CALIFORNIA ATTORNEY'S FEES

Interpleader, Prevailing Party: 2/7 DCA Affirms Trial Court’s Denial Of Attorney Fees And Costs Sought Against Interpleading Plaintiff By Defendant Who Obtained Summary Judgment

Defendant In An Interpleader Action Cannot Be The Prevailing Party As To The Interpleader Because There Are No True Adverse Interests, And Claims Of Collusion Between Between Interpleader And Other Defendant Must Be Made During Initial Phase Of Proceeding.

            In Grupo Deco California v. Downs, Case Nos. B305748/B308965 (2d Dist., Div. 7 October 17, 2022) (unpublished), commercial tenant filed a complaint in interpleader against the two separate parties claiming entitlement to the rent payments – the trustee of a revocable trust, and an LLC.  After the trial court ruled in favor of the Trustee, granting her motion for summary judgment, she moved pursuant to the lease agreement and Code Civ. Proc. §§ 1032 and 1033.5 as the prevailing party for attorney fees and costs jointly and severally against the LLC and the interpleader plaintiff/stakeholder. The trial court awarded some fees/costs against the LLC, but ruled that fees/costs were not recoverable against the interpleader – finding that a defendant in an interpleader action cannot be the prevailing party “because there are no true adverse interests”; and because there was no net monetary recovery against interpleader.  Trustee appealed.

            The 2/7 DCA agreed with the trial court’s finding and affirmed – citing its holding in Cantu v. Resolution Trust Corp., 4 Cal.App.4^th 857, 881 (1992) [“An interpleader action is not adversarial as between a claimant and the stakeholder and, hence, Cantu [the claimant] could not prevail against Lincoln [the stakeholder], or vice versa.”]. 

            The panel also found, just as the trial court had, that Trustee was not entitled to fees based on her argument that interpleader had colluded with the LLC.  “[A]n interpleader action may not be maintained ‘“upon the mere pretext or suspicion of double vexation.”’’’ (Placer Foreclosure, Inc. v. Aflalo, 23 Cal.App.5th 1109, 1113(2018); accord, Westamerica Bank v. City of Berkeley, 201 Cal.App.4th 598, 608 (2011) [the interpleader plaintiff “‘must allege facts showing a reasonable probability of double vexation’ [citation] or a ‘valid threat of double vexation’”].)  However, such a challenge or objection is forfeited if it is not made during the initial phase of the proceeding.  Nothing in the record indicated that Trustee ever demurred to the complaint in interpleader or formally challenged interpleader’s right to interplead the rent funds. 

Interpleader: Interpleading Cross-Complainant, Likely Not A Neutral Stakeholder Given Competing Claims, Properly Denied $450,000 In Attorney’s Fees Where Cross-Complainant Had Use Of $5.5 Million In Fund For Four Years

Interpleading Party Held And Managed The Bond Portfolio Under An Unusual Loan Agreement.

            CCP § 386.6(a) allows a court discretion to award costs and reasonable attorney’s fees to an interpleading party obtaining a discharge.  Because this is an equity-driven decision-making process (Hood v. Gonzales, 43 Cal.App.5^th 57, 71 (2019)), the abuse of discretion standard guides in most situations whether a grant or denial of fees is proper.

            Attorney’s fees were denied to an interpleading cross-complainant in a unique bond portfolio management case, BNY Mellon Bank v. First Foundation Bank, Case No. G059083 (4^th Dist., Div. 3 Sept. 9, 2021) (unpublished) [a 3-0 decision authored by Acting Presiding Justice Bedsworth].  In this sui generis factual setting, the interpleading cross-complainant had use of $5.5 million in funds for four years, with the lower court unwilling to find cross-complainant was a neutral stakeholder giving competing claims against that party by others.  The lower court refused to discharge cross-complainant, preferring to dismiss the cross-complaint and deny a fee request for $450,000.  The 4/3 DCA panel affirmed both determinations.  With respect to fees, two reasons sustained the denial:  (1) there was no discharge of cross-complainant, so the statutory condition for fees was not met; and (2) there was no abuse of discretion given that cross-complainant had the use of the $5.5 million for four years even though trying to use the interpleader action as a chip to obtain a dismissal of a voidable transfer complaint against another party (with the specter of fee exposure under section 386.6(a)). 

