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In re $139

United States District Court, W.D. Arkansas, Fayetteville Division

February 22, 2017

IN RE $139, 000.00 IN INTERPLEADED FUNDS

          OPINION & ORDER

          TIMOTHY L. BROOKS DISTRICT JUDGE.

         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 Lo's, Litnirah Lo's, Simmon Lo's, and Soudchai Lo'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. Lo'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 guardian ad litem 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 litem 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:

• 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 Lo Parties get $25, 000.00 total, to be divided equally among them.
• The Minor Parties' guardian ad litem gets attorney's fees. The guardian ad litem, Curtis Hogue, lists a fee of $3, 375.00 and costs of $18.46.
• The balance of the funds are to be paid to Linda Saathsy and her attorney, Jeff. H. Watson.

         "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 ...


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