Opinion ID: 3011037
Heading Depth: 3
Heading Rank: 2

Heading: The Amount of the Interpleader Bond

Text: The District Court rested its dismissal on the alternative basis that the interpleader bond was insufficient because it did not cover the entire proceeds of the insurance policies -- $25 million -- or even the funds deposited in the escrow account. However, because the original interpleader bond of $3.88 million deposited with the District Court represents the amount of proceeds reasonably in controversy, we conclude that the District Court erred in dismissing the interpleader based on the alleged insufficiency of the bond. A proper deposit or bond is a jurisdictional prerequisite to bringing an interpleader. 28 U.S.C. S 1335(a)(2) (1994); In re Sinking of M/V Ukola, 806 F.2d 1, 5 (1st Cir. 1986); 7 Wright, Miller & Kane, Federal Practice and Procedure: Civil 2d S 1716 (West 1986). The stakeholder invoking interpleader must deposit the largest amount for which it may be liable in view of the subject matter of the controversy. 28 U.S.C. S 1335(a)(2) (1994); CNA Ins. Cos. v. _________________________________________________________________ In the event that the unclean hands theory is pressed on remand, we note that the record as it presently stands contains insufficient evidence to establish unclean hands. To the extent the District Court found inequitable conduct that might be equated with unclean hands, its finding was based on the assertedly improper delay and the allegedly improper decision to dissipate the insurance policy proceeds prior to filing the interpleader. We have vacated the District Court's finding of unreasonable delay, and note that even if the District Court finds on remand that the Insurers unreasonably delayed for purposes of determining whether laches should bar the action, it does not necessarily follow that the Insurers were guilty of unclean hands by acting fraudulently, unconscionably or in bad faith. See S&R Corp. v. Jiffy Lube Int'l, Inc., 968 F.2d 371, 377 n.7 (3d Cir. 1992). Furthermore, the dissipation identified by the District Court, even if proven true, would not, without a further finding of fraud, unconscionability, or bad faith, constitute unclean hands. See Douglas-Guardian Warehouse Corp. v. Ramy Seed Co., 271 F.2d 24, 28 (8th Cir. 1959) (plaintiff had clean hands even though the property he tendered to the court was insufficient to satisfy all the demands of the interpleaded claimants). 15 Waters, 926 F.2d 247, 249-50 n.6 (3d Cir. 1991); M/V Ukola, 806 F.2d at 5.4 Here, the Appellees claim entitlement to the entire $25 million in insurance proceeds, and they therefore argue that this amount should be deposited with the Court. The determination of the appropriate deposit, however, is not a mechanical process under which the court uncritically searches for the highest amount claimed by the adverse claimants and requires that amount to be deposited; rather, the determination depends upon the person who invokes the interpleader and what he asserts to be the subject matter of the controversy. M/V Ukola, 806 F.2d at 5. Amounts that are not realistically within the scope of the interpleader as pleaded are not required to be deposited or bonded to sustain federal jurisdiction. Id.; 7 Wright, Miller & Kane, Federal Practice and Procedure: Civil 2d S 1716 (West 1986) ([T]he court will have to inquire into the underlying merits of a claim to determine proper amount of the deposit or bond.). In this case, the sum put into controversy by the interpleader complaint was $3.88 million -- the unexhausted proceeds of the policy. See Aetna Cas. & Surety Co. v. Ahrens, 414 F. Supp. 1235, 1254 (S.D. Tex. 1975) (where an interpleader involves liability insurance proceeds, the money or property in dispute is the unexhausted policy limits and plaintiff need only deposit unexhausted policy limits at the time of interpleader). In the absence of a claim of collusion or fraud on the part of _________________________________________________________________ 4. Even if the District Court were correct that the interpleader bond of $3.88 million was insufficient, it erred in dismissing the complaint without affording an opportunity to cure. The law is clear . . . that [the stakeholder] [is] permitted to cure this defect by making an additional deposit with the court registry. Waters, 926 F.2d at 250 n.6. Indeed, the Insurers have bonded the sum that remains in the former Stich, Angell escrow and placed it under the District