JPMORGAN CHASE BANK, N.A. v. NEU et al

Filing 43

OPINION. Signed by Judge John Michael Vazquez on 5/24/17. (rg, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

JPMORGAN CHASE BANK, N.A.,
Plaint ff

Civil Action No. 17-3475
OPINION

v.
RICHARD W. NEU, et al.,
Defendants.

John Michael Vazguez, U.S.D.J.
This matter comes before the Court on the Order to Show Cause for Interpleader Relief
filed by Plaintiff JPMorgan Chase Bank, N.A. (“Chase”). Chase seeks an order (1) directing it to
place the funds at issue into the Federal Registry, (2) discharging Chase from all further liability
with respect to the funds, (3) enjoining two underlying state court proceedings, (4) preventing
Defendants from instituting any other proceeding that may affect the funds and (5) for an award
of attorneys’ fees and costs. D.E. 3. Defendant Amy Neu does not object to Chase’s application
for interpleader relief.

D.E. 11.1

Defendants Richard Neu, Warren Dean and the entity

Defendants2 filed a brief in opposition arguing, among other things, that this Court lacks subject

In her opposition brief, Amy Neu indicated that she did not take a position as to Chase’s requested
interpleader relief but argued that the Court should permit the New York Surrogate’s Court actions
to go forward. During oral argument on May 23, 2017, counsel for Ms. Neu indicated that he was
withdrawing his objection to the underlying dispute remaining before the Court.
2

The entity Defendants are the Richard W. Neu Issue Trust; Richard W. Neu Issue Trust No. 1;
Richard W. Neu Issue Trust No. 2 (collectively the “Neu Trusts”); Eden Wood Realty, LLC; Neu
Investment Corp.; Allentown Commerce Park Corp.; River Park Business Center Inc.; River Park

matter jurisdiction.3

D.E. 13.

The Court reviewed the parties’ submissions in support and

opposition and heard oral argument on the matter. For the reasons discussed below, Plaintiffs
application is GRANTED in part.4 The Court directs Chase to deposit the Funds at issue into the
Federal Registry, enjoins two underlying state court proceedings, and orders that Defendants
cam-lot institute any other proceeding that may affect the funds. The Court will address the
remaining portions of Plaintiffs application at a later date.
I.

BACKGROUND

Richard Neu is the operational trustee of the Neu Trusts, which are the beneficial owners
of the remaining entity Defendants. Compi.

¶ 30, 32, D.E. 1. In other words, the Neu Trusts

control the entity Defendants, and the entity Defendants have the funds at issue. The entity

Residential Center LLC; River Park Technology Center mc; Eden Wood Properties Inc.; Eden
Wood Corp.; Materials International Trading Corporation; 27E65 Corporation; Neu Holdings U.S.
Corporation; Crossroads Business Center, LLC; 143 South Mapelton LLC; and River Park
Business Center LLC.
Richard, Mr. Dean, and the entity Defendants opposed this motion together and are collectively
represented by the same attorney. The Court, therefore, will refer to these Defendants as “Richard”
and will refer to Defendant Amy Neu as “Amy.”
During oral argument, Chase requested that the Court enter a temporary restraining order
(“TRO”) to effectuate the relief provided herein. The Court does not believe that a TRO is the
appropriate avenue for two reasons. First, in the Court’s view, a temporary restraint is suitable
when immediate relief is necessary and before the parties can fully brief their positions and be
heard during a preliminary injunction hearing. However, in this matter, the functional equivalents
of preliminary injunction briefing and argument have already occurred. Second, the strictures of
standard injunctive relief do not apply to this interpleader action. See Metro. Life Ins. Co. V.
Mitchell, 966 F. Supp. 2d 97, 104 (E.D.N.Y. 2013) (“Of importance, “[Section] 2361 enables a
party meeting the requirements of [Section] 1335 to obtain a restraining order without following
the procedures set forth in Federal Rule of Civil Procedure 65, which normally governs the
issuance of injunctive relief.” (quoting Sotheby’s Inc. v. Garcia, $02 F. Supp. 105$, 1066
(S.D.N.Y. 1992))). As a result, the Court is granting limited relief at this time, but a final decision
will not be rendered until Defendants have filed answers to the Complaint and the case proceeds
in due course.
2

Defendants maintain twenty-one bank accounts at Chase, which as of May 9, 2017, collectively
held more than $14 million. Id.

