AmGuard Insurance Company v. SG Patel and Sons II LLC ( 2021 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 20-1246
AMGUARD INSURANCE COMPANY,
Plaintiff - Appellant,
v.
SG PATEL AND SONS II LLC; STEVEN RENEW, individually as parent of
Matthew Renew and as personal representative of the Estate of Matthew Renew;
STEPHANIE RENEW, individually and as parent of Matthew Renew and as
personal representative of the Estate of Matthew Renew; LUKE PICKERING;
BRITTIN RAY; MICHAEL A. EDWARDS; BRIAN GIBSON; JOHN DOES 1-50;
JOHN DOES INC 1 - 50; JOHN DOES LLC 1-50,
Defendants - Appellees.
Appeal from the United States District Court for the District of South Carolina, at
Orangeburg. J. Michelle Childs, District Judge. (5:19-cv-00635-JMC)
Argued: May 6, 2021 Decided: June 7, 2021
Before NIEMEYER, FLOYD, and RUSHING, Circuit Judges.
Reversed and remanded by published opinion. Judge Niemeyer wrote the opinion, in
which Judge Floyd and Judge Rushing joined.
ARGUED: Crystal L. Maluchnik, JANIK L.L.P., Hilton Head Island, South Carolina, for
Appellant. Justin Tyler Bamberg, BAMBERG LEGAL, Bamberg, South Carolina, for
Appellees. ON BRIEF: Steven G. Janik, JANIK L.L.P., Hilton Head Island, South
Carolina, for Appellant. J. Martin Harvey, Barnwell, South Carolina, for Appellees.
NIEMEYER, Circuit Judge:
This appeal presents the question of whether the district court had subject matter
jurisdiction over an interpleader action commenced by a liability insurance company,
whose policy was exposed to conflicting and excess claims.
Facing numerous claims made against its insured — a convenience store — that
exceeded the policy limits, AmGuard Insurance Company, a Pennsylvania corporation
with its principal place of business in Pennsylvania, commenced this action in the nature
of an interpleader and for a declaratory judgment against its insured and the claimants to
the proceeds of its policy, all of whom were South Carolina citizens. For the interpleader
claim, AmGuard relied on 28 U.S.C. § 1335 (statutory interpleader), and for its declaratory
judgment claim, it relied on 28 U.S.C. § 2201 (creating the declaratory judgment remedy)
and 28 U.S.C. § 1332 (establishing diversity jurisdiction). Sua sponte, the district court
dismissed the action for lack of subject matter jurisdiction on the ground that no diversity
of citizenship existed among the claimants to the AmGuard policy, as required by § 1335(a)
(providing jurisdiction in interpleader actions when “[t]wo or more adverse claimants, of
diverse citizenship[,] . . . may claim to be entitled to [a policy’s proceeds]”). The court did
not address AmGuard’s request for a declaratory judgment and dismissed the action in its
entirety.
Because AmGuard disputed the amount that the claimants maintained was available
under AmGuard’s policy, having acknowledged coverage for only a lesser amount, we
conclude that it was a “claimant” adverse to the other claimants to the proceeds of the
policy, and accordingly, the diverse citizenship between AmGuard and the South Carolina
2
claimants provided the district court with the minimal diversity needed for jurisdiction
under § 1335. We therefore reverse and remand for further proceedings.
I
On Friday evening, July 13, 2018, one of a group of five underage teenagers
purchased beer at the “Quick & Easy” convenience store in Barnwell County, South
Carolina, which was owned by SG Patel and Sons II LLC, and the five began drinking the
beer on the premises. Later that evening — in the early morning hours of July 14 — the
five were in a car that was being driven by one of them who was under 18, “severely
intoxicated,” and driving too fast. Unable to negotiate a bend in the road, the driver crashed
into a concrete loading dock, killing one passenger and severely injuring the other four
occupants. The five occupants (the deceased through his estate) made claims against the
convenience store and AmGuard, its insurer, asserting that the convenience store was liable
for their injuries in selling beer to an underaged person. They claimed that their damages
far exceeded the policy limits of the AmGuard liability insurance policy issued to the
convenience store.
