Sunday, February 15, 2015

No Cash on the Barrel-head, No Controversy, No Interpleader Jurisdiction

By E. King Poor
Partner, Quarles & Brady LLP

Subject matter jurisdiction over interpleader actions as well as the constitutional case-or-controversy requirement are at the center of a recent decision from the United States Court of Appeals for the Seventh Circuit. In State Farm Life Insurance Co. v. Jonas, __F.3d__, 2014 WL 7399115 (7th Cir. Dec. 31, 2014), a husband and wife named each other as beneficiaries of their life insurance policies. After they divorced, the policies remained in force and later the wife died. The husband then sought to collect the $1 million proceeds from his ex-wife’s policy. The insurer resisted paying because of its concerns that the couple’s children may have been the rightful beneficiaries under their mother’s policy. 

But under the Texas law that governed, an insurer that fails to pay within 60 days of receiving a claim may be assessed interest at 18% a year, plus attorney fees. The only way to avoid such interest and fees under Texas law was to bring an interpleader action, and the insurer did so in federal court. And because the couple’s children did not make a competing claim in this action, the district court ordered the insurer to pay the husband. Yet the husband was dissatisfied that the district court did not also award attorney fees and interest and appealed.

But the Seventh Circuit never reached the merits and dismissed the case for lack of jurisdiction. First, the court pointed out that, though the parties satisfied the “minimal diversity” requirement under the federal interpleader statute (28 U.S.C. § 1335), the insurer failed to meet the requirement that it actually pay the proceeds into the court’s registry. Because the statute requires, in the court’s words, “cash on the barrel-head,” no jurisdiction existed under the interpleader statute.

The Seventh Circuit next considered whether the interpleader action could, in the alternative, be maintained under the general diversity jurisdiction statute (28 U.S. C. § 1332). The parties met the requirements of complete diversity and the jurisdictional amount. But diversity jurisdiction still failed because there was no actual dispute to meet the case or controversy requirement of Article III of the Constitution. The court first noted that there was no competing claim to the proceeds, and the insurer not being “comfortable” paying the proceeds to the husband was not enough. 

The husband argued that there was a sufficient controversy because of the fees and interest that arose after he filed suit. That too failed because, “a case or controversy must exist when a suit begins — and on that date there was no live controversy.” The court stated that if disputes over attorney fees and interest “during litigation could create a justiciable controversy, then no case could be dismissed for lack of one,” since every prevailing party is entitled to some costs. Thus, the court concluded that a dispute over fees and interest arising during the litigation could not “retroactively create jurisdiction.”

Without the paid-in proceeds necessary for the statutory interpleader, and without a live controversy on the date when suit was filed, the Seventh Circuit vacated the district court’s judgment and dismissed the case for lack of subject matter jurisdiction.

Recommended Citation: E. King Poor, No Cash on the Barrel-head, No Controversy, No Interpleader JurisdictionThe Brief, (February 15, 2015),

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