Republic of the Philippines v. Pimentel

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Contents

[edit] Briefs and Documents

Docket: 06-1204

Argument Transcript

Issue: Whether, under Federal Rules of Civil Procedure 19(a) and (b), a court must dismiss an interpleader action involving a foreign country that has successfully claimed sovereign immunity.

Merits briefs (via ABA)

Amicus briefs

[edit] Pre-Argument Articles

[edit] CVSGS write-up

The following is from a SCOTUSblog post by Ben Winograd.

In a brief filed on Friday, the federal government urged the dismissal of a lawsuit filed to determine ownership of funds allegedly misappropriated by Ferdinand Marcos during his reign as Philippine president. The recommendation, submitted in support of a petition filed by the Philippines, urges the Court to review a Ninth Circuit decision that rejected the Philippine government’s claims to the funds despite a finding that the country had properly asserted sovereign immunity from the suit.

The case involves competing claims over a Merrill Lynch account Marcos created while in power that has since grown to more than $35 million. One group, a class of human rights victims previously awarded some $2 billion against Marcos’ estate, says the account contains the assets of a shell corporation Marcos created to hide his personal wealth. Another group seeking recovery claims that Marcos originally set up the account with proceeds from the legendary Yamashita Treasure stolen from Roger Roxas, a now-deceased Philippine locksmith. Meanwhile, the government of the Philippines argues that Philippine law allocates all funds illegitimately gained by public officials to the government.

In 2000, Merrill Lynch brought an interpleader action in federal district court in Hawaii to settle the competing claims. The Philippines was joined to the suit as a “necessary” party under Federal Rule of Civil Procedure 19(a), but, having asserted sovereign immunity, the government sought to dismiss the suit under Rule 19(b), which requires dismissal whenever a party “indispensable” to the litigation is otherwise unavailable. The district court rejected the Philippines’ motion and, after a bench trial, awarded all of the Merrill Lynch account to the human rights victims. Despite an earlier finding that the Philippines was entitled to sovereign immunity, the Ninth Circuit upheld the judgment on appeal. It found that while Rule 19(b)’s indispensability requirement might ordinarily require dismissal of a case against a foreign sovereign immune from suit, the Philippines as a practical matter had little likelihood of ever recovering the funds in the Merrill Lynch account.

In Friday’s filing, the Solicitor General recommended the Court grant the Philippines’ petition and hold that of the Roxas claimants pending its outcome. The government argues that the Ninth Circuit decision effectively deprived the Philippines of the benefit of sovereign immunity, and in the process raised significant foreign policy concerns for the United States. Citing decisions from the Second, Tenth and District of Columbia Circuits, the government contends that a party absent due to its sovereign status should almost always be considered “indispensable” to a suit under Rule 19(b), and thus entitled to dismissal in compulsory joinder claims.

As to the Philippines’ ability to recover the assets, the government argues that the Ninth Circuit prematurely concluded that U.S. courts would never enforce a potential judgment by a Philippine court ordering Merrill Lynch to return the money to the Philippine government. In closing, the government contends that by intruding into a sensitive matter of foreign relations and potentially making it more difficult for the U.S. government to successfully claim sovereign immunity in foreign courts in similar situations, the Ninth Circuit decision “threatens to undermine significant interests of the United States.”

[edit] Argument Preview

The Court granted certiorari in this case on December 3, 2007 to consider “[w]hether a foreign government that is a ‘necessary’ party to a lawsuit under Rule 19(a) and has successfully asserted sovereign immunity is, under Rule 19(b), an ‘indispensable’ party to an action brought in the courts of the United States to settle ownership of assets claimed by that government.” The Court also directed the parties to brief and argue an additional question: “whether the Republic of the Philippines (Republic) and its Presidential Commission on Good Government (PCGG), having been dismissed from the interpleader action based on their successful assertion of sovereign immunity, had the right to appeal the district court’s determination that they were not indispensable parties under Federal Rule of Civil Procedure 19(b); and whether the Republic and its PCGG have the right to seek this Court’s review of the court of appeals’s opinion affirming the district court.”

