Oral argument: March 17, 2008
Appealed from: United States Court of Appeals, 9th Circuit (Sep. 12, 2006)
CIVIL PROCEDURE, RULE 19, INTERPLEADER, SOVEREIGN IMMUNITY, INDISPENSIBLE PARTIES
Federal Rule of Civil Procedure 19(b) requires a federal court to dismiss a civil action if an unavailable party is indispensable, that is, if the court could not in good conscience proceed without that party. Foreign sovereigns can make themselves unavailable by asserting their sovereign immunity from suit. The Supreme Court will consider the interaction between these two doctrines in this interpleader action to resolve the ownership of property claimed by the Republic of the Philippines ("Philippines") and by Mariano Pimentel ("Pimentel"). The Philippines successfully asserted its sovereign immunity, and now argues that the action cannot proceed in its absence. Pimentel responds that foreign sovereigns cannot stop an interpleader action merely by claiming an interest in the property at issue and then asserting sovereign immunity. The Court's decision in this case will impact courts' ability to adjudicate title to assets claimed by foreign sovereigns. This issue is likely to become increasingly important as sovereigns make ever-greater investments in private sector assets.
1. Whether the Republic of the Philippines 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 of the Philippines and its PCGG have the right to seek this court's review of the Court of Appeals's opinion affirming the district court.
2. Whether 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.
1. If a federal district court grants a foreign sovereign's motion to dismiss it from an interpleader action on sovereign immunity grounds, but denies the sovereign's concurrent motion to dismiss the entire interpleader action on the ground that the sovereign is an indispensable party, may the sovereign appeal?
2. If a foreign sovereign has in interest in assets that are the subject of a federal interpleader action, and the court dismisses the sovereign from the action on sovereign immunity grounds, must the court then dismiss the entire action?
In 1972, Ferdinand Marcos, then President of the Republic of the Philippines ("Philippines"), established Arelma, S.A., a Panamanian corporation, to hold $2 million of his assets. Merrill Lynch, Pierce, Fenner & Smith v. Arelma, Inc., 2004 WL 5326929, at *1-2 (D. Haw. Jul. 12, 2004); Brief for Petitioner at 1-2, 5. Arelma invested the assets with Merrill, Lynch, Pierce, Fenner, and Smith, Inc. ("Merrill Lynch") in New York. Brief for Petitioner at 5. Marcos lost power in 1986 amid popular unrest and fled to Hawai'i, where he died in 1989. Arelma, 2004 WL 5326929, at *1-2; Brief for Petitioner at 3.
Marcos's successor Corazon Aquino established the Philippine Presidential Commission on Good Government ("PCGG") and instructed it to recover any assets obtained by Marcos through abuse of his office. Brief for Petitioner at 3. Under Philippine law, such assets are forfeited to the Philippine government "from the moment they are appropriated." Id. at 3. Accordingly, the PCGG initiated forfeiture proceedings in the Sandiganbayan, a special Philippine court with exclusive jurisdiction over governmental corruption cases. See id. at 4-5. The Philippine National Bank (PNB) is holding Marcos's stock in Arelma in escrow pending the conclusion of these proceedings. Merrill Lynch, Pierce, Fenner, and Smith, Inc. v. ENC Corp., 464 F.3d 885, 889-90, No. 04-16401 at 11088 (9th Cir. 2006); Arelma, 2004 WL 5326929, at *2-4.
Mariano Pimentel ("Pimentel") represents a class of 9,539 individuals who brought human rights claims against Marcos in the United States District Court for the District of Hawai'i. Merrill Lynch, 464 F.3d at 890, No. 04-16401 at 11087-89; see Hilao v. Estate of Marcos, 103 F.3d 767 (9th Cir. 1996). In 1996, Pimentel obtained a judgment against Marcos's estate for almost $2 billion. Merrill Lynch, 464 F.3d at 890, No. 04-16401 at 11088. This judgment remains unsatisfied. See Brief for Respondents at 1-2, 18.
In 2000, the Philippines asked Merrill Lynch to transfer the Arelma assets, now worth approximately $35 million, to PNB. Brief of Merrill Lynch as Amicus Curiae in Support of Neither Party at 3, 6, 27. Merrill Lynch refused, fearing liability to other claimants. Id. at 6. To determine the rightful owner of the assets, Merrill Lynch initiated an interpleader action in the United States District Court for the District of Hawai'i. Id. at 4. Merrill Lynch named Arelma, the Philippines, PCGG, PNB, the Marcos estate, Pimentel, and others as claimants. Brief for Petitioner at 6-7.
