The Prudential Insurance Company of America v. Saathsy et al
OPINION AND ORDER deferring ruling on documents [26, 28 , 29 and 30 until Ms. Saathsy and her attorney produce their agreement. That agreement must be produced within 7 days from the entry of this order. Signed by Honorable Timothy L. Brooks on February 22, 2017. (tg)
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
IN RE $139,000.00 IN INTERPLEADED FUNDS
CASE NO. 5:16-CV-05092
OPINION & ORDER
Now before the Court are Nelson-Berna Funeral Home's ("Nelson-Berna") Motion
for Attorney Fees (Doc. 26) and Brief in Support (Doc. 27) , Linda Saathsy's Motion to
Approve Settlement and Release Funds Held in Registry (Doc. 28) , A.S .'s, a minor, and
L.S .'s, a minor (the "Minor Parties"), Motion to Approve Settlement (Doc. 29) , and Kanlaya
La's, Litnirah La's, Simmon La's, and Soudchai La's (the "Lo Parties") Motion to Approve
Settlement (Doc. 30) . In resolving these motions, the Court has also considered the
Report of A.S.'s and L.S .'s Guardian Ad Litem (Doc. 31) and the guardian's Billing
Summary (Doc. 32) . For the reasons stated below, the Court DEFERS RULING on the
pending motions. (Docs. 26 , 28 , 29 , and 30) .
This interpleader action was brought by The Prudential Insurance Company of
America , which has since been dismissed from the case , to determine the proper
beneficiary of a life insurance policy it issued to Khamhoung Lo . Mr. La's alleged domestic
partner, Linda Saathsy, and his adult children, the Lo Parties, both claimed to be the
appropriate beneficiary. Further, the Court has appointed a guard ian ad /item to represent
the interests of the Minor Parties , who are the children of Mr. Lo and Linda Saathsy.
Nelson-Berna also claims a right to a portion of the insurance proceeds per an insurance
assignment it entered into with Ms. Saathsy. (Doc. 1-3).
The insurance policy in question is governed by the Employee Retirement Income
Security Act ("ERISA"), giving this Court federal question jurisdiction over the matter. 28
U.S.C. § 1331 . The policy provides that when the insured does not designate a
beneficiary, its benefits are payable first to a surviving spouse or domestic partner, and
next to surviving children . (Doc. 1-1, p. 47) . The dispute between Ms. Saathsy and the Lo
Parties revolved around whether she would qualify as a domestic partner, and also
whether the domestic partner clause was contrary to Arkansas public policy. The Minor
Parties did not take a definitive position on the matter until their guardian ad /item issued
his Report, wherein he expressed the opinion that Ms. Saathsy qualifies as a domestic
partner, that Arkansas recognizes domestic partners, and that she is therefore entitled to
recover the life insurance proceeds. (Doc. 31) .
The parties have now advised the Court that they reached an agreement settling
this case. They are accordingly seeking the Court's approval of their settlement, and the
disbursement of the $139 ,000.00 in interpleaded funds (plus accumulated interest). The
terms of the settlement agreement are as follows :
The Lo Parties get $25,000 .00 total, to be divided equally among them .
The Minor Parties' guardian ad !item gets attorney's fees . The guardian ad !item ,
Curtis Hogue, lists a fee of $3,375 .00 and costs of $18.46 .
Nelson-Berna Funeral Home gets $9 ,017 .25, 1 plus attorney's fees . Counsel for
Nelson-Berna, Bob Estes, lists his fee as $2,991.96.
The balance of the funds are to be paid to Linda Saathsy and her attorney, Jeff. H.
The Court has already approved of an award in this amount to Nelson-Berna. (Doc. 23) .
"Normally, parties to a civil dispute can reach a money settlement among
themselves , bringing a case to an end without a court's approval or intervention." Eagan
by Keith v. Jackson , 855 F. Supp. 765 , 774 (E.D. Pa . 1994). In this instance, however,
the Court's authority and responsibility to review the settlement agreement comes from
its "special duty . .. to safeguard the interests of litigants who are minors ." Robidoux v.