[edit] Background

In 1972, while he was President of the Republic of the Philippines, Ferdinand Marcos created Arelma, S.A. (“Arelma”) under the laws of Panama. That same year, Arelma opened an account with Merrill Lynch in New York, depositing $2 million into that account; those funds were allegedly obtained by Marcos through misuse of his public office. Ownership of Arelma is represented by two share certificates that are held in escrow by the Philippine National Bank (PNB).

In 1995, a class of human rights victims, represented in this action by respondent Pimentel, obtained a $2 billion judgment against the Marcos estate. The Pimentel claimants sought to execute that judgment against the Merrill Lynch account, presently worth $35 million, claiming that Arelma was a shell corporation that hid Marcos’s personal assets. In 2000, Merrill Lynch initiated this interpleader action in the U.S. District Court for the District of Hawaii to resolve the ownership of the funds in the account. In addition to the Pimentel claimants, three other entities (all petitioners in this case) claim ownership of the funds: Arelma, which owns the account; Philippine National Bank, which holds share certificates for Arelma; and, most importantly for this action, the Republic of the Philippines (“Republic”), which claims the assets under a Philippine statute providing that any property obtained by a public officer through misuse of his office requires forfeiture of those funds to the government.

The Republic asserted sovereign immunity under the Foreign Sovereign Immunities Act (FISA) and also moved to dismiss the action under Federal Rule of Civil Procedure 19(b), claiming that it was an “indispensable” party. The district court dismissed those claims on the merits without addressing the sovereign immunity issue.

The Ninth Circuit reversed, holding that the Republic was immune from suit, and also a “necessary party” under Rule 19(a), which requires that such parties be joined if feasible. After ordering the entry of a stay pending “resolution of [ongoing] litigation in the Philippines” that might resolve the ownership of the Arelma assets, the case was remanded to the district court, which subsequently vacated the stay. It reasoned that because the district court has exclusive jurisdiction over the Arelma assets, any decision in the Philippine courts would not affect the interpleader action. The district court then again denied the Republic’s motion to dismiss under 19(b), and conducted a bench trial in which it rejected the claims of Arelma and PNB and awarded the entirety of the Merrill Lynch funds to the Pimentel claimants.

The Republic appealed the denial of the Rule 19(b) motion to dismiss. In September 2006, the Ninth Circuit affirmed the decision of the district court. It held that the Republic’s failure to obtain a judgment in the Philippines on the Arelma assets, even though such assets had been in escrow since 1995, was an equitable consideration “to be taken into account.” It also concluded that the Republic had little likelihood of collecting the assets from Merrill Lynch, because the six-year statute of limitations for misappropriation of public property in that state had already expired. Even if a Philippine court were to award the Arelma assets to the Republic, the court of appeals continued, such a court would lack in rem jurisdiction over the assets, which could only be finally disposed of “by a judgment of a court of the United States.”

[edit] Petition for Certiorari

The Republic filed a petition for a writ of certiorari on March 5, 2007. It argued that the Ninth Circuit erred in holding that litigation over assets claimed by a foreign sovereign may proceed to judgment in the sovereign’s absence. Rule 19(b) offers four factors to be considered in deciding whether litigation should proceed even in the absence of a party deemed necessary under 19(a): (1) “to what extent a judgment issued in the person’s absence might be prejudicial to the person”; (2) the degree to which such “prejudice might be lessened or avoided” by the use of protective provisions in the judgment; (3) “whether a judgment rendered in the person’s absence will be adequate”; and (4) “whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder.” Under these four factors, the Republic contended, it should have been found to be an “indispensable” party, and the case should thus have been dismissed.

The Republic also argued that the court of appeals’s error was compounded by its determination of the merits of the Republic’s claims to the assets, which the Republic’s successful assertion of sovereign immunity should have foreclosed. Further, the Republic argued that the decision below departed from the proper application of the Rule 19(b) standards and conflicted with not only the decisions of other courts of appeals but also the decisions of the Supreme Court. Finally, the Republic asserted that because it would prohibit the Republic from recovering assets stolen by its former President.

