In Zelaya/Capital International Judgment, LLC v. Zelaya, 2014 WL 537611 (11th Cir. Oct. 23, 2014), the Eleventh Circuit recently affirmed a Southern District of Florida ruling which authorized a judgment debtor to deposit disputed funds into the court registry in satisfaction of an outstanding judgment of approximately $2.7 million, notwithstanding competing claims seeking rights to the funds.

Zelaya arose from a securities fraud suit brought in the Southern District of New York against Capital International Holdings Inc. in which the prevailing parties― Thomas Telegades, Peter Tosto, and two investment firms―collectively assigned their interests in the final judgment (the “New York Judgment”) to Zelaya/Capital International Judgment, LLC (“Zelaya Capital”), with the exception of Tosto’s retention of a right 25% of all recoveries.

Seeking to enforce the New York Judgment, Zelaya Capital brought an action in the Southern District of Florida to issue a writ of execution against the judgment debtor, John Zelaya, and writs of garnishment to several financial institutions it believed administered accounts containing Zelaya’s property. The Securities and Exchange Commission (SEC) subsequently intervened in the action claiming an interest in Tosto’s right to 25% of all recoveries from the New York Judgment in connection with an unrelated judgment.

Zelaya then deposited the full amount of the judgment, including post-judgment interest, into the district court’s registry which prompted the district court to dissolve the writs of garnishment against all of the banks and award Zelaya with a satisfaction of the New York Judgment.

On appeal, Zelaya Capital argued that permitting Zelaya to interplead the disputed funds amounted to an impermissible collateral attack on the New York Judgment and Zelaya’s deposit of funds with the district court constituted an impermissible freeze and injunction of its assets.

The Eleventh Circuit, however, found these arguments unpersuasive. Not only because Zelaya did not challenge the validity of the New York Judgment, but also because Federal Rule of Civil Procedure 67 expressly authorizes the deposit of funds into the court registry and is “broad enough to authorize the payment into court of a judgment, notwithstanding that there are adverse claims to the proceeds of the judgment”. Id. at *6 (quoting United States Overseas Airlines v. Compania Aerea Viajes Expresos De Venezuela, S.A., 161 F.Supp. 513, 515 (S.D.N.Y.1958)).  The Court explained that Rule 67 is designed to address exactly the circumstances presented by operating to “relieve a party who holds a contested fund from responsibility for disbursement of that fund among those claiming some entitlement thereto.” Id. at *3 (quoting Alstom Caribe, Inc. v. Geo. P. Reintjes Co., 484 F.3d 106, 113 (1st Cir.2007)).

Finally, Eleventh Circuit reasoned that the underlying purpose of the writ under Florida law was satisfied where Zelaya Capital “needed no further help in securing its debt” because the entire amount of the New York Judgment was being safeguarded by the district court. Thus, the District Court properly dissolved the writs of garnishment against the banks. Id. at *4.

Zelaya confirms that where a creditor’s right to or interest in a particular set of funds is questioned, “the law does not require a judgment debtor to decide the validity of competing claims.” Id. at *6.  Accordingly, Zelaya is instructive in that it highlights the oft-ignored alternative to remaining in the crossfire of competing creditors; depositing the disputed funds into the court registry and thereby reducing the risk of potential exposure over the disposition of such funds.