Republic of Philippines v. Pimental

As this case comes to the US Supreme Court it presents a very technical issue of whether a "necessary" party under the Federal Rules of Civil Procedure (Rule 19) is, in this case, also an "indispensable" party. But in order to get to this issue, we need to have a lot more fun by understanding both the history and convoluted procedure of this case. Look for the fun, and the rest of it falls into place. Didn't Mary Poppins say something like this?

Setting the Context

The issue triggering this case is even older than the 1989 Exxon Valdez oil spill, which the Court considers this term in the Exxon Shipping case. It arose when President Ferdinand Marcos was deposed by a popular uprising in the Philippines in 1986. Marcos, like most tyrants in the 20th century, had squirreled vast amounts of money away in dummy corporations and Swiss bank accounts during his tenure as President. Upon taking office as President of the Philippines after Marcos was deposed, Corazon Aquino promptly created the Philippine Commission on Good Government ("PCGG"), whose major task it was to identify and recapture the assets of the Republic stolen by the Marcos'. However, the PCGG wouldn't go after the shoes of Imelda, which became quite the story of the 1980s. Eventually all these shoes were placed in a "shoe museum" in the shoe district in Manila, which opened in 2001....

Well, now that Aquino was in power the shoe, so to speak, was on the other foot. The PCGG discovered beaucoup assets improperly stolen by the Marcos' in Swiss bank accounts. At the PCGG's request, the Swiss government froze these assets. The Swiss Federal Court determined in 1997 and 1998 that they belonged to whoever the official "Anti-Corruption Court" in the Philippines, then in session, determined was the rightful owner. All the assets, either in money or stock certificates, were then sent to the escrow agent in the Philippines (the Philipines National Bank--"PNB").

Around the same time, the Anti-Corruption Court, called the Sandiganbayan (you can learn a new word every day, if you try...) ruled that the assets belonged in the Phillipines, and the Philippines Supreme Court ultimately held that the PCGG was the proper agent to receive the funds.

So, why do we have a case? Well, our case has to do with $35 million of these assets. They were a subset of the assets sent by Swiss authorities to be held in escrow by the PNB. These $35 million was the market value of assets held in Arelma, S.A., a Panamanian stock corporation. This corporation was created in 1972 by Marcos, who transferred $2 million, which represented 2 shares, into it at the time. The actual share certificates were held in a Swiss bank, while the money was sent to Merrill Lynch in NYC for investment purposes. In the generation between 1972 and 2000, the money had risen in worth from $2 million to $35 million. Not bad.

Well, Merrill Lynch ("M-L") received notice to send in the $35 million to the PNB. After all, the share certificates were sent in from Switzerland, and the money that those certificates represented should just follow the certificates. But M-L refused to do so. It didn't refuse to do so because it wanted to take the money and divide it among the partners. Rather, by 2000 a number of other claimants of the Marcos money had arisen, and they also demanded the Merrill Lynch-held money. Among these claimants were a class of people, the Pimental claimants, who won a $2 billion dollar suit against the Marcos estate in a US court in 1995 (US District Court of HI; affirmed in 103 F3d 767 (9th Cir 1996)).

The Current Case

So, M-L did what any normal entity holding money not belonging to them would do when multiple claimaints demanded the money--they filed an interpleader action. Since the US District Court of HI had just adjudicated the 1995 case, M-L, in 2000, began the interpleader (Rule 23) there. An interpleader is normally brought by insurance and investment companies to determine who owns money held by the company. Well, the Philippine Government, along with the PCGG, was named in the suit, but they decided that they didn't want to be sued (or be a party to a suit) because that would mean that their sovereign immunity might be compromised. Indeed, if they agreed to be sued and lost the case, it would result in a highly embarrassing situation-- a foreign court determining that you don't own money that you know is yours. Echoes of colonialism...

So, the Republic of the Philippines devised the following legal strategy. They would claim immunity from suit under the Foreign Sovereign Immunities Act (FSIA) and then, once that was granted, claim that they were indispensable parties in the case. The combination of these two would make the judge have to throw out the case from the American court. In other words, they would argue that they don't belong in a US Court because of sovereign immunity but, since they have a claim to the money, any court worth its salt in the US would have to include them as parties in order to get a just resolution of the case. Since the Republic couldn't be forced to be in the case when they had legal grounds to be out of the case, the entire action would have to be dismissed.

So, this was the legal strategy of the Philippines' lawyers (guys from San Francisco). But the strategy kind of backfired. The District Court held that the Pimental claimants in the 1995 case in HI were the real party in interest and thus it dismissed the Government from the case before awarding the $35 million to the Pimental claimants. Oops. On appeal to the 9th Circuit, the court said that the District Court should have dismissed the Reupblic on sovereign immunity grounds. Thus, the case was remanded. Phew. Now we are getting somewhere, thought the Republic's lawyers. However, on remand, the District Court dismissed the Republic on the ground of sovereign immunity but then said that the Republic was a "necessary" but not "indispensable" party according to FRCP 19. Thus, the case could go forward, and the money was awarded, once again, to the Pimental claimants. Oops again. But this time the 9th Circuit affirmed the lower court. Thus, it looked like the Republic would lose the $35 million to the other claimaints.

At the Supreme Court

Now I hope you can understand something of the rather technical issue with which I began this essay. The Philippine Government will be arguing that in fact, it is an indispensable party. If it is, then the US Supreme Court must dismiss the action and, presumably, the money will go where the rest of the Swiss-held assets went--to the custody of the PNB. So, that is the "technical" question of the case--whether a foreign government that is a necessary party under Rule 19(a) and has successfully asserted sovereign immunity is, under Rule 19(b) an indispensable party to the action. The Court then asked them to brief one other issue:

"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."

So, this is advanced Civil Procedure all the way, but the stakes are rather large. Not only is $35 million at stake, but also the extent to which a foreign government, properly dismissed from a case, can, nevertheless, end up losing the case in a US Court. I think it would set a bad precedent. Thus, I see the US Supreme Court overruling the 9th Circuit on this one.

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