Interpleader: Your New Best Friend?

Are you involved in a dispute over money or property? Are you sure that you in the right? Either way, be careful. Giving that property to another person may not resolve the dispute. Keeping the property can expose you to breach of contract, theft, conversion and a host of other claims. In this situation, interpleader may be the answer.

Interpleader is a legal term and concept. The concept is depositing the disputed property with the court and letting the judge figure it out.

Interpleader is typically used in one of two situations. The first is where two other people are claiming a right to the property held by a third person. The second is where the dispute is between the person in possession of the property and another person.

An example of the first situation is an insurance company paying a claim and two different people assert a right to the claim payment. The insurance company is not directly involved in the dispute and has a duty to pay the claim. Unfortunately, who to pay is not clear. Rather than risk getting sued by one or both people asserting a right to claim payment, the insurance company deposits the money with the court and lets the two people work it out with the judge.

An example of the second situation is a direct dispute between two people over property. A dispute between two people over the ownership of computer software is a good example of a property dispute. Another example would be a contract dispute over the amount to be paid. It is in this situation of a direct dispute between two people that (1) holding on to the property can increase the risk of damage and (2) the use of interpleader can be an excellent tactical tool to reduce that risk while increasing the chances of winning the underlying dispute.

Convincing our clients to give up possession of disputed property can be quite a challenge; but it has paid off handsomely in most cases. Colorado and other states have certain legal claims or theories that can be very damaging. For example, Colorado’s civil theft statute comes with treble damages and attorney’s fees. We have seen the civil theft statute used as an offensive weapon in many contract disputes as a claim or counterclaim. By depositing the disputed property (usually money) with the court, the risk of losing the civil theft claim is reduced.

Depositing the disputed property with the court combined with some strategic letter writing can expose the other side for what they are – opportunists. Unfortunately, we have seen opportunistic attorneys attempt to strategically manufacture civil theft and other claims. When the property is deposited with the court, the judge and jury quickly see the manufactured aspect of the claim. In one case in particular, a client was awarded attorney’s fees and costs because the court found the civil theft claim to be totally groundless and frivolous.

Next time there is a dispute over property ownership, consider the use of interpleader to reduce legal costs and exposure to claims or counterclaims.