By a letter to AmGuard dated February 14, 2019, the five claimants sought to lay
the foundation for a bad-faith claim against the insurance company, as recognized in Tyger
River Pine Co. v. Maryland Casualty Co., 170 S.E. 346, 348 (S.C. 1933) (recognizing a
bad-faith claim against an insurance company for damages in excess of policy limits). The
letter demanded that AmGuard settle with the five claimants for $3 million — the amount
they claimed was payable under AmGuard’s policy — and stated that the offer would be
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“immediately and irrevocably withdrawn” after five days. The letter also warned that after
the offer was withdrawn, the claimants would file suit seeking damages against the
convenience store “in excess of the available policy limits.” The letter noted that in a
neighboring county, a jury had recently returned a verdict of over $25 million against a
convenience store that had sold beer to minors, resulting in an accident.
The policy that AmGuard issued to Patel had liability limits of $1 million for each
occurrence and $2 million in the general aggregate for all occurrences, and liquor liability
limits of $500,000 for each common cause and $1 million in the aggregate. The policy
provided that the $500,000 figure was “the most [AmGuard] [would] pay for all ‘bodily
injury’ and ‘property damage’ sustained by one or more persons or organizations as the
result of the selling, serving or furnishing of alcoholic beverages to any one person.”
Following receipt of the claimants’ letter, AmGuard took the position that the
$500,000 liquor liability limit applied and was the maximum for which it could be liable
under the policy. Accordingly, it commenced this action against Patel and the five
claimants for a declaratory judgment to resolve the dispute over policy limits, for
interpleader to have the court distribute the policy limits among the five claimants, and for
an injunction protecting it from further claims with respect to the occurrence. In particular,
the complaint sought a declaratory judgment under 28 U.S.C. § 2201, requesting the court
to “declare the rights and legal relations of the Parties to . . . these proceedings” and
asserting that AmGuard provided coverage of only $500,000 under the liquor liability limit.
It also sought interpleader under 28 U.S.C. § 1335, requesting an order authorizing
AmGuard to deposit $500,000 into the registry of the court and post a bond for the
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additional $2.5 million in dispute, bringing the total to $3 million, “which is the maximum
sum sought by Defendants in connection with the Accident.” Finally, the complaint sought
court orders requiring the defendants to interplead with respect to the deposited sum and,
pursuant to 28 U.S.C. § 2361, restraining the defendants from instituting or prosecuting
any other proceeding against AmGuard “in any State or United States court affecting the
Policy’s proceeds, obligations and/or issues involved in this interpleader action.”
In alleging jurisdiction, the complaint asserted that AmGuard was a corporation
organized under the laws of Pennsylvania with its principal place of business in
Pennsylvania; that Patel was a limited liability company organized under the laws of South
Carolina with its principal place of business in South Carolina; that the five claimants were
citizens and residents of South Carolina; and that the amount in controversy exceeded
$75,000. On those allegations, it alleged that the court had subject matter jurisdiction to
grant a declaratory judgment pursuant to the complete diversity of citizenship required
under § 1332 and that the court had jurisdiction to order the interpleader pursuant to § 1335,
which requires only minimal diversity of citizenship among at least two “adverse
claimants.”
The defendants filed answers to the complaint and, at the same time, motions to
dismiss pursuant to Rules 12(b)(1) and 12(h). In their motions, they contended that because
the claimants withdrew their “time-sensitive Tyger River settlement demand,” the action
was “either moot or not currently ripe for adjudication.” They argued that “[b]ecause the
settlement demand about which AmGuard brings this action is no longer active, and the
question of coverage in the policy is entirely dependent on the factual averments in the now
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non-existent demand — and in turn a non-existent Complaint for the underlying accident
— there is no longer a justiciable case or controversy before the Court and it should dismiss
AmGuard’s action.” The defendants did not otherwise dispute the allegations of subject
matter jurisdiction contained in AmGuard’s complaint.
AmGuard opposed the defendants’ motion to dismiss and filed its own motion for
summary judgment for a declaratory judgment and interpleader.
The district court conducted a hearing on the pending motions, during which the
defendants reiterated that “the matter is moot.” They maintained that “[w]ithout there
being an offer on the table, there’s no basis for [AmGuard’s] [declaratory judgment] and
interpleader at this point in time, . . . [which] divests this Court of jurisdiction over this
matter.” AmGuard argued, however, that the continuing dispute over the policy’s limits
presented an actual case or controversy and therefore that the case was not moot. As it
explained to the court, “[t]hey think it’s 3 million [dollars]. We think it’s a half million.