Interpleader: $8,424.80 Interpleader Fee Award Affirmed In Settlement Agreement Dispute

Once Interpleader Found Necessary, Interpleader Losing Party Had To Bear Costs/Fees.

            In Eskenazi v. 301 Culver, LLC, Case No. B302398 (2d Dist., Div. 7 Aug. 16, 2021) (unpublished), a settlement agreement was in controversy, with one party filing an interpleader action relating to contested settlement funds at issue.  Eventually, the interpleading party prevailed and sought costs and reasonable attorney’s fees under Code of Civil Procedure section 386.6(a), a discretionary fee-shifting provision.  The trial judge awarded $8,424.80 in costs and fees out of the $60,523.51 deposited into court.  The appellate court affirmed, finding no abuse of discretion given that the interpleader resolved the dispute over the deposited money.  (Accord, Wertheim, LLC v. Omidvar, 3 Cal.App.5^th 921, 925 [reviewed in our October 2, 2016 post].)

Interpleader: $16,000 Fee Award To Neutral Stakeholder Interpleading About $91,000 Was Appropriate

Even Though Award Larger Than Most Interpleader Fee Awards, No Abuse Of Discretion In Denying $83,473.09 Fee Request By Neutral Stakeholder Plaintiff. 

            In California Apartment Properties Ltd v. Norton, Case No. B291601 (2d Dist., Div. 2 Dec. 20, 2019) (unpublished), an investment advisor—the neutral stakeholder—filed an interpleader action against ex-wife, ex-husband’s estate, and two sons, and deposited almost $91,000 of disputed funds into the court registry.  After plaintiff was discharged from liability, it sought $83,473.09 in attorney’s fees under CCP § 386.6(a) [a statutory fee provision relating to interpleaders].  The lower court awarded $16,000 out of the requested fees, determining it was a larger fee award than usual in interpleaders but finding the matter was more complicated than the general vanilla interpleader.  The 2/2 DCA affirmed those conclusions as well as the amount of the fees given the trial judge’s conclusion that the request was exorbitant. 

Assignment, Interpleader: Law Firm Loses Its First Priority Position For Failing To Perfect Security Interest In Assignment, And Gets The Privilege Of Paying Interpleader Plaintiff’s Attorney’s Fees To Boot

Code of Civil Procedure Section 697.590 governed this one.

        MDQ, LLC v. Gilbert, Kelly, Crowley & Jennett LLP, Case No. B283025 (2d Dist., Div. 8 February 27, 2019) (published) provides a valuable lesson in the importance of perfecting assigned security interests through the filing of a financing statement pursuant to Division 9 of the Commercial Code.

        Floyd Mutrux was one of the authors of a Tony-award winning Broadway musical, “Million Dollar Quartet.” Four limited liability companies (LLCs) held production rights or were producers of the musical. Mr. Mutrux and/or his corporation (Mutrux) was a member, manager, shareholder or owner of each of the LLCs, and held certain economic rights to be allocated profits, and receive distributions and payments from the LLCs.

        In 2012, a record company filed a lawsuit against Mutrux. A proposed statement of decision was filed by the trial court, on April 14, 2015, in favor of the record company to the tune of over $1 million. Eight days later, Mutrux and the law firm representing him in the record company litigation executed a “Notice of Assignment and Irrevocable Letter of Direction” assigning a portion of Mutrux’s economic interests in the LLCs to the law firm for the payment of legal fees until payments totaling $175,000 had been made. A few months later, on August 5, 2015, the trial court entered judgment in favor of the record company in the amount of $965,851.47. Then, on August 21, 2015, the record company received a charging order – pursuant to Corporations Code section 17705.03 – directing the LLCs “to pay any and all profits, distributions, disbursements or other payments otherwise due to [Mutrux] . . . directly to counsel for Judgment Creditor [record company], until the August 5, 2015 judgment was fully satisfied.

        You can guess what came next. The LLCs filed a complaint in interpleader alleging conflicting claims by the record company and law firm to the applicable distributions owed to Mutrux. The LLCs then deposited the distributions at issue to interpleader funds. Before trial in this matter, the trial judge released the LLCs from any and all liability to the interpleader defendants, ordered them to continue to deposit any additional distributions with the court, and ordered $11,500 payed to the LLCs from the interpleader funds for their attorney fees and costs.