¶ 26. Amy Neu was an officer of at least some of the entity

Defendants and through her position was the authorized signatory of the Chase accounts. Id.

¶ 31.

Amy is the daughter of Richard.
On April 6, 2017, Richard removed Amy from her positions with the entity Defendants
and sought to revoke her signature authority over the Chase accounts. Id.

¶ 32. In response, Amy

filed petitions in the Surrogate’s Court of the State of New York seeking to remove Richard as
trustee of the Neu Trusts and be appointed as Interim Trustee (the “New York Proceedings”) on
April 12, 2017. Id.

¶ 33. The same day, Amy notified Chase of the New York Proceedings,

informing Chase that if it followed any of Richard’s directions “you do so at your own peril.” Id.

¶ 34. Due to the existence of the dispute concerning control of the Neu Trusts, Chase froze all
twenty-one accounts on April 18, 2017. Id.

¶ 35.

On April 24, 2017, Richard commenced an action against Chase6 in the Superior Court of
New Jersey, Chancery Division, compelling it to lifi the freeze on the accounts and to recognize
the persons designated by the Company Defendants as the persons with signature power with
respect to the Chase accounts (the “New Jersey Action”). Id.

¶J 37-38. The court in the New

Jersey Action enter a temporary restraining order (the “TRO”) on April 28, 2017, ordering that
Richard had sole authority over the funds. The TRO also enjoined Chase from maintaining a

Amy’s briefing indicates that she also filed an earlier suit, on February 2, 2017, in New York
Surrogate’s Court. Amy’s Br. at 3-4, D.E. 11. The earlier suit seeks an accounting from Richard,
as operational trustee, and Mr. Dean, as the independent trustee, of the Neu Trusts. Amy indicates
that the earlier case was prompted by her concern that Richard was recklessly causing substantial
diminution of the trust assets. Id.
6

Richard amended the Complaint on April 26, 2017 to add Amy as a defendant. Compl. ¶ 40.
According to the briefs submitted, one of Amy’s attorneys has also been added as a defendant.
3

complete freeze on the accounts, and required Chase to allow the Company to make payments “in
the ordinary course of business.” Id.

¶ 42. Richard, however, was prohibited from paying

“extraordinary expenses, transfers or payment not part of the company’s ordinary day[-]to[-]day
operations.” Id. The TRO does not require Chase to monitor the accounts to determine whether
specific transactions are in the ordinary course of business but also does not immunize Chase from
liability. Id.

¶ 44.

On May 8, 2017, Richard requested that Chase transfer $10 million from one Chase
account into another account. Chase was concerned that the requested transfer was not consistent
with the TRO in the New Jersey Action. Id.
interpleader relief pursuant to 2$ U.S.C.

§

¶ 46. On May

15, 2017, Chase filed this matter for

1335 and sought an injunction pursuant to 28 U.S.C.

§

2361.
II.

LEGAL STANDARD

Interpleader may occur through the federal interpleader standard, 2$ U.S.C.

§ 1335, or

pursuant to Federal Rule of Civil Procedure 22. See Metro. Life Ins. Co. v. Price, 501 F.3d 271,
275 (3d Cir. 2007). Because Chase brought this action pursuant to Section 1335, the Court will

only address statutory impleader.

Section 1335 grants federal district courts with original

jurisdiction over an interpleader action when there is “minimal diversity” between two or more
adverse claimants, as defined by 2$ U.S.C.
more. Id.; see also 28 U.S.C.

§ 1332, and if the amount in controversy is $500 or

§ 1335(a). It also requires the plaintiff to deposit the funds at issue

into the court’s registry. 2$ U.S.C.

