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Cmfg Life Insurance Co. v. Schell

United States District Court, D. Maryland, Southern Division

December 22, 2014

WILLIAM A. SCHELL, JR., et al. Defendants.


GEORGE J. HAZEL, District Judge.

On October 11, 2013, Plaintiff CMFG Life Insurance Company ("CMFG Life") filed a Complaint in Interpleader naming Defendant William A. Schell, Jr., and Defendants Michelle M. Lee ("M. Lee"), Kim R. Lee ("K. Lee"), and Marc A. Brookins (collectively "Lee's Children") as potential beneficiaries. ECF No. 1. The Complaint was filed pursuant to 28 U.S.C. § 1335, requesting the Court order Defendants to answer and present their claims to an Annuity Contract worth $116, 787.24. Id. Lee's Children have filed counterclaims against CMFG Life for breach of contract, breach of the duty of good faith and fair dealing, and breach of fiduciary duty. ECF No. 11. Lee's Children also filed a crossclaim against Schell for breach of fiduciary duty, ECF No. 11, and Schell filed a crossclaim against Lee's Children for tortious interference of contract. ECF No. 25.

This Memorandum Opinion and accompanying Order address CMFG Life's Motion to Dismiss Counterclaim and Discharge Interpleader. ECF No. 38. Defendants have not opposed the motion and the time for doing so has passed. The Court also addresses Lee's Children's Motion to Dismiss Schell's crossclaim and for Summary Judgment on their crossclaim. ECF No. 29. This motion has been fully briefed. See ECF Nos. 29, 34, & 35. The Court finds that a hearing is unnecessary. See Local Rule 105.6. For the reasons stated below, CMFG Life's motion is GRANTED, and Lee's Children's motion is GRANTED, in part, and DENIED, in part.


Decedent Sandra B. Lee entered into an annuity contract with CMFG Life on April 15, 2003. ECF No. 1-1 (Annuity Contract). At that time, Lee designated four beneficiaries: her husband William A. Schell, Jr., and Lee's Children. Id. Section 4.2 of the Annuity Contract states "[y]ou may change the owner or beneficiary of this contract by written request any time while the annuitant is alive." ECF No. 1-1 at 4.2 (Annuity Contract). The request must be signed by the owner of the contract (the annuitant). Id. The annuitant is the "person... whose life... determines the income payment benefits payable under the contract and whose death determines the death benefit." Id.

On December 14, 2012, Lee died. On the same day, CMFG Life received a "Change of Beneficiary" form that named Schell as the sole beneficiary. ECF No. 1 at ¶ 8-9. Lee's signature is absent from the change of beneficiary form; Schell's is the only signature on the form. Id. at ¶ 9. According to Schell, he signed the change of beneficiary form pursuant to a Durable Power of Attorney for Financial Management ("DPA") agreement-making Schell Lee's attorney-infact which Lee signed on December 6, 2012. ECF No. 1 at ¶ 11; see also ECF No. 1-4 (Durable Power of Attorney for Financial Management). Under the agreement, an attorney-infact has the broad powers to handle the signatory's property during their lifetime. ECF No. 1-4 at 1. Section Se of the DPA permits the attorney-in-fact to modify insurance policies, id. at 4, however, Section 11 of the DPA provides that the "Attorney-in-Fact is not allowed to personally gain from any transaction he or she may complete on [Lee's] behalf." Id. at 7.

According to Schell, he faxed the change of beneficiary form on December 14, prior to Lee's passing, and then returned to the nursing home to be with his wife before she died. ECF No. 25 at ¶ 11. The fax of the change in beneficiary form is date stamped at 14:01, which is commonly understood as military time indicating 2:01 p.m. ECF No. 1-3 (Change of Beneficiary form). Lee died at 1:10 p.m. ECF No. 29-2 (Death Certificate).

After receiving the form, CMFG Life advised: "Our records show a beneficiary change was received by fax on December 14, 2012. However, since this form was not received and recorded prior to Lee's death we regret we are not able to approve the change." ECF No. 20 at ¶ 27. CMFG Life then received claim forms from Lee's Children. ECF No. 1 at ¶ 10. Schell advised CMFG Life that he was entitled to the entire benefit due to the change in beneficiary form and instructed CMFG Life not to pay Lee's children. Id. Unable to determine who was entitled to the benefit, CMFG Life filed this interpleader action on October 11, 2013. ECF No. 1 at ¶ 12.

