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Field v. United States

United States District Court, E.D. California

December 18, 2019

KAREN FIELD, Plaintiff,
UNITED STATES OF AMERICA, et al., Defendants.


          Troy L. Nunley United States District Judge

         This matter is before the Court on Plaintiff Karen Field's (“Plaintiff”) Motion for Discharge of Stakeholder (ECF No. 142) and Motion for Attorneys' Fees and Costs (ECF No. 149). Defendants United States and California Franchise Tax Board (collectively, “Defendants”) opposed Plaintiff's motions. (ECF Nos. 157, 158.) Plaintiff replied. (ECF Nos. 167, 168.) For the reasons set forth below, the Court hereby GRANTS Plaintiff's Motion for Discharge (ECF No. 142) and defers ruling on Plaintiff's Motion for Attorneys' Fees and Costs (ECF No. 149).

         I. Factual Background

         Plaintiff, a professional fiduciary licensed by the State of California, is the court-appointed Trustee of the DeShon Revocable Trust (the “Trust”). (ECF No. 56 at 3.) The settlor of the Trust was Henry DeShon, who is now deceased. (ECF No. 56 at 3.) During his life, Mr. DeShon embezzled funds from certain claimants in the instant action and placed the embezzled funds in the same account from which he drew funds to purchase and maintain life insurance policies on his life. (ECF No. 143 at 2.) Mr. DeShon named the Trust as the beneficiary of the life insurance policies, and the Trust therefore received the insurance proceeds following Mr. DeShon's death. (ECF No. 56 at 3.)

         Plaintiff alleges that several victims and creditors filed claims for the funds in probate court and that at least part of the funds may be owed to Defendants as unreported tax on the embezzlement income. (ECF No. 56 at 3-4.) According to Plaintiff, the total amount of claims exceeds the amount of the funds. (ECF No. 56 at 3-4.) As of July 26, 2017, Plaintiff deposited $380, 965.70 of the funds with the Court such that she is no longer in possession of any Trust assets. (ECF No. 108 at 4-5.)

         II. Standard of Law

         Interpleader is a procedure authorized by 28 U.S.C. § 1335 (“§ 1335”) and Federal Rule of Civil Procedure 22 (“Rule 22”). When a person holding funds or property (the stakeholder) encounters other parties who are making conflicting possessory claims for those funds or property, she may join the parties as defendants and require them to litigate who is entitled to the funds or property. Michelman v. Lincoln Nat. life Ins. Co., 685 F.3d 887, 893 (9th Cir. 2012); Bradley v. Kochenash, 44 F.3d 166, 168 (2d Cir. 1995); Libby, McNeill & Libby v. City Nat'l Bank, 592 F.2d 504, 507 (9th Cir. 1978). The main purpose of interpleader actions is to protect the stakeholder from the expense of multiple lawsuits and from having to contend with inconsistent or multiple determinations of liability. Texas v. Florida, 306 U.S. 398, 406-07 (1939); In re Republic of Philippines, 309 F.3d 1143, 1153 (9th Cir. 2002); Aetna Life Ins. Co. v. Bayona, 223 F.3d 1030, 1034 (9th Cir. 2000).

         There are some general requirements for interpleader. Interpleader requires that the plaintiff-stakeholder have control over a particular fund or property. Mock v. Collins, No. EDCV 04-395-VAP SGLX, 2004 WL 3619122, at *2 (C.D. Cal. Sept. 1, 2004). Further, there must be multiple, adverse claims made to that same property or fund. Libby, McNeill, & Libby, 592 F.2d at 507. Finally, the plaintiff-stakeholder must have a reasonable fear of multiple liability. Michelman, 685 F.3d at 894. The stakeholder is not required to determine the validity of the competing claims or wait to be actually sued by one or more of the claimants. Tashire, 386 U.S. at 532-33. However, the stakeholder must have “a good faith belief that there are or may be colorable competing claims to the stake, ” based on “a real and reasonable fear of exposure to double liability or the vexation of conflicting claims.” Michelman, 685 F.3d at 894. The Supreme Court has emphasized that interpleader is a remedial device that should be applied liberally. State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 533 (1967).

         If a plaintiff-stakeholder has satisfied the interpleader requirements listed above, the court may discharge the stakeholder from liability and dismiss her from the action. 28 U.S.C. § 2361; United States v. High Tech. Prod., Inc., 497 F.3d 637, 641 (6th Cir. 2007). The plaintiff-stakeholder may also request injunctive relief in which the court enjoins pending or future proceedings against it by defendants in any other court. 28 U.S.C. § 2361; United States v. Major Oil Corp., 583 F.2d 1152, 1157 (10th Cir. 1978). Further, under a court's inherent equitable powers in interpleader actions, courts have discretion to award attorneys' fees and costs to a disinterested stakeholder where the stakeholder has acted in good faith. Abe x Corp. v. Ski's Enter., Inc., 748 F.2d 513, 516 (9th Cir. 1984); Schirmer Stevedoring Co. Ltd. v. Seaboard Stevedoring Corp., 306 F.2d 188, 194-95 (9th Cir. 1962).

         III. Analysis

         In her motion for discharge, Plaintiff requests that the Court (1) find that interpleader is proper pursuant to § 1335 and Rule 22 and (2) discharge the Trustee from further liability pursuant to 28 U.S.C. § 2361 and dismiss her from the action. (ECF No. 142.) Plaintiff also filed a separate motion for attorneys' fees and costs related to the interpleader. (ECF No. 149.) The Court will address Plaintiff's motions in turn.

         A. Motion for Interpleader and Discharge

         Plaintiff argues that interpleader is justified in this case because it meets all the requirements of § 1335 and Rule 22. (ECF No. 143 at 8.) Notably, Defendants do not argue that interpleader is improper, likely because the facts in this case present a classic example of interpleader. The parties do not dispute that Plaintiff, as Trustee, had control of the now-deposited funds at issue. (ECF No. 143 at 8); see Mock, 2004 WL 3619122, at *2. Further, the parties do not dispute that there are multiple, adverse claims to those funds. See Libby, 592 F.2d at 507. Indeed, besides Defendants, there are several other victims and creditors who claim a right to the funds. (ECF No. 143 at 9.) Finally, based on the several competing claims for the funds, Plaintiff clearly has a reasonable fear of multiple liability. (ECF No. 143 at 9); see Michelman, 685 F.3d at 894. Thus, the Court finds that all the elements of interpleader are met.

         Plaintiff next argues that she is entitled to discharge of liability. (ECF No. 143 at 11.) In addition to ordering the Plaintiff's discharge and dismissing her from the action, Plaintiff also asks the Court to enjoin claimants from instituting any proceeding against her concerning the funds or liability involved in the interpleader pursuant to 28 U.S.C. § 2361. (ECF No. 143 at 11.) In opposition, Defendants argue the Court should not enter Plaintiff's discharge because (1) such relief is statutorily barred, (2) Plaintiff may be independently liable to the United States or other claimants, and (3) ...

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