The Philippines and PCGG asserted their sovereign immunity from suit, and moved to dismiss the entire action on the ground that they are indispensable parties under Federal Rule of Civil Procedure 19(b). See in re Republic of the Philippines, 309 F.3d 1143, 1148, No. 01-71841 at 8-10 (9th Cir. 2002). In an interlocutory appeal, the United States Court of Appeals for the Ninth Circuit dismissed the Philippines and PNB on sovereign immunity grounds, but did not dismiss the entire action. Id. at 1152.
On remand, the district court held that the Philippines and PCGG were not indispensable. Brief for Respondents at 8. After a bench trial, the court found that Arelma was in fact an alter ego of Marcos: he had disregarded the formalities of the corporate form and treated Arelma as an extension of himself. Arelma, 2004 WL 5326929, at *5-7. Therefore, the court reverse-pierced Arelma's corporate veil, overriding the usual separation between personal and corporate assets to apply Arelma's assets to Marcos's debts. See id. The court awarded Arelma's assets to Pimentel in partial satisfaction of his judgment against Marcos. See id. Arelma and PNB appealed the district court's ruling that the Philippines and PCGG were not indispensable, but the Ninth Circuit affirmed. See Merrill Lynch, 464 F.3d at 889, No. 04-16401 at 11087-88. The Philippines, PCGG, PNB, and Arelma then petitioned the United States Supreme Court for a writ of certiorari, which the Court granted on December 3, 2007. See Brief for Petitioner at 1, 14.
Merrill, Lynch, Pierce, Fenner, and Smith, Inc. ("Merrill Lynch") began this interpleader action in 2000 to determine the ownership of assets it had invested on behalf of Arelma, S.A., a corporation established by former Philippine President Ferdinand Marcos ("Marcos"). Merrill Lynch, Pierce, Fenner, and Smith, Inc. v. ENC Corp., 464 F.3d 885, 889-90 (9th Cir. 2006). The Republic of the Philippines ("Philippines") and the Philippine Presidential Commission on Good Government (PCGG) each claim an interest in the Arelma assets. See Brief for Petitioner at 5-6, 8. However, they are unavailable due to foreign sovereign immunity, a doctrine providing that United States courts will not adjudicate cases involving foreign sovereigns without the sovereign's consent. See Brief for Petitioner at 5-6, 8. A party is indispensable to an action under Federal Rule of Civil Procedure 19(b) ("Rule 19(b)") if the party's interests are so central to the litigation that the court cannot in good conscience proceed in the party's absence. See Rule 19(b); Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 104-109 (1968). The Supreme Court's resolution of this appeal will likely clarify the interaction between foreign sovereigns' immunity and courts' duty under Rule 19(b) to dismiss actions in which indispensable parties are unavailable. See Brief for Petitioner at 25.
The Philippines argues that it is a required party to this action under Rule 19(a) because it has an interest in the Arelma assets that could be impaired if the action proceeds in its absence. See Brief for Petitioner at 25. According to the Philippines, if a foreign sovereign is a required party and entitled to sovereign immunity, courts must also find that it is indispensable under Rule 19 (b). See id. at 27-36. Permitting a suit to proceed in an immune sovereign's absence, the Philippines argues, places the sovereign between a rock and a hard place: the sovereign cannot protect its substantive rights unless it waives its immunity and participates in the action. See id. at 27-31. The Philippines further contends that continuing the action in its absence would permit courts to improperly interfere in matters of international relations, and violate the principle that nations should cooperate to repatriate misappropriated assets. See id. at 47-52.
Mariano Pimentel ("Pimentel"), as the representative of a class holding an unsatisfied judgment against Marcos, argues that the Philippines is not indispensable. See Brief for Respondents at 35-51. According to Pimentel, courts must determine the indispensability of a foreign sovereign in light of the particular facts of the case, not according to per-se rules. See id. Pimentel claims that courts should focus on the practical implications of their decision to permit an action to proceed in a party's absence. See id. at 39-40. The Philippines, Pimentel argues, has little chance of succeeding on the merits of its case, due to the applicable statute of limitations. See id. at 41. Therefore, according to Pimentel, the Philippines will suffer little prejudice if a United States court determines entitlement to the Arelma assets in its absence. See id. Dismissal, Pimentel argues, would prejudice the class he represents, because it has a meritorious claim that it cannot pursue elsewhere. See id. at 14-15, 40-41, 45-46.
