INTERPLEADER: THE BASICS
In an interpleader action, a party who knows two or more other parties are making a claim on some asset controlled by the party can ask the court to decide who has what rights to the asset, deposit the asset into the custody of the court or a third party and remove itself from the litigation. To achieve that, the party holding the asset files an action in interpleader. This article gives the basics of such an action.
The Basic Process:
In an interpleader action, the party initiating the litigation, normally the plaintiff, is termed the stakeholder. The money or other property in controversy is called the res. All defendants having a possible interest in the subject matter of the case are called claimants. In some jurisdictions, the plaintiff is referred to as the plaintiff-in-interpleader and each claimant a claimant-in-interpleader.
An interpleader proceeding has two stages. The first stage determines if the stakeholder is entitled to an interpleader and if he, she or it should be discharged from liability. The second stage is like an action at law to determine which of the claimants is entitled to the res. The stakeholder no longer has to spend the time or money fighting over ownership of the res and the parties have a forum to fight among themselves in court.
There are requirements before interpleader will lie and the relief is available in Federal Court (if the other jurisdictional requirements are met) and all fifty states, though there are variations in methods in the various states.
At common law, the bill of interpleader required:
- The same thing, debt, or duty must be the res claimed by all the claimants;
- All the adverse titles or claims must be dependent or derived from a common source;
- The stakeholder must not have or claim any interest it the res,
- The stakeholder must have incurred no independent liability to any claimant, i.e. he or she must be perfectly indifferent between them.
A typical interpleader action occurs when two or more parties make a claim on an insurance policy and the insurance company has no wish to become involved in the fight and interpleads the policy with the court and asks the court to remove it from the matter. Another example is that an escrow holder in a real estate transaction holds a deposit and the parties are arguing about whether one or the other should receive the deposit back. In such cases, the escrow holder will often file an interpleader action.
Normally, to be released from the action, the interpleader res holder must deposit the sums with the court which will hold them while the matter is litigated.
In Federal interpleader actions, Federal Rules of Civil Procedure 22 applies and provides as follows:
Federal Rules of Civil Procedure 22
(a) Grounds for an Interpleader Action
"(1) By a Plaintiff. Persons with claims that may expose a plaintiff to double or multiple liability may be joined as defendants and required to interplead. Joinder for interpleader is proper even though:
(A) the claims of the several claimants, or the titles on which their claims depend, lack a common origin or are adverse and independent rather than identical; or
(B) the plaintiff denies liability in whole or in part to any or all of the claimants.
(2) By a Defendant. A defendant exposed to similar liability may seek interpleader through a crossclaim or counterclaim.
Note that the requirement of common origin of claims is not required under Federal Rule 22.
The essence of interpleader is to remove a party who has no real stake in the outcome of a struggle for an asset held by the party. It allows all the other claimants to have a forum in which to argue the matter without wasting the time and money of the uninterested party.
Recall that every possible claimant has to be brought into the action or the relief available to the stakeholder will not be effective. And if you are one of the claimants, note that once served you must appear and argue your claim or it may be forever barred.