§ 133 5(a). If these requirements are satisfied, a court has

subject matter jurisdiction over the interpleader action.
In addition, Section 2361 authorizes district courts to enter preliminary and permanent
injunctions restraining claimants from instituting or prosecuting legal proceedings in state or

4

federal courts that could affect the res at issue in an interpleader action. 2$ U.S.C.

§ 2361. Courts

have “extensive discretion under Section 2361 with regard to the issuance and the scope of the
order.” Orseck, P.A. v. ServiciosLegalesDeMesoamerica S. DeR.L., 699 F. Supp. 2d 1344, 1351

(S.D. Fla. 2010) (quoting 7 Charles A. Wright, Arthur R. Miller & Mary Kay Kane, federal
Practice & Procedure

§ 1717 (3d ed. 2009)). “Section 2361 enables a party meeting the

requirements of Section 1335 to obtain a restraining order without following the procedures set
forth in [Federal Rule of Civil Procedure] 65, which normally governs the issuance of injunctive
relief.” N.Y. Lfe Ins. Co. v. Apostolidis, 841 F. $upp. 2d 711, 720 (E.D.N.Y. 2012); see also Fed.
R. Civ. P. 65(e)(2) (“These rules do not modify.

.

.

28 U.S.C.

§ 2361, which relates to preliminary

injunctions in actions of interpleader or in the nature of interpleader.”).
“The equitable remedy of interpleader allows ‘a person holding property to join in a single
suit two or more persons asserting claims to that property.” Metro. Ltfe Ins. Co., 501 F.3d at 275
(quoting NYLfe Distrib., Inc. v. Adherence Grp., 72 F.3d 371, 372 n.1 (3d Cir. 1995)).
Interpleader allows the party holding the property at issue, or the stakeholder, to file suit, deposit
the property with the court, withdraw from the proceeding, and allow the parties with the
competing claims to litigate the underlying dispute. Id.
An interpleader action usually proceeds in two stages.

At the first stage, “the court

determines whether the interpleader complaint was properly brought and whether to discharge the
stakeholder from further liability to the claimants.” Prudential Ins. Co. ofAm. v. Hovis, 553 F.3d
258, 262 (3d Cir. 2009).

The court determines the respective rights of the claimants to the

interpleaded funds at the second stage. Id. Ultimately, interpleader “relieves the stakeholder from
determining at his peril the merits of the competing claims and shields him from the prospect of

5

multiple liability; [and] gives the claimant who ultimately prevails ready access to the disputed
fund.” NYLfe Distrib., Inc., 72 F.3d at 374.
III.

ANALYSIS

The parties do not dispute that the amount in controversy and diversity requirements are

satisfied here.7 Richard, however, contends that the requirements for statutory interpleader are not
met because there are not two adverse claimants. Specifically, Richard argues that there is no
dispute that all the funds in the Chase accounts belong to the entity Defendants; “[njone of the
other defendants or any other person claims to be entitled to these funds.” Richard’s Br. at 6, D.E.
13. As a result, the Court does not have subject matter under Section 1335, according to Richard.
Id. at 6-8. Chase counters that because there are competing claims regarding control over the

funds, the adverse claimant requirement is satisfied. Chase’s Reply at 3, D.E. 16.
The federal interpleader statute “is remedial and [should] be liberally construed.” State
Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 533 (1967); see also NYLfe Distrib., Inc., 72 f.3d

at 381 (“[I]t has long been recognized that the interpleader statute is remedial, aimed at assisting a
party who fears the vexation of defending multiple claims to a fund or property under his control
by providing him the opportunity to satisfy his obligation in a single proceeding.”). As a result,
the adverse claimant requirement is satisfied when the defendants in an interpleader action dispute
who control the funds at issue. For example, in Bank ofAmerica, N.A. v. Jericho Baptist Church
Ministries, Inc., the underlying dispute addressed whether the original board or a later-formed
board controlled church assets. No. PX 15-2953, 2016 WL4721257, at *1 (D. Md. Sept. 9,2016).

