The Effect of Interpleader on a Counterclaim

April 9, 2018 § Leave a comment

We posted previously about the COA’s decision in Pulliam v. Alfa Ins. Co. and Nance, in which the court upheld a chancellor’s decision that C.D. Pulliam had no authority to change the ownership and beneficiary of a life insurance policy owned by his deceased daughter.

Another issue raised by Mr. Pulliam on appeal is whether the chancellor erred in ruling that his counterclaim was rendered moot when the court approved the interpleader by Alfa. The question is whether the trial court’s granting of the request to interplead funds operates as a release of the interpleader’s liability as to the funds. C.D. had claimed that the litigation, including the interpleader, was made necessary by Alfa’s own negligence and misconduct. Did the interpleader act to absolve Alfa of any wrongdoing?

Judge Wilson wrote the COA’s unanimous opinion on the issue:

 ¶13. Mississippi Rule of Civil Procedure 22 permits a plaintiff to file a complaint for interpleader and join as defendants “[p]ersons having claims against the plaintiff . . . when their claims are such that the plaintiff is or may be exposed to double or multiple liability.” M.R.C.P. 22(a). “Any party seeking interpleader . . . may deposit with the court the amount claimed, . . . and the court may thereupon order such party discharged from liability as to such claims and the action shall continue as between the claimants of such money . . . .” M.R.C.P. 22(b). Interpleader protects a stakeholder subject to competing claims to identifiable funds “from being obligated to determine at his peril which claimant has the better claim.” M.R.C.P. 22 cmt. “[A]nd, when the stakeholder himself has no interest in the fund, [interpleader] forces the claimants to contest what essentially is a controversy between them without embroiling the stakeholder in the litigation over the merits of the respective claims.” Id. “The primary test for determining the propriety of interpleading the adverse claimants and discharging the stakeholder is whether the stakeholder legitimately fears
multiple vexations directed against a single fund.” Id.

¶14. “Ordinarily, interpleader is conducted in two ‘stages.’” Id. In the first stage, the court determines “whether the plaintiff is entitled to interplead the defendants,” and in the second stage, the court determines who is entitled to the interpled funds. Id. Alfa has admitted from the outset of this litigation that the beneficiary of the subject life insurance policy is entitled to its proceeds, which Alfa deposited with the chancery court. And Alfa’s complaint only asked the chancery court to identify the proper beneficiary or beneficiaries under the policy. Therefore, Alfa emphasizes that its role should be limited to the “first stage” of the interpleader action.

¶15. We have no difficulty affirming the chancery court’s determination that Alfa was entitled to interplead the defendants. Indeed, this case presents a common, well-recognized scenario in which interpleader is appropriate. See, e.g., Jeffrey Jackson & Jason D. Childress, Mississippi Insurance Law and Practice § 19:12 (3d ed. 2017) (“A life insurer that is uncertain regarding to whom policy proceeds should be paid may interplead the competing claimants and tender the policy proceeds to the court.”);  7 Charles Alan Wright, Arthur R. Miller et al., Federal Practice and Procedure § 1705 (3d ed. 2001) (“Typical examples involve multiple claims against a life-insurance company for the proceeds of a policy that
focus on an attempted change of beneficiary . . . .”). Alfa legitimately feared multiple liability based on competing claims to the same life insurance proceeds. Therefore, interpleader was appropriate. See M.R.C.P. 22(a) & cmt.

¶16. On appeal, C.D. argues that interpleader is not appropriate because Alfa has “unclean hands.” By “unclean hands,” C.D. means that Alfa’s alleged tortious conduct is responsible for the failure of his attempt to change the ownership and beneficiaries of the policy—or perhaps that Alfa induced him to pay premiums on a policy that he did not own. However, C.D.’s allegations—even if true—are not a defense to Alfa’s interpleader complaint.

¶17. C.D.’s argument harkens back to the “historical requirements” for “equitable interpleader.” First Nat’l Bank of Vicksburg v. Middleton, 480 So. 2d 1153, 1155 (Miss. 1985). “Historically”—that is, prior to the adoption of the Mississippi Rules of Civil Procedure—“equitable interpleader ha[d] four requirements,” one of which was that the party seeking interpleader “must have incurred no independent liability to either of the claimants.” Id. (quoting V.A. Griffith, Mississippi Chancery Practice § 23 (2d ed. 1950)). However, our Supreme Court held that “Rule 22 of the Mississippi Rules of Civil Procedure . . . terminated the historical requirements for interpleader in the chancery courts,” including the no
independent-liability requirement. Id. at 1155, 1156-57. The Court explained that Rule 22 was “designed to eliminate the technicalities which formerly limited the use of interpleader, and thereunder interpleader is available to cover any situation of exposure to multiple liability under the procedure outlined in the rule.” Id. at 1156 (emphasis added) (quoting 48 C.J.S. Interpleader § 5, at 125-26 (1981)). Rule 22 is to be applied “liberally” and not subjected to “technical” limitations, “and any doubts should be resolved in favor of permitting an interpleader action to lie.” Id. Rule 22 “interpleader is a procedural device” “directed toward increasing the availability of interpleader.” Id. Its availability is not subject
to the equitable doctrine of unclean hands. Because interpleader was appropriate, and because Alfa deposited the full amount of the life insurance proceeds with the court, the chancery court appropriately released and discharged Alfa from any liability under the policy and as to the interpled funds. See M.R.C.P. 22(b) & cmt.

