Legal Opinions - U.S. Supreme Court: June 30, 2008

Daily Record, The (Baltimore), Jun 30, 2008

U.S. SUPREME COURT

Civil Procedure

Interpleader

BOTTOM LINE: Interpleaders did not lose standing to have a judgment vacated in its entirety on procedural grounds because they did not appeal, or petition for certiorari on the underlying ruling denying them the interpleaded assets.

CASE: Republic of Philippines, et al. v. Pimentel, et al., No. 06- 1204 (decided June 12, 2008) (Justices Roberts, Scalia, KENNEDY, Thomas, Ginsburg, Breyer & Alito) (Justices Stevens & Souter, concurring in part and dissenting in part).

FACTS: A class action by and for human rights victims (Pimentel class) of Ferdinand Marcos, while he was President of the Republic of the Philippines (Republic), led to a nearly $2 billion judgment in a United States District Court.

The Pimentel class then sought to attach the assets of Arelma, S. A. (Arelma), a company incorporated by Marcos, held by a New York broker (Merrill Lynch). The Republic and a Philippine commission (Commission) established to recover property wrongfully taken by Marcos were also attempting to recover this and other Marcos property.

The Philippine National Banc (PNB) held some of the disputed assets in escrow, awaiting the outcome of pending litigation in the Sandiganbayan, a Philippine court determining whether Marcos' property should be forfeited to the Republic.

Facing claims from various Marcos creditors, including the Pimentel class, Merrill Lynch filed this interpleader action under 28 U.S.C. [section]1335, naming, among the defendants, the Republic, the Commission, Arelma, PNB (all petitioners here), and the Pimentel class (respondents here).

The Republic and the Commission asserted sovereign immunity under the Foreign Sovereign Immunities Act of 1976, and moved to dismiss pursuant to Federal Rule of Civil Procedure 19(b), arguing that the action could not proceed without them. Arelma and PNB also sought a Rule 19(b) dismissal.

The district court refused, but the 9th Circuit reversed, holding that the Republic and the Commission were entitled to sovereign immunity and were required parties under Rule 19(a), and it entered a stay pending the Sandiganbayan litigation's outcome.

Finding that that litigation could not determine entitlement to Arelma's assets, the district court vacated the stay and ultimately awarded the assets to the Pimentel class.

The 9th Circuit affirmed, holding that dismissal was not warranted under Rule 19(b) because, though the Republic and the Commission were required parties, their claim had so little likelihood of success on the merits that the action could proceed without them. The court found it unnecessary to consider whether prejudice to those entities might be lessened by a judgment or interim decree in the interpleader action, found the entities' failure to obtain a judgment in the Sandiganbayan an equitable consideration counseling against dismissing the interpleader suit, and found that allowing the interpleader case to proceed would serve the Pimentel class' interests.

The Supreme Court reversed and remanded.

LAW: Under Rule 19(a), nonjoinder even of a required person does not always result in dismissal. When joinder is not feasible, the question whether an action should proceed turns on nonexclusive considerations in Rule 19(b), which asks whether "in equity and good conscience, the action should proceed among the existing parties or should be dismissed."

The joinder issue can be complex, and the case-specific determinations involve multiple factors, some "substantive, some procedural, some compelling by themselves, and some subject to balancing against opposing interests," Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102.

Here, Rule 19(a)'s application was not contested: The Republic and the Commission were required entities. And the Court needed not decide the proper standard of review for Rule 19(b) decisions, because the 9th Circuit's errors of law required reversal.

The first factor directs the court to consider, in determining whether the action may proceed, the prejudice to absent entities and present parties in the event judgment is rendered without joinder. Rule 19(b)(1). The 9th Circuit gave insufficient weight to the sovereign status of the Republic and the Commission in considering whether they would be prejudiced if the case proceeded.

Giving full effect to sovereign immunity promotes the comity and dignity interests that contributed to the development of the immunity doctrine. See, e.g., Verlinden B. V. v. Central Bank of Nigeria, 461 U.S. 480. These interests were concrete here. The entities' claims arose from historically and politically significant events for the Republic and its people, and the entities had a unique interest in resolving matters related to Arelma's assets.

A foreign state has a comity interest in using its courts for a dispute if it has a right to do so. Its dignity is not enhanced if other nations bypass its courts without right or good cause. A more specific affront could result if property the Republic and the Commission claim is seized by a foreign court decree.