Many times business partners as well as family members will agree to deposit funds, security, or other investments with a common financial institution like a bank, brokerage firm or trust company. Sometimes accounts with money or other valuable property will be commingled into just one (1) ownership entity (ie. LLC, estate bank account), etc. Initially the relationship between everyone involved is cordial and the rights to the accounts are memorialized in a written agreement or some form of memorandum which establishes the parties’ rights to the funds in the account(s). Then something goes wrong.
This is what happened in a recent New Jersey case and motivated me to write this blog. The case involved two brothers who initially enjoyed a close and good relationship both personally and professionally. Then a disagreement developed which resulted in each brother filing a lawsuit against the other. Prior to the lawsuit, the parties had opened an account with TD Ameritrade and had deposited a significant amount of money into both a money market account as well as the brokerage division of TD.
As the relationship deteriorated, one brother believed that the other had improperly transferred funds and started making demands on TD Ameritrade to restrict access to those funds by the adversarial brother. Of course, the other brother responded in kind and went further to instruct TD to freeze the account.
Because it was unclear to TD which brother had ownership rights to the accounts, the bank filed a complaint for interpleader relief requesting that the Court determine who was the rightful owner of the account with rights to access the account. These facts and this case persuaded me to offer a discussion of the legal term called “interpleader.”
What is interpleader and how does it work?
An interpleader action permits a party holding disputed funds subject to multiple claims of ownership to file a complaint in court, deposit the funds into court, and withdraw from the litigation, thus relieving itself from further obligations to competing claimants. “Persons having claims alleging ownership or rights to funds held by a neutral party may be joined as defendants and required to prosecute their claims against each other rather than against the party holding the disputed money.”
When an interpleader case is filed the trial court initially “determines whether the interpleader complaint is proper and then decides whether to discharge the custodian from further liability to the claimants.” If it is determined that the interpleader action is properly brought, then “the court determines the respective rights of the claimants to the interpleader funds.”
What does Fredrick P. Niemann, Esq. think of interpleader and it’s use in this case?
In this case I believe the court was correct in granting interpleader relief. TD Ameritrade had no stake in the outcome of the litigation. Its rights and economic interests were not being adversely impacted. It was subject to competing claims by brothers each threating TD with consequences should they fail to follow the instructions of their side. Allowing for interpleader and/or freezing the accounts being held by TD and releasing TD from liability pending the outcome of the brothers’ underlying dispute seems to represent the best outcome and the Court clearly made the right decision.
Whenever there is an argument involving money and the custodian of the funds is essentially an innocent bystander a request for interpleader is a strategic option that should be considered by the parties to litigation where money is at risk.
To discuss your NJ business, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com. Please ask us about our video conferencing or telephone consultations if you are unable to come to our office.
By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, a NJ Business/Commercial Litigation Attorney