Limits on Interpleader

Rule 22(a)(1) lets a plaintiff join as defendants persons whose claims may expose the plaintiff to double or multiple liability, and require them to interplead.¹ Joinder is proper even when the claims lack a common origin or are adverse and independent rather than identical, and even when the plaintiff denies liability in whole or in part.² Those clauses widen who can be interpleaded, but the measure stays where the Rule puts it: exposure to double or multiple liability. Interpleader is an equitable device that lets a person facing multiple, potentially conflicting claims to a fund or property resolve them in one proceeding, avoiding multiple liability, inconsistent judgments, and suits in different courts.³

A device defined by the risk of paying twice for one stake reaches only as far as that risk, and two limits follow. The first concerns scope. One event can produce disputes among injured persons, the people who may owe them, and insurers, and the stakeholder's fund is only one piece of that web. Interpleader protects the fund; it does not turn the stakeholder's lawsuit into a forum for every controversy the event created. The second concerns completeness. The single proceeding settles the stakeholder's exposure only if the essential claimants are before the court, so a claimant who cannot be joined forces the court to decide whether the case can go on without it. Tashire marks the first limit, and Pimentel marks the second.

Not a Bill of Peace

The Supreme Court drew the scope limit in State Farm Fire & Casualty Co. v. Tashire, a bus-and-truck collision case arising under the federal interpleader statute, with jurisdiction resting on 28 U.S.C. § 1335 and on general diversity.⁴ A footnote left Rule 22 itself unconstrued. But the Court's reasoning about what the device is for does not depend on which procedure supplies it, and that is why the case belongs in a chapter on the Rule.

State Farm insured Clark, the truck driver, with limits of $10,000 per person and $20,000 per occurrence. After the Shasta County collision, suits were already pending in California and more were expected, and together they far exceeded the policy limit. State Farm paid $20,000 into court and joined Clark, Glasgow, Nauta, Greyhound Lines, and the prospective claimants as defendants. It asked the court to require all claimants to establish their claims against Clark and State Farm in that proceeding and no other, and to discharge State Farm from all further obligations under the policy, including its duty to defend Clark.⁵ The district court's injunction grew as the case went on. It was later broadened to protect Greyhound, though modified to permit the filing, but not the prosecution, of suits. As modified, it required that all suits against Clark, State Farm, Greyhound, and Nauta be prosecuted in the interpleader proceeding.⁶

The Supreme Court held that, to the extent the district court sought to control claimants' suits against the insured and other alleged tortfeasors, it exceeded the powers the statutory scheme grants.⁷ The Court's reason was one of proportion. In parties and claims, the litigation was vastly more extensive than the confines of the fund, and “the mere existence of such a fund cannot, by use of interpleader, be employed to accomplish purposes that exceed the needs of orderly contest with respect to the fund.”⁸

Interpleader can confine a whole dispute to one forum when a stakeholder faces rival claims to the fund itself and acknowledges, or denies, liability to one claimant or another. The fund is then the target of the claimants and marks the outer limits of the controversy. It is sensible for interpleader, in protecting the fund, also to protect the stakeholder from vexatious and multiple litigation, and the suits to be enjoined fall within 28 U.S.C. § 2361, which lets the court restrain claimants from instituting or prosecuting any proceeding in any state or federal court affecting the property, instrument, or obligation involved in the interpleader action.⁹

The bus collision was a different matter. Thirty-five passengers or their representatives had claims they wished to press against a variety of defendants: the bus company, its driver, the owner of the truck, and the truck driver. That one prospective defendant happened to carry an insurance policy was, the Court said, a fortuitous event that should not of itself shape the ensuing litigation. A California resident injured in California aboard a California corporation's bus, for example, should not be forced to sue that corporation anywhere but California because another prospective defendant carried insurance.¹⁰

State Farm's interest, the fulcrum of the interpleader procedure, was confined to its $20,000 fund. The court fully vindicated that interest by restraining claimants from enforcing against the insurer any judgment obtained against its insured, except in the interpleader proceeding itself.¹¹ Nothing more was needed. Victims reach the insurer's money by enforcing judgments against the insurer, and if that enforcement must run through the interpleader, State Farm cannot be made to pay more than the fund or to pay it twice. A broader order would be paid for by the plaintiffs, who would lose their choice of forum so that a party with a small stake could consolidate the litigation. The Court found nothing in the statutory scheme that requires “that the tail be allowed to wag the dog in this fashion.”¹²

Interpleader, in the Court's phrase, was never intended to be an all-purpose “bill of peace.” Had it been, careful provision would have been made to ensure that a party with little or no interest in a complex controversy could not strip truly interested parties of substantial rights, such as the right to choose the forum in which to establish their claims, subject to the generally applicable rules of jurisdiction, venue, service of process, removal, and change of venue. None of the sponsors of modern federal interpleader viewed it as a bill of peace capable of sweeping dozens of lawsuits out of the state and federal courts where they were brought and into one interpleader proceeding.¹³ The Court added that only two reported cases had tried to control the underlying tort litigation, as opposed to allocating a fund among successful tort plaintiffs, and that another district court had held it lacked statutory authority to enjoin suits against an alleged tortfeasor, as opposed to proceedings against the fund.¹⁴

What interpleader does well is allocate a limited fund among competing claimants, and in that respect it resembles a limited-fund class action.¹⁵ Equity shows the same reluctance to overreach elsewhere. Courts usually refuse to enjoin a criminal prosecution once it has begun, because the person seeking the injunction can usually present his defense in the prosecution itself.¹⁶ Tashire likewise leaves the suits against the insured and the other alleged wrongdoers to the ordinary rules of jurisdiction, venue, and removal, and gives the stakeholder an injunction only as broad as its fund requires.

