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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."

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."

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.

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.

Posted in Republic of the Philippines v. Pimentel, Everything Else