Opinion
Cause No. 3:20-cv-00399-GCS
10-26-2020
MINNESOTA LIFE INSURANCE COMPANY, Plaintiff, v. CLAYTON SWANNER, G.R.S, a minor, DELBERT M. BROWN, Individually and as administrator of the Estate of Cathy S. Brandenstein, and PATRICK LEE BROWN, Defendants. G.R.S., a minor, Cross-Plaintiff, v. CLAYTON A. SWANNER, Cross-Defendant. DELBERT M. BROWN, Individually and as Administrator of the Estate of Cathy S. Brandenstein, and PATRICK L. BROWN, Cross-Plaintiffs, v. G.R.S., a minor, CLAYTON A. SWANNER. MINNESOTA LIFE INSURANCE COMPANY, Counter and Cross-Defendants.
REPORT AND RECOMMENDATION SISON, Magistrate Judge :
INTRODUCTION AND BACKGROUND
This matter is before the Court upon the Minnesota Life Insurance Company's motion for interpleader discharge, for default judgment as to Clayton Swanner and to dismiss crossclaim. Included in this motion is a request for attorneys' fees of $9,762.00 and costs of $500.42 (Doc. 41, 42). Defendant G.R.S. filed a response to the motion opposing only the portion of the motion seeking an award of attorneys' fees as the fees sought were incurred in the ordinary course of business for life insurance companies. (Doc. 43). As of this date, none of the other parties responded to the motion. Having considered the record of this case and the applicable law, the undersigned recommends that the District Court grant in part and deny in part the motion.
The Amended Interpleader Complaint names the minor G.R.S. as R.S. In her pleadings, G.R.S. notes that is not the correct name. (Doc. 29). Thus, the Court will utilize her correct name.
In May 2020, Minnesota Life Insurance Company ("Minnesota Life") initiated this Interpleader action against Clayton Swanner, G.R.S., a minor, Delbert Brown and Patrick Brown. Minnesota Life brought the action due to competing claims for life insurance benefits of $175,500.00, payable by Minnesota Life because of the death of Cathy S. Brandenstein ("Insured"). According to the Interpleader Complaint, the Insured designated her son, Clayton Swanner, as the beneficiary of her coverage and her minor granddaughter G.R.S. as the contingent beneficiary. Swanner has been charged with the Insured's murder and may be disqualified from recovery under Indiana slayer rules. Under the policy, benefits would then be payable to G.R.S. The Insured's brothers, Delbert Brown and Patrick Lee Brown seek to prevent payment of the benefits to the Insured's granddaughter and instead seek payment for themselves. With leave of Court, Minnesota Life deposited the benefits (two checks totaling $176,057.75) with the Clerk of the Court on May 7, 2020.
Thereafter on July 13, 2020, Minnesota Life filed an Amended Interpleader Complaint. (Doc. 23). G.R.S. filed its answer to the Amended Interpleader Complaint and cross-claim against Swanner on July 23, 2020. (Doc. 29). On July 27, 2020, the Clerk entered an entry of default as to Clayton Swanner as to the claims in the Amended Interpleader Complaint. (Doc. 31). Two days later, the Browns filed their answer to the Amended Interpleader Complaint and their cross-claim against Swanner and G.R.S. (Doc. 35).
On October 1, 2020, the Clerk of the Court also entered an entry of default as to cross-defendant Clayton Swanner on cross-plaintiff G.R.S.'s claim against him. (Doc. 45). --------
Subsequently, Minnesota Life filed the motion for interpleader discharge, for default judgment as to Clayton Swanner and to dismiss crossclaim. G.R.S. filed her response on September 21, 2020. (Doc. 43). As that motion is ripe, the Court turns to address the merits of the motion.
