Interpleader

Interpleader is civil procedure that allows a plaintiff or a defendant to initiate a lawsuit in order to compel two or more other parties to litigate a dispute. An interpleader action originates when the plaintiff holds property on behalf of another, but does not know to whom the property should be transferred. It is often used to resolve disputes arising under insurance contracts.

Usage[]

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 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.[1]

Application[]

For example, suppose a person dies with a life insurance policy. However, the insurance company knows there will be a dispute over who should receive the proceeds. The insurance company can file an interpleader action. The insurance company is the stakeholder, the claimants are the persons who might be beneficiaries under the policy, and the cash value of the policy benefit is the res. Under the proceeding as originally developed, the stakeholder would deposit the res with the court, and then the defendants would have their claims adjudicated by the court. Statutory modifications to the procedure, which vary by jurisdiction, sometimes allow the stakeholder to retain the res pending final disposition of the case. Typically, once the stakeholder deposits the res into the court (for example, the face value of the insurance policy), the stakeholder is released from the action and the claimants proceed against each other to determine which of them is legally entitled to the res. A disinterested stakeholder is entitled to costs including attorney's fees. Except for the denominations of the parties, the action proceeds for the most part as other civil lawsuits in the same jurisdiction.

In some jurisdictions, the res will earn interest at the legal rate until disbursed. The successful claimant is entitled to the interest as well as the principal.

History[]

Origins in common law and equity[]

Interpleader had its origins as a civil procedure at common law, which was later adopted and expanded by the Court of Chancery in its equitable jurisprudence. The common law procedure became obsolete over time and fell into disuse, but it remained active in the courts of equity.[2]

It originally applied to bailees subject to multiple actions of detinue,[3] and privity was required either between the parties or in detinue, in order for the defendant to be able to sue for garnishment.[4]

In contrast, the equitable bill of interpleader required that:

  1. The same thing, debt, or duty must be the res claimed by all the claimants;
  2. All the adverse titles or claims must be dependent or derived from a common source;
  3. The stakeholder must not have or claim any interest it the res,
  4. The stakeholder must have incurred no independent liability to any claimant, i.e. he must be perfectly indifferent between them.[5]

Subsequent development in England and Wales[]

In 1831 Parliament passed the Interpleader Act 1831[6] that authorized a bill of interpleader to be brought in the common law courts (such as the Court of Common Pleas) by:

  • sheriffs who have executed on goods or chattels that a third party makes a claim to, and defendants in actions of assumpsit, debt, detinue or trover, who:
  • do not claim any interest in the subject of the subject matter of the suit, but the right to them is claimed or supposed to belong to a third party who has sued or expect to sue for the subject matter of the suit;
  • has not colluded in any matter with such third party
  • is ready to bring into court or pay or depose of the subject matter of the action in such manner as the court directs.

Statutory interpleader was extended by Common Law Procedure Act 1860,[7] which allowed a defendant in Courts of Law to interplead claimants even if title of the claimants to the res have no common origin, but are adverse to and independent of one another.

The statutory rules governing interpleader proceedings were replaced by rules of court that came into force upon the passage of the Supreme Court of Judicature Act 1873 (as amended by the Supreme Court of Judicature Act 1875), which came to be known as Order 17 of the Rules of the Supreme Court. A similar provision was enacted in the County Court Rules, known as Order 33 in the Rules of 1981.[8]

Circumstances where interpleader proceedings could be brought (1873-2014)
In the High Court (Order 17) In the County Court (Order 33)
  • a person is under a liability in respect of a debt or in respect of any money, goods or chattels and he is, or expects to be, sued for or in respect of that debt or money or those goods or chattels by two or more persons making adverse claims thereto;[9] or
  • a sheriff or a person expected to be sued by two or more persons as claims made to any money, goods, or chattels taken or intended to be taken by a sheriff in execution under any process, or to the proceeds or value of any such goods or chattels, by a person other than the person against whom the process is issued,[10]
  • a person is making a claim to or in respect of goods seized in execution of the County Court or the proceeds or value thereof [11]
  • a person is under a liability in respect of a debt or any money or goods and he is, or expects to be, sued for or in respect of the debt, money or goods by two or more persons making adverse claims thereto.[12]

In cases where a person was subject to multiple claims, the applicant had to show that he:

  • claimed no interest in the subject-matter in dispute other than for charges or costs;
  • did not collude with any of the claimants to that subject-matter; and
  • was willing to pay or transfer that subject-matter into court or to dispose of it as the court may direct.[13]

As a result of the coming into force of Part 3 and Schedule 12 of the Tribunals, Courts and Enforcement Act 2007[14] on 6 April 2014,[15] Order 17 and Order 33 were replaced by the new Parts 83-86 of the Civil Procedure Rules.[16] This replaced the interpleader proceedings previously governed by the court rules by the procedure of "enforcement by taking control of goods" under newly passed regulations.[17] In addition, s. 65 of the 2007 Act declared:

(1)This Chapter replaces the common law rules about the exercise of the powers which under it become powers to use the procedure in Schedule 12.

