In my last blog post on interpleader actions, we explored the benefits a financial services firm can obtain from filing an interpleader action. An interpleader action protects the holder of assets (such as a bank account, brokerage account or life insurance policy proceeds) when there is a dispute between two or more parties claiming ownership. The holder, or stakeholder, can file an interpleader action to deposit the assets (the “res”) into court to allow the competing claimants to litigate over the ownership of the property, allowing the stakeholder to be discharged from further liabilities. Statutory interpleader and rule interpleader are the two types of interpleader actions that can be filed.
A statutory interpleader is governed by 28 U.S.C (United States Code) § 1335. Although statutory interpleader provides an independent basis for federal court jurisdiction, the statute requires minimal diversity to be present among the claimants. That is, at least two claimants must be residents of different states. The residency of the stakeholder is irrelevant. For example, the diversity requirement would be satisfied if a life insurance company of any state filed a statutory interpleader action to resolve a dispute over policy proceeds between a man from Alabama and a woman from Georgia. Additionally, the amount in controversy must be equal to or greater than $500 in a statutory interpleader action and the stakeholder must deposit with the court the amount in controversy or post a bond at the time of filing the complaint. Under 28 U.S.C. § 1397, the venue for a statutory interpleader action is proper in any district where a claimant resides. Furthermore, 28 U.S.C. § 2361 provides for nationwide service of process and bestows direct authority for federal courts to discharge the stakeholder from liability and to enjoin the claimants from further litigation over the res.
Federal Rule of Civil Procedure 22 governs a rule interpleader. (Alabama Rule of Civil Procedure 22 is similar for state court actions.) In a rule interpleader, there must be an independent basis of federal jurisdiction such as diversity or a federal question jurisdiction. If the action is based upon diversity jurisdiction, the amount or the value of the assets in question must exceed $75,000. While statutory interpleader has some clear benefits over rule interpleader such as the $500 amount in controversy requirement, minimal diversity and nationwide service of process, there are instances when rule interpleader may be a better option under the circumstances. For example, statutory interpleader is not available when all claimants are from the same state. Nor would it be an option when the stakeholder is unable to deposit the res or post a bond at the outset of the litigation. Stakeholders may also prefer rule interpleader to obtain venue under 28 U.S.C. § 1391 in the district where the assets are held rather than the residence of a claimant. Important to note is that even if the diversity requirement is met for rule interpleader, stakeholders may need to resort to state court if the amount in controversy is less than $75,000 and neither statutory nor rule interpleader is an option. Such would be the case with a New York stakeholder and two persons from Alabama making a claim to a $50,000 life insurance policy.
Here is an actual example from one of my own cases. A financial institution was the custodian for a bank’s executive retirement account. Following the failure of the bank, the executives and the bank’s receiver each claimed ownership of the account assets. Faced with the threat of multiple liabilities and multiple litigation, the custodian of the account (the stakeholder), filed an interpleader action. Following making payment of the assets into court, it received a discharge of liability and dismissal from the case, allowing the claimants to litigate over the ownership of the assets.
If you are a financial services institution caught in a dispute between two or more parties as to ownership of assets, an interpleader action can be the most cost effective and quickest way to safely untangle your company from a dispute. Err on the side of caution and consult with an attorney to assess whether and what type of interpleader action may be best to use for your unique situation.