Lindenberg v. Jackson Nat'l Life Ins. Co.

912 F.3d 348

Tamarin LINDENBERG, Individually and as Natural Guardian of Her Minor Children ZTL and SML, Plaintiff-Appellee/Cross-Appellant,

v.JACKSON NATIONAL LIFE INSURANCE COMPANY, Defendant-Appellant/Cross-Appellee,State of Tennessee, Intervenor-Appellee.

Nos. 17-6034/6079

United States Court of Appeals, Sixth Circuit.

Argued: May 3, 2018

Decided and Filed: December 21, 2018

CLAY, Circuit Judge.

Defendant Jackson National Life Insurance Company ("Defendant") appeals from the district court’s judgment enforcing a jury trial verdict of $350,000 in actual damages, $87,500 in bad faith damages, and $3,000,000 in punitive damages in favor of Plaintiff Tamarin Lindenberg ("Plaintiff"), individually and in her capacity as natural guardian of her minor children, ZTL and SML.¹ Plaintiff cross-appeals, challenging a statutory cap that the district court applied to reduce the award of punitive damages to $700,000. The State of Tennessee ("the State") intervened to defend the statute. For the reasons that follow, we AFFIRM the district court’s judgment on all issues raised in Defendant’s appeal, REVERSE on the issue raised in Plaintiff’s cross-appeal, VACATE the judgment as to punitive damages, and REMAND with instructions for the district court to recalculate the award of punitive damages in accordance with the jury verdict and with this Court’s holding that the statutory cap on punitive damages, T.C.A. § 29-39-104, is unconstitutional.

BACKGROUND

This case arises in diversity and concerns a dispute over a $350,000 life insurance policy issued by Defendant to Thomas A. Lindenberg ("Decedent"). Plaintiff Tamarin Lindenberg, the former wife of Decedent, brought suit individually and in her capacity as the natural guardian of her minor children, ZTL and SML, the two children of Plaintiff and Decedent. Plaintiff’s claims included breach of contract and both statutory and common law bad faith.

Plaintiff is the primary beneficiary designated in the life insurance policy at issue (the "Policy") and was to receive 100% of the proceeds of the Policy upon Decedent’s death. The contingent beneficiaries of the Policy are Decedent’s "surviving children equally." (R. 125 at PageID #1854.) During their marriage, Plaintiff and decedent adopted ZTL and SML. Third-Party Defendant Mary Angela Williams ("Williams") is Decedent’s daughter from a prior marriage.

Plaintiff and Decedent executed a Marital Dissolution Agreement ("MDA") in 2005, and a divorce decree was issued in 2006. The MDA required that "Wife shall pay for the Life Insurance premium for the Columbus and [Defendant] policies for so long as she is able to do so and still support the parties[’] children." (Trial Ex. 10 at 7.) Additionally, the MDA required "Husband at his expense [to] maintain in full force insurance on his life having death benefits payable to the parties’ children as irrevocable primary beneficiaries[.]" (Id. at 9.)

Decedent died on January 22, 2013. On February 6, 2013, Plaintiff filed a claim under the Policy for the death benefit. On March 11, 2013, Plaintiff’s attorney sent Defendant a letter seeking expedited review of the claim and payment of the death benefit. On March 22, 2013, Defendant responded with a letter requiring further action by Plaintiff, including obtaining "waivers to be signed by the other potential parties" and "court-appointed Guardian(s) for the Estates of the two minor children." (Trial Ex. 23.) Defendant stated that another option would be for Plaintiff to waive her rights to the claim so that Defendant could disburse the proceeds to the minor children. Throughout the month of May 2013, Plaintiff and Defendant were in communication about how to proceed and whether Defendant would interplead the funds with the court. This discussion culminated in Plaintiff filing the instant lawsuit.

With its answer, Defendant included an interpleader complaint that implicated Plaintiff and Williams. Defendant later maintained that its interpleader complaint also implicated the minor children, ZTL and SML.² Defendant asserted that it was "not in a position to determine, factually or legally, who is entitled to the Death Benefit," and requested that the district court "determine to whom said benefits should be paid." (R. 4 at 7.)

Plaintiff and Williams jointly moved to dismiss the interpleader complaint. While the motion was pending, and after several months of litigation, the parties filed a joint motion to appoint guardians ad litem for the minor children, which the district court granted. The court then granted the motion to dismiss Defendant’s interpleader complaint. The court further ordered Defendant "to disburse life insurance policy benefits to Plaintiff in the amount of $350,000 with interest from January 23, 2013, until the date of payment." (R. 32 at 17.) Plaintiff’s claims against Defendant remained.