But we’re here to pay the limits as the Court orders from that standpoint.” AmGuard also
argued that the interpleader statute established jurisdiction, authorizing an action against
claimants that “may claim to be entitled to such money” from an insurance policy. 28
U.S.C. § 1335(a)(1) (emphasis added). During the dialogue with the court about the
depositing of money, AmGuard stated that the action was “not a Rule 22 interpleader, . . .
because the filing of the original complaint was under 28 U.S.C. § 1335,” which requires
a deposit of money or a bond. And with respect to § 1335, it asserted that there was
“minimal diversity” as required by that section.
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The district court thereafter issued an opinion and order dismissing the case for lack
of subject matter jurisdiction. In doing so, it relied on grounds not previously raised by
any party. It stated that § 1335 jurisdiction requires “[t]wo or more adverse claimants, of
diverse citizenship,” which was not satisfied in this case because all the defendants with
claims to the proceeds of the insurance policy were citizens of South Carolina. While the
court did acknowledge that the citizenship of AmGuard as “stakeholder” could create
minimal diversity, that was so only when a stakeholder “is an interested stakeholder,”
(emphasis added). The court concluded that AmGuard had not asserted the necessary
interest. It acknowledged that because there was complete diversity between AmGuard
and the defendants, it would have jurisdiction under 28 U.S.C. § 1332 to consider
AmGuard’s request for relief under Rule 22 interpleader but that AmGuard had “expressly
declined application of Rule 22 interpleader.” The court never addressed AmGuard’s
separate request for a declaratory judgment based on diversity jurisdiction under § 1332.
From the district court’s final judgment dated February 28, 2020, dismissing the
action, AmGuard filed this appeal.
II
For its main argument, AmGuard contends that the district court erred in dismissing
its action for lack of subject matter jurisdiction under 28 U.S.C. § 1335. It argues that
because it was an “interested stakeholder” in the interpleader action — disputing $2.5
million of the $3 million coverage sought by the claimants — its own citizenship should
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have been “considered for purposes of establishing minimal diversity for statutory
interpleader.”
Resolving this issue calls for an involved analysis, but the discussion will be
facilitated by first addressing the interpleader procedure at a more general level.
Interpleader has, in one form or another, been in existence for over 600 years. 7
Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and
Procedure § 1701 (4th ed. 2019) [hereinafter Wright & Miller]. The classic circumstance
that interpleader has addressed is where one party, a “stakeholder,” has money or other
property that is claimed, or may be claimed, by two or more other parties, the “claimants,”
creating a risk of inconsistent claims to the property or judgments against the stakeholder
that exceed the value of the property. See Texas v. Florida, 306 U.S. 398, 405–06 (1939).
The interpleader procedure permits the stakeholder to join all claimants and efficiently
resolve their claims to a corpus in “a single forum and proceeding.” State Farm Fire &
Cas. Co. v. Tashire, 386 U.S. 523, 534 (1967); see also Wright & Miller, supra, § 1702.
In its strict (or “pure” or “true”) form, therefore, the stakeholder has no interest in the
money or property at issue but simply deposits the money or property with the court for
distribution to the claimants. Stated otherwise, the stakeholder makes no claim to a part of
the money or property for itself and is “indifferent” as to which claimant should receive
the money or property. Killian v. Ebbinghaus, 110 U.S. 568, 571 (1884); see also Atkinson
v. Manks & Holroyd, 1 Cow. 691, 703 (N.Y. 1823) (noting that in a strict interpleader
action, “the complainant has no beneficial interest in the thing claimed”). Once the
property is deposited in the court, the court directs the claimants to interplead among
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themselves for their portion, and the stakeholder is discharged. See 4 James Wm. Moore
et al., Moore’s Federal Practice § 22.02[2] (3d ed. 2020) [hereinafter Moore’s].
By contrast, in an action in the nature of interpleader, the plaintiff is not merely a
stakeholder but also has an interest in the money or property, and it may initially deny
whether some or all of the property is owed to any or all claimants. See Texas, 306 U.S. at406–07; Killian, 110 U.S. at 572. If the court determines that at least some of the plaintiff’s
money or property is owed to the claimants, the claimants are then directed to interplead
among themselves for the appropriate allocation of the money or property. See Lummis v.
