Catch Rule 22: When Interpleader Actions Violate Statutory and Constitutional Diversity Jurisdiction Requirements

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Since the time of the Founding, actions in strict interpleader have allowed parties in possession of a fund or other asset to sue claimants who have competing claims to that asset. The party in possession of the asset or stake, also referred to as the “stakeholder,” has no ownership interest itself. Instead, it seeks only to hand off the stake to the rightful party and avoid any future liability.

Today, interpleader actions can be brought in federal courts in one of two ways. They can be brought under Congress’s Federal Interpleader Act, which confers jurisdiction on the federal courts to hear interpleader actions in which at least one claimant is diverse from another adverse claimant and $500 is at stake. Alternatively, interpleader actions can be brought pursuant to Rule 22 of the Federal Rules of Civil Procedure. Because the Rules do not on their own confer jurisdiction on the federal courts, any action brought under Rule 22 must be brought under one of Congress’s general jurisdictional statutes, such as 28 U.S.C. § 1331, which requires a federal question in the lawsuit, or 28 U.S.C. § 1332, which requires in one instance a controversy between citizens from different states. Although the Federal Interpleader Act requires diversity between adverse claimants, many federal courts exercise jurisdiction over strict interpleader actions pursuant to Rule 22 and § 1332 merely when the stakeholder is completely diverse from the claimants.

This Comment argues that anytime an interpleader action is brought in a federal court pursuant to Rule 22 and § 1332, there must be diversity between adverse claimants—not just diversity between the stakeholder and the claimants—in order to satisfy Congress’s and the Constitution’s controversy and diversity requirements. When the stakeholder hands off an asset or fund, it admits that the stake belongs to someone else—it just is not quite sure which claimant should have the stake. The only controversy, then, is the dispute between the claimants over who is the rightful receiver. The Supreme Court appeared to confirm in the mid‐twentieth century that the existing controversy in strict interpleader actions is the one between claimants, not the one between the stakeholder and the claimants. Further, Congress’s diversity jurisdiction statute and, arguably, the Constitution’s Diversity Clause require courts to realign parties to a lawsuit and determine their jurisdiction based on which parties the “actual” controversy is between. Finally, in addition to Supreme Court precedent and the realignment doctrine, this Comment argues that, based on the text and history of Article III’s Diversity Clause, the Constitution requires that claimants be diverse before federal courts may exercise jurisdiction over strict interpleader actions. The solution to this problem is simple: these actions can be brought and heard in state courts.

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