What is an interpleader action and why is it important to sureties? An interpleader is a type of joinder device available in civil actions. The interpleader action allows a stakeholder (in our case, the surety that issued a bond) to bring all claimants into the same action. Then, the surety can seek to be dismissed from the action, while the bond claimants litigate among themselves which claimants have a rightful claim under the bond; and the surety can generally avoid liability in excess of the penal sum.

To accomplish this, the surety, having given proper notice to potential claimants, interpleads into the court the penal sum of the bond and files a motion with the court, requesting to be dismissed from the action, with prejudice, and letting the court determine and distribute the bond amount pro rata.

A surety files an interpleader action in court to resolve all claims against a bond in one action, with the ultimate goal of obtaining from the court a discharge from any and all past, present, or future liability under that bond. In other words, the surety seeks to be dismissed from the action “with prejudice,” which bars any further claims against it under that bond.

A surety will consider filing an interpleader action when there are a number of known claimants and potentially more and the multiple (sometimes dozens or more) claims on the same bond will exceed the penal sum, often dramatically. Such actions are often seen in the context of motor vehicle dealer (MVD) bond claims, where the penal sum (varies from jurisdiction to jurisdiction–$10,000 to $100,000) is often greatly exceeded by the total amount of the claims.

One recent case illustrates the importance of an interpleader action for the surety. In Platte River Insurance Co. v. Yamakawa, 2024 U.S Dist. LEXIS 101802 (D. Or. May 20, 2024), plaintiff Platte River Insurance Company (Platte River) brought an interpleader action pursuant to a federal interpleader statute, 28 U.S.C. § 1335, (states also have interpleader statutes), pertaining to a MVD surety bond it issued to R&J Mobility Service, LLC. The penal sum of the bond was $50,000. The defendants were individuals or entities that asserted or might assert claims against the bond that accrued during the second year of coverage or the third year of coverage, after which the bond was cancelled. Platte River contended that the maximum amount of recovery was $100,000, which it deposited in an interest-bearing court account.

Platte River moved for dismissal with prejudice, for it and the bond to be exonerated and discharged from any liability and for defendants to be restrained and enjoined from instituting any other action or proceeding against Platte River relating to the bond. The magistrate judge noted that, in support of its motion, Platte River provided documentation that defendants had asserted various claims against the bond based on the failure of R&J Mobility Service to provide the claimants with clear title to the vehicles they purchased. The magistrate judge observed that “federal interpleader contemplates that the stakeholder may be discharged from the litigation once the fund is deposited with the court, leaving the adverse claimants to litigate their dispute between themselves.”

The magistrate judge recommended that the surety should be dismissed from the action with prejudice, that the surety and the bond should be fully exonerated from any past, present, and/or future liability, and that the defendants should be restrained from instituting any other action against Platte River relating to the bond, including the two previously filed, pending state court actions.

On June 6, 2024, the United States District Court for the District of Oregon filed an Order Adopting Judge You’s Findings and Recommendations, granting plaintiff’s Unopposed Motion Authorizing Exoneration of the Bond and Dismissal of Platte River Insurance Company, with prejudice from the action. See Platte River Insurance Co. v. Yamakawa, Case No. 3:23-cv-01189-YY (D. Or. Jun. 6, 2024).