Maryland District Court Grants Insurer’s Motion to Dismiss Payee’s Counterclaims and Awards Attorney Fees in Interpleader
On July 1, 2015, the United States District Court for the District of Maryland issued an opinion granting Connecticut General Life Insurance Company’s (“CGLIC”) motion to dismiss a payee’s claims for breach of contract and fiduciary duty in what should have been a routine interpleader action. The court also awarded CGLIC attorney’s fees and costs to be paid out of the interpleader funds.
In the matter of Connecticut General Life Insurance Company v. Edward S. Feldman & Penn Mortgage Company, Inc., No. WMN-14-03670, 2015 U.S. Dist. LEXIS 85383 (D. Md. July 1, 2015), Edward S. Feldman received an annuity in 1984 in connection with the resolution of a personal injury claim (the “Annuity”). The Annuity provided for monthly payments to be made to Mr. Feldman, as well as four lump-sum payments (collectively, the “Periodic Payments”).
On August 16, 1989, Mr. Feldman assigned the Annuity to Penn Mortgage Company (“Penn”) as security for a loan (the “Assignment”). Under the terms of the Assignment, Mr. Feldman was to receive the monthly payments—unless he were to default on the loan, in which case all benefits under the Annuity would pass to Penn. The Assignment further provided that Mr. Feldman was not entitled to receive any payment other than the monthly payments until satisfaction of the loan.
In November 1989, Mr. Feldman defaulted on the loan. Penn revoked Mr. Feldman’s right to receive the monthly payments and demanded receipt of all Periodic Payments due under the Annuity until the loan was satisfied. CGLIC then began forwarding the monthly payments to Penn, as well as the lump-sum payments as they became due in 1994, 1999 and 2004.
In November 2014, CGLIC received correspondence from Penn indicating that Mr. Feldman’s loan had not yet been satisfied and demanding release of the final lump-sum payment. Then, three days before the final lump-sum payment was due, CGLIC received a letter from Mr. Feldman’s counsel requesting that CGLIC cease all payments to Penn, and asserting that Penn had never been entitled to receive the lump-sum payments under the terms of the Assignment.
As a result of the conflicting interests asserted by Penn and Mr. Feldman, CGLIC suspended all Periodic Payments under the Annuity beginning with the November 10, 2014, lump-sum payment, and filed a complaint for interpleader on November 21, 2014 (the “Complaint”). In response to the Complaint, Mr. Feldman filed two counterclaims for breach of contract and breach of fiduciary duty against CGLIC, alleging that CGLIC breached the terms of the Annuity and the Assignment, and breached its fiduciary duty to Mr. Feldman when it delivered the lump sum periodic payments to Penn.
On March 2, 2015, CGLIC filed a motion to dismiss on the ground that Mr. Feldman’s counterclaims failed to state a claim upon which relief could be granted. CGLIC also argued that Mr. Feldman’s claims were time-barred because the 1994, 1999 and 2004 payments were well outside of the three-year statute of limitations for breach of contract and breach of fiduciary duty actions brought in Maryland.
In its opinion, the Court found that CGLIC had not breached the terms of the Annuity, nor did it breach a fiduciary duty, by issuing payments to Penn instead of Mr. Feldman, because Penn assumed the entire benefit of CGLIC’s obligation under the Annuity when Mr. Feldman defaulted on the loan. Though the Court did not rule on CGLIC’s argument that Mr. Feldman’s claims were untimely, it noted that “if it were to reach the question of whether Mr. Feldman’s claims were time-barred, it would do so with a record that dates back twenty years.”
In addition, the Court found that CGLIC met the requirements to be considered an innocent stakeholder and awarded CGLIC its costs and reasonable attorneys’ fees to be paid out of the interpleader funds.