JPMorgan Chase Bank, N.A. v. 29-33 Ninth Avenue, LLC

Background

Chase brought an interpleader action under Federal Rule of Civil Procedure 22 and the federal interpleader statute, 28 U.S.C. § 1335. Interpleader is a procedure that allows a stakeholder holding disputed money or property to place it before one court rather than risk facing multiple, conflicting obligations. The dispute involved ten Chase accounts held by six accountholders. Chase froze the accounts in May 2021 after receiving a letter from Katz Group stating that it was in a dispute with Butter Management’s other members, Danucht Entertainment and Jacqueline Akiva, and directing Chase to restrict withdrawals.

The opinion addressed four motions. Chase sought an injunction preventing defendants from pursuing the funds elsewhere, an order requiring N.E.W. Corp. to return $873,666.42 that it had received, and permission to deposit the funds with the court and be discharged from liability. The Akiva Defendants sought joinder of additional parties. Chase moved to dismiss the Akiva Defendants’ counterclaims. ConnectOne Bank moved to dismiss Katz Group’s crossclaim seeking a declaration that Katz Group had a first-priority security interest in the accounts.

Chase’s Injunction, Deposit, and Discharge Requests

The court held that Chase had properly brought the interpleader action. The ten accounts could be treated as one identifiable group of funds because they were closely related, were managed by Butter Management, and involved a single plaintiff facing conflicting claims about access. The court also found adverse claims because Katz Group and the Akiva Defendants gave conflicting instructions about who could control or access the accounts. The court stated that Chase did not have to determine which competing claim was legally valid before filing the action; a good-faith concern about multiple liability was sufficient.

The court rejected the argument that Chase acted in bad faith or waited too long to file. It noted that Chase might have filed earlier and could have better protected the funds, but said those issues could be considered later, including in deciding attorney’s fees. The court therefore granted the request for an injunction under 28 U.S.C. § 2361. Defendants were barred from trying to recover the interpleader funds by starting or pursuing proceedings in state or federal court outside this action.

The court also granted Chase permission to deposit the relevant funds with the court. The funds must be kept segregated by account, and Chase will be discharged from liability upon making the deposit. The court denied Chase’s request to claw back the funds already paid to N.E.W. Corp. It concluded that Chase had not shown authority for using interpleader to undo a completed recovery based on a judgment in a separate case, and that such relief would not be an appropriate exercise of equitable power.

Joinder Motion

The Akiva Defendants identified Amcojor Realty Corporation, ASP Watch Guard & Patrol Inc., Empire Merchants, LLC, Scott Sartiano & Columbia Consultants, and 150 Pin High, LLC, 150 Habern, LLC, and 150 AB, LLC as allegedly necessary parties under Federal Rule of Civil Procedure 19. The court denied the motion because none of those parties had claimed the funds from Chase or taken steps to execute on a judgment. The court stated that the Akiva Defendants could renew an appropriate motion if one of those parties later contacted Chase seeking a portion of the funds. The court’s conclusion listed the motion as denied.

Akiva Defendants’ Counterclaims

The court granted Chase’s motion to dismiss all of the Akiva Defendants’ counterclaims under Rule 12(b)(6), which tests whether the pleading states a legally sufficient claim. The court ruled that the deposit-account agreement did not directly bind the Akiva Defendants because they were not parties to it, but it still considered the agreement as evidence of Chase’s authority to freeze accounts after receiving conflicting instructions.

The conversion claim failed because New York law generally does not recognize conversion of money deposited in a bank account, and because Chase had authority under the account agreement to decline or prevent transactions when it received conflicting information or instructions. The negligence and negligent-misrepresentation claims failed because the Akiva Defendants were not Chase customers for the accounts at issue and therefore had not shown the required duty or special relationship.

The abuse-of-process claim failed because starting a civil action and litigating it generally do not constitute the type of legal process that supports that claim. The civil-conspiracy claim failed because New York does not recognize it as an independent tort and because the Akiva Defendants did not identify any alleged co-conspirators. The tortious-interference-with-contract claim failed because Chase was exercising contractual rights and because the allegations about Chase’s knowledge of the relevant contracts were conclusory. The tortious-interference-with-business-relations claim failed because the alleged conduct was directed at the Akiva Defendants rather than third parties and did not adequately allege wrongful means. The prima facie tort claim failed because the allegations did not plausibly show that Chase acted solely to harm the Akiva Defendants. The common-law-indemnification claim failed because the Akiva Defendants did not identify a duty Chase owed them.

Katz Group’s Crossclaim

The court granted ConnectOne Bank’s motion to dismiss Katz Group’s crossclaim. Under New York’s Uniform Commercial Code, a security interest in a deposit account is perfected by control. The court found that Katz Group was not the bank maintaining the accounts, had not alleged an authenticated agreement among the accountholders, Katz Group, and Chase requiring Chase to follow Katz Group’s instructions without further consent, and had not become Chase’s customer for the accounts.

The court also found that Katz Group’s May 2021 letter did not establish control because it was not signed by the accountholders or Chase and required consent from multiple groups, rather than giving Katz Group the authority to direct disposition of the funds without further consent. The court dismissed the crossclaim but did not decide the ultimate priority among the various creditors, reserving that issue for the second stage of the interpleader action.

Disposition

The court ordered that Chase’s motion for injunctive and other relief was GRANTED in part and DENIED in part. The injunction and deposit-and-discharge requests were granted, while the clawback request was denied. The Akiva Defendants’ motion for joinder was denied. Chase’s motion to dismiss the Akiva Defendants’ counterclaims was granted. ConnectOne Bank’s motion to dismiss Katz Group’s crossclaim was granted. The court did not determine the parties’ ultimate ownership or priority rights in the funds.