White, 629 F.2d 397, 400 (5th Cir. 1980), rev’d on other grounds sub nom. Cory v. White,
457 U.S. 85 (1982).
Today, the interpleader procedure can be pursued in federal court under two
different provisions, which differ somewhat in practice and benefit. Federal Rule of Civil
Procedure 22 (“rule interpleader”) functions much like joinder rules and can be invoked
only when federal jurisdiction is otherwise established. See Leimbach v. Allen, 976 F.2d
912, 916 (4th Cir. 1992). Typically, plaintiffs invoke rule interpleader under a court’s
diversity jurisdiction, which requires complete diversity of citizenship between all
plaintiffs and defendants and an amount in controversy exceeding $75,000. 28 U.S.C.
§ 1332; see Moore’s, supra, § 22.04[2][a] (“The vast majority of rule interpleader cases
invoke diversity of citizenship jurisdiction”). Alternatively, an interpleader action can be
filed under 28 U.S.C. § 1335 (“statutory interpleader”). Such an action requires
(1) minimal diversity between “[t]wo or more adverse claimants,” (2) a value of $500 or
more in controversy, and (3) a deposit in court by the plaintiff of the amount in dispute or
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a bond. 28 U.S.C. § 1335(a). “Minimal” diversity means that at least two claimants are
not co-citizens, even if others are. See Tashire, 386 U.S. at 530 (assessing diversity of
citizenship “without regard to the circumstance that other rival claimants may be co-
citizens”).
Both rule interpleader and statutory interpleader share features that are relevant to
this appeal. First, either method may be invoked not only when claimants have already
made a claim to the stakeholder’s property but also when the claimants may make such a
claim in the future. See 28 U.S.C. § 1335(a)(1) (authorizing interpleader when “adverse
claimants . . . are claiming or may claim to be entitled to such money or property”
(emphasis added)); Fed. R. Civ. P. 22(a)(1) (“Persons with claims that may expose a
plaintiff to double or multiple liability may be joined as defendants and required to
interplead” (emphasis added)); Wright & Miller, supra, § 1707 (noting that Rule 22
“[s]imilarly . . . embraces prospective claims”). Second, both rule interpleader and
statutory interpleader recognize and incorporate the history of equitable interpleader
described above, including the fundamental distinction between strict interpleader actions
and actions in the nature of interpleader. See 28 U.S.C. § 1335 (“The district courts shall
have original jurisdiction of any civil action of interpleader or in the nature of interpleader
filed . . .”); Fed. R. Civ. P. 22(a)(1)(B) (clarifying that “interpleader is proper even though
. . . the plaintiff denies liability in whole or in part to any or all of the claimants”); see also
Lummis, 629 F.2d at 400 (“Both remedies, strict bills of interpleader and bills in the nature
of interpleader, were embodied in the Federal Interpleader Act of 1936 . . . and in the form
of interpleader provided in 1938 by Rule 22” (citation omitted)).
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But there are also important differences. Rule interpleader functions much like a
joinder rule and provides no additional attributes of the kind available under statutory
interpleader. Section 1335 contains a jurisdictional provision that relaxes the traditional
diversity requirements of § 1332, and it authorizes the court to receive a deposit of the
subject property or a bond. Also, 28 U.S.C. § 1397 provides liberalized venue for § 1335
actions, and 28 U.S.C. § 2361 provides nationwide service of process. Section 2361 also
explicitly authorizes the district court to discharge an interpleader plaintiff “from further
liability” and to enforce its interpleader judgment with permanent injunctions and other
orders.
With this background in hand, we turn to the question presented here — whether
statutory interpleader’s requirement of minimal diversity among adverse claimants can be
satisfied when the defendants named in the interpleader are citizens of the same State but
the plaintiff that commenced the action is a citizen of a different State and alleges an
interest in the property. Some courts have answered in the affirmative. See, e.g., Lummis,
629 F.2d at 403; Mt. Hawley Ins. Co. v. Fed. Sav. & Loan Ins. Corp., 695 F. Supp. 469,
473 (C.D. Cal. 1987). And others have answered in the negative. See, e.g., Am. Fam. Mut.
Ins. Co. v. Roche, 830 F. Supp. 1241, 1246–49 (E.D. Wis. 1993); Travelers Ins. Co. v.
Harville, 622 F. Supp. 68, 69 (S.D. Ala. 1985). We conclude that the better reasoned
position is that an interpleader plaintiff’s citizenship may be considered to satisfy § 1335’s
minimal diversity requirement when the action is in the nature of interpleader.