ANALYSIS
"Interpleader is an equitable procedure used when the stakeholder is in danger of exposure to double liability or the vexation of litigating conflicting claims." Aaron v. Mahl, 550 F.3d 659, 663 (7th Cir. 2008). It forces all of the claimants to litigate their respective claims in a single action brought by the stakeholder. See Indianapolis Colts v. Mayor and City Council of Baltimore, 733 F.2d 484, 486 (7th Cir. 1984). In reviewing an interpleader action, the Court must first determine whether interpleader is warranted in light of the stakeholder's real and reasonable fear of conflicting claims that reach a minimal threshold level of sustainability. See Aaron, 550 F.3d at 663. If interpleader is warranted, the Court then resolves the merits of the parties' competing claims.
Here, interpleader is warranted under the circumstances of the case. The defendants have all made competing claims to Brandenstein's life insurance benefits. Clearly, there is a dispute as to who the proper beneficiary is in light of homicide charges against Clayton Swanner. Thus, the Court addresses Minnesota Life's motion.
The Court considers the appearing Defendants' failure to respond (or in the case of Defendant G.R.S stating that she does not object) as admissions of the merits of the motion filed by Minnesota Life regarding the following issues: (1) entering default judgment as to Defendant Clayton Swanner; (2) dismissing Minnesota Life from this litigation, with prejudice, including dismissal with prejudice of Minnesota Life from the Browns' crossclaim; (3) discharging Minnesota Life from this matter; and (4) enjoining and restraining Clayton Swanner, G.R.S., the Browns, and anyone claiming by or through them, from instituting any action or proceeding in any state or federal court against Minnesota Life related to the Insured or the Insured's coverage under the Group Policy. See SDIL Local Rule 7.1(c); Smith v. Lamz, 321 F.3d 680, 683 (7th Cir. 2003). See also Flynn v. Sandahl, 58 F.3d 283, 288 (7th Cir. 1995)(noting that a failure to respond constitutes an admission that there are no undisputed material facts). Further, the undersigned finds after reviewing the record that the above actions/relief are proper and warranted in this case. Thus, the Court turns to address the merits of the request for attorneys' fees and costs.
As to the request for attorneys' fees and costs, Minnesota Life seeks costs of $500.42 and reasonable attorneys' fees of $9,672.00 from the deposited proceeds. Minnesota Life contends that it is entitled to fees and costs because it was required to bring this action based on conflicting claims that were not of its making. Specifically, Minnesota Life argues that the Indiana Slayer statute precluded payment of the proceeds and as a result it had to retain counsel to resolve these issues through the court for intervention which is not a part of Minnesota Life's normal course of business. G.R.S. counters that even with the peculiar facts giving rise to the competing claims in this matter, Minnesota Life did not take any extraordinary actions in response to those claims. In fact, G.R.S. argues that Minnesota Life easily identified all beneficiaries to the policy and that other claimants made themselves known to Minnesota Life. Further, G.R.S. argues that the filing, serving, and obtaining waivers of service on the interpleader and paying the funds into the court are not "extraordinary" to warrant fees and costs. The Court agrees with G.R.S. that attorneys' fees and costs are not warranted as the actions taken by Minnesota Life are within the normal course of business.
In an interpleader action, the Court may award costs if it determines the costs to be reasonable and if the stakeholder's efforts are not part of its normal course of business. See Aaron, 550 F.3d at 667 (citing Union Cent. Life Ins. Co. v. Hamilton Steel Prods., Inc., 493 F.2d 76, 79 (7th Cir. 1974); Travelers Indem. Co. v. Israel, 354 F.2d 488, 490 (2d Cir. 1965)). Many district courts that have examined whether insurance companies should be excluded from receiving attorney's fees in interpleader actions have held that interpleader is a part of an insurers' regular business. See, e.g., Minnesota Mut. Life Ins. Co. v. Gustafson, 415 F. Supp. 615, 618 (N.D. Ill. 1976)(noting that interpleader action filed to resolve claims made by various claimants of fire insurance policies was within the ordinary course of an insurance business); Unum Life Ins. Co. of Am. v. Kelling, 170 F. Supp. 2d 792, 796 (M.D. Tenn. 2001)(stating that conflicting insurance claims occur during the normal course of an insurance business). See also Jackson National Life Insurance Co. v. Hardin, No. 16-cv-2624, 2016 WL 3539133, at *7 (N.D. Ill. June 28, 2016)(holding that a dispute between beneficiaries to a life insurance policy arose within the scope of the insurance company's business). Aaron is also consistent with earlier Seventh Circuit precedent recognizing that although "[a] court may award reasonable fees in an interpleader action," courts "generally do not award fees" when "the stakeholder's efforts are part of its normal course of business." Sternitzke v. Pruco Life Ins. Co., Nos. 02-3008, 02-3171, 64 Fed. Appx. 582, 585 (7th Cir. May 7, 2003)(citing Union Central, 493 F.2d at 79; Travelers Indemnity, 354 F.2d at 490).