(2)The rules replaced include—

(a) rules distinguishing between an illegal, an irregular and an excessive exercise of a power;
(b) rules that would entitle a person to bring proceedings of a kind for which paragraph 66 of Schedule 12 provides (remedies available to the debtor);
(c) rules of replevin;
(d) rules about rescuing goods.

Procedures are in effect for claims where:[18]

(a) a person makes an application to the court claiming that goods of which control has been taken belong to that person and not to the debtor;
(b) a person makes an application to the court claiming that goods, money or chattels taken or intended to be taken under a writ of execution or the proceeds or value of such goods or chattels belong to that person and not to the debtor; and
(c) a debtor, whose goods have been made subject to an enforcement power under an enactment, writ or warrant of control or have been taken or are intended to be taken under a writ of execution, claims that such goods or any of them are exempt goods.

The 2014 amendments have proved to be problematic, in that they now fail to cover a situation where:

  • a third party has given notice that they believe they are entitled to the goods under Rule 85.4(1),
  • a counter-notice is duly given by the cror under Rule 85.4(3), but
  • the third party then fails to commence the application to the court which is required under Rule 85.5, and
  • the provisions of Rule 85.5 impose no time limit by which the application under that Rule must be made by the cror or other party claiming an interest.[19]

In February 2018, several High Court enforcement officers asked the Queen's Bench Division for directions as to how to proceed in such circumstances, and the Master ruled that the repeal of Rule 17 had the effect of reviving the equitable form of interpleader proceedings, as the 2007 Act did not expressly abolish the interpleader action itself, and "interpleader statutes are not at all to limit or affect the equitable jurisdiction of the court to entertain an interpleader suit or action."[20][21]

In the United States[]

Formerly a plaintiff had to disavow any claim to the res in order to avail himself of the interpleader remedy, but this requirement has also been relaxed or abolished in most jurisdictions by there being a Bill in the Nature of Interpleader rather than a strict bill of interpleader.[22] A plaintiff may now argue that neither of the claimants has a right to the property at issue. For example, a person dies with a life insurance policy that excludes coverage for suicide. Two people come forward claiming to be the beneficiary named in the policy. The insurance company believes that the deceased committed suicide, but the claimants believe the death was by accident. The insurance company could interplead the two claimants and simultaneously deny the claims.

The Supreme Court of the United States ruled in New York Life v. Dunlevy 241 U.S. 518, that for a claimant to be bound by an interpleader that party must be served process in a way that obtains personal jurisdiction. In 1922 the United States Supreme Court in Liberty Oil Co. v. Condon Nat. Bank 260 U.S. 235 sustained that a defensive interpeader in an action at law in federal court could be taken under Judicial Code section 274b added by 38 Stat. 956 that authorized the interposing of equitable defenses in actions at law.

The Federal Interpleader Act of 1917 39 Stat. 929 was enacted by the 64th United States Congress approved February 22, 1917 to overcome the problem with an interpleader when the claimants live in different states raised in New York Life v. Dunlevy. Federal Interpleader Act of 1917 allowed an insurance company, or fraternal benefit society subject to multiple claims on the same policy to file a suit in equity by a bill of interpleader in United States District Courts and providing nationwide service of process.[23] The policy must have a value of at least $500 claimed were claimed or may be claimed by adverse claimants; which is less than the amount in controversy of $3,000 in Judicial Code §48(1) then required for general diversity jurisdiction and two or more of the beneficiaries must live in different states. In 1926 it was repealed and replaced by, 44 Stat. 416 approved May 8, 1926, which added to those who can bring suit casualty company and surety company, empowered the court to enjoin claimant from proceeding in any state or other federal court on the same liability, adding provisions as to the proper venue for the interpleader in certain cases but required that there must be actual claims by eliminating the words "may claim" that were in the 1917 act. In 1936 the Federal Interpeader Act was again repealed and replaced by the Federal Interpleader Act of 1936, 49 Stat. 1096, approved Jan. 20, 1936, drafted by Zechariah Chafee which codified it in as United States Judicial Code §41(26), and established the modern statutory interpleader allowing suite to be brought by any person, firm, corporation, association or society having custody of money or property or insurance policy or instrument valued at $500 or more which there are two or more adverse claimant who are citizens of different states, whether or not the claims have common origins, identical, adverse or independent of each other, and allowed it to be an equitable defense in actions at law, Judicial Code §274b.[24][25] When the United States Judicial Code was enacted into United States Code as positive law in 1948, 62 Stat. 931 approved June 25, 1948, it was reconstituted as 28 U.S.C. § 1335, 1397, and 2361.

Federal Courts have held that because of the deposit of the res with the court an interpleader action is an action to determine the validity of competing claims to identified property that served may be under 28 U.S.C. § 1655 which authorize other forms of service to obtain in rem jurisdiction over absent defendants.[26]'

Different types of interpleader in U.S. Federal practice[]

There are two specific types of interpleader actions in the United States federal courts. Statutory Interpleader governed by 28 U.S.C. § 1335, and Rule Interpleader established by Federal Rules of Civil Procedure 22.

Statutory Interpleader[]

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. 28 U.S.C. § 1335(b).

