Texas Life Insurance Company v. Ford et al

Filing 39

ORDER ADOPTING 38 REPORT AND RECOMMENDATIONS re: denying TLIC's Motion to Dismiss (Dkt 36 ), granting TLIC's Motion for Interpleader (Dkt 18 ), denying TLIC's Motion for Dismissal (Dkt 18 ), and granting Tasha Ford's Motion for Leave(Signed by Judge Keith P Ellison) Parties notified.(arrivera, 4)

United States District Court
Southern District of Texas

ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

January 13, 2017
David J. Bradley, Clerk

TEXAS LIFE INSURANCE CO.,
Stakeholder,
CIVIL ACTION NO. 4:16-cv-494

v.

Honorable Keith P. Ellison

TASHA L. FORD and RUTHIE M.
BROOKS,
Claimants.

MEMORANDUM AND ORDER ON MAGISTRATE JUDGE’S REPORT &
RECOMMENDATION
Before the Court are (i) Texas Life Insurance Company’s Objections to Magistrate’s
Report and Recommendation and (ii) Texas Life Insurance Company’s Motion to Dismiss.
I.

BACKGROUND
On May 15, 1998, Stakeholder Texas Life Insurance Company (“TLIC”) issued a life

insurance policy to Charles Edward Robinson, the father of Claimant Tasha Ford. At the time of
issuance, the policy named Claimant Ruthie Brooks as the sole and primary beneficiary.
On March 9, 2015, Robinson executed a power of attorney designating Ford as his
attorney-in-fact. On Robinson’s behalf, Ford then sent TLIC a change of beneficiary form to
designate herself as the sole beneficiary of Robinson’s life insurance policy. Ford apparently
omitted some necessary information from the form, however, and TLIC rejected the requested
change. Ford submitted a second form two weeks later, but TLIC again rejected the requested
change because Robinson’s power of attorney prohibited his attorney-in-fact (Ford) from naming
herself as a beneficiary of his life insurance policy.

1

On June 25, 2015, Ford submitted a third change of beneficiary form.

This time,

however, TLIC processed the request and sent Ford a letter dated July 14, 2015 confirming that
the change had been made. Accompanying the letter was an endorsement signed by TLIC’s vice
president, Michael Khoury. Ford alleges that she relied on the representations contained in those
letters—specifically, that she was the properly designated beneficiary of the life insurance
policy—and consequently believed that no further action was required.
Robinson passed away on November 15, 2015. Two days after Robinson’s demise, TLIC
sent Ford a letter withdrawing its acceptance of her June 25th change-of-beneficiary request.
Ford nonetheless made a claim on the proceeds of the policy, as did Brooks.
Faced with these competing claims on the proceeds of the life insurance policy, TLIC
filed a Complaint for Interpleader against Claimants Ruthie Brooks and Tasha Ford and
deposited the disputed proceeds of the insurance policy into the Registry of the Court. (Dkts. 1,
2, and 7.) TLIC then filed a Motion for Interpleader and Dismissal requesting that the Court (i)
dismiss TLIC as a party and discharge it from all further liability and (ii) make a judgment as to
who is entitled to receive the policy proceeds and release the funds accordingly. (Dkt. 18.)
On April 20, 2016, Ford’s attorney filed a Motion for Leave to File a Second Amended
Answer and Counterclaims against TLIC—Ford had filed two pro se answers prior to retaining
the assistance of counsel—and attached a proposed Second Amended Answer and Counterclaims
(“Proposed Amended Answer”). The Proposed Amended Answer alleges several counterclaims
against TLIC: breach of contract, multiple breaches of the Texas Insurance Code, and fraud.
TLIC opposed Ford’s motion for leave and filed a brief in response.
This Court referred both motions to Magistrate Judge Dena Palermo for a report and
recommendation. (Dkt. 28.) On October 21, 2016, Judge Palermo entered an “Order” granting

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Ford’s motion for leave, and concurrently set deadlines for Ford to file amended pleadings and
for TLIC to respond.1 (Dkt. 32 at 1.) Judge Palermo additionally entered a “recommendation”
that this Court grant TLIC’s motion for interpleader and deny its motion for dismissal. (Dkt. 32
at 1.) TLIC timely filed an objection to both the order and recommendation, and Ford filed a
response. In accordance with Judge Palermo’s scheduling order, Ford also filed her Third
Amended Answer and Counterclaims Against Texas Life Insurance Company,2 and TLIC moved
to dismiss Ford’s counterclaims.
II.

