FILED

NOT FOR PUBLICATION

DEC 4 2017

UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

SOCIETY INSURANCE COMPANY, No. 16-16812

Plaintiff-Appellant, D.C. No. 2:13-cv-01007-NVW

v.

MEMORANDUM*

DONNA NYSTROM; et al.,

Defendants-Appellees.

Appeal from the United States District Court for the District of Arizona Neil V. Wake, District Judge, Presiding

Argued and Submitted November 16, 2017 Pasadena, California

Before: KOZINSKI and IKUTA, Circuit Judges, and GETTLEMAN,** District Judge.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Robert W. Gettleman, United States District Judge for the Northern District of Illinois, sitting by designation. Fed. R. Civ. P. 22(a)(1) authorizes a stakeholder, such as plaintiff Society

Insurance Company (“Society”), to join “[p]ersons with claims that may expose

[the stakeholder] to double or multiple liability,” and requires such parties to

interplead. The primary purpose of interpleader is “for the stakeholder to protect

itself against the problems posed by multiple claimants to a single fund,” including

double liability as well as the cost of litigation. Michelman v. Lincoln Nat’l Life

Ins. Co., 685 F.3d 887, 894 (9th Cir. 2012) (internal quotations omitted).

In the instant case, Society’s interpleader action was properly filed because

there were two or more claimants of diverse citizenship at the time the suit was

filed. 28 U.S.C. § 1335(a)(1). After Society deposited the funds, the district court

properly dismissed Society with prejudice and enjoined the claimants from

instituting any proceedings affecting the funds. See 28 U.S.C. § 2361.

The district court erred in its sua sponte order (Doc. 126) bringing Society

back into the case, vacating its original orders, dismissing the action, and ordering

the funds returned to Society. That order defeated the purpose of the interpleader

and denied Society the protection to which it was entitled. The original

interpleader action was not premature because at the time of filing there were

multiple claimants with colorable claims to the insurance proceeds, and Society

had conceded coverage by depositing the funds. See Michelman, 685 F.3d at 894.

2 That Society is defending its insured in state court under a reservation of rights has

no bearing on the propriety of the interpleader.

Nor did the failure of the claimants to resolve their disputes give the court

grounds to dismiss the action and return the funds to Society, which had been

dismissed with prejudice over a year earlier. A party’s failure to prosecute its

claim may be grounds for dismissal, Fed. R. Civ. P. 41(b), but that was not the

reason given by the court, and it would be an abuse of discretion for the court to

vacate its previous dismissal with prejudice of Society based on the claimants’

failure to prosecute. See Pagtalunan v. Galaza, 291 F.3d 639, 641-644 (9th Cir.

2002) (Dismissal for want of prosecution or failure to comply with a court order is

reviewed for abuse of discretion.).

The district court’s order (Doc. 126) is reversed in all respects. Society is

directed to redeposit the funds (including interest) that it had received from the

court as a result of the district court’s order, and the district court is directed to

dismiss Society with prejudice and proceed consistent with this order.

REVERSED AND REMANDED

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