”) have obtained an $8.33 million judgment against Asbestospray for reimbursement of costs incurred in removing asbestos from public buildings in the City of Baltimore. Asbestospray’s sole remaining asset is the proceeds of the insurance policies at issue here.
These insurance policies provided excess coverage of $5 million per year from 1971 to 1976 for a total of $25 million in coverage. Because the policies are excess policies, the coverage under them is triggered only if and when the primary layer of coverage is exhausted. The primary layer of coverage was exhausted in May 1995, at which point the Insurers became obligated to defend Asbestospray in asbestos-related lawsuits. The policies expressly provide that defense litigation costs, including counsel fees, apply against the policy limits.
Between May 1995 and June 13, 1997, the Insurers disbursed over $21 million of the $25 million of the aggregate coverage. The sum of $6.5 million was paid to settle personal injury claims, while the sum of $9.2 million was paid in legal defense costs. Settlements in principle, agreed to but not paid as of June 13, 1997, totaled $5.39 million. The Insurers deposited this $5.39 million sum in an escrow account administered by Asbestospray’s national coordinating defense counsel, Robert Brownson, Esq. (“Brownson”), and his law firm, Stich, Angelí. Deducting from the aggregate coverage of $25 million the sums expended for settlements in fact and in principle, as well as accumulated defense costs, $3.88 million in unexhausted coverage remained as of June 13, 1997 to satisfy both the pending personal injury claims and Baltimore’s judgment against Asbestospray.
B.
In 1984, Baltimore filed suit in Maryland state court against Asbestospray (and more than 40 other asbestos manufacturers), seeking to recover costs incurred in removing asbestos from City-owned buildings. In 1992, a jury returned a verdict in Baltimore’s favor, and ultimately the Maryland Court entered judgment against
In 1994, the Insurers moved the Maryland Court for summary judgment on the ground that the policies do not provide coverage for asbestos remediation claims. Instead of ruling on the coverage issue, the Maryland Court entered a default judgment against the Insurers as a sanction for alleged discovery violations. The Insurers appealed, and in August 1996, the Maryland Court of Appeals vacated the default judgment and remanded the case to the trial court. North River Ins. Co. v. Mayor & City Council of Baltimore, 343 Md. 34, 680 A.2d 480 (Md.1996). The Maryland Court subsequently denied the Insurers’ motion for summary judgment with respect to coverage.
From August 1996 to June 1997, the date this interpleader action was filed, the Maryland garnishment action was not actively litigated. In September 1998, Baltimore moved the Maryland Court to enjoin plaintiffs from paying their settlements in principle from the escrow account. Pursuant to this motion, the Maryland Court has ordered the Insurers not to pay any further proceeds from the escrow fund to any Asbestospray claimant pending resolution of Baltimore’s claim in the Maryland Court.
C.
The Insurers commenced this statutory interpleader on June 13, 1997, and in accordance with
restraining for a period of 20 days from the date hereof (or until further order of this Court) all claimants from instituting an action or further prosecuting any existing action in any state court or in any Court of the United States or in any other tribunal against the United States Fire Insurance Company and North River Insurance Company (the “Plaintiffs”) seeking recovery under policies issued by Plaintiffs to [Asbestospray].
By order dated August 1, 1997, the District Court continued the injunction indefinitely.
On July 25, 1997, Baltimore filed an answer and opposition to the interpleader on the grounds that: (1) the amount of the interpleader bond was insufficient to confer jurisdiction; (2) the action was equitably barred by laches; (3) the action was barred by the doctrine of unclean hands; and (4) the interpleader was brought to avoid litigation of the garnishment action in the Maryland Court. The District Court scheduled a hearing for July 30, 1997, at which the District Court heard argument on whether it had jurisdiction and whether the action was barred by laches. The District Court did not rule on any of these matters but accepted briefing and continued its injunction.
D.
On July 18, 1997, Weitz & Luxenberg filed a motion in New York State court on behalf of one of its clients, Frederick Whitaker (“Whitaker”), seeking to compel payment of a $2 million settlement from the escrow fund. On July 24, the New York Court ordered the funds to be disbursed no later than July 31, 1997. Browning, acting as escrow agent, declined to pay the
On August 6, Weitz & Luxenberg moved the New York Court to hold Browning in contempt if the settlement proceeds were not paid by September 4, 1997. Browning wrote a letter to the Insurers informing them of the contempt motion and advising them that he planned to wire the funds to Weitz & Luxenberg on September 3 unless the Insurers obtained an order from the District Court directing him not to do so. The Insurers did not obtain an Order by the deadline set forth in the letter, and on September 3, Browning wired $2 million from the escrow account to a bank account held by Weitz & Luxenberg.