Implications of Possible Outcomes
Merrill Lynch notes that a decision for the Philippines would permit a foreign sovereign to stop any United States legal proceeding involving property by first asserting a claim to that property and then asserting its sovereign immunity. See Brief of Merrill Lynch as Amicus Curiae in Support of Neither Party at 22-23. If an immune sovereign were to assert a claim to assets also claimed by others, Merrill Lynch argues it would lack any effective judicial mechanism to determine the rightful owner of the assets, through no fault of its own. See id. at 28-30. Given the proliferation of sovereign wealth funds, or governmental entities that invest government money to earn a profit, the significance of this issue is likely to grow in the future. C.f. "The Rise of Sovereign Wealth Funds," International Monetary Fund Finance and Development, Vol. 40 No. 3 (September 2007).
The Solicitor General of the United States ("Solicitor General") argues as amicus curiae that a decision for Pimentel would impair the Philippines's sovereign interest in recovering the ill-gotten funds of its former President. See Brief of the United States as Amicus Curiae in Support of Petitioner at 23. Moreover, according to the Solicitor General, such a result would permit an interpleader action to proceed without all interested parties, defeating the very purpose of interpleader, which enables a court to resolve all competing claims to property in one action. See id. at 30-31.
Pimentel notes that a decision in his favor would result in an immediate disbursement of $2000 to each of the 9,539 members of his class, many impoverished, who have long awaited redress for Marcos's abuses. See Brief for Respondents at 13-14, 40. According to Pimentel, such payments would give tangible meaning to the United States courts' recognition of human rights claims, thereby upholding the "transcendent values" shared by the United States, the Philippines, and the broader international community. See id. at 55.
Federal Rule of Civil Procedure 19(a) ("Rule 19(a)") provides in relevant part that party is "required" if the court "cannot accord complete relief amongst existing parties," in the party's absence, or if adjudicating the action in the party's absence would injure the absent party or "subject an existing party to a substantial risk of incurring ... multiple [or] inconsistent obligations. Federal Rule of Civil Procedure 19(b) ("Rule 19(b)") goes on to provide that if a necessary party is absent, the court "must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed. The factors for the court to consider include: (1) the extent to which a judgment rendered in the person's absence might prejudice that person or the existing parties; (2) the extent to which any prejudice could be lessened or avoided by [tailoring of the judgment]; (3) whether a judgment rendered in the person's absence would be adequate; and (4) whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder." A party whose absence would require dismissal under Rule 19(b) is often termed "indispensable." See, e.g. Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 104-109 (1968).
Preliminary Issue: Appellate Standing
According to the Republic of the Philippines ("Philippines") it has standing to bring this appeal despite its earlier dismissal from the action because the terms of its dismissal did not grant it the full relief it sought, which was dismissal of the entire action. See Brief for Petitioner at 19-25. The Philippines contends that the court should adopt a practical approach, and ignore any technical standing defect to consider the merits of its appeal. See id. at 20. Even if the Philippines lacks standing, it argues that the Philippine National Bank ("PNB") and Arelma, who remained as parties to the action, asserted the Philippines's indispensability in the lower courts and in their petition for certiorari. See id. at 17-19. Finally, the Philippines argues that it is appropriate for the Court to consider a Rule 19(b) issue on its own initiative to protect absent parties such as the Philippines. See id. at 17-18 (citing Provident, 390 U.S. at 111).
Mariano Pimentel, as the representative of a class of judgment creditors of Ferdinand Marcos ("Pimentel"), responds that the Philippines lacks standing because it was not a party to the lower court's judgment and is not bound by it. See Brief for Respondents at 19-24. The Philippines made a strategic decision to exit the action, according to Pimentel, and having refused to participate in the lower court proceedings it cannot challenge their outcome. See id. at 20-24. Pimentel claims that it would be inequitable to permit the Philippines to exercise the appellate rights afforded to parties to an action while simultaneously asserting that it is immune from suit. See id. at 26-31. This would improperly grant the Philippines the benefits of both participation and immunity, Pimentel argues. See id. Pimentel claims that Arelma and PNB cannot appeal at all because they have conceded that they have no claim to the assets. See id. at 31-35. Moreover, according to Pimentel, Arelma and PNB cannot vicariously assert the Philippines's indispensability. See id. at 32.
Are Required Foreign Sovereigns Automatically Indispensable?
The Philippines argues that a foreign sovereign's immunity from suit renders the sovereign inherently indispensable under Rule 19(b). See Brief for Petitioner at 27-36. While courts generally balance a variety of equitable factors to determine whether or a party is indispensable, the Philippines argues that some interests are "compelling by themselves." See id. at 27 (quoting Provident, 390 U.S. at 118-19). One such compelling interest, according to the Philippines, is a foreign sovereign's interest in protecting its immunity from suit in United States courts. See Brief for Petitioner at 31-34. If a required and immune sovereign is not automatically indispensable, the Philippines argues, a court could harm the sovereign's interests in its absence by adjudicating title to property in which the sovereign has an interest. See id. at 31-34. According to the Philippines, this would be inconsistent with the strong traditions and public policies favoring foreign sovereign immunity. See id. at 27-31.
