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Current Developments in the Commercial Divisions of the
New York State Courts
Posted: April 28, 2018

Filing Interpleader Action Rather Than Choosing Which Claimant Was Entitled to Funds Not a Breach of Contract

On April 16, 2018, Justice Scarpulla of the New York County Commercial Division issued a decision in SPV-LS LLC v. Citron, 2018 NY Slip Op. 30681(U), holding that it was not a breach of contract to file an interpleader action, explaining:

Plaintiffs’ argument that Transamerica conceded that it breached its contract with SPY by utilizing statutory interpleader rather than choosing which adverse claimant is entitled to the Policy proceeds is not supported by facts or law.

Moreover, Plaintiffs have failed to allege any breach of contract based on an independent claim of liability. While a stakeholder may be independently liable to an adverse claimant for a breach of a legal duty, any independent’ claims for relief must be based on wrongful conduct independent from the filing of an interpleader, or the retention of interpleaded assets pending direction from the court. Plaintiffs’ allegations that Transamerica should have paid SPV the Policy proceeds rather than instituting the interpleader is not an independent claim — it is a claim to the stake itself. Accordingly, Plaintiffs’ first cause of action for tortious interference with contract is dismissed in its entirety.

(Internal quotations and citations omitted).

In simple terms, an interpleader action is where the holder of assets makes an application to the court saying: “These assets do not belong to me. Please figure out whom they belong to.” As this decision shows, it is not a breach of any contractual or other duty to ask the court to determine the rightful owner of assets you are holding. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a dispute over assets you hold that belong to others.

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