Later that same day, upon learning of the $2 million wire transfer, the Insurers terminated the Stich, Angelí firm as escrow agent. The Insurers currently maintain control over the remaining funds (the $5.39 million formerly held in the escrow account, less the $2 million that was disbursed to settle the Whitaker suit) and have posted an additional interpleader bond of $3.39 million.
On September 8, the Insurers filed a motion seeking clarification of the original restraining order. The District Court ruled on the motion by order dated January 21, 1998 (hereafter, the “January 21 Order”). The District Court:
MODIFIED [the June 13 Order] to include within the definition of “policies issued by the Plaintiffs to the Insurers” any funds held in escrow or otherwise by third parties, including funds in the escrow account previously held by Stich, Angell, Kreidler, Brownson & Ballou, P.C. as escrow holders.
The District Court then:
DECLARE[D] that the transfer of the above-referenced funds to the law firm of Weitz & Luxenberg to settle the action styled Whitaker v. Asbestospray, et al., Supreme Court of New York, County of New York, Index No. 96-116205 constituted a violation of this court’s order of June 13, 1997 and August 1, 1997.
The District Court did not impose sanctions or otherwise penalize the asserted violation of the June 13 Order.
E.
The, January 21 Order also addressed several outstanding discovery matters. Prior to the issuance of the January 21 Order, Baltimore and other defendants requested discovery relating to the timing of the filing of the interpleader action. The Insurers objected to some of the requests on the ground that they sought materials protected by attorney-client and work product privileges.
The District Court rejected the Insurers’ assertion of privilege in its January 21 Order. The District Court ruled that the Insurers waived their attorney-based privileges by their assertedly untimely filing of the interpleader action:
[W]e find the plaintiffs by bringing this action waived any attorney client privilege concerning why the action was brought, its timing, the existence of any garnishments against the fund, plaintiffs’ own calculations of projected liabilities of the fund, as well as the transfer of insurance proceeds.
F.
After the District Court denied motions for reconsideration of its January 21 Order, the parties continued with discovery. On April 9, 1998, Baltimore moved to dismiss the interpleader action. The sole ground raised in Baltimore’s moving papers was its contention that the District Court lacked subject matter jurisdiction because the interpleader bond was insufficient to cover the amount of policy proceeds in controversy. On August 28, the District Court dismissed the case based on
The Insurers appeal the August 28 Order, as well as the District Court’s rulings on their attorney-based privileges in its January 21 Order. Brownson, Stich, Angell, Whitaker and Weitz & Luxenberg appeal the District Court’s determination in its January 21 Order that the transfer from the escrow fund violated the District Court’s June 13 Order.
II.
A.
We first address whether we have jurisdiction over Stich, Angell’s1 appeal of the January 21 Order. We conclude that we do not, and we therefore dismiss that appeal.
Stich, Angelí appeals the January 21 Order which purports to: (1) modify the June 13 Order and (2) declare the $2 million distribution in violation of the June 13 Order. Stich, Angelí first argues that we have jurisdiction to hear its appeal pursuant to
We do not have jurisdiction over Stich, Angell’s appeal under § 1292(a)(1). We recognize that the January 21 Order purports to modify the June 13 Order, which by virtue of its duration was converted into a preliminary injunction, SEC v. Black, 163 F.3d 188, 194 (3d Cir.1998), and that therefore it is plausible to assert jurisdiction under § 1292(a)(1). We reject § 1292(a)(1) as a jurisdictional basis, however, because the January 21 Order, despite some of its language, does not in fact modify the June 13 Order.
It is well settled that when determining our jurisdiction, we must examine the substance of the order rather than merely its language. Cromaglass Corp. v. Ferm, 500 F.2d 601, 604 (3d Cir.1974) (en banc); Gregory v. Depte, 896 F.2d 31, 38 n. 14 (3d Cir.1990) (Becker, J., concurring in part and dissenting in part) (“[I]t is important to note that the labels attached by the district court to its order are not determinative”). Here, we conclude that the January 21 Order did not in fact modify the June 13 Order but instead clarified that, in the District Court’s view, the June 13 Order applied to the funds held in escrow by Stich, Angell and thus prohibited their transfer to Weitz & Luxenberg. If the January 21 Order is not interpreted in this way as a clarification of the June 13 Order but is instead construed as a modification of that order (broadening it so as to make it applicable for the first time to the funds held in escrow), the District Court plainly would have had no basis for declaring that the prior transfer of funds to Weitz & Luxenberg was in violation of the earlier order. We recognize that the District Court did use the term “MODIFIED” in the June 13 Order, but we attribute this to a mistake in draftsmanship. It does not persuade us that the June 13 Order was in substance a modification rather than a clarification or interpretation, and our appellate jurisdiction under
Stich, Angelí next argues that we have jurisdiction under the “collateral order” doctrine. This doctrine is a narrow exception to the final judgment rule under which a “small class” of collateral orders are deemed final even though they do not terminate the underlying litigation. Christy v. Horn, 115 F.3d 201, 203–204 (3d Cir.1997)
B.
