Court Denies Motion to Pay Funds Into Court and For a Discharge

On October 27, 2023, Justice Chan of the New York County Commercial Division issued a decision in Broadstreet N.Y. Inc. v. L3 Capital Income Fund, LLC, 2023 NY Slip Op. 33835(U), denying a motion to pay funds into court and for a discharge, explaining:

In this interpleader action pursuant to CPLR 1006 (a), plaintiff Broadstreet New York Inc. moves in MS 003 for an order pursuant to CPLR 1006 and 2601: (i) authorizing plaintiff to pay into the court certain funds; (ii) upon such payment, discharging plaintiff from liability to any of the defendants or any other individuals with respect to such funds; and (iii) dismissing plaintiff from this action with prejudice as to such funds.

. . .

‘In order to qualify as a stakeholder and thus be eligible for discharge, it is necessary to show that there is exposure to double or multiple liability as a result of adverse claims. These adverse claims, therefore, must rest on some reasonable basis. If the court has any doubt about whether the movant is just a stakeholder, or for any good reason feels that [the stakeholder] should remain in the action as a party, it will deny the stakeholder’s motion to be discharged. In addition, a court’s determination of a stakeholder’s application for discharge from liability is discretionary.

Plaintiffs motion to pay funds into the court attendant with a discharge is denied. Even putting aside that plaintiff has not yet responded to the AG Companies’ counterclaim and the direction of CPLR 1006(f) for a stakeholder’s motion for an order of discharge coming only after the time for all parties to plead has expired, still plaintiffs motion is deficient. CPLR 1006(f) also requires plaintiff as putative stakeholder to submit proof by affidavit or otherwise of the allegations in the complaint. Plaintiffs affidavit of David Feingold 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.

Further, plaintiff states that this interpleader proceeding has been brought primarily to insure that the investors in L3 Capital receive appropriate distributions. Plaintiff cites no authority for the use of CPLR 1006 where the averred ultimate beneficiaries of funds have not been brought into the court but plaintiffs liability to them would nonetheless be discharged.

Plaintiffs cases cited in support are inapposite to the present situation . . . .

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. But plaintiff does not explain what would happen with the subsequent amounts that rolls in related to this action.

(Internal quotations and citations omitted).

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