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Home , Interpleader, Lawsuit

– What Are Your Options

Brenda M. Johnson is an attorney at Nurenberg, Paris, When The Tortfeasor’s Insurer Tries to Heller & McCarthy Co., LPA. She can be reached at Beat You To The Courthouse? 216.621.2300 or [email protected]. by Brenda M. Johnson

n the landmark case of State Farm Fire & Cas. are, however, very good arguments for allowing Co. v. Tashire,1 the Supreme plaintiffs to litigate their underlying claims ICourt observed that interpleader should not in a forum of their choosing, as opposed to one be used to compel tort plaintiffs to litigate claims selected by a tortfeasor’s liability insurer, even against an insured tortfeasor “in a single forum of when the interpleader action has been filed in an the company’s choosing.”2 This has not, Ohio . however, stopped liability insurers from turning to interpleader in cases where they anticipate that At least two state supreme have embraced multiple claims against one of their insureds will the United State Supreme Court’s reasoning in exceed policy limits. Tashire, and have held that a court cannot enjoin tort plaintiffs from litigating their tort Some insurers may do it because they think it claims in a forum of their own choosing, which will protect them from bad faith claims.3 Often, suggests that the jurisdictional priority rule is though, despite the Supreme Court’s observation not an absolute barrier to allowing plaintiffs to in Tashire, interpleader is an insurer’s preemptive file separate actions. Further support for this attempt to select the forum in situations where lies in the fact that the tort claims, if brought its insured would not have a right to do so. Either in the context of the interpleader action, would way, whenever there are multiple potential tort have to be alleged as cross-claims. Cross-claims plaintiffs and a potential with limited are permissive rather than compulsory, and thus insurance, there is a possibility that the insurer should not be subject to the jurisdictional priority will file an interpleader action with the eventual rule. aim of forcing the tort plaintiffs to litigate their claims in the context of that action, as opposed to I. Interpleader Was Not Designed a forum chosen by the plaintiffs. To Solve The Problems That Arise When A Tortfeasor Is Subject When this happens, you have options, but they To Multiple Claims depend on the forum in which the interpleader has been filed. If you are in federal court and the Interpleader, simply defined, “is where the tort claims can be heard in a state court, your says ‘I have a fund in my possession, in options are relatively favorable, since federal which I claim no personal interest, and to which courts generally will abstain from exercising you, the , set up conflicting claims; pay over the underlying tort claims in me my costs, and I will bring the fund into court, 4 favor of the tort plaintiff’s choice of forum. If and you shall contest it between yourselves.’” the interpleader action has been filed in state Having arisen as an , a party court, however, the situation is less clear. There seeking interpleader “must be free from blame

