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Union Security Insurance Co. v. Hockensmith

United States District Court, E.D. Kentucky, Central Division

February 4, 2019

UNION SECURITY INSURANCE COMPANY, Plaintiff,
v.
TIMOTHY HOCKENSMITH, et al., Defendants.

          OPINION AND ORDER

          Robert E. Wier United States District Judge

         Union Security Insurance Company (Union Security) moves for an award of “$20, 534.50 in fees incurred by [it] in the defense of the unmeritorious counterclaims and multiple motions filed by Defendants Timothy and Margarita Hockensmith.” DE #92 (Motion). The Hockensmiths opposed. DE #94 (Response). Union Security replied. DE #95 (Reply). The matter is ripe for consideration.

         The Court “has discretion to award costs and counsel fees to the stakeholder in an interpleader action . . . whenever it is fair and equitable to do so.” Holmes v. Artists Rights Enforcement Corp., 148 Fed.Appx. 252, 259 (6th Cir. 2005). Indeed, awarding reasonable attorney fees to “a disinterested ‘mere stakeholder' plaintiff” is the “general rule” under federal law. See Unum Life Ins. Co. of Am. v. Kelling, 170 F.Supp.2d 792, 793 (M.D. Tenn. 2001). “An interpleading party is entitled to recover costs and attorney's fees when it is (1) a disinterested stakeholder, (2) who has conceded liability, (3) has deposited the disputed funds into court, and (4) has sought a discharge from liability.” Holmes, 148 Fed.Appx. at 259; see also First Trust Corp. v. Bryant, 410 F.3d 842, 855-56 (6th Cir. 2005) (permitting attorney fee awards in interpleader cases under “the traditional equity rule”); Mutual Life Ins. Co. of N.Y. v. Bondurant, 27 F.2d 464, 465 (6th Cir. 1928).[1] “The only limiting principle is reasonableness, and it is at the discretion of the Court to determine what award is appropriate.” Holmes, 148 Fed.Appx. at 259 (affirming, under an abuse of discretion standard, an attorney fee award when the disinterested stakeholder “had no choice” to incur fees based on claimants' litigation decisions and “was forced to incur attorneys' fees and costs in order to extricate itself from the litigation”); see also Great Am. Life Ins. Co. v. Dixon, 20 F.Supp.3d 613, 619 (S.D. Ohio 2014) (characterizing Holmes as expressing the Circuit's “encouragement to allow insurance companies to deduct their attorneys' fees and expenses from the proceeds when equitable”).[2]

         Exercising the equitable discretion inherent in this inquiry, courts have fashioned “three separate theories” for potentially excluding insurance companies from an attorney fee award. See Kelling, 170 F.Supp.2d at 794. “First, courts have found . . . that insurance companies should not be compensated merely because conflicting claims to proceeds have arisen during the normal course of business.” Id. Second, “courts have exempted insurance companies from the general rule . . . because [they], by definition, are interested stakeholders; filing the interpleader action immunizes the company from further liability under the contested policy.” Id. Third, “some courts have exempted insurance companies from the general rule based on the policy argument that such an award would senselessly deplete the fund that is the subject of preservation through interpleader.” Id. at 795.

         Union Security undoubtedly meets, on this record, the Holmes test. It is a disinterested stakeholder, see DE #91, at ¶ 2, who conceded liability, see DE #1, at 6-7, deposited the disputed funds, see DE #21, and sought discharge, see DE ##1, at 7; 91, at ¶ 2. “Regardless of the legitimacy of any of the . . . competing claims, [Union Security] would still potentially [have been] subject to multiple lawsuits if [it] had made a decision to award benefits to only one of the claimants.” Kelling, 170 F.Supp.2d at 794. Union Security “clearly had no interest in which of the competing claimants received the fund paid into the Court. [It] made no claim to the policy and did not dispute the amount of the policy. By submitting the fund to this Court, [Union Security] preserved it for the benefit of the successful claimant.” Id. Union Security, thus, qualifies for a potential attorney fee award. The question then becomes whether the Court should, under the applicable standard, grant an award.

