Second District Does Place Restrictions On Activities For Which Neutral Stakeholder Can Seek Fee Reimbursement.
Code of Civil Procedure section 386.6(a) provides that a party to a properly commenced interpleader action “may insert is his motion, petition, complaint, or cross complaint a request for allowance of his costs and reasonable attorney fees incurred in such action. In ordering the discharge of such party, the court may, in its discretion, award such party his costs and reasonable attorney fees from the amount in dispute which has been deposited with the court. At the time of final judgment in the action the court may make such further provision for assumption of such costs and attorney fees by one or more of the adverse claimants as may appear proper.” No attorney’s fees are awardable unless the section 386 interpleader procedure is closely followed. (See Phillips v. Barton, 207 Cal.App.2d 488, 495-496 (1962).) Although this fee entitlement provision seems extremely broad in nature, the next case—an unpublished 2006 decision from the Second District—shows there are limitations on the activities that are compensable, although confirming that fees do not necessarily have to be recovered from interpled cash.
Ayscough & Marar v. Morrison, Case No. B183065 (2d Dist., Div. 4 Aug. 8, 2006) (unpublished) involved a fairly bizarre set of facts. Condensed down to its essence, Law Firm’s client, a fine arts repair company, left a Japanese fan screen (painted on gold leaf) with its Law Firm for delivery to the rightful owner. A complicated dispute festered over ownership between the claimed owner, an assignee, and the fine arts repair company. Law Firm eventually filed an interpleader complaint naming all the claimants, requesting a judicial determination of screen ownership and attorney’s fees. After more legal wrangling, Law Firm was granted a motion of discharge and awarded $12,630 in fees out of a requested $41,082.30, with the fees assessed against purported owner claimants. Two appeals followed, one from the discharge order and one from the fee award. (BLOG NOTE—Appellants did it right; they separately appealed the fee award, preserving appellate jurisdiction unlike some litigants discussed in our “Cases: Appealability” category.)
The discharge order was affirmed. That left two primary challenges to the fee award: (1) no fees could be awarded because no amount in dispute was deposited with the trial court; and (2) the fee award was excessive in amount. Appellants won on the second argument.
With respect to the first argument, Presiding Justice Epstein (writing for a 3-0 panel of the Second District, Division Four) rejected the notion that fees were only allowed in cases where cash was interpled with the court. “Given that [section 386 was amended in 1955 by adding a provision allowing fees to the interpleading party], it would be incongruous for the court to allow a party to interplead specific property and cash, and allow attorney fees, but only for interpleaded cash. Reading the statute as a whole, we believe it gives the chancellor equitable authority to allow the stakeholder to be paid for necessary expenses incurred in order to bring the matter to the court’s attention.” Because the 1955 amendments was enacted to bring California into conformity with federal practice, the Court of Appeal also cited federal decisions giving the trial court broad discretion to award fees in an equitable way not dependent solely on the nature of the interpled property. (See, e.g., Schirmer Stevedoring Co., Ltd. v. Seaboard Stevedoring Corp., 30 F.2d 188, 194 (9th Cir. 1962); Septembertide Pub., B.V. v. Stein and Day, Inc., 884 F.2d 675, 682-684 (2d Cir. 1989); Blair Holdings Corp. v. Bay City Bank & Trust Co., 234 F.2d 513, 518 (9th Cir. 1956); Corrigan Dispatch Co. v. Casa Guzman, S.A., 696 F.2d 359, 364-365 (5th Cir. 1983).)
The second argument was the winning one. “Interpleader fees, under the statute, must be limited to efforts made in filing the interpleader, defending the status of the moving party as an interpleader if such standing is challenged, and in obtaining a discharge.” Justice Epstein observed that fees incurred for such activities as negotiations, investigation, dispute over validity of claims (or their amount), cross-complaints for affirmative relief, and the like, are not allowable under the section 386.6 fee entitlement statute, citing to Sweeney v. McClaran, 58 Cal.App.3d 824, 830 (1976). A remand was necessary because many of the timesheets attached to the fee motion showed requests for compensation of activities outside the scope of the interpleader action.
Morrison is a good guide on showing what activities are fee recoverable by the neutral stakeholder who is drawn into the conflicting drama of an interpleader action. Sweeney, an older decision, also should be consulted on this topic. However, the interpleading party does not have to worry about the particular nature of the res; the court retains considerable equitable discretion in decreeing a fee award in interpleader actions.