The Connecticut Supreme Court (318CR76) recently issued a decision that provides a good overview of Connecticut’s interpleader law. An action in interpleader is an equitable claim attorneys bring on behalf of clients to resolve ownership over disputed claims to property or money. The typical case involves a situation where one party is the holder of money and there are two other parties fighting over ownership to the money. Basically, the holder of funds is giving up the money to the court and throwing up his or her hands and saying “figure it out judge.” To avoid getting sued by either or both parties claiming ownership, the holder of the disputed funds files an interpleader action in state superior court. The purpose of interpleader law is to avoid multiple lawsuits and to provide a more efficient means of resolving a dispute where the holder of money or property has no real interest in the outcome.
In its recent decision, the supreme court set forth the history of the interpleader action in Connecticut. Initially, interpleader actions were based on Connecticut’s common law. However, over 100 years ago, the Connecticut legislature specifically enacted a statutory cause of action for interpleader in section 52-484 of the General Statutes.
Section 52-484 states ‘‘[w]henever any person has, or is alleged to have, any money or other property in his possession which is claimed by two or more persons, either he, or any of the persons claiming the same, may bring a complaint in equity, in the nature of a bill of interpleader, to any court which by law has equitable jurisdiction of the parties and amount in controversy, making all persons parties who claim to be entitled to or interested in such money or other property. Such court shall hear and determine all questions which may arise in the case . . .”
In an interpleader case, the trial court will first determine if there exists legitimate adverse claims to the fund or property at issue and the property holder should be discharged. Provided such legitimate claims exist, and interpleader is proper under the circumstances, the court will then decide by trial, if necessary, the outcome of the disputed claims. Some examples where interpleader actions might apply include the following:
- Life insurance disputes. A life insurance company may know it has to pay out benefits, but there could be a dispute as to who is entitled to the funds. For example, suppose a brother and sister dispute who is entitled to a life insurance pay out. To avoid getting sued directly for improper distribution, the life insurance company brings an interpleader action and allows the brother and sister to fight it out in court.
- Trust fund. A trustee of a trust may not have a clear answer as to who to distribute funds to when a trust terminates. This happens many times when a trust exists for generations and the terms of the trust are not clear. To avoid trustee liability, the trust will bring an interpleader action if there are legitimate and competing claims to the trust property.
- Real estate dispute. In a case where a purchase and sales agreement breaks down, frequently there are issues over what to do with the deposit. The purchaser’s funds are typically held in escrow by the real estate broker. What happens when the purchaser demands the money back and the seller says no? To avoid liability to either the purchaser or seller, the real estate broker might hire an attorney to file an interpleader action. The lawsuit would name both the purchaser and seller as defendants.
In each of these cases, an attorney drafting a lawsuit for interpleader will include all of the potentially interested parties. The goal of interpleader law is to provide all interested parties an opportunity to resolve all questions of ownership in a single case. The goal of the holder of funds is to avoid the costs and expense of litigation and a potential judgment for wrongful distribution of funds. If you or your company is holding funds and multiple parties are claiming ownership, an interpleader action can be an effective means of resolving the dispute.