        At trial, the record company argued that, pursuant to Code Civ. Proc. section 697.590, it had first priority to the distributions as the law firm had failed to perfect its security interest by filing a financing statement (UCC-1). The record company further argued that the $11,500 payment to the LLCs for attorney fees should be paid by the law firm rather than out of the interpleader funds. The trial court agreed – finding the assignment to the law firm inferior to the judgment lien recorded by the record company, and ordering the law firm to pay the LLCs attorney fees.

        The law firm appealed to no avail. The 2/8 DCA affirmed the trial court’s judgment – finding the priority of a perfected judgment lien over an unperfected security interest to be clearly established by section 697.590, and finding no abuse of discretion regarding the trial court’s order for payment of the LLCs attorney fees – to which it was entitled under Code Civ. Proc. section 386.6.

Appealability, Interpleader: Losing Defendants’ Appeal Of Adverse Discharge Order After Fee Recovery Was Timely For Purposes Of Preserving Discharge Review From The Later Fee Order

However, Defendants Still Lost.

            The facts are not really relevant for purposes of our post in Ponticelli v. Ason, Case No. B277763 (2d Dist., Div. 1 July 30, 2018) (unpublished) because the prime issue was whether defendants in an interpleader action timely filed an appeal on the merits of the discharge by appealing the later order awarding attorney’s fees and costs based on the earlier discharge. The appellate court answered, “yes”--the discharge order was appealable from the later fee recovery order, but still decided against the defense on the merits. In doing so, it agreed with Sweeney v. McClaran, 58 Cal.App.3d 824, 828 (1976) that a final judgment, including the discharge, only applies when there is an order of discharge and an order for payment of attorney’s fees for finality appeal purposes.

Interpleader: Where Foreclosure Trustee Also Sought Fee Reimbursement And Other Relief, Settlement Of Interpleader Action Was Not Moot

Trial Judge Correctly Dismissed Trustee’s Interpleader Complaint.

           In Placer Foreclosure, Inc. v. Aflalo, Case No. B268589 (2d Dist., Div. 6 May 30, 2018) (published), a foreclosure trustee foreclosed an owner’s property based on a deed of trust, with the sale resulting in surplus proceeds of $ 974,786.81. The former owner sued trustee and foreclosure buyer for wrongful foreclosure. Trustee brought an interpleader complaint, disavowing any interest in the surplus proceeds, arguing there were conflicting claims between former owner and foreclosure buyer, seeking recovery of interpleader attorney’s fees, seeking a discharge of liability, and seeking a dismissal of the wrongful foreclosure action. The trial judge sustained former owner’s demurrer to the interpleader action.

            Trustee lost his appeal of the judgment of dismissal based on the demurrer ruling.

            Although trustee and former owner reached a settlement, it did not moot the trustee’s fee reimbursement request, liability discharge request, or wrongful foreclosure dismissal request, which were all at play in the demurrer ruling. The appellate court agreed that trustee was not exposed to double vexation because it had a mandatory duty to distribute the surplus proceeds to former owner, did not face competing claims between lienholders, and only faced the potential that former owner might have to refund surplus proceeds he received to the foreclosure buyer (but that latter point did not really involve trustee). The judgment of dismissal of the interpleader was affirmed, with the surplus proceeds ordered to be distributed to foreclosure buyer under the parties’ settlement agreement.

Fee Clause Interpretation, Interpleader, Section 1717: Bank Winning Fee Award For Prosecuting Interpleader Cross-Complaint And Successfully Defending Against Plaintiff’s Complaint Reversed And Remanded

Appellate Court Offered Guidance, Including That No Section 1717 Adverse Fee Award On Plaintiff’s Complaint Could Be Granted On Grounds Advanced By Lender.

            Plaintiff octogenarian sued her lender on various theories stemming from lender’s failure to disburse timely insurance proceeds covering a fire loss.  In response to plaintiff’s Complaint, Lender filed an interpleader cross-complaint.  The trial judge sustained a demurrer to plaintiff’s complaint and discharged lender through the interpleader, later ordering $68,265 in attorney’s fees (the full request) to lender for prosecuting the interpleader and successfully defending against plaintiff’s complaint and ordered fees payable from the interplead insurance proceeds.