Court's jurisdiction. Although, as we explain below, we conclude that the Insurers need not have deposited sums already committed to settlements in principle to satisfy the jurisdictional requirements of the interpleader statute, that they have done so points to the error of the District Court's dismissal without affording the Insurers the opportunity to cure. 16 the Insurers in settling claims prior to the commencement of the interpleader -- and no such claim is before us -- there is no merit to the Appellees' claims to sums beyond the $3.88 million that remains in unexhausted policy proceeds.5 The sums that have been paid out or contractually committed to settle ongoing, pre-interpleader lawsuits from other state courts were not realistically part of the interpleader action as it was pleaded, and therefore these sums were not required to be deposited with the court to sustain federal jurisdiction. We note as well that the District Court's expansive view of its interpleader jurisdiction is inconsistent with the limited nature of the interpleader device. An injunction issued pursuant to 28 U.S.C. S 2361 must not be overbroad. 7 Wright, Miller & Kane, Federal Practice and Procedure: Civil 2d S 1717 (West 1986). The injunction cannot extend to litigation involving the fund that is not within the subject matter of the interpleader. State Farm Fire & Casualty Co. v. Tashire, 386 U.S. 523, 535 (1967) ([I]nterpleader was never intended . . . to be an all-purpose `bill of peace.' ); Commercial Sec. Bank v. Walker Bank & Trust Co., 456 F.2d 1352, 1355-56 (10th Cir. 1972) (injunction exceeded permissible scope when it purported to enjoin litigation beyond the res); Knoll v. Socony Mobil Oil Co., 369 F.2d 425, 429 (10th Cir. 1966) (injunction barring litigation involving title to oil-producing land void for lack of jurisdiction where the interpleaded fund consisted solely of disputed revenues produced by sale of oil taken from the land: This was an in personam exercise of jurisdiction. In an interpleader action, however, in personam jurisdiction extends only to the fund deposited with the court), _________________________________________________________________ 5. Our mandate does not prevent Baltimore or the other Appellees from seeking in other fora to recover from the Insurers personally based on other legal theories, such as the theory that they violated the Maryland Court's writ of garnishment. Our statement regarding the viability of the Appellees' claims to sums beyond the unexhausted policy proceeds is limited to the context of this interpleader action alone. Cf. DouglasGuardian, 271 F.2d at 28 (In the event that any of the defendants have claims against the plaintiff, as distinguished from claims to this property, such claims can be asserted; however, plaintiff should not be required to give a bond to cover such claims.). 17 overruled on other grounds by Liberty Nat. Bank & Trust Co. v. Acme Tool Div., 540 F.2d 1375, 1381 (10th Cir. 1976); see Continental Illinois Nat. Bank & Trust Co. v. R.L. Burns Corp., 552 F. Supp. 113, 114 (N.D. Ill. 1982) (Subject matter jurisdiction under S 1335 is limited to the resolution of conflicting claims to the fund in controversy.). Because the injunction available under S 2361 is an exception to the generally applicable rule barring federal injunctions of state court proceedings, 28 U.S.C. S 2283 (1994), federal courts should defer to parallel state proceedings that pre-date the interpleader, especially where, as here, the proceedings have resulted in judgments (or settlements in principle). See NY Life Distribs., Inc. v. Adherence Group, Inc., 72 F.3d 371, 381 (3d Cir. 1995) (district court retains equitable discretion to determine whether the issues raised in an interpleader action may be better resolved in a state court); see also 7 Wright, Miller & Kane, Federal Practice and Procedure: Civil 2d S 1717 (West 1986). The friction between the New York State Court and the District Court in this case points out the undesirable consequences of an interpleader injunction that is overly broad and unduly interferes with parallel state-court proceedings. The District Court erred when it concluded that the preinterpleader settlements were part of the res properly subject to its interpleader jurisdiction, and therefore erred in dismissing the interpleader based on the alleged insufficiency of the interpleader bond. Accordingly, we vacate the District Court's order dismissing the interpleader for lack of jurisdiction.