Interpleader is a civil procedure device 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, such as when a plaintiff with a personal injury claim has a dispute with medical providers over the payment out of a settlement for medical services provided to treat the plaintiff's injuries.
Terminology and overview 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 (a Latin word meaning object or thing). 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.
Application Suppose a person dies with a valid life insurance policy in effect. The insurance company is ready, willing, and able to pay the policy proceeds in specified percentages to named beneficiaries as last directed by the policyholder, but becomes aware of a dispute among them and/or third parties as to who are the proper beneficiaries or the proper distribution of proceeds among the beneficiaries. Such a dispute commonly arises from interpersonal friction among the policyholder's survivors. One specific situation commonly seen in the reported cases is where the policyholder was allegedly murdered by a beneficiary (which would disqualify that beneficiary from receiving any proceeds).Actual examples of this scenario include Davis v. Aetna Life Insurance Company, 279 F.2d 304 (9th Cir. 1960) and Prudential Insurance Company of America v. Tull, 690 F.2d 848 (4th Cir. 1982).
To resolve such a dispute, 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.
It originally applied to bailees subject to multiple actions of detinue, and privity was required either between the parties or in detinue, in order for the defendant to be able to sue for garnishment.
In contrast, the equitable bill of interpleader required that:
The same thing, debt, or duty must be the res claimed by all the claimants; All the adverse titles or claims must be dependent or derived from a common source; The stakeholder must not have or claim any interest it the res, The stakeholder must have incurred no independent liability to any claimant, i.e. he must be perfectly indifferent between them.
Subsequent development in England and Wales In 1831 Parliament passed the Interpleader Act 1831, which 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, which allowed a defendant to interplead claimants even if the 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.
+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;RSC Order 17 Rule 1(1)(a) 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,RSC 17 Rule 1(1)(b)] 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 CCR Rule 33 Part I 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.CCR Rule 33 Part II
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.RSC Order 17 Rule 3 (4) and CCR Order 33 Rule 6 (4)
As a result of the coming into force of Part 3 and Schedule 12 of the Tribunals, Courts and Enforcement Act 2007 on 6 April 2014, Order 17 and Order 33 were replaced by the new Parts 83-86 of the Civil Procedure Rules., supplemented by Practice Direction 83 - Writs and Warrants - General Provisions and Practice Direction 84 - Enforcement by taking control of goods 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. In addition, s. 65 of the 2007 Act declared:
Procedures are in effect for claims where:CPR 85.1(2)
(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 creditor 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 creditor or other party claiming an interest. EWHC 219 (QB), par. 8-9
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." EWHC 219 (QB), par. 31
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.2 Story, Equity Jurispruedence § 824 (1st ed. 1836). 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 , 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 sustained that a defensive interpeader in an action at law in federal court could be taken under Judicial Code section 274b added by that authorized the interposing of equitable defenses in actions at law.