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Sun Life Assurance Company of Canada (U.S.) v. Nelson

United States District Court, Eastern District of Arkansas, Pine Bluff Division

May 28, 2015

SUN LIFE ASSURANCE COMPANY OF CANADA U.S., n/k/a DELAWARE LIFE INSURANCE COMPANY PLAINTIFF
v.
JAMES L. NELSON; SHANNON D. NELSON; and JAMES W. NELSON DEFENDANTS JAMES L. NELSON COUNTER-CLAIMANT
v.
SUN LIFE ASSURANCE COMPANY OF CANADA U.S., n/k/a DELAWARE LIFE INSURANCE COMPANY COUNTER-DEFENDANT

OPINION AND ORDER

J. LEON HOLMES UNITED STATES DISTRICT JUDGE

On April 24, 2000, Sun Life issued to James L. Nelson an annuity contract in which he was designated as the participant and the annuitant. Document #1-1 at 4. His wife, Nellie R. Nelson, was designated as the beneficiary. Id. The annuity commencement date was June 1, 2031. Id. On or about February 8, 2011, James L. Nelson submitted forms to make Nellie R. Nelson a co-owner and to change the designated beneficiary to his sons, Shannon D. Nelson and James Wendell Nelson. Documents #1-3 and #1-4. Based upon those changes, the contract specifications page of the contract was changed to show that the “Owner” was James L. Nelson and Nellie R. Nelson, the “Annuitant” was James L. Nelson, and the “Beneficiary” was “multiple beneficiaries on file.” Document #10-1 at 5. On September 17, 2014, Nellie R. Nelson died. Document #1-6. Delaware Life sent a form to Shannon D. Nelson and James W. Nelson for them to disclaim any rights under the contract, but Shannon D. Nelson returned the form to Delaware Life stating that he declined to disclaim the benefits under the contract. Document #1-7. James L. Nelson then notified Delaware Life that he did not believe that the death benefit was payable and that he was electing to withdraw the full cash value of the contract. Document #1-8.

In response to what it deemed to be competing claims, Delaware Life filed its complaint for interpleader in this action, asking to interplead the proceeds of the contract into the registry of the Court and to be discharged from all liability under the contract. Delaware Life alleged that the contract provides a death benefit of $100, 000 and the parties are diverse in citizenship, [1] invoking this Court’s jurisdiction under 28 U.S.C. § 1335. James L. Nelson answered and filed a counterclaim for the full surrender value of the contract plus pre-judgment interest, a 12% penalty, and reasonable attorneys’ fees pursuant to Ark. Code Ann. § 23-79-208. Shannon D. Nelson and James W. Nelson have separately filed answers in which they assert claims to the benefits under the contract.

After the issues were joined, James L. Nelson filed a motion to dismiss the interpleader complaint on the ground that the death benefit is not currently payable under the contract, so there are no funds to be interpled. In turn, Delaware Life moved to dismiss the counterclaim on the grounds that it was and is faced with competing claims to the proceeds of the contract and therefore should not be subjected to a counterclaim. James L. Nelson argues that Delaware Life has no right to initiate this interpleader action because Delaware Life created the controversy by declaring the death benefit payable even though James L. Nelson, an owner, is still alive. Document #11 at 1 and 18 at 8. He argues that the contract unambiguously lists him as the owner and the death benefit is only payable upon the death of the owner. Document #11 at 4. Accordingly, James L. Nelson counterclaims that Delaware Life has breached the contract by not paying him the cash surrender value when demanded and also when it filed the interpleader action. Document #18 at 6. On the other hand, Delaware Life claims this is a “quintessential interpleader situation” because James L. Nelson claims there is no death benefit payable and the beneficiaries claim they are entitled to split the death benefit proceeds. Document #15 at 3. However, James L. Nelson claims he and the beneficiaries are not making claims on the same money. He is claiming the cash surrender value and they are claiming the death benefit proceeds. Document #18 at 7. In short, Delaware Life contends that an interpleader is justified; James L. Nelson contends that it is not.

“Interpleader is a procedural device whereby a party holding money or property concededly belonging to another may join in a single suit two or more parties asserting mutually exclusive claims to the fund. The stakeholder is thereby freed from the threat of multiple liability and/or [sic] vexation of multiple lawsuits.” Gaines v. Sunray Oil Co., 539 F.2d 1136, 1141 (8th Cir. 1976). The interpleader statute, 28 U.S.C. § 1335, and Federal Rule of Civil Procedure 22 “are designed to protect stakeholders not only from double or plural liability but also from duality or plurality of suits, and both the statute and the rules are to be construed liberally.” Dakota Livestock Co. v. Keim, 552 F.2d 1302, 1306 (8th Cir. 1977). “[T]he stakeholder should not be compelled to run the risk of guessing which claimant may recover from the fund.” 7 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1704 (3d ed. 2014). “[T]he normal rule is that interpleader protection does not extend to counterclaims that are not claims to the interpleaded funds.” Prudential Ins. Co. of America v. Hovis, 553 F.3d 258, 264 (3d Cir. 2009). “[W]here a stakeholder is allowed to bring an interpleader action, rather than choosing between adverse claimants, its failure to choose between the adverse claimants (rather than bringing an interpleader action) cannot itself be a breach of a legal duty.” Id. at 265. “Interpleader is justified only when the stakeholder has a real and reasonable fear of double liability or conflicting claims.” Aaron v. Mahl, 550 F.3d 659, 663 (7th Cir. 2008). Although the merits of the competing claims are determined only after a decision is made to allow the interpleader, an interpleader is not warranted unless the adverse claims “meet a ‘minimal threshold level of substantiality.’” Id. (quoting Indianapolis Colts v. Mayor and City Council of Baltimore, 741 F.2d 954, 958 (7th Cir. 1984). Deciding whether the competing claims here meet this minimum threshold of substantiality necessarily requires interpretation of the contract.

