Michael Best Partner John Finerty authored the State Bar of Wisconsin's Wisconsin Lawyer Magazine article "As I See It: Improving Interpleader: Discharge Stakeholders from Litigation."
Interpleader is a useful provision in the Wisconsin rules of civil procedure to resolve disputes over the right to money, financial instruments, or other assets, typically life insurance policy proceeds or cash in a bank account, when two or more adversaries claim an interest. Interpleader allows innocent third parties, such as banks, trusts, and insurance companies that hold funds, property or other things of value (the “stake”), to file an action and seek to deposit the stake with the court and leave the adversaries to litigate over ownership or possession themselves. Interpleader may also be used defensively as a counterclaim or cross claim; such is the situation when one adversary sues a bank for possession of disputed funds frozen in a joint account. But the statute loses its usefulness if the innocent stakeholder is not quickly dismissed from the case and is forced to endure costly litigation in which it has no interest.
The Interpleader Problem
Section 803.07 of the Wisconsin Statutes provides the general mechanism for the stakeholder to bring an action against parties that may claim an interest in the stake. The statute stops there, however; it does not dictate the disposition of claims against the innocent holder of the stake. It should. The practical effect in many cases is that disinterested third parties often are forced to incur unnecessary litigation costs or pass those costs through to interested parties and deplete the stake. Wisconsin should add a provision requiring automatic dismissal of the innocent stakeholder from the case with a discharge of liability upon tender to the circuit court of funds, property, or other things of value in its possession or control.
Section 803.07 reads:
“Interpleader. Persons having claims against the plaintiff may be joined as defendants and required to interplead when their claims are such that the plaintiff is or may be exposed to double or multiple liability. It is not ground for objection to the joinder that the claims of the several claimants or the titles on which their claims depend do not have a common origin or are not identical but are adverse to and independent of one another, or that the plaintiff avers that the plaintiff is not liable in whole or in part to any or all of the claimants. A defendant exposed to similar liability may obtain such interpleader by way of cross claim or counterclaim. The provisions of this section supplement and do not in any way limit the joinder of parties permitted in s. 803.04.”1
The statute seems self-explanatory. Perhaps that is why few cases have applied it. One case is Blunt Ellis & Loewi Inc. v. Tadych2 which held a brokerage firm was entitled to dismissal after facing competing claims for funds in a brokerage account. In that case, an investment club bought the stock of Novus Property Co. on margin at Blunt Ellis. After the margin account went negative, the investors replenished it with the proceeds of a promissory note secured by the Novus stock. However the investors defaulted on the note. Blunt Ellis then foreclosed, sold enough Novus stock to cover the note, and filed an interpleader action to tender the remaining shares of stock to the court for distribution among the investment club members. So far, so good.
The investment club members who signed the note avoided personal service of the interpleader action so Blunt Ellis served by publication. The circuit court ruled that Blunt Ellis’ service by publication was proper and the court of appeals affirmed. The investment club then argued the interpleader action was improper because Blunt Ellis had an interest in the outcome of the case to avoid liability for the sale of Novus stock that was sold to pay off the note. The court rejected that argument because the discharge at the trial level only applied to the balance of the Novus stock tendered to the court and did not preclude a separate action for an accounting. Undeterred, the investment club then argued Blunt Ellis was not a neutral stakeholder; the court rejected that argument as “simply wrong,” and affirmed dismissal.
Wisconsin’s interpleader statute mirrors Rule 22 of the Federal Rules of Civil Procedure. Federal cases applying federal rules that are the same or similar in text or purpose to the Wisconsin Rules are generally persuasive authority.3 There are significantly more federal decisions applying Rule 22 than there are decisons applying Wis. Stat. section 803.07. Under Rule 22, a federal court may dismiss a stakeholder if the stakeholder is disinterested. A court under Rule 65(e) may also issue an injunction prohibiting litigation over the stake against the disinterested stakeholder.4 Federal decisions generally recognize the importance of both timely filing an interpleader action by the stakeholder and a swift award of one or both types of relief.5
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This article was cite checked and edited by Michael Best's Director of Information & Research Services, Lou Jellings.