Lee's Children filed an Answer, counterclaim against CMFG Life, and a crossclaim against Schell on November 19, 2013. ECF No. 11. Lee's children allege breach of contract against CMFG Life for failure to timely remit payment. Id. at ¶ 35-37. Lee's children also allege that CMFG Life breached both its fiduciary duty and its contractual duty to engage in good faith and fair dealing by failing to reject Schell's change in beneficiary form and not remitting payment to Lee's children. Id. at ¶ 43, ¶¶ 44-48. In their crossclaim against Schell, Lee's Children allege breach of fiduciary duty owed to Lee, claiming that Schell exceeded the grant of authority provided by the DPA when he made himself the sole beneficiary of the Annuity Contract. Id. at ¶¶ 55-63.

Schell filed his Answer and a crossclaim against Lee's children on April 24, 2014, stating that Lee's Children are seeking to deprive Schell of the annuity funds in interference with the contractual relationship between Schell and Lee, pursuant to the DPA. ECF Nos. 24 & 25. Lee's Children filed a Motion to Dismiss Schell's crossclaim and for summary judgment on their crossclaim on May 20, 2014. ECF No. 29. On August 21, 2014, CMFG Life filed a Motion to Dismiss Lee's Children's Counterclaim and Discharge Interpleader. ECF No. 38. None of the Defendants have responded to CMFG Life's motion.


28 U.S.C. § 1335 authorizes interpleader actions in federal court. Federal Rule of Civil Procedure 22 allows a party to file a claim for interpleader when confronted with "claims that may expose [that party] to double or multiple liability." That party, often called the "stakeholder, " will generally admit liability, deposit the fund with the court, and be permitted to withdraw from the proceedings. J.G. Wentworth Origination, LIE v. Mobley, 2012 WL 4922862 at *5 (D. Md. Oct. 12, 2012) (citing Prudential Life Ins. v. Hovis, 553 F.3d 258, 262 (3d Cir. 2007)). The purpose of an interpleader action is to protect the stakeholder against excessive litigation when there are multiple claims to a single stake. State Farm Fir & Cas. Co. v. Tashire, 386 U.S. 523, 534 (1967). Without interpleader actions, a stakeholder would be "left with the unappealing prospect of either choosing one claimant over the other and facing action by the disappointed suitor or holding the stake and awaiting suit by both." Commerce Funding Corp. v. Southern Financial Bank, 80 F.Supp.2d 582, 584-85 (RD. Va. 1999).

Although an interpleader action does not shield the stakeholder from counterclaims independent from a claim to the stake, permitting counterclaims against a stakeholder based primarily on an alleged entitlement to the interpleaded funds would defeat the purpose of an interpleader action. The interpleader action protects the stakeholder from any further claims to the stake and from any claims directly relating to its failure to resolve the controversy over who is entitled to the stake. See Prudential.Ins. Co. of America, 553 F.3d at 265. This is true so long as the stakeholder is faced with legitimate competing claims. See Commerce Funding Corp., 80 F.Supp.2d at 585-87.

For example, in interpleader action Prudential Ins. Co. of America, 553 F.3d at 261, one potential beneficiary of insurance proceeds filed a counterclaim against the insurer stakeholder. The potential beneficiary alleged breach of contract, negligence, breach of fiduciary duty, bad faith and unfair trade practices-all related to the stakeholder's failure to process a change in beneficiary form and failure to pay the policy proceeds to the potential beneficiary. Id. The Third Circuit found that the stakeholder was protected from these counterclaims because they concerned the insurer's failure to "resolve the investigation in [the potential beneficiary's] favor and pay out the life insurance proceeds to him." Id. at 264. See also ReliaStar Life Ins. Co. v. Lormand, 2011 WL 900113 at *5 (E.D. Va.) (dismissing counterclaim for breach of contract because stakeholder was protected from counterclaim based on the interpleaded funds); Commerce Funding Corp., 80 F.Supp.2d at 586 (dismissing counterclaim for breach of contract against stakeholder because party's argument that stakeholder should have turned over the funds to the party was "precisely the ...

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