Tag Archives: Interpleader

February 17, 2015

Tenth Circuit Clarifies Litigant’s Right to Pursue Non-Interpleader Claims Against Party Seeking Interpleader Relief

In its recent opinion in Aviva Life and Annuity Company v. White (In re: Millennium Multiple Employer Welfare Benefit Plan), 772 F.3d 634 (10th Cir. 2014), the Tenth Circuit clarified a litigant’s rights to continue to pursue claims against a party seeking the typical protections afforded when interpleading funds into the court’s registry.

Aviva Life and Annuity Company had issued certain insurance policies having significant cash to the Debtor, with the Debtor holding the policies for the collective benefit of all participants in the Millennium Multiple Employer Welfare Benefit Plan.  Prior to the Debtor’s bankruptcy filing, Jerald and Claudia White and Diogenes Holdings, Inc. (the “Whites”) were among a number of claimants who had brought suit against Aviva and the Debtor alleging Aviva and the Debtor had fraudulently induced them to enter into various Participation Agreements.  More specifically, the Whites’ suit alleged causes of action for fraud, negligent misrepresentation, civil conspiracy and violations of Tennessee statutes, accounting malpractice, breach of fiduciary duty, unjust enrichment and constructive and resulting trust. 

After the Debtor filed its bankruptcy petition, Aviva interplead the cash value of the insurance policies into the court registry when the bankruptcy trustee alleged the policies were property of Millennium’s bankruptcy estate.  In its interpleader, Aviva sought injunctive relief enjoining the Whites and other plan participants from “initiating or prosecuting any claims or proceedings against Aviva . . . which may affect [Aviva’s obligations under the insurance policies], in order to protect Aviva from further exposure to potential dual liability and multiple, vexatious litigation.”  The bankruptcy trustee distributed the proceeds of the insurance policies to creditors of the bankruptcy estate, including the Whites. 

Thereafter, the Whites moved to amend their complaint (which had been removed from state court to federal court) to dismiss their claims relating to ownership of the insurance policies but retaining their tort claims against Aviva.  Aviva petitioned the bankruptcy court to enjoin the Whites under 28 U.S.C. § 2361 from prosecuting their tort claims against Aviva, alleging the claims would expose Aviva to dual liability with respect to its obligations under the insurance policies.  The bankruptcy court issued an injunction preventing the Whites from asserting any claims to legal or equitable ownership of the insurance policies but denying injunctive relief as to the Whites’ tort claims.  Aviva perfected an appeal to the Tenth Circuit Court of Appeals.

The Tenth Circuit court began its analysis by stating that “Interpleader is a statutory remedy that offers ‘a party who fears being exposed to the vexation of defending multiple claims to a limited fund or property that is under his control a procedure to settle the controversy and satisfy his obligation in a single proceeding.’”  The federal interpleader statute found at 28 U.S.C. § 1335 provides such a person may file an interpleader action in federal court if he has in his possession property valued at $500 or more to which adverse claimants of diverse citizenship are claiming or may claim ownership.  If interpleader jurisdiction is appropriate, then the court is empowered to enjoin the adverse claimants from “instituting or prosecuting any proceeding . . . affecting the property.”  Reviewing these statutes, the court concluded that interpleader suits “are focused on adverse claims to a single, identifiable stake, or res, that is under the control of the interpleader plaintiff.”   As a result, the court concluded that a court’s injunctive powers are equally limited to enjoining adverse claims to the res.  The court went on to say, however, that an interpleader does not function as “an all-purpose bill of peace,” nor can it be used to “solve all the vexing problems of multiparty litigation.” 

The court held that injunctive relief for an interpleader plaintiff is restricted to adverse claims to the res, and that other claims which parties have against the interpleader plaintiff, such as the Whites’ tort claims, cannot be enjoined so long as those claims do not affect the property which has been interpleaded:  “Interpleader may not be used by the stakeholder as a weapon to defeat recovery from funds other than the one before the court.”  Since the White’s success on their tort claims against Aviva would not affect the insurance policies, the court held that the injunction issued in the interpleader action did not shield Aviva from the Whites’ tort claims.