Rosengren, 638 F.3d 1177, 1181 (9th Cir. 2011) . Some courts have opined that this duty
emanates from Federal Rule of Civil Procedure 17(c), which provides that a district court
must "appoint a guardian ad litem-or issue another appropriate order-to protect a minor
... who is unrepresented in an action. " See Robidoux, 638 F.3d at 1181 ; Oliva v. United
States, 2016 WL 7665536 , at *2 (W.D. Mich. Dec. 22, 2016), R & R adopted, 2017 WL
76914 (W.D. Mich . Jan . 9, 2017); Buchannan for T.B. v. Diversified Consultants, Inc.,
2014 WL 3907834, at *2 (D . Colo. May 8, 2014) . At least one court has disagreed with
this interpretation of Rule 17(c), and has instead relied on state law and "the Court's
inherent duty to protect the interests of minors . .. that come before it. " Eagan by Keith,
855 F. Supp . at 775. Regardless of whether the Court's authority derives from Rule 17(c)
or its inherent duty to protect minors who come before it, the Court is confident that the
authority exists, and that it has a coordinate obligation to exercise it.
In addition to the source of this authority, the reach of the Court's authority in this
arena is of some debate among federal courts. In Robidoux, the Ninth Circuit recognized
that "[i]n the context of proposed settlements in suits involving minor plaintiffs," a court
has a special duty to "conduct its own inquiry to determine whether the settlement serves
the best interests of the minor." 638 F.3d at 1181 . However, the Robidoux Court held that
this duty only means ensuring that "the net recovery of each minor plaintiff under the
proposed settlement is fair and reasonable ," id. at 1182, "without regard to the proportion
of the total settlement value designated for adult co-plaintiffs or plaintiffs' counsel-whose
interest the district court has no special duty to safeguard , id. (emphasis added) . Thus,
the district court erred "in rejecting the settlement on the basis that the provision of 56%
of the total settlement value for attorney's fees was 'excessive,' and thus the settlement
was not 'fair and reasonable' to the minor plaintiffs." Id. The fairness determination, per
the Robidoux Court, "is an independent, not a comparative , inquiry," and district courts
should consider the fairness of minors' recovery "in isolation ." Id.
The Fourth and Sixth Circuits , however, have expressed a broader conception of
courts' responsibilities in the context of attorney's fees and settlements involving minors.
In Dean v. Holiday Inns, Inc., the Sixth Circuit opined :
The interest of an attorney seeking to be awarded a fee from the settlement
proceeds effectuated for a minor must always , by the nature of the
relationship and the dependency of the minor, be in tension . When a court
is called upon to approve the settlement as is in the best interest of the
minor, it must consider and then determine what constitutes fair and
reasonable compensation to the attorney regardless of any agreement
specifying an amount, whether contingent or otherwise .
860 F.2d 670 , 673 (6th Cir. 1988). And, relying on Dean , the Fourth Circuit has described
"ascertaining whether attorney fee agreements involving minors or incompetents are
reasonable" as being "[i]ntegral" to a court's duty "to protect those who may be especially
vulnerable to manipulation or who may be unable to protect themselves." In re Abrams &
Abrams, P.A. , 605 F.3d 238 , 243 (4th Cir. 2010) . Most importantly, the Eighth Circuit has
expressed a broad view on courts' powers to review attorneys' fees , particularly when
minors are involved . In Little Rock School District v. Pulaski County Special School
District No. 1, the court declared as follows :
We are mindful of the limited scope of our review. We are dealing, as before,
with a settlement agreement, and such agreements are presumptively valid .
Courts, however, have broad inherent supervisory powers over attorneys
practicing before them . They may inquire into the fees charged by lawyers
and regulate or curtail them if necessary to protect clients from imposition
or to prevent otherwise unconscionable behavior. This is especially true in
class actions and cases involving plaintiffs who are minors.
921 F.2d 1371, 1391 (8th Cir. 1990) (internal citation omitted).
Given that at least three circuit courts, including most importantly the Eighth Circuit,
have held that the scope of a court's authority to review the reasonableness of attorneys'
fees is broad when minors are involved , the Court is confident it has the authority-and
the obligation-to do so in this case, Robidoux notwithstanding . Furthermore, the Court
believes that circumstances unique to this case make that obligation particularly pressing .