First, in invoking diversity of citizenship to justify jurisdiction, § 1335 refers to
§ 1332, where diverse citizenship is defined. See 28 U.S.C. § 1335(a)(1) (employing
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“diverse citizenship as defined in subsection (a) or (d) of section 1332”). And diversity
jurisdiction under § 1332 implements the policy underlying Article III of the Constitution,
which extends federal judicial power to “Controversies . . . between Citizens of different
States.” U.S. Const. art. III, § 2, cl. 1. That constitutional provision in turn “entertains”
the “apprehensions” or “fears” of prejudice in state courts against citizens of other States.
Bank of the U.S. v. Deveaux, 9 U.S. (5 Cranch) 61, 87 (1809) (Marshall, C.J.). This policy
that underlies diversity of citizenship in judicial actions should thus underlie our analysis,
recognizing that controversies involving citizens of different states may be litigated in
federal courts to ensure the impartial administration of justice. And this policy thus informs
our understanding of § 1335, which requires “two adverse parties [who] are not co-
citizens.” Tashire, 386 U.S. at 531; see also Treinies v. Sunshine Mining Co., 308 U.S. 66,
71 (1939) (noting that statutory interpleader “is based upon the clause of Section Two,
Article III, of the Constitution, U.S.C.A., which extends judicial power of the United States
to controversies ‘between citizens of different States’”).
Second, § 1335 addresses both strict interpleader actions, in which the “plaintiff” is
neutral and therefore a stakeholder with no interest in the corpus at issue, and actions in
the nature of interpleader, in which the “plaintiff” claims an interest in all or part of the
corpus. The statute never uses the word “stakeholder.” Rather, it uses the term “plaintiff,”
which anticipates the distinct roles that a plaintiff may assume. Thus, when an interpleader
plaintiff claims no interest in the corpus, it functions in the traditional role of stakeholder,
much like “a person entrusted with the stakes of bettors.” Merriam-Webster’s Collegiate
Dictionary 1214 (11th ed. 2020) (defining “stakeholder”). But when the plaintiff claims
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an interest in all or part of the corpus — as is the case in an action in the nature of
interpleader — it stands in conflict or “controversy” with the other claimants to the corpus
such that the plaintiff and the defendant-claimants are adverse. In this role, the plaintiff
stands as a claimant vis-à-vis the corpus just as does every other claimant.
Finally, when the plaintiff in the role of claimant has a citizenship different from
another adverse claimant, that diversity justifies federal jurisdiction. In that circumstance,
the “apprehension” or “fear” of an out-of-state citizen that may be attendant to state court
proceedings is implicated, as the diversity-of-citizenship policy embodies. Thus, when
§ 1335 confers jurisdiction on federal courts for controversies among “adverse claimants,
of diverse citizenship,” the term “adverse claimants” includes a plaintiff who has an interest
in the corpus, making its interest adverse to the other claimants.
Our interpretation of § 1335 comports with the Supreme Court’s description. The
Court has explained that an interpleader plaintiff’s citizenship does not matter when it is a
disinterested stakeholder. See Treinies, 308 U.S. at 72 (emphasizing that in a strict
interpleader action, the plaintiff’s citizenship is irrelevant because its “deposit and
discharge effectually demonstrates [its] disinterestedness as between the claimants and as
to the property in dispute”). But this conclusion also suggests its corollary — that an
interested plaintiff’s citizenship is relevant, as the plaintiff is not disinterested in the money
or property deposited with the court.
Moreover, the Supreme Court has emphasized that interpleader is “remedial and to
be liberally construed,” Tashire, 386 U.S. at 533, to “remedy the problems posed by
multiple claimants to a single fund,” id. at 530; see also Texas, 306 U.S. at 405–07
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(defining interpleader’s purpose over centuries as “avoidance of the risk of loss ensuing
from the demands in separate suits of rival claimants to the same debt or legal duty”). That
purpose is certainly furthered by considering an interpleader plaintiff’s citizenship in an
action in the nature of interpleader where the plaintiff would face rivalrous claims to the
property and those claims would have “interstate aspects,” i.e., diversity of citizenship,
suited to federal court. 13F Wright & Miller, supra, § 3636 (3d ed. 2009).
Those courts that have reached the opposite conclusion have done so primarily
based on the assumed textual distinction in § 1335 between claimants and stakeholders.
