Opinion ID: 3047474
Heading Depth: 3
Heading Rank: 2

Heading: Are Hovis’s Counterclaims Outside the Scope

Text: of the Interpleader Action? Hovis’s second, and more substantial, argument is that, even if the District Court were correct in concluding that 4 It is worth noting, in addition, that the rule that bars a party from obtaining interpleader relief when it caused the underlying controversy is not geared toward the kind of situation that Hovis alleges occurred here (i.e., one in which the stakeholder’s own errors are responsible for the ownership dispute). Rather, that rule is meant to prevent a tortfeasor, facing claims from multiple parties, from using the interpleader device to cap its liability. See Farmers Irrigating Ditch, 845 F.2d at 232 (“Our attention has not been directed to any case where a tortfeasor in a multiclaim tort can admit liability, tender into court a minimal amount of money with the representation that such is all he has, force the claimants to prorate the amount deposited, and then obtain an order discharging him from any further liability for his tort.”). This case is not like that. 13 Prudential’s interpleader action was properly brought, it nonetheless erred by dismissing his counterclaims. That is because, according to Hovis, those counterclaims are not claims to the interpleaded funds and thus fall outside the scope of Prudential’s interpleader action. Under the old interpleader practice, if a claimant alleged that the stakeholder was independently liable to him or her, the stakeholder would lose its right to bring the interpleader action. See Libby, McNeill & Libby v. City Nat’l Bank, 592 F.2d 504, 507 (9th Cir. 1978); Note, The Independent Liability Rule as a Bar to Interpleader in the Federal Courts, 65 Yale L.J. 715, 716 (1956). The modern approach, however, is that, where a claimant brings an independent counterclaim against the stakeholder, the stakeholder is kept in the litigation to defend against the counterclaim, rather than being dismissed after depositing the disputed funds with the court. See High Technology, 497 F.3d at 643; Wayazta Bank & Trust Co. v. A & B Farms, 855 F.2d 590, 593 (8th Cir. 1988); Libby, 592 F.2d at 507. That is what Hovis argues should have occurred here—Prudential should have been required to face Hovis’s counterclaims even after entitlement to the disputed funds was resolved. To assess this argument, it is necessary to determine how far interpleader protection extends. Hovis argues that it extends only to the claimants’ competing claims to the funds. If so, his counterclaims are plainly independent of Prudential’s interpleader action. While each relates to Prudential’s handling 14 of Shall’s life insurance policy, each nonetheless attempts to subject Prudential to liability apart from its duty to account for the insurance proceeds. Hovis’s proposed understanding of the scope of interpleader protection is not without support. Because what entitles a stakeholder to bring an interpleader action in the first place is the prospect of multiple liability, in the typical case the protection provided by that device is limited to the interpleaded defendants’ competing claims to the stake. Thus, the normal rule is that interpleader protection does not extend to counterclaims that are not claims to the interpleaded funds. Cf. State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 535 (1967) (cautioning that “interpleader was never intended . . . to be an all-purpose ‘bill of peace’”). This is not the typical case, however. Here, each of Hovis’s counterclaims concern Prudential’s failure to resolve its investigation in his favor and pay out the life insurance proceeds to him. See Hovis, 2007 WL 3125084, at  (“We are quite certain that if [Prudential] had immediately paid . . . Hovis the proceeds of Shall’s life insurance policy, . . . Hovis would not have brought an action against [Prudential] based on any of the causes of action that were counterclaimed in the instant case.”). As such, none of the counterclaims is truly independent of who was entitled to the life insurance proceeds, which is the issue the interpleader action was brought to settle. To allow Prudential to be exposed to liability under these 15 circumstances would run counter to the very idea behind the interpleader remedy—namely, that a “stakeholder [should] not [be] obliged at his peril to determine which claimant has the better claim.” Bierman v. Marcus, 246 F.2d 200, 202 (3d Cir. 1957). Put another way, where a stakeholder is allowed to bring an interpleader action, rather than choosing between adverse claimants, its failure to choose between the adverse claimants (rather than bringing an interpleader action) cannot itself be a breach of a legal duty. See Lutheran Bhd. v. Comyne, 216 F. Supp. 2d 859, 862 (E.D. Wis. 2002) (holding that the bringing of a valid interpleader action shields a plaintiff from liability for counterclaims where those “counterclaims are essentially based on the plaintiff’s having opted to proceed via an interpleader complaint rather than having chosen from among competing adverse claimants”); Metropolitan Life Ins. Co. v. Barretto, 178 F. Supp. 2d 745, 748 (S.D. Tex. 2001) (holding that interpleader protection extends to counterclaims that arise from “utilizing the protections afforded by the interpleader”). Accordingly, the District Court was correct to conclude that, given the nature of these particular counterclaims, Prudential’s having brought an appropriate interpleader action shields it from any liability relating to those claims. It therefore properly discharged Prudential from liability for Hovis’s counterclaims. Hovis contends that if the District Court’s dismissal of his counterclaims is upheld, the interpleader remedy will be transformed from one “designed merely to protect an innocent 16 stakeholder from being subject to having to pay out multiple claims” to one that “cloak[s] th[e] stakeholder in unfettered immunity from suit from all liability it may have incurred in dealing with claimants.” Hovis’s Br. 34. Our decision in no way turns the interpleader device into an all-purpose get-out-ofjail-free card. What we hold here is that where a stakeholder is blameless with respect to the existence of the ownership controversy, the bringing of an interpleader action protects it from liability to the claimants both for further claims to the stake and for any claims directly relating to its failure to resolve that controversy.5 That does not mean, for instance, that a stakeholder is free from liability for diminishing the value of the interpleaded stake simply because of the presence of an unrelated dispute as to who is its rightful owner. Cf. High Technology, 497 F.3d at 643 (holding that the existence of 5 We note as well that, where a stakeholder unreasonably delays in filing the interpleader action, that can itself constitute ground for denying it the right to bring that action. See Mendez v. Teachers Ins. & Annuity Assoc. and Coll. Ret. Equities Fund, 982 F.2d 783, 788 (2d Cir. 1992). And, even where no such unreasonable delay occurred, the stakeholder may (depending on the relevant state law requirements) be liable for prejudgment interest covering the period between when the funds became due to someone and when they were deposited with the court. See Atlin v. Security-Connecticut Life Ins. Co., 788 F.2d 139, 142 (3d Cir. 1986) (holding that bringing a valid interpleader action does not bar a state law claim for prejudgment interest where such interest accrues as a matter of right). 17 conflicting claims of entitlement to isotopes in the stakeholder’s possession did not immunize the stakeholder against potential liability for damage sustained by those isotopes while in its custody). Our decision here is even potentially consistent with holding a stakeholder liable for its investigation of ownership of the stake, at least where defects in its investigation can plausibly be blamed for the existence of the underlying ownership controversy. But that is not our case. The closest Hovis gets to alleging something of that nature is his contention that Prudential was negligent for failing to interview Shall while she was still alive. However, given both that Shall died a mere 31 days after the policy changes were made, and that it is not at all clear that speaking to her in her diminished state would have resolved the underlying controversy, we cannot say that Prudential’s failure to speak with her is to blame for the dispute over entitlement to the proceeds of her life insurance policy. We therefore hold that Prudential cannot be liable for failing to resolve the ownership controversy prior to bringing the interpleader complaint.