18 CATA NEWS • Spring 2018 CATA NEWS • Spring 2018 19 in causing the controversy, and where plaintiffs to litigate their tort claims II. Federal Courts Generally he stands as a wrongdoer with respect against the potential tort defendants, Defer To State Court to the subject matter of the suit or any including the truck driver, Greyhound, Proceedings To Decide The of the claimants, he cannot have relief and the bus driver, in the interpleader Underlying Tort Claims by interpleader.”5 This means that action.9 under traditional principles, while a Tashire establishes that federal courts tortfeasor’s insurer may be able to invoke The granted the , cannot enjoin the litigation tort the remedy, the tortfeasor cannot.6 which the Supreme Court ultimately claims outside of the confines of an held was in error, as it concluded that interpleader action.14 At some point In its modern form, interpleader the federal interpleader did not in an interpleader action, however, the involves two stages. In the first stage, authorize the district court to do so. court must determine the respective the court determines whether the rights of the claimants to the fund at As the Court observed in Tashire, the interpleader plaintiff, also referred issue. If the tort claims are pending in classic problem interpleader arose to to as the “stakeholder,” has properly other courts, this poses a problem that address was one “where a stakeholder, invoked interpleader (i.e., whether the Tashire does not address – namely, faced with rival claims to the fund itself, court has jurisdiction, whether there whether a district court should refrain acknowledges – or denies – his liability are conflicting claims to the fund from determining the rights of the to one or the other of the claimants.”10 at issue, and whether there are any parties to the fund at issue until their It is a remedy that in many ways was equitable considerations that might tort claims have been adjudicated in a designed to aid insurance companies – prevent the use of interpleader).7 If these forum of the tort plaintiffs’ choosing. requirements are met, the stakeholder but not by allowing liability insurers to will then deposit the fund with the select the forum for litigating tort claims The Supreme Court has not addressed court and be discharged from the action, against their insureds. this issue; however, in the spirit of Tashire, lower federal courts have retaining no further to direct Among other things, the Court noted 8 recognized that issues of judicial the disposition of the funds. that a liability insurer’s interest in economy, as well as issues of comity and an interpleader action, which is no Once the funds are deposited and the deference to the authority of state courts greater than its coverage limits, should stakeholder is discharged, the action to address state issues, weigh heavily not be allowed to determine where then proceeds to the second stage, which in favor of postponing the second phase tort plaintiffs bring their underlying involves determining the respective of interpleader when the underlying tort claims.11 In so doing, the Court observed rights of the claimants to the fund. claims are being litigated in state court. that the insurance problem interpleader The question this poses when liability Thus, federal courts will generally was intended to remedy “was that of insurance is involved is whether the invoke one of two doctrines under which an insurer faced with conflicting but parties can be compelled to litigate their a federal court can decline to exercise its mutually exclusive claims to a policy, underlying tort claims in the context of jurisdiction in deference to a concurrent rather than an insurer confronted with the interpleader action. In Tashire, the state court proceedings as a basis for the problem of allocating a fund among United States Supreme Court indicated staying the interpleader action until the various claimants whose independent that they should not. underlying tort actions have been fully claims may exceed the amount of the litigated. Tashire arose from a 1964 collision of a fund.”12 The Court also observed that pickup truck and a Greyhound bus in the insurer’s interest, which was confined In Brillhart v. Excess Ins. Co. of which two people were killed and over to the limits of its liability coverage, did America,15 and later in Wilton v. Seven thirty others were injured. When the not require the underlying tort claims Falls Co.,16 the Supreme Court held that first arising from the crash were to be litigated in a single forum, since it federal courts have discretion to decline filed in state court, State Farm (which would “receive[] full vindication when to hear a declaratory action had issued a $20,000 liability policy to the court restrains claimants from when there is another suit between the the pickup truck driver) filed a separate seeking to enforce against the insurance same parties pending in state court that interpleader action in federal district company any judgment obtained against presents the same issues of state law, and court. In a that would later be its insured, except in the interpleader a number of federal courts have applied joined by Greyhound, State Farm then proceeding itself.”13 this standard by analogy to interpleader sought to compel all potential tort actions.17 Others have applied the more