The forwarder and State Farm are both stakeholders holding a deposited fund, so the fund cannot be what separates the two outcomes. The lenders' suits are contests over who takes the proceeds, which makes the fund the whole controversy. The passengers' suits in Tashire sought to establish liability for a collision against defendants who were not stakeholders, and the fund entered the picture only because one of those defendants had a policy. An order channeling enforcement against the insurer into the interpleader reaches what the fund needs. An order channeling the suits against Clark, Greyhound, and Nauta reaches the whole accident.

The fourth step carries a caution. Tashire addressed the statute's express injunction power. As the earlier section on deposit and injunctions explained, Rule 22 has no equivalent text, and its power to restrain other suits is uncertain. A Rule 22 stakeholder who asks to sweep in suits beyond the fund therefore faces an even harder case, because the reasoning that limits the express statutory power applies with at least equal force to a power the Rule does not clearly grant.

Absent Sovereign Claimants

Rule 22(a)(1) protects a stakeholder by joining the rival claimants as defendants and requiring them to interplead, so the protection works only if the claimants who matter are before the court.¹⁸ Required-joinder analysis therefore applies to interpleader as it does to other actions. When a claimant cannot be joined, the court weighs the equities under Rule 19(b) to decide whether the action can go forward without it.¹⁹ The question is sharpest when the absent claimant is a sovereign that invokes immunity.

Republic of the Philippines v. Pimentel shows the analysis. Merrill Lynch, the stakeholder, held assets claimed by the Pimentel class, which had a judgment against Marcos, and by the Republic of the Philippines and the Commission, which asserted sovereign immunity. The Supreme Court concluded that the interpleader had to be dismissed.²⁰ Three points structure the Court's treatment.

The Court treated the stakeholder as the plaintiff. A stakeholder is often neutral about the outcome while the other parties press claims in the manner of plaintiffs, but that neutrality does not overcome the statute's description of the stakeholder as the plaintiff. Section 1335(a) conditions jurisdiction in part on whether “the plaintiff has deposited such money or property” with the court or has given bond.²¹ The claimants are in some respects comparable to plaintiffs in noninterpleader cases, and their interests are not irrelevant to the Rule 19(b) balance, but the other provisions of the Rule are the ones to consult.²²

Dismissal leaves the stakeholder without a judgment determining which party is entitled to the assets, but it likely gives the stakeholder an effective defense against piecemeal litigation and inconsistent, conflicting judgments. In any later suit against it, Merrill Lynch may seek to join the Republic and the Commission and have the action dismissed under Rule 19(b) if they again assert sovereign immunity. Dismissal for nonjoinder thus serves, to some extent, the purpose of interpleader, which is to prevent a stakeholder from paying two or more parties for one claim.²³

The heavier cost falls on the claimant. The Pimentel class, which had waited years to be compensated for grievous wrongs, was left with no immediate way to recover on its judgment against Marcos.²⁴ The Court noted that matters could change. If the Sandiganbayan rules that the Republic and the Commission have no right to the assets, their claims in a later interpleader suit would be less substantial. If it rules that they own the assets, they may seek to enforce a judgment in our courts, consent to become parties in an interpleader suit where their claims could be considered, or file in another forum if they can obtain jurisdiction over the relevant persons. A new action need not be filed in the original district, provided venue and jurisdictional requirements are satisfied elsewhere.²⁵

Pimentel arose under the interpleader statute, so it is not itself a Rule 22 holding. Its reasoning transfers readily to the Rule, because Rule 22(a)(1) also speaks of the stakeholder as a plaintiff exposed to multiple liability, and Rule 19(b) governs nonjoinder in any civil action.²⁶ The case also shows that the requirements covered earlier in this chapter do not exhaust the ways an interpleader can end. A stakeholder can satisfy genuine exposure, adverse claimants, jurisdiction, and service, and still lose the action because an essential claimant cannot be brought in.

Exam questions that place a claimant outside the court's reach test whether the absence is fatal, and the answer depends on whether joinder is possible. A claimant who can be joined creates no Rule 19(b) problem. One who cannot, as when a sovereign invokes immunity, requires the court to weigh the equities and may lead to dismissal even though the stakeholder loses its judgment. Two instincts cost points. One treats the neutral stakeholder as a defendant or bystander when Pimentel calls it the plaintiff. The other assumes dismissal leaves the stakeholder defenseless, when the stakeholder likely keeps a defense against piecemeal and conflicting suits.