Carrier Limited to “Modest” Attorney’s Fees Awards in Federal Interpleader Action
State Farm Life Ins. Co. v. Cai, 2013 U.S. Dist. LEXIS 127594 (N.D. Cal. Sept. 6, 2013)
State Farm Life Ins. Co. v. Cai involved a $250,000 life insurance policy issued to Ying Deng that named Jason Cai as the beneficiary. Deng died in May 2003, and Deng’s estate claimed Cai intentionally caused that death to obtain the policy proceeds. If these allegations were true, Cai’s actions would invalidate him as a proper beneficiary. Based on the dispute between Cai and Deng’s estate, State Farm filed the Cai interpleader action. In so filing, State Farm deposited approximately $304,000 with the court—the policy limits plus interest—and asked the court to adjudicate the proper beneficiary. Subsequently, State Farm filed a motion to be dismissed from the Cai action, and for $25,000 in attorney’s fees incurred in bringing the Cai action.
The Cai court granted State Farm’s motion to dismiss, but granted State Farm only $15,000 in attorneys’ fees. In reaching its conclusion on attorneys’ fees, the Cai court noted that a disinterested stakeholder is entitled to the attorneys’ fees incurred in bringing a federal interpleader action, but that there is an “important policy interest in seeing that the fee award does not deplete the fund at the expense of the party who is ultimately deemed entitled to it.” In surveying Ninth Circuit authority, the Cai court explained that the courts within the circuit have held awards of 10% of the relevant fund to be excessive, but awards of less than 2% of the fund to be permissible. Based on this precedent, and upon the allegedly excessive nature of some of the fees incurred by State Farm’s attorneys, the court awarded State Farm $15,000 in fees—an amount equating to approximately 5% of the deposited funds.
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