United States District Court, N.D. California, San Jose Division
ORDER DENYING MOTION FOR DISCHARGE FROM FURTHER
LIABILITY RE INTERPLEADED FUNDS; DENYING MOTION FOR
ATTORNEYS' FEES AND COSTS RE: DKT. NOS. 157, 158
J. DAVILA United States District Judge
a statutory interpleader action initiated by Cachet Financial
Services (“Cachet”) against eighty-two defendants
to resolve conflicting claims to $1, 050, 761.90 (the
“Interpleaded Funds”), which Cachet deposited
with this Court. Cachet moves for an order (1) discharging
Cachet from any further responsibility and any liability with
respect to the Interpleaded Funds and (2) imposing a
permanent injunction from the filing or prosecution of any
action or the assertion of claims against Cachet as to those
Interpleaded Funds. Cachet also moves for recovery of $78,
075.50 in attorneys' fees and $10, 628.52 in costs.
Defendants Pacific Diversified Insurance Services, Inc.
(“Pacific”) and Robert Talbott, Inc.
“Defendants”) oppose the motions. The Court finds
it appropriate to take the motions under submission for
decision without oral argument pursuant to Civil Local Rule
7-1(b). Based upon all pleadings filed to date, Cachet's
motions are denied.
is an electronic Automated Clearing House (“ACH”)
third party service provider that processes a variety of
electronic funds transfers (“EFT”) in the form of
payroll ACH transfers. The transfers commonly take the form
of direct deposit payroll and electronic payment processing.
The interpleaded funds came into Cachet's possession as a
result of its contractual relationship with defendant
Pinnacle Workforce Solutions (“Pinnacle”), a
company that provides payroll processing services to
employers. The remaining eighty-one Defendants are employers
who used Pinnacle's payroll services and have claims to
the Interpleaded Funds.
to a “Remarketer Agreement, ” Cachet provided ACH
transaction services for Pinnacle. Pinnacle provided weekly
instructions directing Cachet to debit specific accounts from
Pinnacle's employer clients, to aggregate their funds
within Cachet's general clearing account, and to credit
specific accounts for the purpose of making ACH payroll
payments to the employees of Pinnacle's employer clients.
about September 21, 2016, Pinnacle allegedly submitted a
written instruction file to Cachet that specified the ACH
debits and credits Cachet was to execute. Upon transferring
the funds as directed by Pinnacle, however, Cachet determined
that Pinnacle allegedly had insufficient funds in the general
clearing account to credit the employee accounts of
Pinnacle's employer clients. Cachet alleges that in
accordance with the ACH rules promulgated by the National
Automated Clearing House Association and its agreement with
Cachet's bank, Cachet provided its own funds to cover the
shortfall and credited the employees' accounts using
other funds in the clearing account. Cachet alleges that
Pinnacle was required to, but failed to fully repay Cachet
for the shortfall, which totaled $835, 748.83.
about September 27, 2016, Pinnacle submitted another ACH
instruction file and the employers' accounts were
debited. Cachet, however, refused to issue the requested
credits to various employees' accounts unless Pinnacle
cleared the alleged shortfall from the previous week.
Pinnacle allegedly refused Cachet's demand to cure the
shortfall and ceased communication with Cachet. Cachet
alleges that it therefore froze Pinnacle's funds and
alerted the authorities, including the Federal Bureau of
Investigation. According to Cachet's investigation,
Pinnacle had been engaging in fraud and is now defunct.
alleges that Pinnacle's refusal to cure the shortfall
constituted a breach of the Remarketer Agreement.
Accordingly, Cachet invoked its alleged contractual and
common law rights of offset, retaining the recently debited
funds to recover the $835, 748.83 Cachet had credited to
employees the week before. After the offset, there remained
$1, 050, 761.90 in the clearing account.
filed the instant interpleader action on November 29, 2016.
Cachet sought to secure waivers of service, signed
acknowledgments of service or personal service for each of
the defendants. Numerous defendants informed Cachet's
counsel that they did not want to be involved in this suit
and those defendants have been dismissed from the action.
Cachet brought a motion for an order allowing it to deposit
the Interpleaded Funds with the Court, which was granted.
Cachet also brought a motion for an order appointing a
Special Master under Federal Rule of Civil Procedure 53 to
oversee a reasonable claims and distribution process, which
was granted. The Special Master is currently overseeing the
Defendants, Pacific, Talbott and Pinnacle Manufacturing Corp.
have filed counterclaims against Cachet seeking to recover
the amounts Cachet debited from their respective accounts
that were used by Cachet to offset Pinnacle's obligation
to Cachet. These three Defendants allege that at the time
Cachet debited their accounts Cachet had no intention of
crediting their employees' accounts with Defendants'
funds. Litigation of the counterclaims is stayed pending
completion of the Special Master's claim determination
process and submission of the Special Master's final
report on distribution of the Interpleaded Funds.
Discharge of Liability
28 United States Code Section 2361 governs interpleader
actions. The statute provides in pertinent part that “a
district court may issue its process for all claimants and
enter its order restraining them from instituting or
prosecuting any proceeding in any State or United States
court affecting the property . . . involved in the
interpleader action until further order of the court.”
Further, Section 2361 provides that the court “shall
hear and determine the case, and may discharge the plaintiff
from further liability, make the injunction permanent, and
make all appropriate orders to enforce its judgment.”
28 U.S.C. §2361. An interpleader action usually involves
two stages. First, the court decides whether the requirements
for a statutory interpleader action have been met by
determining if there is a single fund at issue and whether
there are adverse claimants to that fund. Lee v. West
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