LEGAL STANDARDS
A district court that refers a case to a magistrate judge must review de novo any portions

of the magistrate judge’s proposed findings and recommendations to which the parties have filed
specific, written objection. Wilkins v. Nueces Cty. Texas, 2014 WL 2779530, at *1 (S.D. Tex.
June 19, 2014) (citing Fed. R. Civ. P. 72(b)). The district court may accept, reject, or modify, in
whole or in part, those portions of the proposed findings and recommendations. Id.
III.

ANALYSIS
A.

Objections to Judge Palermo’s Recommendations

TLIC raised two specific objections to Judge Palermo’s decision. First, TLIC argues that
Judge Palermo lacked the authority to enter an order on Ford’s motion for leave to amend. Judge
Palermo’s amended filing, however, renders this objection moot—it provides only a
recommendation as to Ford’s motion for leave rather than an order granting it. 3 (See Dkt. 38.)

1

Judge Palermo recently amended this filing to take the form of a recommendation rather
than an order.
2

Ford never filed a “second” amended complaint—her numbering has gone from “first” to
“third.” The reason for this is unclear.
3

Although motions for leave are non-dispositive motions on which magistrate judges
generally have the authority to rule, this Court referred the matter for report and recommendation
3

Second, TLIC objects to Judge Palermo’s recommendation that Ford’s motion for leave
be granted. According to TLIC, the counterclaims in Ford’s Proposed Amended Answer are
barred under the doctrine of interpleader, and the motion for leave should be denied on the
grounds of futility. The Court disagrees. As Judge Palermo correctly concluded, some—but not
all—of the counterclaims alleged in the Proposed Amended Answer are permissible in an
interpleader action (the “Permissible Counterclaims”),4 and TLIC’s objection is therefore
overruled.
“A traditional interpleader suit is an equitable action involving a disinterested plaintiffstakeholder who either is, or may be, exposed to multiple liability or multiple litigation over an
identifiable fund to which there are two or more mutually inconsistent claims.”

Westlake

Styrene, LLC v. United States, 2011 WL 643265, at *2 (S.D. Tex. Feb. 16, 2011) (citing Hussain
v. Boston Old Colony Ins. Co., 311 F.3d 623, 631 (5th Cir. 2002)). “Once the stakeholder joins
the claimants, a claimant may file a counterclaim against the stakeholder as an opposing party.”
New York Life Ins. Co. v. Deshotel, 142 F.3d 873, 881 (5th Cir. 1998). But not all counterclaims
against stakeholders are appropriate. “Claims against a stakeholder that are not independent of
the interpleaded fund, such as a claim that the stakeholder should have paid the fund to a
particular claimant rather than seek interpleader, are routinely dismissed because they would
deprive the stakeholder of the intended benefit of an interpleader action.” Westlake Styrene,

for the sake of administrative convenience. TLIC’s motion for dismissal and Ford’s motion for
leave to amend, which TLIC opposed on the grounds of futility, are both tied to the viability of
Ford’s counterclaims. Because the issues are so closely related, the Court wished to address
them together before any final determinations were entered.
4

The Proposed Amended Answer contains numerous counterclaims. Judge Palermo
concluded that TLIC failed to show that the counterclaims “surrounding [TLIC’s] July 14, 2015
letter approving the beneficiary designation change” are futile, and that leave to amend should be
granted with respect to those counterclaims. She also concluded, however, that “the other
proposed claims are [futile] and should not be asserted.” (Dkt. 38 at 6.) Ford has raised no
objection to Judge Palermo’s recommendation.
4

2011 WL 643265, at *2 (citing Met. Life Ins. Co. v. Barretto, 178 F.Supp.2d 745, 747–48 (S.D.
Tex. 2001)). Counterclaims that assert liability on the part of the stakeholder independent of the
counterclaimant’s rights to the disputed fund, however, may be asserted. Westlake Styrene, 2011
WL 643265 at *2 (citing Deshotel, 142 F.3d at 882).
TLIC argues that Ford’s counterclaims are futile because the claims are “based on the
contention that she is entitled to the policy proceeds,” and therefore are not independent of the
interpleaded fund.

(Dkt. 34 at 2.)