CATA NEWS • Spring 2018 19 rigorous “exceptional circumstances” jurisdictional priority rule have adopted to be brought as cross-claims between adopted by the the rationale in Tashire, in which the parties named as interpleader Supreme Court in Colorado River Water the U.S. Supreme Court held that defendants (presuming, of course, Conservation Dist. v. United States 18 to interpleader does not authorize a court that the liability insurer has named its interpleader actions, which can lead to a to enjoin potential claimants from insured as a defendant). Cross- claims similar result.19 separate tort actions. are permissive, not compulsory, which means the failure to bring such a claim 22 III. Ohio Law Is Less Clear, But In Oak Cas. Ins. Co. v. Lechliter, in one action does not normally preclude It Should Not Preclude Filing West Virginia’s highest court held that bringing it in a separate action later.27 Separate Tort Actions “in an interpleader action filed by an By the same reasoning, the tort claims insurance company seeking the orderly could also be brought in a separate Under Ohio law, interpleader is contest of insurance proceeds arising governed by Ohio’s Civil Rule 22, which action while the interpleader action is from automobile liability coverage, still pending. is similar to the federal rule on which which proceeds are insufficient to it is modeled, but there is very little cover all claims resulting from an Either way, applying the jurisdictional guidance in Ohio with respect accident involving its insured, the [trial priority rule in cases where a liability to its application in cases involving tort court] may not restrict an interpleader insurer has filed an interpleader action actions. That said, there are certain legal defendant’s right to file a against in one , when the tort plaintiffs principles that supply some guidance the insured tortfeasor to determine the wish to litigate in another, would serve as to how, and when, an Ohio court in liability of that person or entity for the none of the legitimate purposes on which which a interpleader action has been underlying accident.”23 In Club Exchange the rule is based. The purpose of the filed should address the underlying tort Corp. v. Searing,24 the Kansas Supreme jurisdictional priority rule is to prevent claims. Court reached a similar conclusion, a second court from interfering with The first question to address is whether albeit while acknowledging that, “[a]s a the resolution of issues that are already the jurisdictional priority rule plays a practical matter . . . where the principal pending before the court that first 28 role. This rule provides that “[a]s between target of the claimants, and the only obtained jurisdiction. However, as the courts of , the apparent source from which their U.S. Supreme Court noted in Tashire, whose power is first invoked claims may be satisfied, is the stake, all it is fundamentally unreasonable to by the institution of proper proceedings claims will no doubt be resolved in the allow a liability insurer whose interest 25 acquires jurisdiction, to the exclusion of interpleader action.” is confined to its policy limits to “wag all other , to adjudicate upon the dog” as far as forum selection is This suggests that the jurisdictional concerned, and compel tort plaintiffs the whole issue and to settle the rights priority rule should not operate as 20 to bring their underlying claims “in a of the parties.” Since the rule can apply a barrier to the subsequent filing of even when the causes of action are not single forum of the insurance company’s such actions. If the filing of separate choosing.”29 exactly the same, so long as “the suits tort actions cannot be restricted by 21 present part of the same ‘whole issue,’” an interpleader court, it follows that In light of these principles, the it raises a question as to whether another jurisdictional priority rule should not jurisdictional priority rule should not Ohio trial court would have authority to filing them either. automatically prevent bringing such consider the underlying tort claims in a claims in a separate action, nor would separate action if an interpleader action Second, an argument can be made that its application serve any of the purposes has already been filed. the jurisdictional priority rule has no to which the jurisdictional priority rule application in these cases, at least as Ohio courts have not addressed this is directed. As federal commentators far as the underlying tort claims are have noted, in most interpleader cases issue directly. There are good arguments, concerned. As courts in other states have however, that the jurisdictional priority of the type addressed in Tashire, noted, the jurisdictional priority rule “the stakeholder will be an insurance rule should not prevent a tort plaintiff serves the same purpose as , from litigating his or her claims in company that is simply seeking to and thus the same rules should apply in discharge its liability under a policy; as an action filed separately from the determining the applicability of each.26 interpleader action. a result, a cross-claim, which may be For the tort claims to be adjudicated in attempting to establish the tortfeasor’s First, at least two states that follow the the interpleader action, they would have liability above and beyond the fund,

