Statutory Basis for Fees Requires Deposit of Disputed Funds Into Court.
Code of Civil Procedure section 386(a) allows a neutral stakeholder of certain funds subject to conflicting claims to commence an interpleader action, deposit the funds into court, and obtain a discretionary fee/costs recovery by the court from the amount deposited into court. In the next case, the stakeholder did not deposit the interpled funds with the court but elected to hold the disputed funds in interest-bearing certificates of deposit even after commencing an interpleader action. After the stakeholder reached a settlement with the fighting claimants in the action, he moved for an award of $14,630 in fees and $1,323.02 in costs. Want to guess what happened?
No fees and costs were awarded to stakeholder by the trial court under the interpleader fee statute, a determination affirmed on appeal in Schneider v. Elliott, Case No. A123745 (1st Dist., Div. 5 Nov. 20, 2009) (unpublished).
The appellate court reasoned that stakeholder was not entitled to fee/costs recovery because he did not interplead the disputed funds into court, agreeing with similar analysis that was set forth in Wells Fargo Bank, N.A. v. Zinnel, 125 Cal.App.4th 393, 401 (2004). Stakeholder (an attorney) argued that it was unfair to deny him fees and costs when the funds were safely held in a way that interest was paid on the disputed funds. Unfortunately, the Legislature did not see it that way, preferring “the orderliness and dependability of the standard procedure, in which the funds are deposited with the court, usually at the outset of the case.” (Slip Opn., p. 4.)
BLOG OBSERVATION—It is not uncommon for conflicting claimants to agree that someone can retain disputed fees in a blocked, interest-bearing account. However, if the stakeholder wants to obtain fees, that person or entity needs to have the claimants agree that its fees and costs in acting in this capacity will be paid from the held funds even though not interpled into the registry of the court.