Philippines v. Pimental

The Supreme Court has agreed to review a Ninth Circuit opinion approving the award of assets formerly owned by Philippine dictator Ferdinand Marcos to a group of Marcos creditors despite claims by the Philippine government that it is the rightful owner of the property.

The case, Philippines v. Pimental, No. 06-1204, arises from Marcos's financial maneuvers while in power. He transferred about $2 million into a company he created, and the company invested the funds with Merrill Lynch, where they eventually grew to more than $30 million. The Philippine government claims that Marcos wrongfully appropriated the money from the public treasury.

Several years after Marcos was deposed, a new Phillipine agency charged with recovering the funds that Marcos misappropriated asked Merril Lynch to return the money to the Phillipine National Bank. Several other Marcos family creditors, as well as a group of human rights victims who had secured a judgment against the Marcos estate, were also staking claims on the money, so Merrill refused to turn it over to the Philippine bank.

Instead, Merrill asked a court to resolve the competing claims, filing a so-called interpleader action. Interpleader suits are designed to settle all claims to a property in one case.

The Philippine government and the country's recovery agency argued that they could not be made parties to the case because they held sovereign immunity. In their absence, they argued, the case should not proceed. This outcome was required by the Federal Rules of Civil Procedure, they claimed, because they were a so-called "indispensable party" without whose participation any final adjudication would be unjust. Instead, they argued, the ownership of the allegedly stolen funds belonged before a special Philippine court established to return any of Marcos's ill-gotten gains back to the public treasury.

The Ninth Circuit concluded that the Philippine government had sovereign immunity from suit. However, it noted, the Philippine court favored by the country was not in a position to vindicate the rights of Marcos creditors. Therefore, the Ninth Circuit urged the district court to stay the case while the Philippine court completed its work. The district court instead pushed ahead with the case in the government's absence, ultimately awarding the assets to the Marcos creditors.

The Ninth Circuit affirmed that result, noting that the Phillipine claim was barred by the statute of limitations, thereby depriving the country of any actual stake in the case. The Ninth Circuit further noted that Rule 19(b) of the Federal Rules of Civil Procedure directed courts to follow principles of "equity and good conscience" when deciding whether a party was so "indispensible" to the proceedings as to require a case dismissed in its absence. Good conscience dictated that a procedural decision resulting in an award to those who had been abused by Marcos should be upheld, the court concluded.

The Philippine government successfully urged the Supreme Court to review that decision. In its petition for certiorari, the country claimed that an American court-ordered payout of its assets, without its participation, undermined the principle of comity towards foreign countries underlying the U.S. guarantee of sovereign immunity embodied in the Foreign Sovereign Immunities Act.

The country further argued that the Ninth Circuit misinterpreted the "good conscience" tenet of Rule 19, placing it out of step with other circuit courts of appeal. First, it argued, the court erroneously weighed the merits of the Philippine government's claim into account when deciding that because its claim had lapsed it had no interests to protect. In addition, the country argued that the Ninth Circuit wrongly favored the interests of the poor human rights claimants seeking recovery of the moeny over the interests of other, richer, creditors.

The Supreme Court overturned a Ninth Circuit opinion approving the award of assets formerly owned by Philippine dictator Ferdinand Marcos to a group of Marcos creditors despite claims by the Philippine government that it is the rightful owner of the property.

The case, Philippines v. Pimental, No. 06-1204, arises from Marcos's financial maneuvers while in power. He transferred about $2 million into a company he created, and the company invested the funds with Merrill Lynch, where they eventually grew to more than $30 million. The Philippine government claims that Marcos wrongfully appropriated the money from the public treasury.

Several years after Marcos was deposed, a new Phillipine agency charged with recovering the funds that Marcos misappropriated asked Merril Lynch to return the money to the Phillipine National Bank. Several other Marcos family creditors, as well as a group of human rights victims who had secured a judgment against the Marcos estate, were also staking claims on the money, so Merrill refused to turn it over to the Philippine bank.

Instead, Merrill asked a court to resolve the competing claims, filing a so-called interpleader action. Interpleader suits are designed to settle all claims to a property in one case.

The Philippine government and the country's recovery agency argued that they could not be made parties to the case because they held sovereign immunity. In their absence, they argued, the case should not proceed. This outcome was required by the Federal Rules of Civil Procedure, they claimed, because they were a so-called "indispensable party" without whose participation any final adjudication would be unjust. Instead, they argued, the ownership of the allegedly stolen funds belonged before a special Philippine court established to return any of Marcos's ill-gotten gains back to the public treasury.

The Ninth Circuit concluded that the Philippine government had sovereign immunity from suit. However, it noted, the Philippine court favored by the country was not in a position to vindicate the rights of Marcos creditors. Therefore, the Ninth Circuit urged the district court to stay the case while the Philippine court completed its work. The district court instead pushed ahead with the case in the government's absence, ultimately awarding the assets to the Marcos creditors.

The Ninth Circuit affirmed that result, noting that the Phillipine claim was barred by the statute of limitations, thereby depriving the country of any actual stake in the case. The Ninth Circuit further noted that Rule 19(b) of the Federal Rules of Civil Procedure directed courts to follow principles of "equity and good conscience" when deciding whether a party was so "indispensible" to the proceedings as to require a case dismissed in its absence. Good conscience dictated that a procedural decision resulting in an award to those who had been abused by Marcos should be upheld, the court concluded.

The Philippine government successfully urged the Supreme Court to review that decision. In its petition for certiorari, the country claimed that an American court-ordered payout of its assets, without its participation, undermined the principle of comity towards foreign countries underlying the U.S. guarantee of sovereign immunity embodied in the Foreign Sovereign Immunities Act.

The country further argued that the Ninth Circuit misinterpreted the "good conscience" tenet of Rule 19, placing it out of step with other circuit courts of appeal. First, it argued, the court erroneously weighed the merits of the Philippine government's claim into account when deciding that because its claim had lapsed it had no interests to protect. In addition, the country argued that the Ninth Circuit wrongly favored the interests of the poor human rights claimants seeking recovery of the moeny over the interests of other, richer, creditors.

On June 12, the Supreme Court reversed the Ninth Circuit's holding.

"The Court of Appeals gave insufficient weight to the foreign sovereign status of the Republic and the Commission," Justice Anthony M. Kennedy wrote for the 7-2 majority.

Justices John Paul Stevens and David H. Souter each dissented in part.