See Roche, 830 F. Supp. at 1248. This reading, however, ignores the long-held distinction
between strict interpleader actions and actions in the nature of interpleader, which § 1335
explicitly recognizes. And more particularly, it fails to recognize that in an action in the
nature of interpleader, the plaintiff is a claimant in the action and its position is adverse to
at least one other claimant. See Moore’s, supra, § 22.04[2][b] (“[I]n essence, the
stakeholder is in fact a claimant”). Importantly, these cases overlook that the interpleader
statute never uses the term “stakeholder” and does not otherwise exclude the possibility
that the plaintiff that filed the interpleader action may simultaneously claim an interest in
the property. But even if a court labels the plaintiff, regardless of its role, as a stakeholder,
it must recognize that while some stakeholders are disinterested in the corpus, others do
have an interest and thus are also claimants.
In this case, AmGuard did not simply seek, as a disinterested party, to distribute to
claimants the proceeds of its insurance policy. Rather, it sought to deny its liability for
paying the majority of the funds claimed by the defendants. Cf. Robert E. Keeton,
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Preferential Settlement of Liability-Insurance Claims, 70 Harv. L. Rev. 27, 40 (1956)
(noting that “since the [insurance] company is usually contesting the liability of the insured
to the claimants, it is not a disinterested stakeholder”). Accordingly, AmGuard is a
claimant, and its diverse citizenship from other claimants gave the district court jurisdiction
under § 1335.
We therefore reverse the judgment of the district court rejecting the minimal
diversity jurisdiction of § 1335 in the circumstances of this case and remand for further
proceedings.
III
In its complaint, AmGuard also invoked 28 U.S.C. § 1332 (diversity jurisdiction) to
justify the district court’s jurisdiction over the case. As AmGuard alleged, it was a citizen
of Pennsylvania, the defendants were citizens of South Carolina, and the amount in
controversy exceeded $75,000. The district court, however, never addressed this basis for
jurisdiction and therefore erred.
To be sure, AmGuard invoked jurisdiction under both § 1332 and § 1335, relying
on § 1332 to justify its declaratory judgment claim and § 1335 for its interpleader claim.
But even after rejecting AmGuard’s § 1335 invocation of jurisdiction, the district court
could have relied on jurisdiction under § 1332 and applied Rule 22 to address AmGuard’s
interpleader request. A district court may consider a request for interpleader under either
method of interpleader — Rule 22 or § 1335 — “even if the complaint asserts the wrong
one, so long as the complaint can be construed to confer jurisdiction under one or the
15
other.” Moore’s, supra, § 22.04[1]. But the district court here refused to do so because it
understood AmGuard as having “expressly declined application of Rule 22 interpleader”
during the course of the motions hearing.
At the hearing, AmGuard stated that “[i]t’s not a Rule 22 interpleader” but instead
that the action had been filed under the interpleader statute. That statement, however, was
made in the context of AmGuard explaining why it sought to deposit funds with the court,
which was required for statutory interpleader but not for rule interpleader. See 28 U.S.C.
§ 1335(a)(2). Thus, when read in context, AmGuard’s statement should not have been
taken to foreclose any reliance on Rule 22 if the court were to determine that statutory
interpleader was unavailable. After all, the district court provided no notice to AmGuard
that it was concerned about statutory interpleader’s diversity requirement at the time of the
hearing. But even if that subject had been discussed at the hearing, the court would still
have had discretion to consider Rule 22 interpleader. See Truck-A-Tune, Inc. v. Ré, 23 F.3d
60, 62 (2d Cir. 1994). In these circumstances, we conclude that the district court abused
its discretion in failing to consider application of Rule 22 after it dismissed the statutory
interpleader claim without notice to the parties. See Frey v. EPA, 270 F.3d 1129, 1132 (7th
Cir. 2001) (observing that “sua sponte dismissals without prior notice or opportunity to be
heard are hazardous” (cleaned up)).
In this same vein, § 1332 also provided the district court with jurisdiction to resolve
AmGuard’s declaratory judgment claim, yet the court dismissed the entire action without
addressing why it did not have jurisdiction under § 1332. This error too requires reversal.
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IV
The defendants neither defend nor dispute the grounds for dismissal relied on by the
district court. Rather, in a two-and-one-half-page appellate brief, they argue simply that
because they withdrew their Tyger River letter and had not filed any other lawsuits based
on Patel’s sale of beer to the underaged defendants, this action is moot, and therefore this
court lacks jurisdiction to decide the case under Article III, citing Simon v. E. Ky. Welfare
Rts. Org., 426 U.S. 26, 37 (1976). At oral argument, however, the defendants declined to
foreswear any future action for damages against Patel and AmGuard.