In its brief in opposition, Pimentel argued that the Ninth Circuit correctly applied the balancing required under the four factors of Rule 19(b) and did so in “equity and good conscience” and “in the context of [this] particular litigation” as required by the Supreme Court in Provident Tradesmens Bank & Trust Co. v. Patterson (1968). Further, the decision below properly recognized that foreign sovereigns enjoy no special status under Rule 19, and that evaluation of the claims of a party seeking “indispensable” status is necessarily part of the Rule 19(b) process, because a court cannot “know whether a particular person is ‘indispensable’ until it has examined the situation to determine whether it can proceed without him.” Pimentel also argued that the ruling below would not undercut the doctrine of foreign sovereign immunity, nor did it conflict with decisions cited by the petitioners, which Pimentel argued did not present the question addressed by the Ninth Circuit in this case.

On May 14, 2007, the Solicitor General was invited to submit a brief expressing the views of the United States. Coverage of the Solicitor General’s brief urging the Court to grant certiorari, which was filed on November 2, 2007, has previously been provided on SCOTUSblog and is available above in the CVSG write-up.

Cert. was granted on December 3, 2007. In the order granting certiorari, the Court asked the parties to address the additional threshold question of whether the Republic had a right to appeal and later to seek cert. based on the denial of the dismissal of the interpleader action under Rule 19(b), once it had been dismissed from the action on grounds of its sovereign immunity.


[edit] Merits Briefs

In its brief on the merits, the Republic first addressed the question of whether, once it had been dismissed from the interpleader action, it had a right to appeal the Rule 19(b) decision below at all. The Republic first argues that its status is irrelevant to the question because the Arelma and PNB parties already properly brought the Rule 19(b) question before the Ninth Circuit and the Supreme Court. In any event, the Republic argues, it was entitled to seek review of the Rule 19(b) question because its dismissal from the suit did not grant it the full relief that it had sought – viz., dismissal of the entire interpleader action based on Rule 19(b). Once final judgment was entered, the Rule 19(b) question, to which the Republic had been an party, became appealable.

The Republic next addressed the merits of the Rule 19(b) question, arguing that the interpleader action should have been dismissed in the Republic’s absence. When a necessary party is unavailable because it has sovereign immunity, the Republic argued, dismissal is absolutely required under Rule 19(b). Even without the question of sovereign immunity, the Republic argues that in this case it was an indispensable party for purposes of Rule 19(b) under the four factors discussed in the Rule, and thus the action should not have proceeded in its absence. Finally, the Republic asserts that the need to have a Philippine court resolve the dispute over assets stolen by its former president is an additional compelling interest in favor of dismissal.

The United States filed an amicus brief on behalf of the Republic, arguing that the Republic was entitled to appeal the order denying dismissal under Rule 19(b) because that order prejudiced the Republic’s interests. Like the Republic, the United States also argued that even if the Republic itself lacked standing, Arelma and PNB had properly brought the Rule 19(b) question before the court of appeals and the Supreme Court. Turning to the merits, the United States argued that the Republic’s immunity and the pending forfeiture proceeding in the Philippines each weighed heavily in favor of dismissal of the action under Rule 19(b); the combination of the two factors, considered together, led to the conclusion that the Ninth Circuit erred and the action should have been dismissed.

Pimentel countered that the Republic had no right to appeal, and that the denial of the Rule 19(b) dismissal was not properly before either the court of appeals or this court. By invoking, and securing a dismissal on the basis of, sovereign immunity, the Republic avoided joinder as a party and therefore was not a party for the purpose of the Rule 19(b) decision. If the Republic had been concerned about the Rule 19(b) decision, Pimentel argues, it was free to intervene in the action under Fed. R. Civ. Pro. 24, which would have preserved its right to appeal. Moreover, Arelma and PNB lack standing to appeal because they suffered no prejudice in the denial of the Republic’s Rule 19(b) motion, and because they have abandoned any claims to the interpleaded assets by failing to seek cert. on the merits of the decision below.