20 CATA NEWS • Spring 2018 CATA NEWS • Spring 2018 21 typically will not be very closely related interpleader under 28 U.S.C. § 1335 only Notably, this rule applies only to actions to the interpleader claim.”30 requires what is known as minimal diversity, pending in different Ohio courts with i.e, diverse citizenship between at least two concurrent jurisdiction, and does not apply adverse claimants, and the amount at issue when an action is pending in another state. Finally, there is no procedural or can be as little as $500. The citizenship of See, e.g., Newman v. Martinez, 4th Dist. Pike jurisdictional rule that would preclude the stakeholder – the entity with the funds in No. 15CA857, 2016-Ohio-647. an Ohio court from staying the second question – is not relevant. Rule interpleader, 21. State ex rel. Otten v. Henderson, 129 Ohio stage of an interpleader action in order which is governed by Rule 22 of the Federal St.3d 453, 2011-Ohio-4082, ¶ 29, 953 Rules of , requires a separate N.E.2d 809. to allow the underlying tort claims to basis for jurisdiction, such as federal be tried in a forum of the tort plaintiffs’ question jurisdiction or conventional diversity 22. 206 W. Va. 349, 524 S.E.2d 704 (1999) choosing. This approach would satisfy jurisdiction. See Metropolitan Life Ins. Co. (following Tashire). v. Marsh, 119 F.3d 415 (6th Cir. 1997). 23. Id. at 356. the legitimate concerns of all parties, There is a split of authority as to whether as well as equally important issues of the stakeholder’s citizenship is relevant in 24. 222 Kan. 659, 567 P.2d 1353 (1977) (following Tashire). judicial efficiency and comity. ■ determining whether exists in rule interpleader cases. See UBS Fin 25. Id. at 665. Servs. v. Kaufman, No. 3:15-CV-00887-CRS, 26. Cruz v. FTS Construction, Inc,. 140 N.M. 284, End Notes 2016 U.S. Dist. LEXIS 74408 (W.D. Ky. June 2006-NMCA-109, ¶ 15, 142 P.3d 365 (N.M. 1. 386 U.S. 523 (1967). 8, 2016) (discussing split). Also, for purposes App. 2006). 2. 386 U.S. at 534. of diversity jurisdiction, the requirement is determined by the 27. See, e.g., SunTrust Bank v. Wagshul, 2d 3. See Jonathan M. Stern, Multiple Claims and value of the interpleader stake, as opposed Dist. Montgomery No. 25567, 2013-Ohio- Insufficient Limits, For The 19 (Sept. to the value of the claims against it. See 3931, ¶ 10 (cross-claims are permissive, and 2009) (discussing use of interpleader as a Brotherhood Mut. Ins. Co. v. United Apostolic failure to raise them does not have preclusive strategy to avoid bad faith liability). Lighthouse, Inc., 200 F. Supp.2d 689 (E.D. effect). 4. Aetna Ins. Co. v. Evans, 57 Fla. 311, 335, 49 Ky. 2002). 28. Michaels Bldg. Co. v. Cardinal Fed. Savings So. 57 (1909) (quoting Hoggart v. Cutts, 1 15. 316 U.S. 491 (1942). & Bank, 54 Ohio App.3d 180, 182 (8th Craig & P. 204). Dist. 1988). 16. 515 U.S. 277 (1995). 5. Farmers Irrigating Ditch & Reservoir Co. v. 29. Tashire, 386 U.S. at 535. Kane, 845 F.2d 229, 232 (10th Cir.1988) 17. See, e.g., Arnold v. KJD Real Estate, LLC, 30. Wright, Miller & Kane, 7 FEDERAL PRACTICE (“Our attention has not been directed to any 752 F.3d 700 (7th Cir. 2014) (Wilton-Brillhart & PROCEDURE Civil 3d § 1715, p. 644-645 case where a tortfeasor in a multi-claim tort abstention is applicable to interpleader (2001). can admit liability, tender into court a minimal actions involving claims that are the subject amount of money with the representation of parallel state court actions); National that such is all he has, force the claimants Union Fire Ins. Co. v. Karp, 108 F.3d 17 (2d to prorate the amount deposited, and then Cir. 1997) (court may dismiss or stay action obtain an order discharging him from any under Brillhart standards); NYLife Distributors, further liability for his tort.”). Inc. v. Adherence Group, Inc., 72 F.3d 371 (3d Cir. 1995) (Brillhart-Wilton standards 6. See Pan American Fire & Casualty Co. v. apply to determine whether to dismiss or Revere, 188 F. Supp. 474, 481-82 (E.D. La. stay statutory interpleader action in favor of 1960). parallel state court action); Great W. Cas. Co. 7. United States v. High Tech. Prods., 497 F.3d v. Frederics, No. 1:10cv267, 2011 U.S. Dist. 637, 639 (6th Cir. 2007). LEXIS 128211, 2011 WL 5326236 (W.D.N.C. Nov. 4, 2011) (same). 8. Id. Once an insurer interpleads the policy limits, it relinquishes any standing to direct 18. 424 U.S. 800 (1976). the eventual disposition of the funds. See 19. See, e.g., EMCASCO Ins. Co. v. Dairyland Mahoney v. Westfield Ins. Co., 124 Ohio Ins. Co., No. 03-4174-SAC, 2004 U.S. Dist. App.3d 639, 643, 707 N.E.2d 26 (10th Dist. LEXIS 6550, 2004 WL 838060 (D. Kan. 1997) (citing Atkinson v. Metropolitan Life Ins. March 4, 2004) (staying interpleader action Co., 114 Ohio St. 109, 150 N.E. 748 (1926)). on Colorado River grounds); Crider v. Taylor, 9. See Tashire at 526. No. 89-0001-R, 1989 U.S. Dist. LEXIS 18104 (W. D. Va. Nov. 13, 1989) (same); 10. Tashire, 386 U.S. at 534. but see Chaffe McCall, LLP v. World Trade 11. Id. at 535. Ctr. of New Orleans, No. 08-4432, 2009 U.S. Dist. LEXIS 14353 (E.D. La. Feb. 6, 12. Tashire at 533, n. 15. 2009) (denying abstention under Colorado 13. Id. at 535. River standard); W. Side Transp. v. APAC 14. Under federal law, there are two types of Miss., 237 F. Supp.2d 707 (S.D. Miss. 2002) interpleader – statutory interpleader and (same). rule interpleader – but the differences are 20. State ex rel. Phillips v. Polcar, 50 Ohio mainly jurisdictional in nature. Statutory St.2d 279, 364 N.E.2d 33 (1977), syllabus.

CATA NEWS • Spring 2018 21 NewsSpring 2018

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