1. Laches
Next, we address the District Court’s dismissal of the interpleader action based on laches. Because we conclude that the record was not sufficiently developed with respect to the possible justifications for the Insurers’ delay in filing the interpleader, and further because we conclude that the District Court erred in calculating the period of delay, we vacate the District Court’s order dismissing the interpleader and remand for further proceedings.
“Both the length of delay and the existence of prejudice are questions of fact to be reviewed by this court under the ‘clearly erroneous’ standard.” Churma v. United States Steel Corp., 514 F.2d 589, 593 (3d Cir.1975); see also EEOC v. Great Atlantic & Pacific Tea Co., 735 F.2d 69, 84 (3d Cir.1984). Whether delay is “inexcusable” on the facts presented is a conclusion of law over which our review is plenary. Great Atlantic, 735 F.2d at 81. If we agree with the district court’s legal conclusion that a given historical delay is inexcusable, we review the court’s assessment of the equities for abuse of discretion. Id.; see also Churma, 514 F.2d at 593
Because interpleader is an equitable proceeding, it is subject to dismissal based on equitable doctrines such as laches. In re Bohart, 743 F.2d 313, 325 (5th Cir.1984). In this regard, it has “... been often stated—although rarely held—that interpleader is properly denied when the stakeholder is ... guilty of laches.” Id. at 326 n. 11 (quoting 3A Moore’s Federal Practice ¶ 22.16[1] (1984)); see also 7 Wright, Miller & Kane, Federal Practice & Procedure: Civil 2d § 1709 (West 1986) (“[C]ourts are reluctant to refuse interpleader [for laches] since the inconvenience to the stakeholder and the courts that would result if multiple litigation, and possibly multiple liability, came to pass are at least as troublesome as rewarding the stakeholder’s questionable conduct.”).
The party asserting laches as a defensive bar must establish (1) an inexcusable delay in bringing the action and (2) prejudice. Great Atlantic, 735 F.2d at 81; Churma, 514 F.2d at 593. To establish prejudice, the party raising laches must demonstrate that the delay caused a disadvantage in asserting and establishing a claimed right or defense; the mere loss of what one would have otherwise kept does not establish prejudice. In re Bohart, 743 F.2d at 327 (reversing district court’s dismissal of interpleader based on laches).
Here, the District Court held as a matter of law that the Insurers’ delay in filing the interpleader action was unreasonable and prejudicial to potential claimants, and the Court accordingly dismissed the interpleader action with prejudice. Although
Against this procedural canvas, the District Court held that “as a matter of law ... the [Insurers] knew or should have known that the available insurance pool was insufficient as early as February 22, 1993,” and that therefore they had “a duty to file the interpleader, if they were to do it at all,” at that time. The Insurers’ coverage under their excess policies, however, was not triggered until May 1995, when the primary layer of coverage was exhausted. The District Court erred in charging the Insurers with inexcusable delay during the period from February 1993 to May 1995, a time when the Insurers’ duty to defend and indemnify had not been activated as a matter of law.
Furthermore, because the District Court ruled on an inadequate record, it did not have an opportunity to weigh the Insurers’ explanation for at least a portion of the delay after May 1995. When the policies were triggered in 1995, they were subject to Baltimore’s valid default judgment against them entered by the Maryland Court as a discovery sanction. The Insurers claim that filing an interpleader when there existed a valid judgment against the policies would have subjected the claim to dismissal and charges of forum shopping. See, e.g., B.J. Van Ingen & Co. v. Connolly, 225 F.2d 740, 741 (3d Cir.1955) (affirming dismissal of interpleader: “[T]his interpleader is an attempt to obtain in a federal forum a separate adjudication of a controversy which has arisen in the attempted enforcement of a decree of a state court”). On remand, the District Court should assess the credibility of the Insurers’ explanation in determining whether the delay was inexcusable.2
The District Court also found that Baltimore and the other potential claimants against the res were prejudiced because the insurance proceeds were “dissipated” by the Insurers’ practice of settling claims before the interpleader was filed, thereby leaving an insufficient fund to pay the remaining claims. But see In re Bohart, 743 F.2d 313 (5th Cir.1984) (rejecting similar claim of prejudice and reversing district court’s dismissal of statutory interpleader based on laches). As we mention above, the District Court did not receive briefing from the parties or permit discovery on the issue of prejudice. Accordingly, we vacate the District Court’s finding of prejudice and remand so that a more complete record on this issue may be developed.3
The District Court rested its dismissal on the alternative basis that the interpleader bond was insufficient because it did not cover the entire proceeds of the insurance policies—$25 million—or even the funds deposited in the escrow account. However, because the original interpleader bond of $3.88 million deposited with the District Court represents the amount of proceeds reasonably in controversy, we conclude that the District Court erred in dismissing the interpleader based on the alleged insufficiency of the bond.