            Because the demurrer to plaintiff’s complaint should have been overruled, the fee award also was reversed, with remand guidance, in Rodriguez v. Banco Popular North America, Case No. B280489 (2d Dist., Div. 5 May 4, 2018) (unpublished). 

            The appellate court acknowledged that Lender, if eventually successful in the interpleader, is entitled to statutory fees (Code Civ. Proc., § 386.6(a)), but that it could locate no authority indicating that the section 1717 fees relating to plaintiff’s complaint could be paid out of interplead funds.  Beyond that, however, guidance was offered on remand.  In particular, Lender’s reliance on a deed of trust provision only allowed it to add attorney’s fees to the borrower’s loan, not seek an independent award of fees in a court action.  With respect to the note provision relied on by Lender, plaintiff did not sue under the note but relied on her contractual rights to disbursement of insurance proceeds, such that this ground could not be advanced as a basis for fee entitlement under section 1717. 

Interpleader/Lien For Attorney’s Fees: 2/5 DCA Determines That Interpleader Fee Recovery Can Include Post-Discharge Supporting Activities And That Interpleader Action Can Qualify As Independent Action In Which Attorney’s Lien Can Be Resolved

 

Scope of Interpleader Proceeding Resolved In This Case.

    Southern California Gas Co. v. Flannery, Case No. B268298 (2d Dist., Div. 5 Nov. 14, 2016) (published) involved an interpleader action filed in the wake of a settlement agreement for injuries sustained in the 2008 Sesnon wildfire, with personal injury claimants, palimony litigants, and attorneys all vying over who got what from the settlement funds.  Gas Co. interpled the settlement funds, with the lower court granting it a discharge and awarding it attorney’s fees of $169,983.13 under CCP § 386.6(a).  Also, it determined that the interpleader action was a proper vehicle to resolve an attorney’s lien vis-à-vis a personal injury client in the tort case producing the settlement. 

    The appellate court sustained both of these determinations on appeal.

    It first determined that section 386.6(a) included Gas Co.’s post-discharge efforts to sustain the discharge order, which included post-trial work and appellate work along the way.  Then, it found that the interpleader action did qualify as a separate, independent proceeding—apart from the prior personal injury lawsuit—allowing the lower court to adjudge an attorney’s lien as against a contesting personal injury claimant/client.

Interpleader: Non-Neutral Party Causing Interpleader Filing, Rather Than Paying Judgment Or Posting Bond On Appeal, Properly Denied Fee Recovery Against Another Non-Neutral Party In Interpleader

 

No Abuse Of Discretion In Deciding That Fees Paid To Discharged Interpleader Parties Did Not Have To Be Reimbursed By Other Non-Neutral Party.

    Lender Currency makes high interest loans to songwriters obtaining royalty streams, while Wertheim, LLC obtains assignments of royalty rights and causes of action against Currency from the songwriters in return for some monetary payments, according to the appellate court in the next published decision we post on.  Wertheim, LLC v. Omidvar, Case No. B262485 (2d Dist., Div. 1 Sept. 29, 2016) (published) is one of the disputes between these two parties, involving primarily royalties due to Maibell Page, widow of successful songwriter Eugene Page.

    Wertheim obtained a $672,122 arbitration award against Currency subsequently confirmed as a judgment, with Wertheim seeking to enforce the judgment through companies owing royalties to Mrs. Page.  These companies filed an interpleader against Wertheim and Currency, obtaining a discharge and being awarded $238,615.45 in attorney’s fees as allowable under the interpleader fee-shifting statute.  However, in an earlier appeal, Currency was able to get the judgment reversed based on lack of authority by the arbitrator, with the interpled moneys being released to it.  Currency then sought to recoup the $238,615.45 in fees already paid out of the interpled funds from Wertheim.

    The lower court denied the fee reallocation request, a result affirmed by the 2/1 DCA.  Although a shifting might have been in order, the lower court did not abuse its discretion by not reallocating fees to Wertheim; after all, Currency could have paid the judgment or posted an appeals bond given that Wertheim had a judgment before reversal so as to make the interpleader action unnecessary at all.

Interpleader: $9,655 Fees/Costs Paid To Interpleading Homeowners’ Attorneys Affirmed On Appeal

 

Malpractice/Ethical Claims Subject Of Separate Suit Did Not Impede Fee Recovery To Interpleading Attorneys.

