Navigating The Interpleader Process

• Jurisdiction: United States,Federal
• Law Firm: Wilson Elser Moskowitz Edelman & Dicker LLP
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Insurance, Litigation, Mediation & Arbitration, Financial Services, Corporate and Company Law, Insurance Laws and Products, Trials & Appeals & Compensation, Diversity, Equity & Inclusion
• Author: Ms Heather Austin
• Published date: 28 March 2023

It is difficult to conceive of a form of litigation that was intended to be less contentious (for the plaintiff, at least) than an Interpleader. Defined in the simplest terms by the Merriam-Webster Dictionary, "interpleader" is "a proceeding to enable a person to compel parties making the same claim against him to litigate the matter between themselves." The process "emerged in the fourteenth century" and has "evolved to become 'an affirmative remedy to be used against multiple claimants seeking relief upon a single obligation.'" Wells Fargo Bank, N.A. v. Mesh Suture, Inc., 31 F.4th 1300, 1308 (10th Cir. 2022) (internal citations omitted).

Ideally, interpleader allows "the stakeholder to avoid 'the expense and risk of defending two actions.'" Mesh Suture, Inc., 31 F.4th at 1309 (internal citations omitted). Historically, "the stakeholder avoided almost all expense because it was entitled to recover its attorney fees and costs." Mesh Suture, Inc., 31 F.4th at 309 (citing Mutual Life Ins. Co. of N.Y. v. Bondurant, 27 F.2d 464, 465 (6th Cir. 1928)). In addition to a myriad of state laws that allow for interpleader relief, "[t]oday, the interpleader procedure can be pursued in federal court under two different provisions," specifically rule interpleader and statutory interpleader, "which differ somewhat in practice and benefit." See AmGuard Ins. Co. v. SG Patel & Sons II LLC, 999 F.3d 238, 244 (4th Cir. 2021). Both provisions "recognize and incorporate the history of equitable interpleader, including the fundamental distinction between strict interpleader ("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"). See AmGuard, 999 F.3d at 245.

Rule Interpleader v. Statutory Interpleader

Rule Interpleader

Federal Rule of Civil Procedure 22 authorizes an action in Interpleader, stating:

(a) Grounds.

(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.

(b) Relation to Other Rules and Statutes. This rule supplements'and does not limit'the joinder of parties allowed by Rule 20. The remedy this rule provides is in addition to'and does not supersede or limit'the remedy provided by 28 U.S.C. ' 1335, 1397, and 2361. An action under those statutes must be conducted under these rules.

Rule Interpleader is only available when federal jurisdiction is otherwise established. See, e.g., AmGuard, 999 F.3d 238, 244; Guardian Life Ins. Co. of Am. v. Gonnella, 806 F. App'x 79, 81 (3d Cir. 2020). For example, Rule 22 interpleader of competing claims for benefits owed under an ERISA-governed plan is appropriate based on the presence of a federal question. See 29 U.S.C. '1132(d). See also Aetna Life Ins. Co. v. Bayona, 223 F.3d 1030, 1034 (9th Cir. 2000) ("[W]e hold that interpleader is a cognizable action under ERISA section 1132(a)(3)(B)(ii)). An interpleader plaintiff may also "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." AmGuard, 999 F.3d 238, 244 (citing 28 U.S.C. ' 1332). A prudent practitioner will plead both federal question and diversity jurisdiction, if applicable, and when proceeding under Rule 22.

Statutory Interpleader

Statutory Interpleader provides a less onerous path to federal court. Pursuant to 28 USC '1335:

(a) The district courts shall have original jurisdiction of any civil action of interpleader or in the nature of interpleader filed by any person, firm, or corporation, association, or society having in his or its custody or possession money or property of the value of $500 or more, or having issued a note, bond, certificate, policy of insurance, or other instrument of value or amount of $500 or more, or providing for the delivery or payment or the loan of money or property of such amount or value, or being under any obligation written or unwritten to the amount of $500 or more, if

(1) Two or more adverse claimants, of diverse citizenship as defined in subsection (a) or (d) of section 1332 of this title [28 USCS ' 1332], are claiming or may claim to be entitled to such money or property, or to any one or more of the benefits arising by virtue of any note, bond, certificate, policy or other instrument, or arising by virtue of any such obligation; and if

(2) the plaintiff has deposited such money or property or has paid the amount of or the loan or other value of such instrument or the amount due under such obligation into the registry of the court, there to abide the judgment of the court, or has given bond payable to the clerk of the court in such amount and with such surety as the court or judge may deem proper, conditioned upon the compliance by the plaintiff with the future order or judgment of the court with respect to the subject matter of the controversy.

(b) Such an action may be entertained although the titles or claims of the conflicting claimants do not have a common origin, or are not identical, but are adverse to and independent of one another.

Unlike '1332 diversity jurisdiction, which again requires completely diverse citizenship of the plaintiffs and defendants, diversity is established for purposes of '1335, in relevant part, if there exists two or more adverse claimants of diverse citizenship. Compare 28 U.S.C. ' 1332, with '1335. In a strict interpleader action, this will require a showing that the defendants are of diverse citizenship because the stakeholder's neutrality makes its citizenship a non-factor. But in an action in the nature of interpleader, '1335 diversity may be established by showing that the plaintiff and the defendants are of diverse citizenship.

When, in addition to facing competing claims to a common fund from multiple claimants, a stakeholder denies that all or part of the fund is payable to anyone, the stakeholder may file an action in the nature of interpleader. Rule 22(a)(1)(B) specifically allows for interpleader where "the plaintiff denies liability in whole or in part to any or all of the claimants." Similarly, 28 USC '1335 allows both an action in interpleader and an action in the nature of interpleader. In the latter, "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." AmGuard, 999 F.3d 238, 244.

In Charles Schwab & Co. v. Gomez, Nos. 21-1344, 21-2531, 2022 U.S. App. LEXIS 4698, at *4 (7th Cir. Feb. 22, 2022), Felipe Gomez "principally argue[d] that the district court lacked authority to proceed under 28 U.S.C. ' 1335, the interpleader statute... because in his view...the two defendants are not 'adverse' in the way that '1335 requires. But Felipe did not argue that he and his son, the other defendant, were not diverse from Schwab, just as '1332 (rather than '1335) requires" and "the amount in controversy'$300,000'is well above the statutory minimum". Id. at *4. Therefore, the court had diversity jurisdiction pursuant to '1332 and a Rule 22 action was appropriate.

But, in AmGuard, the court considered whether '1335 "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". AmGuard, 999 F.3d 238, 245. Rejecting the analysis of several district courts that "answered in the negative," the court in AmGuard concluded "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 inthe nature of interpleader." AmGuard, 999 F.3d 238, 245-246 (rejecting 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)) (additional citations omitted).

Because '1335 uses the term "plaintiff" rather than "stakeholder," the court in AmGuard concluded...