Wednesday, December 29, 2004
Failure to Post Interpled Funds With Court Costs Plaintiff Attorney Fees Under C.A. Ruling
By a MetNews Staff Writer
A plaintiff who brought an interpleader action but did not post the interpled funds with the court cannot recover attorney fees, the Third District Court of Appeal ruled yesterday.
The justices reversed a Sacramento Superior Court judge’s ruling that awarded Wells Fargo Bank $43,000 in attorney fees for an action involving less than $90,000 in deposited funds.
The action resulted from a dispute between Walt Zacharias and Ardith Zinnel, each of whom claimed to be the sole person authorized to conduct banking on behalf of Elite Power, Inc., an electrical contracting firm in which Zacharias and Zinnel’s son were apparently shareholders.
The bank attempted to resolve the dispute by transferring the funds deposited by Zinnel in the name of the corporation to Zinnel’s personal account, but placed a hold on $89,000 of the $162,000 that Zinnel had deposited.
After Zinnel filed an arbitration complaint pursuant to the agreement she entered into with the bank when she opened an account for Elite. When the bank threatened to resolve the dispute by bringing an interpleader action, Zinnel’s attorney responded that interpleader would not lie because neither Zinnel nor Zacharias was making a claim to the funds, Zinnel demanding that the funds be returned to the corporate account.
The bank, however, filed the interpleader action, which eventually resulted in an order releasing the funds as agreed by the parties. Judge Thomas Cecil then awarded fees to Wells Fargo for the action.
The Court of Appeal, in an opinion by Justice Rodney Davis, agreed that interpleader was appropriate but said Wells Fargo should not have been awarded attorney fees because such fees can only be awarded in interpleader from amounts “deposited with the court,” according to Code of Civil Procedure Sec. 386.6(a).
“The statutory prerequisite of a deposit with the court is not pointless. A true stakeholder who promptly surrenders the possession of a disputed fund should not bear the costs and legal fees of responding to competing claims. On the other hand, a stakeholder who enjoys the beneficial use of funds that belong to others should not reap the same advantages absent a judicial determination that interpleader was proper through an order dismissing the stakeholder and directing the deposit of the held funds into court (from which the court in its discretion can award costs and legal fees if appropriate).”
Davis noted that in this case, the bank had the use of the money for five months before it filed the action, and for eight months afterward, and that “[i]ts approach was more adversarial than disinterested.”
Wells Fargo also argued that it was inequitable for Zinnel to oppose the attorney fee award because she opposed the bank’s motion to deposit the funds at an early stage of the litigation.
Davis explained, however:
“This opposition to a deposit of funds, however, was merely a corollary of defendant Zinnel’s argument that Wells did not have†the right to interplead because Wells was not a mere stakeholder and there were no rival claims, and thus the funds should be released to her. To the extent she opposed an award for legal fees before Judge Gray, it was for the failure to comply with the substantive requirements of section 386. She is not arguing now that interpleader was unwarranted because her opposition to interpleader prevented Wells from depositing the funds.”
In any event, the justice wrote, there is no requirement of court approval for a deposit of funds, nor is there any particular requirement as to the timing of the motion.
The case is Wells Fargo Bank, N.A. v. Zinnel, C044681.
Copyright 2004, Metropolitan News Company