INTERPLEADER: NOT TYPICAL LITIGATION
An interpleader action is not a traditional dispute between a plaintiff and defendants. Rather, its purpose is to determine the defendants’ rights to something of value, often a monetary fund, that plaintiff is holding but does not claim. Amalgamated Trust & Savings Bank v. Silha, 121 Ill.App.3d 1003, 1034, 41 (1st Dist. 1984).
Illinois codified an interpleader action as parties having claims against the plaintiff that arise out of the same or related subject matter when their claims may expose plaintiff to multiple liability. 735 ILCS 5/2-409. It is the plaintiff that is the interpleader and also referred to as the “stakeholder”. Steinberg’s Dept. Store, Inc. v. Hartford Fire Ins. Co., 85 Ill.App.3d 424, 426 (3rd Dist. 1980). The court’s task is to determine the defendants’ rights as to the specific fund being held by the plaintiff/interpleader/stakeholder, and that is the subject of the interpleader action. Amalgamated Trust & Savings Bank, 121 Ill.App.3d at 1041.
In order to adjudicate defendants’ rights to a fund, the court first considers whether the interpleader action is proper based on the available evidence. Kovitz Shifrin Nesbit, P.C. v. Rossiello, 392 Ill.App.3d 1059, 1066-67 (1st Dist. 2009); also see City National Bank & Trust Company v. Durham, 306 Ill.App.3d 354, 359-60 (1940) (although the four part test applied in Durham to determine whether an interpleader action may be maintained is no longer employed with courts now looking to the plain language of 735 ILCS 5/2-409).
If the interpleader action is proper the court has the plaintiff deposit the funds with the clerk of court, and usually discharges the plaintiff from the action. Rossiello, 392 Ill.App.3d at 1067. Then the defendants attempt to prove their individual right to the fund. Id.
Common examples of a specific fund the plaintiff may be holding include an insurance policy or escrow account. See Amalgamated Trust & Savings Bank, 121 Ill.App.3d; Rossiello, 392 Ill.App.3d; First Financial Insurance Company v. Johnson, 68 Ill.App.3d 294 (2nd Dist. 1979).
In Johnson, the plaintiff/interpleader was an insurance company holding a policy for a customer that caused a car accident. Id. at 295. A number of individuals filed lawsuits against the customer, with the potential awards far exceeding the amount of the customer’s policy. Id. The plaintiff’s interpleader action named the customer and individuals who filed separate lawsuits as defendants. Id. at 295-96. At that point, the court could adjudicate defendants’ rights to the insurance policy. Id. at 298. The Johnson court also noted that judgments in the separate lawsuits need not have been rendered for the court to have jurisdiction over the interpleader. Id. Undecided judgments in the separate lawsuits were considered “claims” against the insurance company for purposes of interpleader. Id.
In Rossiello, an individual sued her employer for sexual harassment. Id. at 1060-61. The individual hired an attorney who received a contingency agreement for damages plus a $10,000 retainer. Id. The employer’s insurance company deposited the employer’s sexual harassment insurance policy with an independent law firm. Id. at 1061. The independent law firm filed an interpleader against the two parties with “claims” to the potential damages in the sexual harassment suit and retainer. Id. Namely, the individual claiming sexual harassment and her attorney. Id.
Finally, in Amalgamated Trust & Savings Bank, a bank held an escrow account with funds provided by two parties that planned to develop real estate. Id. at 1034-35. The bank stated no claim to the escrow account. Id. The interpleader allowed to court to adjudicate the parties’ claims to the escrow account without the involvement of the bank. Id. at 1041.
As a result, interpleader actions are a useful tool for a party holding valuable property to which other parties are disputing claims. The interpleader can limit its own involvement, attorney fees, court costs, and unexpected liability.
For additional reading on interpleader actions see:
Chicago Title & Trust Co v. Czubak, 85 Ill.App.3d 349 (1st Dist. 1976);
Lain v. John Hancock Mutual Life Insurance Co., 79 Ill.App.3d 264 (1st Dist. 1979);
Drabik v. Lawn Manor Sav. and Loan Ass’n, 65 Ill.App.3d 272 (1st Dist. 1978).
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