Section 1335 only requires .that two claimants have diverse citizenship. See State Farm Fire &
Cas. Co. V. Tashire, 386 U.S. 523, 530 (1967). This minimal diversity requirement is satisfied
here because Richard is a citizen of California and Amy is a citizen of New Jersey. Compl. ¶J 3,
5.
6

The two boards were involved in a “vigorous legal feud,” which resulted in numerous lawsuits that
were filed to “determine fully and finally which entity rightfully govern[ed] the Church.” Id. at
*2. The Bank of America, which held the funds at issue, filed an interpleader action in response
to the competing claims from the two boards. Id. at *2. The court in Jericho Baptist concluded
that Bank of America’s interpleader action was proper. Id. at *4• Similarly, in National Bank of
Detroit v. She/den, the “principal question” presented in the interpleader litigation involved a
determination of who were the present trustees of the trust. 730 F.2d 421, 421-22 (6th Cir. 1984);
see also Faskenta Band ofNomlaki Indians v. C’rosby, No. 15-538, 2017 WL 385922, at *3 (E.D.

Cal. Jan. 24, 2017) (granting interpleader relief regarding which of two competing tribal councils
had authority over interpleaded accounts).
In addition, “jurisdiction in interpleader is not dependent upon the merits of the claims of
the parties interpleaded.” Bierman v. Marctts, 246 f.2d 200, 202 (3d Cir. 1957). The stakeholder
is not required to evaluate the positions of the adverse claimants and make its own determination
as to which claimant will ultimately prevail. However, the appropriateness of an interpleader
action rests on whether the stakeholder has “a real fear of the vexation and hazard of conflicting
claims.” Id. In other words, the stakeholder needs to have a “bona f/dc fear of adverse claims[.]”
CNA Ins. Cos. v. Waters, 926 F.2d 247, 251 (3d Cir. 1991) (internal quotation and citation omitted).

In this instance, Chase has a legitimate basis for its fear of conflicting claims and potential
liability stemming from the New York and New Jersey litigation. Amy and Richard have placed
Chase in the quintessential position that an interpleader action is intended to remedy. Amy has
threatened Chase, stating that if it takes direction from Richard, “you do so at your own peril,” due
to its knowledge of the New York action (Compi.

34), and at oral argument, Chase informed the

Court that Richard has filed contempt proceedings against Chase in the New Jersey action for

7

refusing to unfreeze the accounts and make the requested $10 million transfer per Richard’s
instructions. Moreover, the litigation here is occurring in two separate, independent jurisdictions.
Consequently, Chase faces a real risk of being asked to comply with competing orders from
different courts. In short, Chase has “a real and reasonable fear of exposure to double liability or
the vexation of conflicting claims,” which justifies its interpleader complaint. See Bierman, 246
F.2dat202.
Richard cites to a number of cases to support his argument that there are not adverse
claimants here. Richard’s Br. at 7-8. However, the cases are inapposite. See CNA Ins. Cos., 926
F.2d at 252 (concluding that there was no bona fide risk of adverse claims); Libby, McNeill, &
Libby v. City Nat ‘1 Bank, 592 F.2d 504, 507-09 (9th Cir. 197$) (concluding that interpleader was
not appropriate where only one party made claim regarding disputed fund and other potential
parties disclaimed any interest); Bierman, 246 F.2d at 203 (plaintiffs did not have good faith belief
that there were actually competing claims); Frank Briscoe Co. v. Albert Pick Co., 282 F. Supp.
321 (D.N.J. 196$) (dismissing interpleader action because it involved two separate funds with
separate claimants).
Here, unlike Libby and Frank Briscoe Co., there is only one “fund” at issue, that is, the
aggregate amounts held by Chase. Moreover, the Court finds Richard’s argument concerning the
difference between ownership and control of the funds to be unavailing. Richard argues that the
entity Defendants own or possess the funds, so the New York Proceedings are distinct from the
New Jersey Action because the New York case only concerns the trustees of the Neu Trusts.
Richard’s Br. at 6-7. But this argument ignores the uncontroverted fact that the Neu Trusts control
the entity Defendants. As Richard frankly admits: “If [Amy] were to be successful in the New

