* 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.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 08-40144

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:**

United States Court of Appeals

Fifth Circuit

F I L E D

January 16, 2009

Charles R. Fulbruge III

Clerk
No. 08-40144

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

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

judgmentin 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
No. 08-40144

3

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 survivorbeneficiaries 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.
No. 08-40144

4

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
No. 08-40144

5

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 withoutleave 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 requestfor 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
No. 08-40144

6

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
No. 08-40144

7

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
No. 08-40144

8

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 andFirst 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 thatthe 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
No. 08-40144

9

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.