Barrett Daffin Frappier Teder & Weiss, LLP v. Chu

Background

Barrett Daffin Frappier Teder & Weiss, LLP filed an interpleader action in California state court concerning competing claims to surplus funds from a nonjudicial foreclosure sale of real property in Foster City, California. An interpleader action allows a stakeholder holding disputed funds to place them with the court while the claimants litigate who is entitled to them. The United States removed the case to federal court because a federal tax lien existed against the property.

Barrett Daffin filed three motions: a motion to deposit the disputed funds, a motion for statutory discharge, and a motion for attorney fees and costs incurred in overseeing the foreclosure sale and bringing the lawsuit. The United States and Ray Yeganeh were identified in the opinion as claimants to the funds; Yeganeh was identified as a judgment creditor.

Motions to Deposit Funds and for Statutory Discharge

The motions to deposit the funds and for statutory discharge were unopposed. The court found good cause and granted both motions.

Attorney Fees and Costs

Barrett Daffin argued that California law entitled it to attorney fees and costs. The United States argued that federal tax-lien law gives the government priority to the interpleaded funds and that awarding fees from those funds would improperly reduce the amount available to satisfy the lien.

The court relied on Ninth Circuit and other federal appellate decisions recognizing a federal tax-lien exception to the general rule that federal courts may award fees to an interpleader stakeholder. Under that exception, the court’s discretion to award fees gives way when the award would reduce funds subject to a federal tax lien. The court concluded that this rule barred Barrett Daffin from receiving attorney fees and costs from the interpleaded funds while they remained subject to the federal tax lien.

Disposition

Judge Richard Seeborg denied the motion for attorney fees and costs, without prejudice to Barrett Daffin renewing the motion if Yeganeh is later determined to have a claim superior to the United States’ claim. The opinion therefore granted the motion for statutory discharge and the motion to deposit funds, and denied the attorney-fee motion without prejudice.