         Understanding the full case history is essential for this inquiry. Despite Union Security's status as a disinterested stakeholder, the Hockensmiths levied a counterclaim against it. See DE #10, at 3-5. The same day as filing an Answer, the Hockensmiths filed a dispositive motion (labeled “Motion for Judgment on the Pleadings, or in the Alternative, Summary Judgment”). See DE #11. Union Security was, thus, immediately forced to defend its interests. See DE ##17 (Motion to Dismiss Counterclaim), 18 (Response in opposition to DE #11), 27 (Reply in support of motion to dismiss counterclaim). The Hockensmiths, soon thereafter, moved for leave to amend the counterclaim. See DE #24. This necessitated more litigation by Union Security. See DE #28 (Response in opposition to DE #24). The Hockensmiths persisted. Just days afterward, they filed a separate “Motion to Dismiss Interpleader.” See DE #30. This too, following the trend, required Union Security to affirmatively defend. See DE #31 (Response in opposition to DE #30). Judge Reeves, ultimately, rejected the Hockensmiths' positions in every one of these filings. See DE #36 (Order denying DE #11, granting DE #17, denying DE #24, and denying DE #30).

         The case progressed, with Union Security's efforts primarily shifted toward securing proper service on certain foreign defendants. See also DE #95, at 5 (explaining the strategy). Union Security ultimately (and reasonably) moved to serve two defendants through alternative means. See DE #65. The Hockensmiths made the litigation choice to oppose this motion. See DE #66 (Response). This necessitated a lengthy, substantive reply in support of the motion. See DE #68. The Court ultimately granted the motion, rejecting (as above) the Hockensmiths' arguments. See DE #74 (Order).

         In the meantime, however, the Hockensmiths filed yet another dispositive motion. See DE #67 (“Motion to Dismiss, Motion for Summary Judgment, and Supporting Memorandum of Law”). To be sure, Judge Boom had permitted the Hockensmiths to file “a dispositive motion, ” DE #63, at ¶ 3, but DE #67 improperly sought, in part, to relitigate the propriety of interpleader, an issue Judge Reeves decided previously. This decision forced Union Security to file an extensive (but targeted) response, see generally DE #70; see also Id. at 1 n.1, and, later, an additional document, see DE #90. The Court, in a result mirroring the case history, eventually denied the improperly repetitive portion of DE #67. See DE #91, at ¶ 3.

         Return to the Kelling theories: First, the fee award Union Security seeks is not based on actions taken within “the normal course of business.” See Kelling, 170 F.Supp.2d at 794. To the contrary, the fees sought arise from the Hockensmiths' repetitive, unnecessary, and manifold filings. Union Security explicitly is not seeking fees that arose in the normal course of litigating an interpleader case. The unusual fees incurred due solely to the Hockensmiths' litigation decisions are not, in the Court's view, “simply part of doing business.” See Am. Gen. Life Ins. Co. v. Estate of Cook, No. 3:08-CV-204-R, 2009 WL 2447937, at *1 (W.D. Ky. Aug. 7, 2009). Costs associated with defending against an onslaught of unwarranted motions and imprudent counterclaims are not costs “Plaintiff can reasonably expect to incur” in this context. See Id. These circumstances, unlike those in, e.g., N.Y. Life Ins. Co. v. Terry, do “tip the equitable scales” and justify an attorney fee award. See No. 5:15-CV-353-HAI, 2017 WL 102965, at *6 (E.D. Ky. Jan. 10, 2017).

         Second, “courts have exempted insurance companies from the general rule . . . because [they], by definition, are interested stakeholders; filing the interpleader action immunizes the company from further liability under the contested policy.” See Kelling, 170 F.Supp.2d at 794. The Court rejects, on these facts, the persuasiveness of this theory. Unthinking application of this exemption would lead to blanket insurance company ineligibility for fee awards, which is not the law. Rather, this theory, rightly understood, targets potential fee awards that merely reimburse an insurance company for expenses normally incurred as part of a typical interpleader case or due to its own litigation decisions.[3] Union Security did not, in this case, incur the targeted fees concerning which it seeks reimbursement via the “self-serving interest” of “obtaining a court adjudication” in interpleader. See W. Life Ins. Co. v. Nanney, 290 F.Supp. 687, 688 (E.D. Tenn. 1968). Rather, Union Security incurred the fees due to the Hockensmiths' unusual, repetitive, and multiplicative litigation strategies. The Court would not, by denying Union Security an award here, advance a general desire to avoid reaping further benefit on an insurance company via a fee award, as the company simultaneously benefits via the protections of interpleader, when the Hockensmiths' affirmative actions-not the normal vicissitudes of litigating interpleader-particularly justify the award. These circumstances, in the Court's view, take the scenario outside the contemplation of Kelling's second exemption.

