Court Denies Motion for Discharge from Interpleader Action Where Stakeholder Failed to Address Details of Payment, Possible Other Claimants, and Future Distributions of Funds

In a Decision, dated October 27, 2023, in Broadstreet New York, Inc. v. L3 Capital Income Fund, LLC and Alternative Global Management, LLC, Index No. 650218/2023, Justice Margaret Chan denied interpleader Broadstreet New York, Inc.’s motion to deposit funds into the court in exchange for a discharge of liability from the defendants pursuant to CPLR 1006. The Court found Broadstreet’s motion deficient for failure to address certain details, such as where the funds came from and how much Broadstreet proposed to initially deposit. The Court also held that the ultimate beneficiaries receiving the fund (certain investors in the defendants) had not been joined to the case and Broadstreet had not addressed future distributions of funds owed to claimants. The Court explained:

CPLR 1006(f) also requires plaintiff as putative stakeholder to “submit proof by affidavit or otherwise of the allegations in” the complaint. Plaintiffs affidavit . . . fails to provide the specificities missing from the complaint as to where exactly the funds came from or even how much plaintiff seeks to initially deposit. Answers to such questions would allow deeper probing into whether plaintiff is, as it posits, a stakeholder without an interest in the final disposition of the funds and without liability for the transactions allegedly at issue. . . .

Nor does plaintiff support the use of interpleader for rolling distributions over a multi-year period. . . . Confusingly, plaintiff “seeks a discharge to permit [it] to withdraw from this action after” making the initial deposit (NYSCEF # 98 at 12). But plaintiff does not explain what would happen with the subsequent amounts that rolls in related to this action.

The decision highlights the need for interpleader plaintiffs to support any motion for a discharge with specific details and a robust plan for placing funds with the Court. The attorneys at Schlam Stone & Dolan frequently litigate interpleader disputes and conflicts involving multiple stakeholders. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.