EIGHTH & JACKSON INVESTMENT GROUP, A KANSAS LIMITED COMPANY, and HOWARD T. PAUL, Plaintiffs,
KAW VALLEY BANK, WILLIAM K. O’NEIL, GEORGE M. HERSH, II, and CREDITORS OF GEORGE M. HERSH, II, Defendants.
MEMORANDUM AND ORDER
RICHARD D. ROGERS UNITED STATES DISTRICT JUDGE
This is an interpleader action brought by the plaintiffs, Eighth & Jackson, a Kansas limited liability company, and Howard T. Paul, pursuant to 28 U.S.C.
§ 1335 and Fed.R.Civ.P. 22. This matter is presently before the court upon plaintiffs' motion for discharge and entry of permanent injunction. Having carefully reviewed the arguments of the parties, the court is now prepared to rule.
Plaintiffs named four defendants in its complaint: Kaw Valley Bank (KVB); William K. O'Neil; George M. Hersh, II; and creditors of George M. Hersh, II. Plaintiff Paul is a member of Eighth & Jackson. Defendant Hersh is a former member of Eighth & Jackson. The following allegations are contained in the complaint. On or about June 18, 2008, defendant Hersh pledged his membership interest in Eighth & Jackson to KVB as security for a promissory note made by Hersh to KVB. On or about March 5, 2012, plaintiff Paul and defendant Hersh entered into a membership purchase agreement in which Paul agreed to purchase the membership interest in Eighth and Jackson from Hersh for $110, 000. As a condition precedent to Paul's purchase, Hersh was required to obtain a release of KVB's security interest in the membership interest. Shortly after the execution of the agreement and with Hersh's knowledge and consent, Paul tendered the purchase money to KVB in exchange for its release of its security interest in the membership interest. KVB declined to accept the purchase money at that time claiming that the book value of the membership interest was not representative of its actual fair market value. KVB continues to refuse to accept the purchase money from Paul to release its security interest. Notwithstanding its refusal to release its lien, KVB and its counsel have indicated to plaintiffs and their counsel that KVB would not contest the transfer of the membership interest to Paul. Accordingly, Paul has tendered the purchase money to Hersh and to KVB, making Paul the rightful owner of the membership interest.
On or about June 8, 2012, plaintiff Eighth & Jackson received service of a charging order charging Hersh's interests in a number of Kansas entities--including Eighth & Jackson--with payment of a judgment entered in favor of defendant O'Neil and against Hersh by the United States District Court for the Central District of California.
Eighth & Jackson claims no interest in the purchase money. Paul claims no interest either, to the extent that he is adjudged the rightful owner of the membership interest. Paul asserts that he does not know which of the named defendants is the proper recipient of the purchase money.
Plaintiffs seek the following relief: (1) that Paul be adjudged the sole owner of the membership interest, free and clear of any interest claimed by any of the defendants; (2) that each of the defendants be restrained from instituting any action against Paul for recovery of the purchase money; (3) that each of the defendants be restrained from instituting any action against Eighth & Jackson relating to the membership interest; (4) that the defendants be required to interplead and settle among themselves their respective rights to the purchase money; (5) that plaintiffs be discharged in full from any and all liability in the premises except to the person or persons to whom the court shall adjudge entitled to the purchase money; and (6) that plaintiffs be awarded their costs and fees.
Since the filing of the complaint, plaintiffs have deposited $110, 000 with the court. Default judgments have been entered against defendants O'Neil, Hersh and the Unknown Creditors of Hersh.Plaintiffs filed the instant motion on October 24, 2012. In their motion, plaintiffs request that they be discharged from this case and that a permanent injunction be entered restraining all defendants from instituting a proceeding affecting the stake at issue in this case. Plaintiff argue that they should be discharged because (1) the requirements of 28 U.S.C.
§ 1335 have been satisfied; (2) they have no liability to O'Neil, Hersh or any of the unknown creditors of Hersh; and (3) they have no further liability to KVB. They also contend that (1) Paul should be adjudged the sole owner of the membership interest; and (2) they should be awarded fees and costs out of the purchase money.
In response, KVB has argued that interpleader relief is not available to the plaintiffs because Paul is not a “disinterested party." KVB further contends that it is not only entitled to the proceeds from the sale of the membership interest, but that its security interest remains attached to the membership interest and cannot be severed by the court.
This is a statutory interpleader based upon 28 U.S.C.
§ 1335 and a rule interpleader based upon Fed.R.Civ.P. 22. Under § 1335, the district court has original jurisdiction over any interpleader action or in the nature of an interpleader action when a person or corporation has in his or its custody money or property in the amount of $500.00 or more and there are two or more adverse claimants of diverse citizenship who are claiming entitlement to the money or property. 28 U.S.C.
§ 1335(a) and (a)(1). Rule 22 allows interpleader where the stakeholder may be subject to adverse claims that could expose it to multiple liability on the same fund. Fed.R.Civ.P. 22(a)(1). Under rule interpleader, there is no special provision concerning subject matter jurisdiction. Thus, Rule 22 provides only a procedural vehicle for invoking rule interpleader. Jurisdiction must come from a statutory grant of jurisdiction, such as federal question (28 U.S.C.
§ 1331) or diversity of citizenship (28 U.S.C. § 1332).
An interpleader action typically involves two stages. Prudential Ins. Co. of Am. v. Hovis, 553 F.3d 258, 262 (3rd Cir. 2009). At the first stage, the court determines whether interpleader is proper and “whether to discharge the stakeholder from further liability to the claimants." Id. At the second stage, the court evaluates “the respective rights of the claimants to the interpleaded funds." Id.
The court begins by determining whether the requirements for a rule or statutory interpleader have been met. There appears to be no dispute on whether the requirements of
§ 1335 are met here. Plaintiffs have shown this is an action involving more than $500 where two or more adverse claimants of diverse citizenship are claiming entitlement to the fund. KVB has offered nothing to indicate that the requirements of
§ 1335 have not been met ...