“When a contract is unambiguous, its construction is a question of law for [the] court.” Artman v. Hoy, 370 Ark. 131, 136, 257 S.W.3d 864, 869 (2007). Arkansas courts “apply three well-established principles of contract law.” Smith v. Arrington Oil & Gas, Inc., 664 F.3d 1208, 1212 (8th Cir. 2012) (quoting First Nat’l Bank of Crossett v. Griffin, 310 Ark. 164, 169, 832 S.W.2d 816, 819 (1992)). The first rule of interpreting a contract is to “ascertain and give effect to the intention of the parties.” Smith, 664 F.3d at 1212 (quoting Harris v. Stephens Prod. Co., 310 Ark. 67, 72, 832 S.W.2d 837, 840 (1992)). To determine the intention of the parties, Arkansas courts look to the contract as a whole and the circumstances surrounding its execution. Griffin, 310 Ark. at 170, 832 S.W.2d at 820. Second, in construing a contract, Arkansas courts “must consider the sense and meaning of the words used by the parties as they are taken and understood in their plain, ordinary meaning.” Id. at 169, 832 S.W.3d at 819 (quoting Farm Bureau Mut. Ins. Co. of Ark., Inc. v. Milburn, 269 Ark. 384, 386, 601 S.W.2d 841, 842 (1980)). Third, “different clauses of a contract must be read together and the contract construed so that all of its parts harmonize, if that is at all possible.” Griffin, 310 Ark. at 169-70, 832 S.W.2d at 819 (quoting Cont’l Cas. Co. v. Davidson, 250 Ark. 35, 41, 463 S.W.2d 652, 655 (1971)). “A construction that neutralizes any provision of a contract should never be adopted, if the contract can be construed to give effect to all provisions.” Tyson Foods, Inc. v. Archer, 356 Ark. 136, 144, 147 S.W.3d 681, 686 (2004).

“When contracting parties express their intention in a written instrument in clear and unambiguous language, it is the court’s duty to construe the writing in accordance with the plain meaning of the language employed.” Artman, 370 Ark. at 136-37, 257 S.W.3d at 869. “The initial determination of the existence of ambiguity rests with the court and, if the writing contains a term which is ambiguous, parol evidence is admissible and the meaning of the ambiguous term becomes a question of fact for the factfinder.” Griffin, 310 Ark. at 169, 832 S.W.2d at 819. Nonetheless, “[t]o arrive at the intention of the parties to a contract, courts may acquaint themselves with the persons and circumstances and place themselves in the same situation as the parties who made the contract.” Stokes v. Roberts, 289 Ark. 319, 323, 711 S.W.2d 757, 759 (1986). “Language in a contract is ambiguous when there is doubt or uncertainty as to its meaning or it is fairly susceptible of two interpretations.” Denton v. Pennington, 82 Ark.App. 179, 183, 119 S.W.3d 519, 521 (2003).

The basic provision of the contract provides:

[The Company] will pay an annuity commencing on the Annuity Commencement Date, by applying the adjusted value of the Accumulation Account in accordance with the settlement provisions. If the Owner dies while the Contract is in effect and before the Annuity Commencement Date, the Company may pay a Death Benefit to the Beneficiary upon receipt of Due Proof of Death of the Owner. Under certain circumstances, if the Owner dies prior to the Annuity Commencement Date, a distribution is required by law. This Contract is the legal Contract.

Document #1-1 at 1. The term “annuitant” is defined as follows:

The person or persons named on the Contract Specifications page on whose life the first annuity payment is to be made. If the Annuitant dies prior to the Annuity Commencement Date, the new Annuitant will be the Co-Annuitant, if any. If the Co-Annuitant dies or if no Co-Annuitant is named, the Owner becomes the Annuitant upon the Annuitant’s death prior to the Annuity Commencement Date.

Id. at 6. The term “owner” is defined as follows:

The person named in the Contract Specifications page who is entitled to exercise all rights and privileges of Ownership under the Contract. The Owner may designate a trustee or custodian of a retirement plan . . . but the term Owner, as used ...

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