A proper deposit or bond is a jurisdictional prerequisite to bringing an interpleader.
Here, the Appellees claim entitlement to the entire $25 million in insurance proceeds, and they therefore argue that this amount should be deposited with the Court. The determination of the appropriate deposit, however, is not a mechanical process under which the court uncritically searches for the highest amount claimed by the adverse claimants and requires that amount to be deposited; rather, the determination “depends upon the person who invokes the interpleader and what he asserts to be the subject matter of the controversy.” M/V Ukola, 806 F.2d at 5. Amounts that are not realistically within the scope of the interpleader as pleaded are not required to be deposited or bonded to sustain federal jurisdiction. Id.; 7 Wright, Miller & Kane, Federal Practice and Procedure: Civil 2d § 1716 (West 1986) (“[T]he court will have to inquire into the underlying merits of a claim to determine proper amount of the deposit or bond.”).
In this case, the sum put into controversy by the interpleader complaint was $3.88 million—the unexhausted proceeds of the policy. See Aetna Cas. & Surety Co. v. Ahrens, 414 F.Supp. 1235, 1254 (S.D.Tex.1975) (where an interpleader involves liability insurance proceeds, the money or property in dispute is the unexhausted policy limits and plaintiff need only deposit unexhausted policy limits at the time of interpleader). In the absence of a claim of collusion or fraud on the part
We note as well that the District Court’s expansive view of its interpleader jurisdiction is inconsistent with the limited nature of the interpleader device. An injunction issued pursuant to
Because the injunction available under § 2361 is an exception to the generally applicable rule barring federal injunctions of state court proceedings,
The District Court erred when it concluded that the preinterpleader settlements were part of the res properly subject to its interpleader jurisdiction, and therefore erred in dismissing the interpleader based on the alleged insufficiency of the interpleader bond. Accordingly, we vacate the District Court’s order dismissing the interpleader for lack ofjurisdiction.
Finally, the Insurers object to the District Court’s ruling, in its January 21 Order, that the Insurers waived the attorney-client and attorney work product privileges by allegedly placing privileged material directly at issue in this suit. We agree with the Insurers that the District Court erred in so ruling.
A party may waive attorney-based privileges by asserting “claims or defenses that put his or her attorney’s advice in issue in the litigation.” Rhone-Poulenc Rorer, Inc. v. Home Indem. Co., 32 F.3d 851, 863 (3d Cir.1994). A party waives the privilege only when he or she “has made the decision and taken the affirmative step in the litigation to place the advice of the attorney in issue.” Id. (citing as an example of waiver a defendant who asserts reliance on advice of counsel as a defense); see also Livingstone v. North Belle Vernon Borough, 91 F.3d 515, 537 (3d Cir.1996) (assertion of defense directly implicating advice of counsel waives attorney-client privilege as to that issue), cert. denied, 520 U.S. 1142, 117 S.Ct. 1311, 137 L.Ed.2d 474 (1997).
In this case, the Insurers did not assert any claim or take any affirmative step that placed the advice of counsel at issue. Rather, they argued based on the record and in defense of a laches claim that the delay in filing the interpleader was objectively justified. Neither the fact that the Insurers raised this argument nor the timing of the interpleader action can be interpreted as an affirmative waiver of the attorney-based privileges. We reverse the District Court’s contrary ruling.
III.
For the foregoing reasons, we dismiss Stich, Angell’s appeal of the January 21 Order for lack of jurisdiction, vacate the August 28 Order dismissing the interpleader for laches and lack of subject matter jurisdiction, reverse the January 21 Order insofar as it declared that the Insurers waived the attorney-client and work product privileges, and remand for further proceedings consistent with this opinion.