¶18. However, C.D.’s counterclaims against Alfa present a different issue. To begin with, it is clear that counterclaims are permissible in an interpleader action. See Robertson v. La Linda Inc., 548 So. 2d 1308, 1311-12 (Miss. 1989); Middleton, 480 So. 2d at 1156-57; M.R.C.P. 22 cmt. (explaining that counterclaims by a claimant against the party that initiated the interpleader may be litigated in the second or third stage of an interpleader action); James W. Shelson, Mississippi Chancery Practice § 17:3 (2017) (“All . . . counterclaims . . . are appropriate for a resolution in the course of the interpleader proceedings, and the court will be in error if it refuses to entertain and decide all claims.”); see also Kentucky Cent. Life Ins. v. Vollenweider, 844 S.W.2d 460, 461 (Mo. Ct. App. 1992) (interpleader action to determine rights to proceeds from life insurance policy; one claimant counterclaimed against insurer for misleading the insured “on how to go about changing ownership of the policy”; the appellate court noted that the counterclaim had been stayed pending appeal).

¶19. In this case, Alfa’s motion for summary judgment in the chancery court did not directly address C.D.’s counterclaims. Rather, Alfa’s motion addressed the availability of the interpleader procedure and Alfa’s liability under the insurance policy as to the interpled funds (the proceeds of the policy). Moreover, it is clear that the chancery court’s order granting summary judgment to Alfa did not address the merits of C.D.’s counterclaims. The court’s order expressly stated that C.D.’s countercomplaint was “dismissed as moot.”

¶20. C.D.’s independent claims against Alfa for negligence, fraud, and other torts may or may not have any merit. No court has addressed that issue, which is not before us on appeal. However, C.D.’s counterclaims are not “moot.” They are separate and independent tort claims against Alfa. Moreover, Alfa’s discharge from liability under the terms of the insurance policy did not terminate or bar C.D.’s tort claims. C.D. properly asserted these claims as counterclaims in the interpleader action, and the chancery court’s refusal to entertain the claims was in error. See supra ¶18.

¶21. On appeal, Alfa argues that C.D.’s counterclaims involve distinct issues of fact and law and, thus, are only “permissive counterclaims,” not “compulsory counterclaims.” Alfa also predicts that C.D. “would likely seek discovery as to Alfa and its agents were [he] to proceed on [his] negligence claim.” Alfa argues that, for these reasons, C.D.’s counterclaims “were properly dismissed as moot.” However, characterization of the counterclaims as “permissive” or “compulsory” is irrelevant to the issues in this appeal. Even assuming (solely for the sake of argument) that the counterclaims were not compulsory, that does not render the claims “moot.” Again, C.D. was entitled, under Mississippi Rules of Civil Procedure 13 and 22, to assert counterclaims against Alfa in this interpleader action. That being the case, it was error for the chancery court to dismiss the claims as “moot.”

¶22. In summary, with respect to Alfa, we affirm the judgment of the chancery court insofar as the court permitted Alfa to interplead the defendants and discharged Alfa from liability under the policy and with regard to the interpled funds. However, we reverse and remand the judgment of the chancery court insofar as it dismissed C.D.’s counterclaims against Alfa as “moot.” …

The court, then, goes on to affirm the chancellor’s ruling that C.D. had no authority to change ownership or the beneficiary of the policy. Does that not render His counterclaim moot, since it charged

” … breach of contract, breach of the duty of good faith and fair dealing, negligence, gross negligence, bad faith failure to adjust and pay an insurance claim, tortious breach of contract, and punitive damages. C.D.’s countercomplaint generally alleged, among other things, that he
had paid all premiums on the policy after Annie’s death, that Alfa’s agents or employees had filled out the change-of-ownership forms for him, and that any mistake in making the change of ownership and designation of new beneficiaries was the result of Alfa’s tortious conduct.” (¶7)?

If C.D. had no power to change ownership or the beneficiary, how was he injured by Alfa’s negligent or even willful failure and refusal to allow him to do so?


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