An interpleader is a legal procedure used to resolve disagreements regarding who is the rightful owner of money or property. To allow a court to determine which claimant is the rightful owner, the person or organization that has the funds or property in question may submit an interpleader.
Learn more about the specifics of how an interpleader function as well as the advantages and disadvantages of utilizing one.
Definition and Examples of Interpleader
A judicial procedure known as an interpleader establishes the true owner of the money or other items that are the subject of claims from two or more parties.
The technique is used by the guardians of such funds and assets when they are currently being sued by several claimants or may soon be.
Let’s imagine that after someone passes away, three of their surviving relatives assert that they should be the ones to receive the death benefit from their life insurance. In such a scenario, the individual claimants may file three separate cases against the insurance. The insurance provider could submit a claim for interpleader action as an alternative to defending against many lawsuits.
Understanding an Interpleader
A “stakeholder” is the custodian of disputed money and property. A stakeholder can be an association, corporation, firm, or person. Stakeholders seeking interpleader action can’t have an interest in the property they hold. For example, a trustee may seek interpleader action in the disposition of an estate in which they are not entitled to inherit any money or property.
Stakeholders don’t seek interpleader action to avoid transferring property, but to determine the property’s rightful owner. Essentially, the interpleader procedure flips the script on a property dispute because the stakeholder becomes the plaintiff, and the claimants become defendants.
Interpleader Requirements
After the claimants file their cases, or in advance of several lawsuits, before any claimant files their complaint, a stakeholder may ask for interpleader action. The amount of money or property in controversy must be at least $500 in order to be the subject of an interpleader lawsuit.
National service is provided for interpleader cases under federal law. Therefore, an interpleader can be decided by a single court even though the defendants are from different jurisdictions.
Interpleader Process
The stakeholder asks the court to determine who is the rightful owner of the money or item in question through an interpleader action. The party making the interpleader must give the court clerk the money or property in question.
The interest holder is entitled to ask for reimbursement for court costs and legal fees. The stakeholder is given a portion of the property when the court decides how to divide it in order to pay its costs. The court may pay $450,000 to the victorious defendant and $50,000 to the stakeholder, for instance, if the case included a $500,000 life insurance policy and the insurance company incurred $50,000 in legal costs.
The court clerk will place any money involved in an interpleader into an interest-bearing account. After determining who is the rightful owner, the court will pay the victor the money in question together with any accumulated interest.
Pros and Cons of Interpleader Actions
Pros Explained
- Stakeholders avoid multiple lawsuits: Interpleader action helps stakeholders avoid multiple lawsuits that are filed for the same amount of money or property.
- Court rules on ownership: The shareholder is relieved of the responsibility of choosing which claimant should get the money or property when the court decides ownership. The stakeholder is also entitled to recover court and attorney fees because the law permits the plaintiff to do so.
Cons Explained
- Depleted stakes: A shareholder frequently cannot easily resolve a financial or real estate issue by requesting an interpleader. The plaintiff must continue to hire attorneys since the court can order the stakeholder to continue participating in the case until it issues a final decision. If the court awards the stakeholder compensation for legal fees and court expenses, the money will come from the award granted to the winning defendant.
Conclusion
An interpleader action can be used by parties to resolve a conflict involving money or property. However, the process works in the stakeholder’s favor at the claimants’ expense.
In order to prove their ownership to the court in an interpleader lawsuit, the defendant may need to retain legal counsel. When a defendant loses in court, they may be required to pay the plaintiff’s legal fees, court costs, and their own legal fees.
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