United States District Court, E.D. Kentucky, Central Division
OPINION AND ORDER
E. Wier United States District Judge
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.
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). “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”).
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.
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.
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).
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).
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.
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,
“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. 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.
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”).
(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
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
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, ...