AmGuard contends in response that there still is a justiciable controversy between
the parties to determine the extent of its liability to the defendants. We agree.
To begin, the interpleader statute confers jurisdiction on a district court so long as
the claimants “may claim to be entitled to such money or property . . . arising by virtue of
any . . . policy.” 28 U.S.C. § 1335(a)(1) (emphasis added). Based on this language, the
Supreme Court has consistently held that “to bring an interpleader suit, ‘a plaintiff need
not await actual institution of independent suits,’” as the defendants now insist. California
v. Texas, 457 U.S. 164, 166 n.1 (1982) (per curiam) (emphasis added) (cleaned up) (quoting
Texas, 306 U.S. at 406). Rather, to satisfy the requirement of a justiciable case, “it is
enough if [the plaintiff] shows that conflicting claims are asserted and that the consequent
risk of loss is substantial.” Id. (quoting Texas, 306 U.S. at 406). In other words, an
interpleader plaintiff need only “possess[] a bona fide fear of adverse claims” to the
property to file an interpleader action. Lexington Ins. Co. v. Jacobs Indus. Maint. Co., 435
F. App’x 144, 147–48 (3d Cir. 2011) (emphasizing that “a formal claim against the policy
17
or suit by [a claimant] was not required”); see also CNA Ins. Co. v. Waters, 926 F.2d 247,
251 (3d Cir. 1991).
This is the uniform approach taken in authoritative treatises and by all other courts
of appeals. See 7 Wright & Miller, supra, § 1707; Moore’s, supra, § 22.03[1][e] (“The
stakeholder has a right to bring an interpleader case even if some or all of the claims against
the stake are prospective”); see also, e.g., N.Y. Life Ins. Co. v. Sahani, 730 F. App’x 45, 50
(2d Cir. 2018); Auto Parts Mfg. Miss., Inc. v. King Constr. of Hous., LLC, 782 F.3d 186,
194 (5th Cir. 2015) (“Even the mere threat of multiple vexation by future litigation provides
sufficient basis for interpleader. Statutory interpleader under § 1335 is especially liberal,
permitting a valid interpleader action if two claimants may claim to be entitled to the
interpleader funds, even if there is not yet a claim” (cleaned up)); Michelman v. Lincoln
Nat’l Life Ins. Co., 685 F.3d 887, 895 (9th Cir. 2012) (“[I]nterpleader extends to potential,
as well as actual, claims” (cleaned up)); United States v. High Tech. Prods., Inc., 497 F.3d
637, 642 (6th Cir. 2007) (“The primary test for determining the propriety of interpleading
the adverse claimants and discharging the stakeholder . . . is whether the stakeholder
legitimately fears multiple vexation directed against a single fund or property” (cleaned
up)); Dakota Livestock Co. v. Keim, 522 F.2d 1302, 1308 (8th Cir. 1977) (“Although [the
claimant] has not as yet asserted any liability on the part of [the plaintiff], he has not
admitted that no such liability exists”).
Here, AmGuard’s complaint adequately alleged a bona fide fear of adverse claims
in describing its policy insuring Patel, in recognizing that Patel sold beer to an underaged
person leading to a fatal automobile accident, and in noting the claimants’ Tyger River
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letter threatening claims in excess of policy limits. As is well settled, AmGuard “need not
await actual institution of independent suits” against it or its insured before it may request
a court to determine its liability. Texas, 306 U.S. at 406. It had a bona fide fear of adverse
claims.
The district court was therefore not deprived of jurisdiction upon the defendants’
withdrawal of their time-sensitive demand letter.
V
For the reasons given, we reverse the district court’s judgment and remand for
further proceedings. And in conducting those proceedings, the court may conclude that
major issues no longer need to be resolved, as the defendants in their appellate brief, which
was signed by all defendants, expressly assured us that they “do not contest AmGuard’s
assertion that its liability limits on its policy issued to Patel are $500,000.” (Emphasis
added). Of course, resolution of this issue does not affect the district court’s jurisdiction,
which is, in these circumstances, determined as of the time the complaint was filed. Nor
does it foreclose resolution of the remaining issues and the need to follow procedures as
specified under § 2201 and § 1335.
REVERSED AND REMANDED
FOR FURTHER PROCEEDINGS
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