Cachet Financial Services v. C&J Associates, Inc.

Background

Cachet Financial Services filed an interpleader action to resolve competing claims to funds that came into its possession through its contractual relationship with Pinnacle Workforce Solutions. Cachet is an automated clearinghouse service provider that processes payroll and electronic funds transfers. After determining that Pinnacle had insufficient funds to complete payroll transfers, Cachet froze Pinnacle’s funds, alerted authorities, and later concluded that Pinnacle had engaged in fraud.

Cachet initially named Pinnacle and approximately 81 customers with possible claims to the funds. Some potential claimants disclaimed any interest and were dismissed. The funds, including interest, totaled approximately $1,978,849.86. Cachet sought reimbursement for $170,455.17 in attorneys’ fees and $17,493.74 in costs. Pacific Diversified Insurance Services opposed the request, arguing that Cachet was not a disinterested stakeholder, that the requested amounts were excessive, and that Cachet had not adequately documented the request.

Legal standard

The court explained that federal law permits an interpleading plaintiff to receive attorneys’ fees in appropriate circumstances. An interpleading plaintiff is generally eligible when it is a disinterested stakeholder, has conceded liability, has deposited the disputed funds into court, and has sought release from further liability. Fees generally cover work needed to file the action, serve claimants, and obtain the stakeholder’s discharge. Fees for disputes between the plaintiff and the claimants about the amount deposited or the plaintiff’s interest in the funds generally are not recoverable absent special circumstances.

Court’s analysis

The court held that Cachet was entitled to an award. Cachet acted as a disinterested stakeholder as to $1,050,761.60, conceded that it had no claim to that amount, and deposited additional funds as directed by the court. Cachet also researched, located, and nominated Richard Flier as special master, and the court appointed him to oversee distribution of the funds. The court had discharged Cachet from liability as to the interpleaded funds on July 1, 2020.

The court nevertheless found the requested amount excessive in two respects. First, Cachet’s request included $9,598.50 in bankruptcy-related fees and $1,891.95 in bankruptcy-related costs. The court deducted those amounts because interpleader fees are limited to work involved in filing the action and pursuing the stakeholder’s release from liability.

Second, Cachet initially claimed an offset for losses it attributed to Pinnacle’s fraud. After Pacific and others objected, the court required Cachet to deposit the $835,748.83 it had withheld. The court ruled that Cachet could not recover fees for work connected with the contested offset issue. It rejected Pacific’s argument that Cachet should receive no fees at all, however, because Cachet had initially deposited $1,050,761.60 as a disinterested stakeholder and had a reasonable basis for asserting the offset.

To account for work on the disputed offset, the court reduced Cachet’s non-bankruptcy fee request by 20%, or $32,171.33. The court calculated that reduction from the $160,856.67 remaining after subtracting the bankruptcy fees from the original fee request.

Disposition

The court granted in part and denied in part Cachet’s motion for attorneys’ fees and costs. It awarded Cachet $128,685.34 in attorneys’ fees and $15,601.79 in costs.