Pimentel also argues that the Ninth Circuit correctly determined that the Republic is not an indispensable party under Rule 19(b). First, although the Supreme Court has never squarely addressed the standard of review applicable to such determinations, Pimentel argues that the correct standard is abuse of discretion. Under this standard, considering all of the facts that were before the courts below, the lower courts properly decided the Rule 19(b) question based on the factors articulated in the Rule and the balancing compelled by Provident Tradesmens Bank. While the Republic’s sovereign immunity is a factor to be considered, Pimentel argues, it is not the sole or overriding factor.

In addition to the brief of the United States on behalf of the Republic, an amicus brief was filed on behalf of neither party by Merrill Lynch. Amicus briefs on behalf of the respondents were filed by Philippine Human Rights Groups and by Professors of International Law.

Oral argument is scheduled for March 17, 2007.

[edit] Oral Argument Recap

Charles Rothfeld, arguing on behalf of the Republic, began by arguing that this case concerns a dispute over the ownership of the Arelma assets, but that the ownership of this property should be decided in the first instance by the courts of the Republic. He went on to describe the pending proceedings in the Sandiganbayan, a special Philippine anti-corruption court. Justice Ginsburg asked about how long those proceedings had been pending, and Justice Kennedy wanted to know if the likelihood of an earlier decision would be a consideration for the Court.

Deferring answering Justice Kennedy’s question to what he considered to be the second part of his argument (a “broader set of considerations”), Mr. Rothfeld turned instead to the question of sovereign immunity. He asserted that, if the Republic’s claims to the assets are valid, then under Philippine law the Arelma assets were at all times the property of the Republic. Justice Ginsburg wanted to know how, if that were the case, the Republic had earlier supported the U.S. litigation against Marcos that resulted in the original $2 billion judgment against the Marcos estate. Mr. Rothfeld said that there was not any inconsistency in the Republic’s position, since in the earlier litigation, and even now, the Republic has no objection to citizens of the Republic proceeding against the Marcos estate. Rather, the question here is whether these assets belong to the Marcos estate of Marcos or instead to the Republic.

Justice Scalia wanted to know if there was anything else in the Marcos estate, to which Mr. Rothfeld replied that litigation was ongoing in the Sandiganbayan as to what is properly in the estate. Justice Souter modified Justice Scalia’s question slightly, asking if there was anything in the Marcos estate that the Republic does not claim. Mr. Rothfeld replied that he believed that there were some such assets, and Justice Souter wanted to know if they amounted to enough to satisfy the individuals’ claims. Mr. Rothfeld replied that there are not (and have never been) enough to satisfy all of the claims. Justice Souter continued to push on this point, since it seemed like the Republic’s position was that the Republic “support[ed] the litigation in the United States” by the class of plaintiffs, “but when it comes time to collect a judgment we’re claiming they don’t get a penny because everything belongs to us.”

After being pressed by Justice Souter for a few more questions, Mr. Rothfeld said that those issues were not relevant to the Rule 19 issue that was before the Court – namely, the application of Rule 19 “in a situation in which there is an absent sovereign that has asserted its sovereign immunity.” Responding to a question by Justice Kennedy, Mr. Rothfeld argued that while sovereign immunity and dismissal under Rule 19 are different, they are closely related and essential aspects of the relief sought by the Republic. Chief Justice Roberts wanted to know why the Republic, should it be awarded the Arelma assets, could not simply pursue whoever did get the assets in this suit. Mr. Rothfeld said that everyone, including the Ninth Circuit, is in agreement that once the assets are awarded to the class of almost 10,000 individuals, they will effectively be beyond recapture. Furthermore, the suggestion that the Republic could pursue Merrill Lynch is not certain because it may be prohibited from doing so by the judgment below.

Justice Alito asked if the Republic was ultimately going to have to sue someone in the United States and waive its immunity in order to claim the assets (assuming that the assets are awarded to the Republic by the Philippine court). Although agreeing that may be the case, Mr. Rothfeld argued that that would be an entirely different type of proceeding. Chief Justice Roberts wanted to know if it were fair to make the private claimants in the United States wait until a Philippine court renders a judgment, especially if those claimants are not entitled to participate in the Philippine proceedings. Mr. Rothfeld reminded the Chief Justice that the private claimants had no claim to the assets that was not derivative of the Marcos estate’s claims.