     In Feldsott & Lee v. Jones, Case No. B262710 (2d Dist., Div. 8 Sept. 6, 2016) (unpublished), attorneys won an HOA arbitration for two homeowner clients, and then reached a settlement to decide the attorney’s fees and costs to be paid by HOA to prevailing clients. However, one of the homeowners disputed the amount of the settlement proceeds to be released to the winning attorneys. The attorneys interpled the disputed funds, and the one homeowner tried to cross-claim but dismissed the cross-complaint after the trial court sustained a demurrer. Homeowner then filed a separate suit alleging malpractice/ethical violations by the attorneys. The lower court in the interpleader case granted attorneys fees/costs $9,655 under CCP § 386.6 after granting a discharge order.

     The fee award was affirmed on appeal. Attorneys properly followed interpleader procedures given the settlement proceeds fee dispute; with that, fees and costs were authorized under section 386.6. Although homeowner argued no fees can be awarded where there are egregious ethical violations, the reviewing court observed it was not proper to adjudge these torts in the interpleader such that homeowner preserved her rights to challenge on that basis in the ongoing separate suit.

Costs/Interpleader: Where Plaintiff Dismissed Interpleader Before Any Merits Ruling, Defendant Entitled To Routine Costs Of $1,344 As Of Right

 

CCP § 1032 Was The Costs Predicate.

     Plaintiff in an interpleader action, brought because there apparently was a dispute to entitlement to insurance proceeds between defendants and a bankruptcy trustee, dismissed the action after the trustee abandoned any interest in the proceeds, with the proceeds going to plaintiff. Defendants then moved for and received routine costs of $1,344 as the prevailing party. Plaintiff appealed (we wonder why due to the small amount involved, although plaintiff claimed to be the prevailing party).

     The costs award to the defense was affirmed in Gray v. Eddleman, Case No. G050816 (4^th Dist., Div. 3 Oct. 6, 2015) (unpublished), in a 3-0 decision authored by Presiding Justice Bedsworth.

     The reason was that where no side prevailed—which was the case where there was a dismissal and no ruling on the merits of the interpleader case—the defendant is the prevailing party under Code of Civil Procedure section 1032. Pure and simple legal costs issue under § 1032.

Interpleader/Reasonableness Of Fees: $81,053.44 In Fees To Neutral Stakeholder Affirmed In Interpleader Action

 

Absence of Opposition From Other Side Steered the Affirmance.

     In Southern Cal. Gas. Co. v. Flannery, Case No. B249616 (2d Dist., Div. 5 Dec. 16, 2014) (published), gas company brought an interpleader action to direct disposition of settlement proceeds in multiple fire cases, ultimately being granted an unopposed motion for discharge and then being granted $81,053.44 in attorney’s fees under the interpleader fee-shifting statute, CCP § 386.6.

     The appeal by an adverse litigant was unsuccessful. After all, the opponent offered no evidence to counter the gas company’s declaration in support of the fee request and offered no opposition to the fees actually requested. Given that gas company did have to engage a team of attorneys in light of the multiple cases involved, the fee award in this one was found appropriate.

Interpleader: Insurance Company Interpleading Policy Benefits Entitled To Deduct Fees And Costs Where Insurance Proceeds Up In The Air Due To Criminal Investigation Of Husband After Insured Wife’s Death

 

No Insurance Company Exception for Award of Interpleader Fees/Costs Under CCP § 386.6(a).

     CCP § 386.6(a) permits a court to award discretionary attorney’s fees and costs to a neutral stakeholder interpleading moneys or funds with the Court if interpleader procedures are followed. This section was at issue in Farmers New World Life Ins. Co v. Rees, Case No. B241099 (2d Dist., Div. 1 Aug. 30, 2013) (published), a 3-0 decision authored by Justice Rothschild.

     There, a wife was found dead in the street outside the home she shared with husband. The death was investigated as a homicide, because husband was the sole beneficiary on wife’s life insurance policy. Wife’s mother was next in line to receive the proceeds if husband was found to have feloniously murdered wife. After insurance company received a letter from husband’s attorney while the criminal investigation was on-going, insurance company interpled the policy benefits plus interest with the court, initially only naming husband as defendant. Husband answered and cross-complained against insurance company and wife’s mother. Insurance company added wife’s mother to the suit, and husband moved to release the funds to him. The lower court granted husband’s motion, but granted the insurance company request for a $7,997.49 fee/costs award which was deducted from the $150,000 in proceeds released to husband.