But TLIC misconstrues the nature of the Permissible

Counterclaims. Ford’s argument is not that she is entitled to the disputed policy proceeds;
instead, she argues that the misrepresentations in TLIC’s July 14th letter created the dispute
itself. Indeed, all of the conduct relevant to liability for the Permissible Counterclaims occurred
prior to July 14th—months before Ford’s and Brooks’s competing claims even arose.
Interpleader affords stakeholders no protection from this type of counterclaim. Lee v. W.
Coast Life Ins. Co. 688 F.3d 1004, 1014 (9th Cir. 2012) (“the federal interpleader remedy does
not shield a negligent stakeholder from tort liability for its creation of a conflict over entitlement
to the interpleaded funds”).5

To hold otherwise would expand the doctrine well past its

foundational principle. “The purpose of interpleader is to enable the plaintiff-stakeholder to
avoid . . . ‘multiple liability when only a single obligation is owing.’” Hussain v. Boston Old
Colony Ins. Co., 311 F.3d 623, 631 (5th Cir. 2002) (quoting Texas v. Florida, 306 U.S. 398, 412
(1939)) (emphasis added). But here, the alleged facts could give rise to multiple obligations.
Indeed, the central thesis of the Permissible Counterclaims is that, even if the life insurance
policy proceeds are properly payable to Brooks, TLIC is additionally obligated to compensate
Ford for the damages she suffered by, for example, relying on the company’s fraudulent

5

Judge Palermo discussed this factually similar case at length, yet TLIC failed to address the
case in its objections to her ruling.
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misrepresentation. Cf. White v. FDIC, 19 F.3d 249, 251 (5th Cir. 1994) (interpleader is a
“procedural device which entitles a person holding money or property . . . to join in a single suit
two or more persons asserting mutually exclusive claims to the fund”) (emphasis added);
Westlake Styrene, LLC v. United States, 2011 WL 643265, at *2 (S.D. Tex. Feb. 16, 2011) (“A
traditional interpleader suit is an equitable action involving a disinterested plaintiff-stakeholder
who either is, or may be, exposed to multiple liability or multiple litigation over an identifiable
fund to which there are two or more mutually inconsistent claims.”) (emphasis added).
Each of the cases to which TLIC cites is distinguishable on these grounds. For example,
in Underwriters Grp., Inc. v. Clear Creek Indep. Sch. Dist., the counterclaim “rest[ed] on the
contention that . . . interpleader was unnecessary [and the stakeholder acted in bad faith] because
it was evident that [the counterclaimant] was entitled to the funds.” 2006 WL 1852254, at *5
(S.D. Tex. June 30, 2006); see also Prudential Ins. Co. of Am. v. Hovis, 553 F.3d 258, 264–65
(3d Cir. 2009) (rejecting counterclaims because “each of Hovis’s counterclaims concern[ed]
Prudential’s failure to resolve its investigation in his favor and pay out the life insurance
proceeds to him.”). But here, Ford’s counterclaim is not dependent on her right to the disputed
funds—she can prevail on her claim even if Brooks is the proper recipient of the proceeds. If
anything, such a finding would enhance the compensatory damages to which Ford would be
entitled.

The Court therefore agrees with Judge Palermo’s conclusion that the proposed

counterclaims premised on TLIC’s alleged misrepresentations in the July 14, 2015 letter are
independent of the interpleader.6 TLIC’s objection is overruled.

6

For the avoidance of doubt, the Court is holding that the following counterclaims are
independent of the interpleader: (a) Ford’s claim that TLIC violated Texas Insurance Code §§
541.051(1)(A), 541.061(1), 541.061(3), and 541.060(a)(1) by falsely representing in the July
14th letter that Ford was the sole beneficiary of the life insurance policy; and (b) Ford’s claim for
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B.

TLIC’s Motion to Dismiss Ford’s Counterclaims

Following Judge Palermo’s order granting Ford’s motion for leave to amend, Ford filed
her “Third” Amended Answer and Counterclaims Against TLIC. TLIC then moved to dismiss
the counterclaims. Because Judge Palermo withdrew her order granting leave to amend, Ford’s
amended pleading is of no effect, and TLIC’s motion to dismiss is moot.
IV.

CONCLUSION AND ORDERS
Having reviewed the conclusions of law and recommendations set forth in the Magistrate

Judge’s Amended Report and Recommendation, as well as Defendant’s objections, Plaintiff’s
response, and all other relevant documents in the record, and having conducted a de novo review
of the portions of the Report and Recommendation to which objections were specifically
directed, the Court ADOPTS as its own the conclusions of the Magistrate Judge.
Accordingly, it is hereby ORDERED as follows:


TLIC’s Motion for Interpleader is GRANTED and its Motion for Dismissal is
DENIED;



Ford’s Motion for Leave to Amend is GRANTED subject to the holdings in this
this memorandum;

Ford must file her amended answer within 7 days of the issuance of this order. It is further
ORDERED that TLIC’s Motion to Dismiss is DENIED as moot.
IT IS SO ORDERED.
Signed this 13th day of January 2017.

Hon. Keith P. Ellison
United States District Judge

fraud. (See Proposed Amended Answer at ¶¶ 44-47 (alleging violations of the Texas Insurance
Code) and ¶¶ 56-63 (alleging fraud).)
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