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October Term, 2007

June 12, 2008

Today the Supreme Court issued a decision, described below, of interest to the business community.

Republic of Philippines et al. v. Pimentel, No. 06-1204 (previously discussed in the December 3, 2007 Docket Report).

The Supreme Court ruled today that the Ninth Circuit Court of Appeals gave insufficient weight to the sovereign status of the Republic of the Philippines when it held that an interpleader suit purporting to dispose of assets claimed by the Republic could proceed in the Republic's absence under Federal Rule of Civil Procedure 19(b). While noting that Rule 19 "indicates that the determination whether to proceed [with a case without a necessary party] will turn upon factors that are case specific," the Court held that "where sovereign immunity is asserted, and the claims of the sovereign are not frivolous, dismissal of the action must be ordered where there is a potential for injury to the interests of the absent sovereign." Given the Court's broad holding, the case may have implications for future litigation involving claims against sovereign entities.

The subject of the interpleader action in question was a Merrill Lynch account containing approximately $35 million in assets misappropriated from the Republic by the former government of Ferdinand Marcos through a shell corporation known as Arelma. In district court, the Republic successfully asserted its sovereign immunity from suit and, along with other parties, sought dismissal of the action for failure to join an indispensable party under Rule 19(b). The district court declined to dismiss the case, instead awarding the Arelma assets to a class of plaintiffs who were judgment creditors of the Marcos Estate. The Court of Appeals affirmed, holding that the Republic was not an indispensable party and thus that the interpleader action could proceed in its absence.

The Supreme Court disagreed, finding that the lower courts "failed to give full effect to sovereign immunity" when they held that the action could proceed without the Republic. The Court reasoned that the distribution of assets misappropriated by the Marcos regime were events of great historical and political significance to the Republic, and thus that principles of comity favored allowing the Republic to adjudicate ownership of the assets in its own courts. Permitting the interpleader action to proceed in US courts without the participation of the Republic would substantially prejudice the interests of the Republic. Accordingly, the Court ordered dismissal of the interpleader suit.

Mayer Brown LLP represented the Petitioners in the case.




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