Interpleader in California: When Two Parties Demand the Same Money
Last updated: November 2026. Reviewed by Pavel Kolmogorov, California business litigation attorney (State Bar No. 321018).
Interpleader is a California court procedure that lets a business holding money or property claimed by two or more parties hand the dispute to the court and step out of the middle. Under Code of Civil Procedure section 386, the holder may sue the claimants or cross-complain against them, deposit the funds with the clerk, and ask to be discharged from liability. The court may award the holder its costs and reasonable attorney fees from the deposit. Kolmogorov Law, P.C., a business litigation firm in Irvine, handles these actions.
Call (909) 235-6116 or contact us online to discuss funds your company is holding or a fund your company claims.
Who can use interpleader
Any person, firm, corporation, association, or other entity may bring the action if two or more persons make, or may make, claims against it that could give rise to double or multiple liability. The claims need not share a common origin or be identical. They may be adverse to and independent of one another, and they may be unliquidated. (Code Civ. Proc., § 386, subd. (b).) The words "or may be made" matter. A holder does not have to wait until someone sues.
Three examples from business disputes:
- A company holds a deposit after a deal collapsed, and the buyer and the seller each demand it.
- A customer owes a final payment that both its vendor and a finance company claim. The finance company says the vendor assigned the receivable to it.
- A business owes one commission that two brokers claim, a situation our page on commission disputes discusses.
Three ways to start
If no one has sued, the holder files its own complaint against the claimants to compel them to interplead and litigate their claims. (Code Civ. Proc., § 386, subd. (b).)
If one claimant has already sued, the holder may file a verified cross-complaint in interpleader. It admits that the holder has no interest in the money or property, or in a stated portion, and alleges that the parties demand it. The holder then applies for an order directing delivery to whomever the court decides. (Code Civ. Proc., § 386, subd. (b).) Our page on cross-complaints explains that pleading. In a suit on a contract or for specific personal property, a defendant may instead apply, before answering, to substitute the outside claimant in its place. (Code Civ. Proc., § 386, subd. (a).)
A third route is narrower. Where the only relief sought against a defendant is payment of a stated sum alleged to be wrongfully withheld, that defendant may move to be discharged and dismissed. It must show by affidavit that it is a mere stakeholder with no interest in the amount and that parties to the action have made conflicting demands. It must also deposit the amount with the clerk, and the order is within the court's discretion. (Code Civ. Proc., § 386.5.)
What the deposit does
Any amount the holder admits is payable may be deposited with the clerk when the interpleader complaint or cross-complaint is filed, without a prior court order. Interest on the amount deposited stops accruing after the date of deposit. (Code Civ. Proc., § 386, subd. (c).)
The filing also gives the court tools to keep the dispute in one place. It may restrain all parties from starting or continuing any other proceeding in a California court that affects the same rights and obligations. (Code Civ. Proc., § 386, subd. (f).) The competing claims to the deposited funds are then tried by the court, except where the law gives a right to a jury. (Code Civ. Proc., § 386, subd. (e).)
Discharge, attorney fees, and costs
A party that follows either procedure may include a request for its costs and reasonable attorney fees in its motion, complaint, or cross-complaint. When it orders the discharge, the court may award them from the amount deposited. At final judgment the court may decide that one or more of the claimants should bear that expense. (Code Civ. Proc., § 386.6, subd. (a).)
Each of those rulings is discretionary. A prompt filing and a full deposit support the request.
When the holder is not neutral
The statute does not require a holder to concede everything. It may claim an interest in part of the fund, and it may deny liability in whole or in part to any or all of the claimants. (Code Civ. Proc., § 386, subd. (b).)
Interpleader decides who gets the fund. A claimant's separate allegation that the holder mishandled the money, or breached its own contract, may still have to be litigated after the deposit. For that reason we review what the holder has already paid, promised, or said to each side before choosing a procedure.
If you are one of the claimants
A claimant named in the action may file an answer stating the facts of its ownership or other interest in the money, its affirmative defenses, and the relief it wants. The answer must be served on all other parties, and its allegations are deemed denied by them unless otherwise admitted in the pleadings. (Code Civ. Proc., § 386, subd. (d).)
Do not set the complaint aside because the plaintiff says it wants nothing from you. A claimant that fails to respond risks losing its claim to the fund by default. A claimant may also be ordered to bear the holder's costs and fees.
Some of these cases belong in federal court. A federal statute covers a fund worth $500 or more that is claimed by two or more adverse claimants of diverse citizenship, and it requires a deposit or a bond. (28 U.S.C. § 1335(a).) Our page comparing state and federal court covers that choice.
What to bring to the first meeting
Bring the contract or escrow instructions under which the money is held and every written demand from each claimant. Add any notice of assignment or lien, a statement of the exact amount held and where it is kept, and any complaint already served.
Frequently asked questions
Two companies each say an escrow deposit we are holding belongs to them. How do we avoid being sued by both?
California's interpleader statute is written for that position. Under Code of Civil Procedure section 386, a holder facing claims that may expose it to double liability can sue both claimants, deposit the money with the court clerk, and ask to be discharged. The claimants then litigate against each other. Decide before paying either side, because a payment to one can complicate the request.
What is an interpleader action in California?
It is a lawsuit, or a cross-complaint in an existing lawsuit, in which a party holding money or property asks the court to decide which of several claimants is entitled to it. Code of Civil Procedure section 386 allows it whenever the competing claims could produce double or multiple liability, even if the claims are unrelated or not yet fixed in amount.
Can the stakeholder recover attorney fees in an interpleader?
It can ask. California Code of Civil Procedure section 386.6 lets a party that follows the interpleader procedure request its costs and reasonable attorney fees. The court may award them out of the deposited funds when it discharges the stakeholder, and at final judgment may shift that expense to one or more claimants. The award is discretionary, not automatic.
We were already sued by one claimant before we could file anything. Is it too late to interplead the money?
No. A California defendant sued on one of the competing claims may file a verified cross-complaint in interpleader under Code of Civil Procedure section 386, or bring a separate interpleader action. If the complaint seeks only a stated sum, section 386.5 offers a motion to deposit the money and be dismissed as a mere stakeholder. The deadline to respond to the original complaint still runs.
Does depositing the funds with the court stop interest?
Yes, as to the amount deposited. Under California Code of Civil Procedure section 386, subdivision (c), interest on amounts deposited with the clerk ceases to accrue after the date of deposit. Under the same subdivision, damages for detention of property stop accruing once it is delivered to the court. Interest claimed for the period before the deposit is a separate question.
Talk to a California business litigation attorney about interpleader
If your company is holding money that more than one party claims, or has been named in an interpleader, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. is located in Irvine, California. Related reading: our civil litigation practice and our guide to how a business lawsuit works.
This page provides general information about California and federal law and is not legal advice. Outcomes depend on the documents, the facts, and the court.