Here, Minnesota Life should pay the costs of relieving itself of liability to the proper claimants, just as G.R.S. and the Browns will pay the costs of their own representation. See Florin v. Nationsbank of Georgia, N.A., 34 F.3d 560, 562 (7th Cir. 1994). Minnesota Life benefits from this interpleader action because it immunizes the company from further liability under the contested policy. It is an inevitable and expected risk in the insurance business that conflicting claims may arise concerning the proceeds of a policy. Interpleader discharges Minnesota Life from liability in regard to the competing claims of the claimants, but the ultimate beneficiary must not also be bound to front the ordinary costs of the company.
CONCLUSION
For the foregoing reasons, it is RECOMMENDED to the District Court that the motion to dismiss be granted in part and be denied in part. (Doc. 41). It is recommended that it should be granted in part as to the following: (1) that default judgment be entered against Clayton A. Swanner on the interpleader claim in Minnesota Life Insurance Company's Amended Complaint pursuant to Federal Rule of Civil Procedure 55(b)(2); (2) Minnesota Life and all its parents, subsidiaries, and affiliates, and the State of Indiana as Policyholder, be discharged from any further liability with respect to the $175,500 life insurance proceeds (the "Proceeds") payable by reason of the death of Cathy S. Brandenstein (the "Insured") under Group Term Life Insurance Policy No. 34297-G (the "Group Policy") issued by Minnesota Life to the State of Indiana as Policyholder, and from any further liability to Clayton Swanner, G.R.S., Patrick Brown, Delbert Brown, the Estate, and anyone claiming by or through them, under the Group Policy or with respect to the Proceeds, including any interest or claims related thereto, or with respect to the Insured's coverage under the Group Policy; (3) Clayton Swanner, G.R.S., Patrick Brown, Delbert Brown, the Estate, and anyone claiming by or through them, be enjoined and restrained from instituting any action or proceeding in any state or federal court against Minnesota Life, all its parents, subsidiaries, and affiliates, or the State of Indiana as Policyholder for recovery of the Proceeds, including any interest or claims related thereto, and any other claims related to the Insured or the Insured's coverage under the Group Policy; and (4) Minnesota Life be dismissed from this litigation with prejudice, including dismissal of Minnesota Life with prejudice from the Crossclaim filed by Patrick Brown and Delbert Brown individually and as the Administrator of the Estate. It is recommended that the motion to dismiss be denied in part as to the request for attorneys' fees and costs.
The Clerk of Court is DIRECTED to assign a District Judge for consideration of the undersigned's recommendations.
Pursuant to 28 U.S.C. § 636(b)(1) and SDIL-LR 73.1(b), the parties shall have fourteen (14) days after service of this Report and Recommendation to file written objections thereto. The failure to file a timely objection may result in the waiver of the right to challenge this Report and Recommendation before either the District Court or the Court of Appeals. See, e.g., Snyder v. Nolen, 380 F.3d 279, 284 (7th Cir. 2004). Objections to the Report are due on or before November 9, 2020.
IT IS SO ORDERED.
DATED: October 26, 2020.
/s/ _________
GILBERT C. SISON
United States Magistrate Judge