Statutory Interpleader in Federal Court - a Cure for Conflicting Claims
Stephens, E. Ford, Defense Counsel Journal
This article originally appeared in the January 2014 Insurance and Reinsurance Committee newsletter.
ENTITIES such as banks, escrow agents, and insurers that hold assets or proceeds on behalf of others can find themselves dealing with claimants competing for the same funds. An interpleader allows a stakeholder that "fears the prospect of multiple liability to file suit, deposit the property with the court, and withdraw from the proceedings." (1) Courts typically describe the threshold for bringing such an action this way: "So long as there exists a 'real and reasonable fear of exposure to double liability or the vexation of conflicting claims, jurisdiction in interpleader is not dependent upon the merits of the claims of the parties interpleaded.'" (2)
There are two types of interpleaders in the federal courts. Perhaps the more commonly used interpleader is provided by Fed.R.Civ.P. 22 and known as "rule interpleader." The other is authorized by 28 U.S.C. [section] 1335, and known as "statutory interpleader." This article provides an overview of some of the characteristics of the latter. Statutory interpleader has different provisions relating to subject matter jurisdiction and personal jurisdiction than rule interpleader, while sharing some of the same procedural elements.
A statutory interpleader is allowed when "[t]wo or more adverse claimants, of diverse citizenship as defined in subsection (a) or (d) of [28 U.S.C. [section] 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." (3) As suggested by the language in the statute (i.e., "are claiming or may claim"), the actual assertion of competing claims typically is not a prerequisite to filing an interpleader. (4)
Unlike an interpleader action based upon Fed.R.Civ.P. 22, which requires that the court otherwise have subject matter jurisdiction (such as diversity jurisdiction under 28 U.S.C. [section] 1332), (5) statutory interpleader provides its own jurisdiction. First, with statutory interpleader, the amount in controversy can be less than $75,000; the res can be as small as $500. (6) Second, a stakeholder does not need to establish complete diversity for statutory interpleader. There need be only two adverse claimants of diverse citizenship as defined in 28 U.S.C. [section] 1332, who are claiming or may claim to be entitled to the funds at issue. (7) This is referred to as minimal diversity, "[t]hat is, diversity of citizenship between two or more claimants without regard to the circumstances that other rival claimants may be cocitizens." (8) Indeed, courts have noted that there need not be diversity between the stakeholder and all of the claimants as long as minimal diversity exists between at least two of the claimants. (9)
Third, a prerequisite for jurisdiction under 28 U.S.C. [section] 1335(a)(2) is that a stakeholder must deposit with the court either the funds at issue or a bond payable to the clerk of the court in such amount and with surety as required by the court. It creates a jurisdictional defect when a stakeholder fails to deposit the funds in question into the registry of a court, but the stakeholder can cure that defect. (10) This simultaneous deposit requirement can present a bit of a "chicken and egg" situation; the funds must be deposited into the court for the court to have jurisdiction, but Fed.R.Civ.P. 67, which governs the deposit of funds into court, requires that the party making such a deposit provide "notice to every other party" and secure "leave of court." (11) One way to deal with this situation is to file, along with a complaint for interpleader, a draft order to deposit the funds as well as the funds themselves. Counsel should consider contacting the clerk's office before filing to make sure that the draft order has the necessary language about how the court will hold the funds. …