     Husband appealed the fee/costs award, but did not prevail before the 2/1 panel.

     The appellate court first determined that the policy benefits indeed were in dispute given the on-going criminal investigation of the matter as a possible homicide.

     Husband also waived the right to contest the use of the interpleader procedure because he did not object upfront to it; rather, he answered and asked for a release of funds--litigation efforts which precluded his challenge to the interpleader process. The appellate court did not accept husband’s argument that insurance company was immunized from exposure due to Insurance Code section 10712 (which allows payment when proceeds are truly payable) because it was far from certain that proceeds were payable to husband, with the interpleader being the procedure to determine who should get payment under Probate Code section 252 (to husband, if he was not the killer; but to wife’s mother, if he was). Finally, in response to husband’s argument that the insurance company should bear fees/costs as a routine cost of business spread across all of its policyholders, the 2/1 panel noted that the interpleader fee provision has no exception for insurance companies as far as fee entitlement was concerned, contrary to husband’s suggestion otherwise.

Barbara Stanwyck and Fred MacMurray in Double Indemnity.

Insurance: Carriers Battling It Out On Defense Costs Allocation Bear The Burden Of Showing Each Paid A “Fair Share” Before Chasing Other Carriers

Second District, Division 3 Applies Non-Insurance Equitable Contribution Rule in Insurance Setting.

     In Scottsdale Ins. Co. v. Century Surety Co., Case No. B204521 (2d Dist., Div. 3 Mar. 10, 2010) (certified for partial publication), Acting Presiding Justice Croskey—on behalf of a 3-0 panel of the Second District, Division 3—penned a scholarly opinion about the burden of producing evidence of “fair share” payments for defense and indemnity costs with respect to common insureds in a multiple insurance carrier context. In essence, the Court of Appeal applied the general rule relating to equitable contribution in a non-insurance context, namely, that a carrier claiming contribution must first prove that it paid more than it share of loss as a condition to seeking relief.

Interpleader: No Attorney's Fees Recoverable Where Neutral Stakeholder Failed To Interplead Funds But Kept Them In Interest-Bearing CODs

Statutory Basis for Fees Requires Deposit of Disputed Funds Into Court.

     Code of Civil Procedure section 386(a) allows a neutral stakeholder of certain funds subject to conflicting claims to commence an interpleader action, deposit the funds into court, and obtain a discretionary fee/costs recovery by the court from the amount deposited into court. In the next case, the stakeholder did not deposit the interpled funds with the court but elected to hold the disputed funds in interest-bearing certificates of deposit even after commencing an interpleader action. After the stakeholder reached a settlement with the fighting claimants in the action, he moved for an award of $14,630 in fees and $1,323.02 in costs. Want to guess what happened?

     No fees and costs were awarded to stakeholder by the trial court under the interpleader fee statute, a determination affirmed on appeal in Schneider v. Elliott, Case No. A123745 (1^st Dist., Div. 5 Nov. 20, 2009) (unpublished).

     The appellate court reasoned that stakeholder was not entitled to fee/costs recovery because he did not interplead the disputed funds into court, agreeing with similar analysis that was set forth in Wells Fargo Bank, N.A. v. Zinnel, 125 Cal.App.4^th 393, 401 (2004). Stakeholder (an attorney) argued that it was unfair to deny him fees and costs when the funds were safely held in a way that interest was paid on the disputed funds. Unfortunately, the Legislature did not see it that way, preferring "the orderliness and dependability of the standard procedure, in which the funds are deposited with the court, usually at the outset of the case." (Slip Opn., p. 4.)

     BLOG OBSERVATION—It is not uncommon for conflicting claimants to agree that someone can retain disputed fees in a blocked, interest-bearing account. However, if the stakeholder wants to obtain fees, that person or entity needs to have the claimants agree that its fees and costs in acting in this capacity will be paid from the held funds even though not interpled into the registry of the court.

Interpleader Actions—Attorney’s Fees Do Not Have To Be Only Paid Out Of Interpleader Involving Deposited Cash

Second District Does Place Restrictions On Activities For Which Neutral Stakeholder Can Seek Fee Reimbursement. 