$

York Surrogate’s Court Action, she would control the parent corporation, Neu Holdings, which,
in turn, would control the subsidiary companies.” Id. at 7.
Richard further argues that the interpleader should be denied because Chase has does not
come to court with “clean hands,” thereby depriving it of its right to equitable relief. Id. at 19-20.
The doctrine of unclean hands may be used to deny equitable relief if the party seeking relief “is
guilty of fraud, unconscionable conduct, or bad faith directly related to the matter at issue that
injures the other party and affects the balance of equities.” Saudi Basic Indus. Corp. v. Exxonliobil
Corp., 401 F. $upp. 2d 383, 386 (D.N.J. 2005) (quoting ParamountAviation Corp. v. Agusta, 17$

F.3d 132, 147 n.12 (3d Cir. 1999).
Richard contends that Chase has unclean hands because it did not transfer the $10 million
as requested by Richard and because Chase did not unfreeze the entity Defendant’s accounts
following the TRO in the New Jersey Action. But the Court again finds Richard’s arguments
unavailing. First, Richard’s argument goes directly to the underlying facts of the Complaint
(Chase’s concern of distributing funds in the light of the competing claimants). Richard has not
cited any cases in which the doctrine of unclean hands applies in such a scenario as opposed to
some prior conduct independent of the basis for interpleader relief. More importantly, the Court
finds that Chase acted prudently in the face of Richard’s request to transfer the $10 million. As
noted, the TRO in the New Jersey Action did not require Chase to monitor the bank accounts but
it also did not absolve Chase of any potential liability concerning the accounts. The TRO also
prohibited “extraordinary” transfers. Compl.

¶ 42, 44. As a result, when faced with a request to

transfer $10 million, Chase cannot be faulted for acting prudently and reasonably in seeking
guidance from the court in the New Jersey Action to determine whether such a transfer would
violate the TRO.

9

As to Richard’s argument that Chase failed to unfreeze the accounts, the TRO restrained
Chase from freezing the accounts to the extent the entity Defendant’s needed to “pay their
obligations incurred in the ordinary course of business, including, but not limited, pay vendors and
pay employee payroll and employee benefits.” Id.

¶ 42. In light of the TRO, Chase made the

reasonable request as to the ordinary business obligations of the entity Defendants. Richard
refused to provide any information in response. Again, Chase’s prudent and reasonable request to
ensure that the TRO was not violated does not constitute unclean hands but rather a reasonable
attempt at basic diligence in light to the TRO.
Accordingly, Richard and Amy’s competing claims regarding control over the funds are
sufficient to satisfy the adverse claimant requirement. Thus, after Chase deposits the funds at issue
into the Federal Registry, the Court will have subject matter jurisdiction over this interpleader
action. 8
8 Amy does not dispute that this Court has subject matter jurisdiction pursuant to Section 1335 or
that the Court should grant Chase’s request for interpleader relief. Amy’s Br. at 7. Amy, however,
originally argued that at the second step of this interpleader action, pursuant to the Princess Lida
doctrine, the Court must stay this case to allow the Surrogate’s Court to resolve the underlying
issue of who is entitled to control the funds. Id. at 7. Amy withdrew this request during oral
argument. The Third Circuit has interpreted the Princess Lida doctrine as divesting a court of
subject matter jurisdiction. Dailey v. Nat’l Hockey League, 987 F.2d 172, 176 (3d Cir. 1993)
(“Princess Lida is a ‘mechanical rule’ which requires that the court in which the second suit is
brought yield its jurisdiction if the requisite ‘property’ showing is made.”). Although Amy argues
that the Court should use the doctrine at the second stage only, the Court is concerned by the fact
that, if applicable, the doctrine would strip this court of its subject matter jurisdiction. In light of
this concern, the Court will briefly address the applicability of Princess Lida to the matter at hand.
The Princess Lida doctrine applies when: (1) the litigation in both the first and second fora are in
rem or quasi in rem in nature, and (2) the relief sought requires that the second court exercise
control over the property in dispute and such property is already under the control of the first court.
There is no dispute that the New York matter is in rem or quasi in rem in nature as it involves the
administration of a trust and its trustees. See, e.g., Barbiero v. Kaufman, 580 F. App’x 107, 112
(3d Cir. 2014) (“[A] suit that concerns or determines the ownership, control and administration of
a trust and the powers, duties and liabilities of the trustees is either in rem or quasi in rem” under
Princess Lida.”). And while it appears to be a disputed issue, the Court concludes that interpleader
actions are in personam. See N. Y. Life Ins. Co. v. Dunlevv, 241 U.S. 518 (1916) (determining that
10

IV.

