Opinion ID: 790531
Heading Depth: 3
Heading Rank: 1

Heading: First Trust

Text: 51
52 The district court held that First Trust had not engaged in bad faith or culpable conduct. We disagree. It is undisputed that First Trust filed in the wrong venue, failed to join Kay as a party even though it knew of her existence as a claimant, and then got embroiled in a dispute with the various claimants, which further entangled it in the litigation, by demanding that the claimants agree to stipulate that they be enjoined from asserting claims against First Trust relating to the funds deposited with the court. Had First Trust properly followed the interpleader procedures, sued in the proper venue, and impleaded all of the claimants of which it was aware, as it was legally obligated to do, it would not have gotten entangled in the litigation. 53 We can discern no valid reason why First Trust did not join Kay as a party since it clearly knew that she was the designee, as evidenced by its attachment to the complaint. 4 Furthermore, First Trust cannot excuse the fact that it proceeded as it did on the basis that it mistakenly believed that under a particular treasury regulation, Bryant's marriage to Brenda Bryant invalidated the earlier designation of his first wife as beneficiary; that is precisely the sort of determination which is supposed to be made in the course of litigation after the parties are interpled and First Trust, as disinterested stakeholder, is out of the case. 54 We also cannot fathom why First Trust did not join Kay once Brenda moved for her to be joined. Kay was needlessly put to the expense of having to move to intervene. More importantly, First Trust never offered an explanation for why it failed to join Kay as a defendant. Full disclosure in the complaint of her status as the designated beneficiary is simply not equivalent to joining her as a defendant, because it shifted the onus to Kay. Likewise, First Trust's decision not to oppose Kay's motion to intervene is not equivalent to joining her as a party, as First Trust lamely implies. At a minimum, First Trust is culpable for this pointless failure to add Kay initially and for repeatedly failing to correct it. 55 We also agree with Kay that the court abused its discretion by not basing its award on First Trust's failure to file in the proper venue. First Trust's contention that a request for attorney's fees transforms a purportedly disinterested stakeholder into a true claimant within the meaning of the interpleader statute is unreasonable. 5 First Trust did not file this action under ERISA, and indeed repeatedly disclaimed that it was a fiduciary under ERISA. For example, when Brenda filed her counterclaim against First Trust, it stated that it had not acted as a fiduciary when it filed the interpleader complaint. Furthermore, First Trust is a sophisticated entity, not unfamiliar with the concepts of interpleader, disinterested stakeholder, and claimant. 6 Finally, the venue provision of the interpleader statute is clear on its face. 7 56 First Trust's seemingly inexplicable litigation strategy may perhaps best be understood by the following letter sent by First Trust's counsel to counsel for Brenda and counsel for the sons on May 15, 1997: 57 As I have discussed with each of you, First Trust is willing to cooperate with you to reach an agreement whereby the case can be transferred from Colorado to the federal district court in Kentucky. This would eliminate the need for you to hire local counsel here in Colorado. My client is willing to agree to such a transfer, provided that (i) First Trust receives all of its attorneys' fees, (ii) the court enters a permanent injunction preventing any of the defendants from filing or pursuing any claims against First Trust in state or federal court, and (iii) First Trust is dismissed with prejudice from the interpleader action. I have reached such an agreement in other cases. I have enclosed copies of pleadings from another interpleader action, First Trust Corp. v. Olesko, which show the specifics of the agreement I am proposing. 58 We think the foregoing attempt to work a deal with Marvin's sons to voluntarily transfer venue to Kentucky in exchange for attorney's fees and a signed release dispels any assertion by First Trust that its actions were innocent and not calculated. Thus, its litigation tactics in this case cannot be dismissed as an honest mistake. See Foltice, 98 F.3d at 937 (stating that [h]onest mistakes are bound to happen from time to time, and fee awards are likely to have the deterrent effect where deliberate misconduct is in the offing). In light of this letter, First Trust's claim that it was merely seeking to extract itself from a complicated and potentially litigatious situation, given the multiple requests for distributions and conflicting court orders, is simply untenable. 