            Code of Civil Procedure section 386.6(a) provides that a party to a properly commenced interpleader action “may insert is his motion, petition, complaint, or cross complaint a request for allowance of his costs and reasonable attorney fees incurred in such action.  In ordering the discharge of such party, the court may, in its discretion, award such party his costs and reasonable attorney fees from the amount in dispute which has been deposited with the court.  At the time of final judgment in the action the court may make such further provision for assumption of such costs and attorney fees by one or more of the adverse claimants as may appear proper.”  No attorney’s fees are awardable unless the section 386 interpleader procedure is closely followed.  (See Phillips v. Barton, 207 Cal.App.2d 488, 495-496 (1962).)  Although this fee entitlement provision seems extremely broad in nature, the next case—an unpublished 2006 decision from the Second District—shows there are limitations on the activities that are compensable, although confirming that fees do not necessarily have to be recovered from interpled cash.

            Ayscough & Marar v. Morrison, Case No. B183065 (2d Dist., Div. 4 Aug. 8, 2006) (unpublished) involved a fairly bizarre set of facts.  Condensed down to its essence, Law Firm’s client, a fine arts repair company, left a Japanese fan screen (painted on gold leaf) with its Law Firm for delivery to the rightful owner.  A complicated dispute festered over ownership between the claimed owner, an assignee, and the fine arts repair company.  Law Firm eventually filed an interpleader complaint naming all the claimants, requesting a judicial determination of screen ownership and attorney’s fees.  After more legal wrangling, Law Firm was granted a motion of discharge and awarded $12,630 in fees out of a requested $41,082.30, with the fees assessed against purported owner claimants.  Two appeals followed, one from the discharge order and one from the fee award.  (BLOG NOTE—Appellants did it right; they separately appealed the fee award, preserving appellate jurisdiction unlike some litigants discussed in our “Cases:  Appealability” category.)

            The discharge order was affirmed.  That left two primary challenges to the fee award:  (1) no fees could be awarded because no amount in dispute was deposited with the trial court; and (2) the fee award was excessive in amount.  Appellants won on the second argument.

            With respect to the first argument, Presiding Justice Epstein (writing for a 3-0 panel of the Second District, Division Four) rejected the notion that fees were only allowed in cases where cash was interpled with the court.  “Given that [section 386 was amended in 1955 by adding a provision allowing fees to the interpleading party], it would be incongruous for the court to allow a party to interplead specific property and cash, and allow attorney fees, but only for interpleaded cash.  Reading the statute as a whole, we  believe it gives the chancellor equitable authority to allow the stakeholder to be paid for necessary expenses incurred in order to bring the matter to the court’s attention.”  Because the 1955 amendments was enacted to bring California into conformity with federal practice, the Court of Appeal also cited federal decisions giving the trial court broad discretion to award fees in an equitable way not dependent solely on the nature of the interpled property.  (See, e.g., Schirmer Stevedoring Co., Ltd. v. Seaboard Stevedoring Corp., 30 F.2d 188, 194 (9^th Cir. 1962); Septembertide Pub., B.V. v. Stein and Day, Inc., 884 F.2d 675, 682-684 (2d Cir. 1989); Blair Holdings Corp. v. Bay City Bank & Trust Co., 234 F.2d 513, 518 (9^th Cir. 1956); Corrigan Dispatch Co. v. Casa Guzman, S.A., 696 F.2d 359, 364-365 (5^th Cir. 1983).) 

            The second argument was the winning one.  “Interpleader fees, under the statute, must be limited to efforts made in filing the interpleader, defending the status of the moving party as an interpleader if such standing is challenged, and in obtaining a discharge.”  Justice Epstein observed that fees incurred for such activities as negotiations, investigation, dispute over validity of claims (or their amount), cross-complaints for affirmative relief, and the like, are not allowable under the section 386.6 fee entitlement statute, citing to Sweeney v. McClaran, 58 Cal.App.3d 824, 830 (1976).  A remand was necessary because many of the timesheets attached to the fee motion showed requests for compensation of activities outside the scope of the interpleader action. 

            Morrison is a good guide on showing what activities are fee recoverable by the neutral stakeholder who is drawn into the conflicting drama of an interpleader action.  Sweeney, an older decision, also should be consulted on this topic.  However, the interpleading party does not have to worry about the particular nature of the res; the court retains considerable equitable discretion in decreeing a fee award in interpleader actions.