         Third, the policy argument that a fee award “would senselessly deplete the fund that is the subject of preservation through interpleader, ” Kelling, 170 F.Supp.2d at 795, likewise carries little weight here. The Hockensmiths have been on notice since the day the case began that Union Security would be seeking “costs and expenses incurred in bringing this action, together with reasonable attorneys' fees.” DE #1 (Complaint), at 7. Union Security did not shy from reminding the Hockensmiths of this at nearly every step of the case progression. See, e.g., DE ##17-1, at 8 n.3 (Union Security notifying the Hockensmiths that it may “seek fees in connection with . . . defending [their] Counterclaims”); 18, at 8 n.4 (same); 27, at 9 n.2 (same); 28, at 2 n.1 (same); 31, at 5; 68, at 6 n.3 (Union Security notifying the Hockensmiths that it may seek “its fees incurred in responding to the Hockensmiths['] repeated pleadings and motions”); 70, at 2 n.2 (Union Security notifying the Hockensmiths that it may “seek its reasonable fees and costs that have been incurred in the defense of the Hockensmiths' litigation”); 90, at 2 (Union Security “anticipating seeking an award of fees and costs because the Hockensmith[s] unnecessarily multiplied this litigation through filing counterclaims and multiple motions to which Plaintiff was forced to respond”).

         Ms. (and Mr.) Hockensmith, nevertheless, made the described litigation choices and sustained a steady filing barrage. Consequences result. See Ward v. Rawlake, No. 2:14-cv-848, 2015 WL 4755206, at *2 (S.D. Ohio Aug. 10, 2015) (noting the propriety of considering “whether the interpleader-plaintiff warned the other parties that it would seek attorneys' fees”). The Court clarifies that it would not lightly or routinely, in a run-of-the-mill, or “entirely unremarkable, ” interpleader case, endorse depriving the proper beneficiary of roughly (but still less than) half of the interpleaded amount. See Sun Life Assurance Co. v. Schindeldecker, No. 3:15-543, 2016 WL 699151, at *4 (M.D. Tenn. Jan. 26, 2016). However, this “procedurally tangled” case, see DE #74, at 1, involving the intensity of docket activity excerpted and other complicating factors described, properly justifies a fee award to Union Security. The Court does not “senselessly” deplete the interpleaded fund when the diminution is a result of the beneficiary's deliberate litigation decisions and repeatedly rejected substantive positions.

         At bottom, the decision is an equitable one. The Court, considering the totality, concludes that it should, on these facts, award Union Security a reasonable attorney fee. See, e.g., Holmes, 148 Fed.Appx. at 259 (affirming fee award when the stakeholder “had no choice” to incur fees based on claimants' litigation decisions and “was forced to incur attorneys' fees and costs in order to extricate itself from the litigation”); Allstate Life Ins. Co. v. Shaw, No. 15-11761, 2016 WL 1640461, at *6 (E.D. Mich. Apr. 26, 2016) (expressing conceptual agreement with awarding an insurer fees “associated with having to defend against Shaw's Counter-Complaint” in an interpleader context); Life Ins. Co. of N. Am. v. Simpson, No. 08-2446-STA, 2010 WL 3503961, at *2 (W.D. Tenn. Sept. 1, 2010) (awarding an insurance company attorney fees “related to the motion to dismiss” a claimant's counterclaim); Life Ins. Co. of N. Am. v. Bond, No. 1:11-cv-146, 2013 WL 12178133, at *8 (S.D. Ohio Feb. 5, 2013) (approving a fee award to “an innocent and otherwise disinterested stakeholder who has been required to expend time and money to participate in a dispute not of [its] own making, ” as the Hockensmiths here required Union Security); Midland Nat'l Life Ins. Co. v. Blocker, No. 1:11-CV-662, 2012 WL 3655287, at *2 (W.D. Mich. Aug. 23, 2012) (same); Nat'l Life Ins. Co. v. Alembik-Eisner, 582 F.Supp.2d 1362, 1371-72 (N.D.Ga. 2008) (awarding insurer attorney fees incurred, in part, while “defending against the Trustee's counterclaim”).

         Union Security qualifies under the Sixth Circuit's standard, and none of the factors that intra-Circuit district courts consider in this context militate against an award, in these circumstances. Thus, the Court holds that Union Security “is entitled to” and should receive an award, see Holmes, 148 Fed.Appx. at 259, ...


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