CONCLUSION

The Court concludes that the requirements for statutory impleader under 28 U.S.C.

§ 1335

are satisfied here and Plaintiff’s complaint was properly brought. As a result, Plaintiffs request
for certain relief pursuant to 2$ U.S.C.

§ 2361 is GRANTED. Consequently, the Court orders that

(1) chase must deposit the Funds at issue into the Federal Registry; (2) the New York actions,
which are currently pending before the Surrogate’s Court of the State of New York, County of
New York, file No. 19$5-0951, and the New Jersey action, Neit Holdings US. Corp., et al. v.
IF. Morgan Chase Bank, N.A., et al., Superior Court of New Jersey, Essex County, Chancery
Division, Docket No. ESX-C-91-17, are stayed; and (3) Defendants cannot institute any other
proceeding that may affect the funds. Defendants are also directed to file an answer to the
Complaint by June 1, 2017. After the Defendants file their answers, the Court will (1) set a briefing
schedule as to the second stage of this interpleader action; and (2) address, through an appropriate
motion(s), Plaintiffs request to be discharged from any and all further liability with respect to the
funds and an award of costs, attorneys’ fees and any other liabilities incurred in connection with
bringing this action. The Defendants are also ordered to discuss in good faith the amount of

interpleader is in personam action). Although interpleader involves property and, ultimately, a
determination of who is entitled to own or control the property, a concern for the stakeholder in an
interpleader action is to avoid personal liability for an amount over and above that of the fund in
the stakeholder’s possession. In this instance, for example, Chase has stated that is does not take
a position as to whether Amy or Richard ultimately has control over the amounts in the Chase
accounts. Its only goal in this litigation is to avoid liability for any additional amount and to avoid
the costs of additional litigation. As a result, the Princess Lida doctrine is inapplicable.
The New York actions include: (1) In re Amy Neit as Beneflciaiy of the Richard W Neti Issue
Trttst, to Remove Richard W Neu as Trztstee, and for Related Relief (2) In re Amy Neu as
Beneficia,y of the Richard W. Neu Issue Trust No. 1, to Remove Richard W. Nett as Trustee, and
for Related Relief; (3) In re Amy Neit as Beneficiary of the Richard W Neu Issue Trttst No. 2, to
Remove Richard W. Neit as Trustee, andfor Related Relief and (4) In re Petition ofAmy Neit to
Compel Richard W. Neu and Warren L. Dean to Account as Trustees ofthe Richard W. Neu Issue
Trust.
11

ongoing, necessary, and ordinary business expenses that the entity Defendants should be entitled
to have access to while the funds are held in the federal Registry. The Court encourages the
Defendants to agree to amount that will satisfy the entity Defendants’ needs for several months.
If the Defendants cannot agree to such an amount, Richard may seek relief from the Court on short
notice to release such funds)° An appropriate Order accompanies this Opinion.
Dated: May24, 2017
John” Michael Vazque.D.J.

10

Richard also argues that interpleader should be denied because it could cause irreparable damage
to the entity Defendants. Richard maintains that placing the funds into the federal registry “would
deprive the Neu Companies of funds they need to operate their businesses and probably cause their
collapse.” Richard’s Br. at 16-17. But at oral argument, Amy painted a very different picture of
the entity Defendants’ financial situation. The Court is certainly cognizant of Richard’s concerns.
Therefore, the Court will allow the parties to access to the funds to obtain agreed upon ordinary
business expenses to alleviate this risk of irreparable harm.
12