59 Furthermore, although First Trust apparently sought fees under § 1132(g)(1), it has never identified any fault on Kay's part, even though the assets from which the district court deducted First Trust's attorney's fees were indisputably Kay's. In its request for fees, First Trust claimed that $56,000 in fees stem from litigation thrust upon it principally by the sons and Brenda. The trouble is that First Trust was already awarded attorney's fees against Brenda for fees incurred in litigating Brenda's counterclaim and those fees are not at issue in this appeal. All references to Brenda's counterclaim in First Trust's present fee request, therefore, are wholly irrelevant and disingenously presented. See id. (occasionally mentioning Brenda's counterclaim in reference to its request for fees from the assets earmarked for Kay). 60 As for fees incurred in litigating against the sons, First Trust remarkably appears to attribute these funds to litigation surrounding the venue issue in Colorado. See id. at 972-75. It strains credulity to consider even for a moment First Trust's argument that it should be awarded attorney's fees for litigation that inevitably resulted from its own obviously erroneous choice of forum. In any event, it cannot be contended that the litigation pursued by the sons-even if proven to be in bad faith (which First Trust did not demonstrate) — is an appropriate basis for an award of attorney's fees against Kay, rather than against the sons individually. 61
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64 These three factors also weigh against the district court's ruling requiring Kay to pay First Trust's attorney's fees. Kay demonstrated that she has a net worth of less than $500,000. There cannot possibly be any deterrent effect in awarding a fee against Kay, since Kay did nothing wrong. Kay merely sought benefits that were rightfully hers, and moreover, properly employed the judicial machinery in seeking the funds. See Gibbs, 210 F.3d at 505 (holding that district court erred in using deterrent factor as a sword to discourage beneficiaries from pursuing a claim, rather than as this factor was intended to be used, as a shield, to protect beneficiaries from the fear of having to pay to pursue an important ERISA claim in the event of failing to prevail). Further, the award to First Trust does not confer a common benefit, because First Trust is no longer the directed trustee of the Plan. 65
66 Quite simply, Kay prevailed — cleanly, unequivocally, and absolutely. First Trust has taken the losing position in virtually every significant issue involved in this case, from the venue matter to the valuation matter, to whether Kay should be joined, and even to advising the court on which claimant had superior rights to the benefits, 8 not to mention the fact that First Trust is aggressively seeking its attorney's fees when it knew or should have known from the outset that the source of reimbursement for its fees should be from the Trust Fund or the employer. Apart from merely filing the interpleader suit for a court to resolve the ownership dispute, First Trust cannot be said to have taken meritorious positions. 67 Furthermore, we cannot help but note the considerable inequity of extracting from Kay's benefits First Trust's attorney's fees that were related to virtually the entire proceedings in this case — fees that First Trust jacked up with numerous arguments, as this opinion reflects. Yet the district court made no attempt to limit fees when they were related to issues on which First Trust plainly lost, like the venue issue and the valuation issue, matters that did not even involve Kay because she was not a party until after the case had been transferred to Kentucky and she moved to intervene. 9 Indeed, the award of such substantial fees was particularly inequitable given that First Trust did not accuse Kay of improper conduct. The court seemed oblivious to the fact that First Trust was a sophisticated entity that could foresee and plan for interpleader suits, unlike Kay, an individual who likely initially had no knowledge of her rights under ERISA, probably did not know about the Plan, and had to hire an attorney to protect her interests. In awarding fees to First Trust, the court also seemed oblivious to the glaring omission by First Trust in failing to join Kay as a defendant, which undermined the very purpose of bringing an interpleader suit — to join all the claimants in one forum to avoid the vexation of multiple suits and liability for disbursing the funds to the wrong person. 68 Furthermore, in its May 19, 1999 fee request, First Trust claimed that $56,000 in fees stemmed from litigation thrust upon it principally by the sons and Brenda, not Kay. 69 In short, all of the equities favor Kay, and all five Foltice factors weigh against an award of attorney's fees to and costs to First Trust. We therefore hold that the district court abused its discretion in awarding any attorney's fees to First Trust. Had First Trust behaved as a truly disinterested stakeholder, it would have been reasonable to award it the $2700 in attorney's fees for the cost of bringing the interpleader action. However, given its actions throughout this litigation, we see no reason why First Trust should not be required to bear all of its own costs. 70 We now consider whether Kay was entitled to all of her attorney's fees.