Defendant filed a motion to dismiss, attacking Plaintiff’s claims for punitive damages and bad faith. Through a series of orders, the court granted in part and denied in part Defendant’s motion. The court dismissed Plaintiff’s claims for common law bad faith. The court allowed Plaintiff to proceed with her claims for common law breach of contract, statutory bad faith, and common law punitive damages predicated on breach of contract.

Following discovery, Defendant filed for summary judgment. The district court denied the motion on all claims Plaintiff asserted in her personal capacity but granted the motion on all claims Plaintiff asserted on behalf of the minor children, ZTL and SML. The court held a weeklong trial. Defendant moved for judgment as a matter of law, which the district court denied. The jury returned a verdict finding that (1) Defendant breached its contract with Plaintiff, resulting in actual damages in the amount of $350,000; (2) Defendant’s refusal to pay was in bad faith, resulting in additional damages in the amount of $87,500; and (3) Defendant’s refusal to pay was either intentional, reckless, malicious, or fraudulent. The jury then returned a special verdict awarding Plaintiff punitive damages in the amount of $3,000,000. Defendant renewed its motion for judgment as a matter of law.

Defendant also argued that the district court must apply T.C.A. § 29-39-104, a Tennessee statute that caps punitive damages at two times the amount of compensatory damages awarded or $500,000, whichever is greater. In response, Plaintiff argued that the statutory punitive damages cap violates the Tennessee Constitution. On this basis, Plaintiff filed a motion to certify the issue of the punitive damages cap’s constitutionality to the Tennessee Supreme Court. The State of Tennessee then moved to intervene, which the district court permitted. The district court agreed to certify the following two questions to the Tennessee Supreme Court:

1. Do the punitive damages caps in civil cases imposed by Tennessee Code Annotated Section 29-39-104 violate a plaintiff’s right to a trial by jury, as guaranteed in Article I, section 6 of the Tennessee Constitution ?

2. Do the punitive damages caps in civil cases imposed by Tennessee Code Annotated Section 29-39-104 represent an impermissible encroachment by the legislature on the powers vested exclusively in the judiciary, thereby violating the separation of powers provisions of the Tennessee Constitution?

(R. 188 at PageID # 4270.) The Tennessee Supreme Court recognized that the "certified questions raise issues of first impression not previously addressed by the appellate courts of Tennessee" but declined to provide an opinion on either of the certified questions. (R. 209-1 at PageID #4916.)

The district court then rejected Defendant’s renewed motion for judgment as a matter of law, rejected Plaintiff’s constitutional challenge to the punitive damages cap, and entered judgment. In doing so, the court applied the statutory punitive damages cap to reduce Defendant’s liability for punitive damages from $3,000,000 to $700,000. The parties filed timely cross-appeals.

DISCUSSION

The parties challenge multiple aspects of the proceedings below. Defendant argues that the district court erred by dismissing its interpleader complaint, failing to dismiss Plaintiff’s punitive damages claim, and failing to grant its motion for judgment as a matter of law. Meanwhile, Plaintiff argues that the statutory punitive damages cap, T.C.A. § 29-39-104, violates the Tennessee Constitution. We address Defendant’s three arguments before turning to Plaintiff’s argument.

A. Dismissal of Defendant’s Interpleader Complaint

Defendant first argues that the district court erred when it dismissed Defendant’s interpleader complaint. "Interpleader is an equitable proceeding that ‘affords a party who fears being exposed to the vexation of defending multiple claims to a limited fund or property that is under his control a procedure to settle the controversy and satisfy his obligation in a single proceeding.’ " United States v. High Tech. Prods., Inc. , 497 F.3d 637, 641 (6th Cir. 2007) (quoting 7 Charles Alan Wright, et al., Federal Practice and Procedure § 1704 (3d ed. 2001) ). Interpleader may be invoked either via Rule 22 of the Federal Rules of Civil Procedure ("rule interpleader") or via 28 U.S.C. § 1335 ("statutory interpleader"). In this case, Defendant attempted to invoke statutory interpleader.

"An interpleader action typically proceeds in two stages." High Tech. Prods. , 497 F.3d at 641. "During the first stage, the court determines whether the stakeholder has properly invoked interpleader ...." Id. In order to properly invoke statutory interpleader, a stakeholder must satisfy the statutory jurisdictional requirements by properly pleading: (1) the existence of actual or potential conflicting claims to a limited fund or property held by the stakeholder, 28 U.S.C. § 1335(a) ; see High Tech. Prods. , 497 F.3d at 642 ; (2) an amount in controversy of at least $500, 28 U.S.C. § 1335(a) ; and (3) minimal diversity among the competing claimants. Id. ; see ...