Edwin Kneedler argued next for the United States in support of the petitioner. He asserted that sovereign immunity must be given “great weight” in determining whether a suit must proceed, to which Justice Ginsburg inquired if the government’s position was that sovereign immunity does not result in automatic dismissal, as asserted by the Republic. Mr. Kneedler said that the sovereign immunity issue would be dispositive in most cases, but perhaps not in rare cases where the sovereign’s interests are protected by another sovereign in the suit. Mr. Kneedler argued that the sovereign interest in this case is particularly compelling. The Chief Justice wanted to know why the Philippine National Bank (PNB), which was a party to this suit, could not adequately protect the interests of the Republic. Mr. Kneedler responded that, as an escrow agent, the PNB cannot assert an interest on behalf of either of the two claimants (the Republic or the Marcos estate).

Mr. Kneedler also argued that the Convention Against Corruption and a federal statute required forfeiture of assets that are deemed to be forfeited by a foreign proceeding. Justice Ginsburg pressed on this point, saying that this would be the case if there were a foreign judgment (which there is not in this case), and that this would also require that all claimants would have the opportunity to be heard in the foreign proceeding, which respondents here do not have. Mr. Kneedler said that the statute actually requires the presence of parties claiming interest as an owner, whereas here the claimants are unsecured judgment creditors.

Robert A. Swift appeared next on behalf of the respondents. He immediately raised the issue of whether there is any adequate alternative remedy for the human rights victims in this case, and asserted that there unequivocally is no other remedy, either in the U.S. or in the Philippines. After some discussion of in rem jurisdiction and whether the stock certificates had ever been owned by the Republic, Mr. Swift said that the two lower courts had specifically found that the Arelma assets were assets of the Marcos estate. Justice Ginsburg asked if they had found that the assets belonged to the estate and not to the Republic, and Mr. Swift said that they had found only the former. Justice Breyer objected to this characterization, saying that he didn’t see such a finding in the court of appeals decision. Rather, he said, the court of appeals concluded that the assets couldn’t possibly belong to the Republic because there is no way that the Republic could win a suit in New York to recover the assets. That conclusion, Justice Breyer said, was being contested by the Solicitor General, who had provided explanations of how the Republic could claim the assets in the U.S. Mr. Swift said that an in rem proceeding against the stock certificates would not resolve the issue of the rights to the assets, and any conversion or breach of contract action in the U.S. would be barred by the statute of limitations.

Mr. Swift also argued that the Republic here was engaging in forum shopping insofar as it was invoking sovereign immunity here but it would have to waive that immunity later to make any claim to the assets. Justice Ginsburg said that that was exactly what sovereign immunity contemplated, but Mr. Swift said that nothing in Rule 19(b) requires it to be a per se rule. Justice Kennedy wanted to know, in the balancing done by the lower courts, what weight was given to the Republic’s sovereign immunity. Mr. Swift responded that it was given significant weight, but Justice Ginsburg disagreed, saying that since the Ninth Circuit had decided that the Republic would be barred by the statute of limitations from ever claiming the assets, that its decision did not give any weight to the sovereign immunity claim. Justice Stevens wanted to know if any court had ever decided the merits of the question of whether the Marcos estate or the Republic owns the Arelma assets. Mr. Swift said that the decision below declared that the assets belonged to Marcos. Justice Ginsburg, however, again disagreed.

Justice Breyer wanted to know what terrible unfairness was going on, especially if the Arelma assets were awarded to the Philippine government, where they would inure to the benefit of the Philippine people. Mr. Swift asserted that the purposeful delay of the proceedings in the Philippines has resulted in substantial unfairness to the Pimentel claimants. Justice Scalia was not persuaded, saying that the entire doctrine of sovereign immunity “rests upon unfairness.”

Before the end of his argument, Chief Justice Roberts asked if respondents had given up on the argument that the Republic lacked standing to bring this claim in the Supreme Court. Mr. Swift responded that they had not done so, and that the lack of an appeal on the merits by Arelma and PNB meant that the Republic could not bring the current claim.