The parties' settlement agreement does not allocate any portion of the insurance
proceeds to the Minor Parties . Instead , their guardian ad !item has taken the position that
the Minor Parties' mother, Ms. Saathsy, would most likely prevail on the merits, and that
settling the matter with the Lo Parties is a reasonable compromise to end the litigation
before further legal costs are incurred. Because the Minor Parties are in the care and
custody of Ms. Saathsy, and because she is most likely to prevail on the merits, the
guardian ad /item suggests they will "reap the benefits of monies recovered" by Ms.
Saathsy. (Doc. 31 ,
9) . In other words , the Minor Parties' benefit in this settlement
agreement is directly tied to Ms. Saathsy's recovery. The attorneys' fees in this case, per
the settlement agreement, will be subtracted directly from Ms. Saathsy's portion of the
proceeds. Therefore, the Minor Parties' interests will be directly infringed upon if the
attorneys are permitted to recover fees in unreasonable amounts .
That justification for the Court's exercise of authority having been stated , the Court
will now make the following observations about this settlement agreement. First, the Court
believes that it is possible for a settlement agreement in which the Minor Parties do not
recover a direct financial benefit to nonetheless be in their best interests. If this case
proceeds to the dispositive motion stage (or beyond) , the amount of attorneys' fees will
increase substantially, depleting the value of the life insurance benefit by an equivalent
amount. There is tangible value to the Minor Parties in avoiding that result, particularly
when their mother (whose care they are in) will recover the lion's share of the proceeds.
However, the Court cannot make a determination as to whether the settlement agreement
is in the Minor Parties' best interest without first knowing the details of Ms. Saathsy's
agreement with her attorney. At the least, the Court has an obligation to ensure that her
attorney's fees are reasonable, else they unduly infringe upon the Minor Parties' interests.
Moreover, if their agreement is contingent upon the size of her recovery, then even if the
contingency fee is reasonable in isolation, it may alter the calculus of whether the
settlement agreement is in the Minor Parties' best interests.
To elaborate on this latter point, the Court has expressed some concern that the
settlement agreement does not give the Minor Parties the same recovery as the Lo
Parties, even though their claims to the insurance proceeds are equal in strength . The
value to the Minor Parties of obtaining a direct recovery , however, may very well be
outweighed by other interests, such as maximizing their mother's recovery, and avoiding
any costs that may be incident to maintaining two (relatively) low-value trust accounts .
But this is a decision the Court cannot make without accessing Ms. Saathsy's agreement
with her attorney. Accordingly, the Court ORDERS counsel for Ms. Saathsy to produce
to the Court a billing summary, or a contingency agreement, as applicable. The document
should be filed on the record, and may be filed under seal, if necessary.
Second, the fee award sought by counsel for Nelson-Berna is not reasonable .
Nelson-Berna was a party to this suit only to recover a debt of $9,017 .25 . At least by the
time of the case management hearing on August 8, 2016 , if not sooner, the parties were
in agreement that Nelson-Berna was entitled to this amount. Thus, the Court on August
17, 2016 ordered that Nelson-Berna recover $9 ,017 .75 and be dismissed without
prejudice. (Doc. 23). Given the minimal amount of work Nelson-Berna's counsel had to
do to effect his client's recovery, the elementary nature of the case, and the (relatively)
small sum in dispute, a fee of $2 ,991 .96-nearly 33% of the total at issue-is
unreasonable. Chrisco v. Sun Indus. , Inc., 304 Ark . 227 , 800 S.W.2d 717 (1990) . From
the Court's experience , the local rate awarded for the recovery of small uncontested debts
is typically no more than 15% of the sum recovered. Accordingly, if the Court eventually
expresses final approval of the settlement agreement, it will award Nelson-Berna an
attorney fee of no more than $1 ,352 .66-which is 15% of $9 ,017 .75.2
For these reasons , the Court must DEFER RULING on the pending motions until
Ms. Saathsy and her attorney produce their agreement. That agreement must be
produced within 7 DAYS from the entry of~ Order.
IT IS SO ORDERED on this U
day of Febr
ry 2017 .
This amount pertains to what Nelson-Berna's attorney, Mr. Estes , may be able to
recover from the interpleaded funds . The Court expresses no opinion on whether it may
be reasonable for him to seek additional payment from his client, as that matter has no
impact on the Minor Parties' interests.
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