Pimentel responds that an inflexible rule providing that immune sovereigns are always indispensable would be inconsistent with the case-specific equitable analysis required by Rule 19(b). See Brief for Respondents at 46-51. In balancing the facts of a particular case, Pimentel notes, "[a] court of equity will strain hard" to avoid dismissal. See id. at 40 (quoting Bourdieu v. Pacific Western Oil Co., 299 U.S. 65, 70 (1936)). Pimentel argues that appellate courts should defer to trial courts' fact-specific decisions and reverse them only for abuse of discretion. See Brief for Respondents at 36-39. In this case, according to Pimentel, the lower courts correctly concluded that the Philippines is not indispensable, because permitting the action to proceed without the Philippines would aid the other parties without materially injuring the Philippines's legal rights. See id. at 39-46.
Are the Merits of the Philippines's Claim Relevant to its Indispensability?
Pimentel argues that as a practical matter, the Philippines would suffer no prejudice if this action proceeds in its absence. See Brief for Respondents at 41. The Philippines's claim against the Arelma assets is weak, according to Pimentel, because the statutes of limitations have run on any claim the Philippines might assert in New York to recover them. See id. at 41; see also Brief of Merrill Lynch as Amicus Curiae in Support of Neither Party at 25-28. In order to ask the United States government to return the assets pursuant to a mutual assistance treaty, Pimentel argues, the Philippines would have to obtain a judgment that it was entitled to the assets in its own courts. See Brief for Respondents at 43-44. Pimentel contends that not only has the Philippines failed to do so, any such judgment would be inadequate under the treaty since under Philippine law the Pimentel class could not participate. See id. Since the Philippines lacks enforceable rights in the Arelma assets, Pimentel argues that the Court should find that the Philippines is not indispensable because it has no substantive interests to protect. See id. at 41.
The Philippines responds that this line of reasoning would inappropriately permit courts to consider the merits of an immune sovereign's claim in its absence. See Brief for Petitioner at 37-42. Any ex parte adjudication of the merits of a party's claim inherently risks prejudice to that party, the Philippines argues. See id. at 38-39. According to the Philippines, this is a particular concern in cases involving immune sovereigns, since the public policy behind the sovereign immunity doctrine requires courts to refrain from determining a sovereign's legal rights without the sovereign's consent. See id. at 27-31, 39. Moreover, the Philippines argues that its claim to the Arelma assets is much stronger than Pimentel suggests. See id. at 39-41.
Is Pimentel's Lack of an Alternate Forum Relevant?
In the Philippines's view, Pimentel's likely inability to recover from Marcos if this action cannot proceed is an inevitable consequence of the sovereign immunity doctrine. See Brief for Petitioner at 45-46. Therefore, according to the Philippines, Pimentel's lack of an alternate forum is irrelevant to the Court's consideration of whether or not Pimentel is indispensable. See id. at 46. Sovereigns' immunity from suit, the Philippines argues, is the result of a policy judgment that even plainly meritorious claims implicating a sovereign's rights may not proceed without the sovereign's consent. Id.
Pimentel responds that the Court should not find the Philippines indispensable in this international dispute where no legislative solution is available. See Brief for Respondents 47-51. According to Pimentel, in a domestic dispute involving an immune sovereign (such as the United States itself), non-immune parties have the option of seeking redress from Congress. See id.. In this case, Pimentel argues, the United States courts are the only forum in which he can obtain adequate relief. See id.. This factor should weigh in favor of permitting this action to proceed, Pimentel claims. See id.
The Court's decision in this case will likely clarify the balance between the interests of private parties in efficiently determining the title to assets and foreign sovereigns' right to immunity from suit. A decision in favor of the Philippines would prevent erosion of the foreign sovereign's immunity by eliminating pressure on the sovereign to voluntarily participate in a suit in order to protect its interests. It would also avoid the risk of prejudice inherent in assessing a party's claim in that party's absence. On the other hand, a decision in Pimentel's favor would prevent foreign sovereigns from holding disputed funds hostage through inaction, and would aid human rights victims in their search for compensation. Such a result would also permit financial institutions and other disinterested holders of property to invoke the U.S. courts' aid in determining the ownership of particular property.
Prepared by: Bryan Hall
Edited by: Molly Curren Rowles