Mr. Rothfeld returned to the podium for three minutes of rebuttal. He asserted that there is no doubt that the Republic has substantial interest in the assets at stake in this suit, and that its exercise of sovereign immunity should be dispositive as to the question of dismissal under Rule 19(b). When Justice Stevens asked about the weighing by the Ninth Circuit below, Mr. Rothfeld said that the Ninth Circuit gave the sovereign immunity of the Republic no weight, ignoring it because the court had already decided that the Republic would not have a claim to recover the assets.

[edit] Opinion Analysis

In Thursday’s opinion from Justice Kennedy in Republic of Philippines v. Pimentel, the Court held that Federal Rule of Civil Procedure 19 required the dismissal of Merrill Lynch’s interpleader action in the absence of the Republic of the Philippines.

The case arose out of a class action by human rights victims against the former president of the Philippines, Ferdinand Marcos. The class obtained a nearly $2 billion judgment in federal district court, and later sought to attach the assets of Arelma, S.A., a company that had been incorporated by Marcos. The Republic of the Philippines also claimed entitlement to the same assets under a Philippine law providing that property derived from misuse of public office is forfeited to the Republic from the moment of misappropriation; the Republic’s entitlement to the Arelma assets is currently the subject of litigation in the Philippine court system. Merrill Lynch, the broker which currently holds the Arelma assets, brought an interpleader action to determine the ownership of these assets.

The Republic asserted its sovereign immunity and also sought to dismiss the action pursuant to Rule 19(b), arguing that the action could not proceed without it. The Republic was subsequently dismissed from the suit, but the Rule 19(b) motion was denied, with the district court ruling that the action could proceed against the remaining defendants (which included Arelma, S.A. and the Philippine National Bank, which holds some of the disputed assets in escrow). Ultimately, the district court awarded the assets in question to the Pimentel class, and the Ninth Circuit affirmed, holding that although the Republic was a required party under Rule 19(a), dismissal under Rule 19(b) was not warranted because the Republic had so little likelihood of success on the merits that the action could proceed without it.

The first issue the Court addressed was whether the Republic, having been dismissed from the action by virtue of its sovereign immunity, had the right to seek review in the Supreme Court of the Ninth Circuit’s decision that Rule 19(b) did not require dismissal. The Court determined that it need not rule on this point, because the remaining defendants – Arelma and the Philippine National Bank – had also moved to dismiss under Rule 19(b) and were petitioners in this action. Further, these defendants’ failure to petition for certiorari on the merits of the underlying decision did not rob them of standing to seek review of the Rule 19(b) claim.

Turning to the Rule 19(b) considerations, the Court found that the Ninth Circuit erred in not giving sufficient weight to the Republic’s assertion of sovereign immunity. In considering Rule 19(b)’s first factor – namely, if the Republic would be prejudiced if the case were to proceed it its absence – the Ninth Circuit incorrectly considered the merits of the Republic’s claims to the assets. In so doing, the Ninth Circuit denied the Republic the comity interest in using its own courts to decide a dispute. Finding that the claims of the Republic were not frivolous, the Court determined that the Ninth Circuit erred in proceeding on the assumption that those claims would be decided against the Republic after it had asserted its sovereign immunity.

In considering the remaining Rule 19(b) factors, the Court determined that no alternative remedies or forms of relief appeared to be available that would lessen or avoid the prejudice to the Republic, and that any judgment rendered without the Republic would not be adequate because the Republic would not be bound by any judgment to which it was not a party. Additionally, although the Ninth Circuit made much of the class members’ lack of an alternative forum, the plaintiff in the interpleader action was Merrill Lynch, not the class. Although the tort victims’ interests are not irrelevant in Rule 19(b)’s equitable balance, Merrill Lynch’s interests would be served by a dismissal, since it could rely on such a ruling as an effective defense against piecemeal litigation.

Justices Stevens and Souter both wrote opinions concurring in part and dissenting in part. While agreeing that the Ninth Circuit erred in affirming a judgment that the assets belonged to the class action plaintiffs, both Justices would prefer to see the judgment vacated and the case remanded with directions to stay the case pending a decision from the Philippine court or to order the case reassigned to a new district judge whose impartiality was less questionable, in which case there were indications that the Republic would not assert its sovereign immunity and would instead consent to suit on this issue.

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