Interpleader Proper Where Disinterested Party Had a Real and Reasonable Fear of Litigating Conflicting Claims
AARON v. MAHL (December 18, 2008)
.jpg)
Jim Aaron and Susan Scott (f/k/a/ Mahl) were cohabiting lovers in the 1990s until Aaron left Scott. At about the same time that Aaron left, Scott was sued by her former law firm for embezzlement. The firm obtained a judgment of more than a million dollars against Scott that they then assigned to Aaron. Aaron has been attempting to collect the judgment for years, following Scott from California to Indiana to South Carolina. Aaron found some assets in Indiana in a Merrill Lynch account. A state court ordered Merrill Lynch not to transfer or dispose of the assets. Aaron nevertheless obtained a writ of execution, with which Merrill Lynch refused to comply. Scott moved to quash the writ. Aaron filed suit in district court to enforce the writ and require Merrill Lynch to turn over the funds. Merrill Lynch counterclaimed and also filed for interpleader against Aaron and Scott. At Scott’s request, the court stayed the suit pending the state court’s consideration of her motion to quash the writ. The state court quashed the writ, an order upheld on appeal. The district court lifted the stay and granted Merrill Lynch summary judgment on its interpleader claims, entered final judgment pursuant to FRCP 54(b), and awarded attorney’s fees from the interpleader stake. Scott appeals from both the grant of interpleader and the award of attorney fees.
In their opinion, Judges Bauer, Wood and Tinder affirmed. Interpleader, said the Court, is used when a stakeholder is exposed to double liability or must litigate conflicting claims. The stakeholder must have a “real and reasonable” fear. Scott raise two arguments in support of her assertion that Merrill Lynch’s fear was not real: 1) that res judicata bars Aaron’s claims because of the state court rulings, and 2) that Aaron’s federal complaint was frivolous. The Court found Scott’s position incredible, noting that Merrill Lynch had been embroiled for five years in what was at its core a dispute between Aaron and Scott over Scott’s assets. Merrill Lynch had been sued or threatened with suit by both of them. The Court concluded that: 1) Scott was simply wrong in her interpretation of the res judicata effects of the state court judgments, and 2) the fact that Scott proceeded under a different legal theory after the stay was lifted than before did not make the claim frivolous. Merrill Lynch had a real and reasonable fear of competing claims and was properly granted interpleader.
On the issue of attorney fees, the Court rejected Scott’s argument that the fees should not have been awarded out of the stake while she was appealing the very order granting interpleader. Its decision on that issue rendered her argument moot. As for her claim that fees should have been charged against Aaron, the Court stated that the trial court had discretion to order that attorney’s fees be paid to a disinterested stakeholder out of the stake itself.