The may claim language added in 1948 codification to Title 28 of the United States Code in the definitions of claim allow interpleader for unliquidated claims, such as multiple claimant to a liability insurance policy injured in an accident before they are reduced to judgment or settled, however the injunction may only restrain the claimants from suits making claims against the res not suits to liquidate the claim or against third parties.[28] The procedures for a Statutory Interpleader action are governed by the Federal Rules of Civil Procedure. Rule 22(b).

Rule Interpleader[]

(Current as of December 1, 2011)

Interpleader is also allowed by the Federal Rules of Civil Procedure 22. Rule 22 is known as rule interpleader. Rule interpleader provides a remedy for any person who is, or may be exposed to double or multiple liabilities. The stakeholder may invoke Rule 22 as a plaintiff, or by counter-claiming in an action already started against him by one, or more claimants. There are specific differences between Statutory Interpleader, and Rule Interpleader:

Bankruptcy[]

In bankruptcy court interpleader under Federal Rules of Civil Procedure 22 may be maintained as an adversary proceeding under Federal Rules of Bankruptcy Procedure 7022.

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.

(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."

Interpleader in U.S. State practice[]

The Uniform Commercial Code §7-603 adopted in all 50 of the states of the United States provides that a bailee when more than one person claims title to or possession of the goods under document of title (warehouse receipt or bill of lading) may bring an interpleader as an original action or as a defense to a suit for nondelivery.

In Louisiana interpleader is called concursus.[30] In most states there are statutes or court rules that provide for interpleader similar to the federal rules.

See also[]

Further reading[]

References[]

  1. ^ Chafee Jr.; Zechariah (June 1946). "Broadening the Second Stage of Interpleader". Harvard Law Review. 54 (4): 541–562. JSTOR 1334420. 
  2. ^ Maclennan 1905, pp. 5-6.
  3. ^ Maclennan 1905, p. 6.
  4. ^ Maclennan 1905, p. 7.
  5. ^ Maclennan 1905, p. 11.
  6. ^ An Act to enable Courts of Law to give Relief against adverse Claims made upon Persons having no Interest in the Subject of such Claims, 1831, c. 58
  7. ^ Common Law Procedure Act, 1860, 1860, c. 126, s. 12 et seq.
  8. ^ UK Parliament. The County Court Rules 1981 as made, from legislation.gov.uk.
  9. ^ RSC Order 17 Rule 1(1)(a)
  10. ^ RSC 17 Rule 1(1)(b)]
  11. ^ CCR Rule 33 Part I
  12. ^ CCR Rule 33 Part II
  13. ^ RSC Order 17 Rule 3 (4) and CCR Order 33 Rule 6 (4)
  14. ^ UK Parliament. Tribunals, Courts and Enforcement Act 2007 as amended (see also enacted form), from legislation.gov.uk.
  15. ^ UK Parliament. The Tribunals, Courts and Enforcement Act 2007 (Commencement No. 11) Order 2014 as made, from legislation.gov.uk.
  16. ^ UK Parliament. The Civil Procedure (Amendment) Rules 2014 as made, from legislation.gov.uk., supplemented by Practice Direction 83 - Writs and Warrants - General Provisions and Practice Direction 84 - Enforcement by taking control of goods
  17. ^ UK Parliament. The Taking Control of Goods Regulations 2013 as made, from legislation.gov.uk.
  18. ^ CPR 85.1(2)
  19. ^ [2018] EWHC 219 (QB), par. 8-9
  20. ^ [2018] EWHC 219 (QB), par. 31
  21. ^ Maclennan 1905, p. 17.
  22. ^ 2 Story, Equity Jurispruedence § 824 (1st ed. 1836).
  23. ^ Cleary, James T. "Federal Interpleader and Some Recent Cases". Georgetown Law Journal. 26: 1017. 
  24. ^ Chafee, Zecheriah (April 1936). "Federal Interpleader Act of 1936: I". Yale Law Journal. 45 (6): 963. doi:10.2307/792068. Retrieved 1 January 2013. 
  25. ^ Chafee, Zecheriah (May 1936). "Federal Interpleader Act of 1936: II". Yale Law Journal. 45 (7): 1161. doi:10.2307/792010. Retrieved 1 January 2013. 
  26. ^ Estate of Swan v O'Gilvy 441 F.2d 1082 (5th Cir. 1971), Guy v Citizens Fidelity Bank and Trust Company 429 F.2d 828 (6th Cir. 1970), Bache Halsey Stuart Shields, Inc. v. Garmaise 519 F.Supp. 682 (U. S. District Court, S. D. New York, 1881).
  27. ^ Chafee, Zecheriah (April 1936). "Federal Interpleader Act of 1936". Yale Law Journal. 45 (6): 963. doi:10.2307/792068. Retrieved 1 January 2013. 
  28. ^ State Farm Fire and Cas. Co. v. Tashire 386 U.S. 523, 530 (1967)
  29. ^ Commercial Union Insurance Co. v. U.S. 999 F.2d 581 (1993 DC Cir.)
  30. ^ Sarpy, Leon. "Concursus: Interpleader in Louisiana". Tulane Law Review. 35: 531. 

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