Jonathan C. Schwartz, principal with Bressler, Amery & Ross.

Financial institutions and other entities that hold the property of their customers routinely find themselves in the middle of disputes between strangers to the firm. Often, these disputes involve competing claims by two or more parties as to entitlement to assets held by the institution, putting the company in doubt as to whom it should distribute the assets. As a result of these conflicting claims, the institution could be exposed to double or multiple liability if it pays the assets to the wrong party.

Consider, for example, the following hypothetical scenario: Bank XYZ holds a trust account valued at $500,000 in the name of the Smith Trust. According to Bank XYZ's records, Mr. Smith is the sole trustee on the account, with no successor trustee listed. Mr. Smith passes away. Thereafter, Mr. Jones goes to Bank XYZ, presents documents purporting to show him as the successor trustee of the Smith Trust, and requests that the account be closed and a check be given to him in the amount of $500,000 for the benefit of the trust. While Bank XYZ is reviewing Mr. Jones' paperwork, Ms. Alba goes to Bank XYZ, presents documents purporting to show her as the successor trustee of the Smith Trust, and makes the same demand for the money as Mr. Jones. Consequently, both Mr. Jones and Ms. Alba have advanced conflicting claims to the same assets held by Bank XYZ, which cannot determine which of the parties is the proper successor trustee and to whom it should deliver the assets. If Bank XYZ pays the wrong party, it may be exposed to double liability as it will have to make a second payment to the correct party.

So who should Bank XYZ pay? Mr. Jones or Ms. Alba?

Thankfully, under Florida law, the institution does not have to answer these questions. Rather, the entity can take advantage of a civil procedure known as “interpleader” and have a court decide the issue. Pursuant to Florida Rule of Civil Procedure 1.240, when a party is subject to double or multiple liability, it can file a lawsuit, name the parties making claims to the same assets in question as defendants, and have a judge direct it as to how the property in dispute should be disposed. In so doing, the party that potentially was subjected to multiple liability— also known as the “stakeholder”—will likely be protected for its disposition of the property in accordance with the court's order and can avoid liability to the other parties.

Prior to the enactment of Rule 1.240, the common law required that four conditions be met in order to interplead: the competing claims must be dependent or derived from a common origin; the same property must be claimed by the defendants; the stakeholder must have no interest in the subject property; and the stakeholder must be indifferent, having not incurred any independent liability to either of the defendants. The common law standard was superseded by Rule 1.240, however, which requires only that the stakeholder “is or may be exposed to double or multiple liability.” As a result, interpleader can be used in any instance (including but not limited to conflicting requests by joint account owners, competing beneficiaries, and former spouses) where two or more parties make a demand from the stakeholder for the same assets and the stakeholder cannot determine which party is entitled to those assets.

Notably, by including the word “may,” Florida's interpleader law is a forward-looking tool that can be used not just for existing liability, but also potential liability. The potential liability, however, must be reasonable and there must be a good faith, bona fide fear of exposure to multiple liability at the time interpleader is sought. Thus, while interpleader is a powerful tool for a stakeholder that is potentially subject to multiple liability, it cannot be used when that liability is merely hypothetical or based in an unreasonable fear with no factual basis.

Finally, some stakeholders are hesitant to file an interpleader action due to the potential cost of litigation. As an initial matter, a stakeholder should not let the tail of attorney's fees wag the dog of potential multiple liability. This is especially true when the cost of multiple liability would vastly exceed the cost of litigation, which tends to be relatively small given that the majority of interpleader claims are resolved shortly after the filing of the action—sometimes even without a hearing. Additionally, Florida courts have recognized that a stakeholder in an interpleader action is entitled to recover its attorney's fees if it can prove its total disinterest in the stake other than bringing it into court so that the conflicting claims may be judicially determined and that it did nothing to cause the conflicting claims or the potential multiple liability. If awarded, these fees typically are taken directly from the assets held by the stakeholder, ensuring prompt recovery and avoiding the possibility of any collection issues.

The decision to bring an interpleader action is a significant one as it requires hiring an attorney to bring a claim in court. The upside of doing so, however, ordinarily outweighs the potential downside of multiple liability. Thus, where a stakeholder is faced with conflicting claims that may result in double or multiple liability, interpleader is a powerful option that should strongly be considered.

Jonathan Schwartz is a principal in the Fort Lauderdale office of Bressler, Amery & Ross. His practice focuses on business and securities litigation, including class action lawsuits at the trial and appellate levels, and FINRA arbitrations. Contact him at [email protected].