Multiple parties claiming to be the rightful owners of a piece of property can seem like the potential start of a sticky situation for an appraiser. But there's one solution that lets the court work it out, and it's called an interpleader.

Ms. Gotrocks left a diamond ring to be appraised. She will pick it up the day after tomorrow. But Ms. Juhls comes in and tells you the diamond ring left by Ms. Gotrocks is really hers. The usual reaction is to only return the item to the client whose name is on the take-in form. But wait a minute - if Ms. Juhls is right, you would have given the ring to the wrong owner. On the other hand, you do not know if Ms. Gotrocks isn't the rightful owner. What do you do? You sense a lawsuit if you do not return the ring to the rightful owner.

        Life Insurance to the Rescue

Imagine a life insurance policy being paid out for a million dollars and the insurance company having two possible beneficiaries. If they pay beneficiary A but it was B that rightfully should get the money, the insurer can end up paying $2 million or fighting in court to get paid back money that may have been spent!

The solution is to sue the two claimants and let the court sort it out. This legal action is called an interpleader. Or, as a law dictionary defines it in legal parlance:

"Interpleader: When two or more persons claim the same thing (or fund) of a third, and he, laying no right to it himself, is ignorant which of them has a right to it, and fears he may be prejudiced by their proceeding against him to recover it, he may join such claimants as defendants and require them to interplead their claims so that he may not be exposed to double or multiple liability."¹

"Interplea: A plea by which a person sued in respect to property disclaims any interest in it and demands that rival claimants shall litigate their titles between themselves and relieve him from responsibility."²

Jewelry workbench, Master Jewelers, owned by author.

        Interplead It

Whenever you take in property for an appraisal (or repair), the legal name is bailment. You are the bailee in such a situation. As a bailee, you can bring an interpleader against two or more people claiming ownership of the property taken in. The Uniform Commercial Code, adopted in all 50 states, provides for the use of an interpleader for bailees.

"If more than one person claims title to or possession of the goods, the bailee is excused from delivery until the bailee has a reasonable time to ascertain the validity of the adverse claims or to commence an action for interpleader. The bailee may assert an interpleader either in defending an action for nondelivery of the goods or by original action."³

For example, one state's example says:

"Whenever a person is possessed of property or funds, or owes a debt or duty, to which more than one person lays claim, and the claims are of such a character as to render it doubtful or dangerous for the holder to act, he may apply to equity to compel the claimants to interplead."⁴

        If GIA Does It, WIll You?

A diamond weighing 11.6 carats that had been slightly recut was submitted to the Gemological Institute of America laboratory for grading. Two diamond dealers claimed rightful ownership and demanded the return of the diamond. GIA filed an interpleader. The laboratory also sought reimbursement of their costs and fees for the legal action.

Dealer A [name redacted], a New York dealer, had purchased the diamond from an Israeli stone dealer who had, in turn, purchased the diamond from another diamond dealer. There was a sufficient paper trail to support a chain of ownership.

Dealer Z [name redacted], while showing at the International Jewelry Fair in Dubai, was robbed and several diamonds were taken from him. One diamond was allegedly the diamond being graded.

Dealer A " . . . sent the diamond to GIA's New York office for grading. The diamond was not mounted in a ring. GIA presented the diamond to three gemologists, who independently confirmed that . . . diamond was the same diamond reported stolen . . .. Although the diamond was slightly recut, GIA had its own internal grading reports that matched the diamond's immutable, 'fingerprint-like' characteristics. GIA refused to return the diamond . . . and instituted this action."⁵

The court determined the diamond was the stolen diamond claimed by Dealer Z, thereby confirming Dealer A, who submitted the diamond to GIA, was not the rightful owner. Case closed!

        Steps

Basically, the holder of the property sues the two (or more) persons claiming ownership. The court dismisses the body filing the interpleader, and that leaves the two parties to prove their ownership. Once the court decides who is the owner, the holder of the property will be informed as to whom to give it. And yes, most likely all legal fees will be reimbursed by the winning party.

You are off the hook and free and clear of any legal action since you are following a court order.

        Legal Advice - Not So Fast

Keep in mind we are not providing legal advice. You need to consult with your attorney. However, do this in advance of a problem. Then train your staff what to do if such an incident occurs. Your trusted attorney's advice may save you from a complicated lawsuit.

Written by Bill Hoefer