Swezey v. Lynch

• Decision Date: 16 June 2011
• Parties: Osqugama F. SWEZEY, Petitioner–Respondent,v.Merrill LYNCH, et al., Respondent,Philippine National Bank, et al., Intervenors–Appellants.
• Court: New York Supreme Court — Appellate Division

87 A.D.3d 119

926 N.Y.S.2d 415

2011 N.Y. Slip Op. 05208

Osqugama F. SWEZEY, Petitioner–Respondent,

v.Merrill LYNCH, et al., Respondent,Philippine National Bank, et al., Intervenors–Appellants.

Supreme Court, Appellate Division, First Department, New York.

June 16, 2011.

Mayer Brown LLP, New York (Michael O. Ware and Andrew J. Calica of counsel), and Mayer Brown LLP, Washington, DC (Charles A. Rothfeld, of the Bar of the District of Columbia, admitted pro hac vice, of counsel), for appellants.Anderson Kill & Olick, P.C., New York (Jeffrey E. Glen of counsel), and Kohn, Swift & Graf, P.C., Philadelphia (Robert A. Swift of the Bar of the State of Pennsylvania, admitted pro hac vice, of counsel), for respondent.RICHARD T. ANDRIAS, J.P., DAVID FRIEDMAN, JAMES M. CATTERSON, JAMES M. McGUIRE, NELSON S. ROMÁN, JJ.FRIEDMAN, J.

This is a proceeding to execute a judgment against a fund located in New York. A foreign sovereign, asserting that the fund comprises the proceeds of assets corruptly acquired and removed from its territory by its former president, claims to be the true owner of the fund. Because the foreign sovereign declines to waive its immunity from suit, we are required to dismiss the proceeding based on nonjoinder of an indispensable party.

Petitioner is the representative of a class of people who suffered violations of their human rights in the Philippines under the regime of the late President Ferdinand E. Marcos. In 1995, the class obtained a money judgment against the Marcos estate in Hawaii federal court. In 2008 and 2009, the class filed judgments in Supreme Court, New York County, pursuant to CPLR 5018(b) and 5402, based indirectly on the 1995 Hawaii federal judgment.¹

Based on the New York County judgments, petitioner commenced this CPLR 5225 turnover proceeding against respondent Merrill Lynch in 2009. Merrill Lynch held approximately $35 million in New York for the account of Arelma, Inc., a Panamanian entity formerly owned by Marcos. Arelma's share certificates are now held in escrow by the Philippine National Bank (PNB) in connection with legal proceedings against the Marcos estate in the Philippines. The instant turnover proceeding seeks an order (1) declaring the Arelma assets to be property of the Marcos estate and (2) directing Merrill Lynch to transfer the Arelma assets to the fund for the compensation of class members administered by the Hawaii federal court.

PNB and Arelma (collectively, intervenors) moved to intervene in this proceeding and to dismiss the petition on the ground of the impossibility of joining two assertedly indispensable parties that enjoy sovereign immunity, namely, the Republic of the Philippines and the Philippine Presidential Commission on Good Government, an agency of the Philippine government (collectively, the Republic). Intervenors also moved to dismiss on the alternative ground that petitioner does not hold an enforceable judgment, given that the underlying 1995 Hawaii judgment lapsed under Hawaii law in 2005, before the class filed any New York judgment against the Marcos estate ( see In re Estate of Ferdinand E. Marcos Human Rights Litig., 536 F.3d 980, 987 [9th Cir.2008], cert. denied ––– U.S. ––––, 129 S.Ct. 1993, 173 L.Ed.2d 1085 [2009] [Hawaii judgment lapsed in 2005 because the class failed to renew it within 10 years] ). In the judgment appealed from, Supreme Court granted the motion to intervene but denied the motion to dismiss. Intervenors have appealed.²

For the reasons discussed below, we reverse and dismiss the petition without prejudice on the ground that the proceeding should not proceed in the absence of the Republic. Under CPLR 1001, the Republic should be a party to this proceeding but, by virtue of its sovereign immunity, cannot be made a party without its consent.³ Given that the Republic has to date refused to participate in this proceeding (as is its right), we conclude, as did the United States Supreme Court in an earlier proceeding concerning ownership of the same assets ( Republic of the Philippines v. Pimentel, 553 U.S. 851, 128 S.Ct. 2180, 171 L.Ed.2d 131 [2008] ), that respect for the principles of sovereign immunity and international comity mandates dismissal pursuant to CPLR 1003 and 3211(a)(10).⁴

The Republic's claim to the Arelma assets is based on its position, taken in proceedings against the Marcos estate in the Philippines, that the Arelma assets are the proceeds of property Marcos acquired corruptly in the Philippines through the misuse of his office. As noted by the Supreme Court in Pimentel, “a 1955 Philippine law provid[es] that property derived from the misuse of public office is forfeited to the Republic from the moment of misappropriation” (553 U.S. at 858, 128 S.Ct. 2180). In April 2009, a Philippine anti-corruption court (the Sandiganbayan) ruled that the Arelma assets constitute the ill-gotten gains of Marcos's corruption and, as such, have always belonged to the Republic, not to Marcos or his estate. That ruling is now on appeal to the Philippine Supreme Court.

At the outset, we reject petitioner's argument that the Republic is merely another creditor of the Marcos estate and, as such, subject to permissive joinder entirely as a matter of the court's discretion.⁵ The Republic is not a general “claimant” ( CPLR 5225) against the Marcos estate that would have no claim to the Arelma assets if it lost the “race of diligence” among creditors to execute against that fund ( Matter of Ruvolo v. Long Is. R.R. Co., 45 Misc.2d 136, 148, 256 N.Y.S.2d 279 [Sup. Ct., Queens County 1965] ). Rather, the Republic is a person that (according to the Sandiganbayan's ruling) “possesses an actual, current interest in the property in question” ( Bergdorf Goodman, Inc. v. Marine Midland Bank, 97 Misc.2d 311, 314, 411 N.Y.S.2d 490 [Civ. Ct., New York County 1978] ) and, as such, its right to that property cannot be placed in jeopardy by the outcome of the race among the estate's general creditors ( see id. [holding that the co-owner of a joint bank account was a necessary party in a turnover proceeding brought by a judgment creditor of the other owner of the account] ). Further, contrary to petitioner's argument that adverse claimants to the property or debt at issue in a turnover proceeding are subject only to permissive joinder, such an adverse claimant may, in a proper case, be entitled to intervene in the proceeding as a matter of law ( see Triangle Pac. Bldg. Prods. Corp. v. National Bank of N. Am., 62 A.D.2d 1017, 1017–1018, 404 N.Y.S.2d 121 [1978] [in CPLR 5225 proceeding seeking turnover of joint bank account, it was an abuse of discretion to deny the motion by the account's co-owner to intervene] ). As noted in Pimentel, “[c]onflicting claims ... to a common [fund] present a textbook example of a case where one party may be severely prejudiced by a decision in his absence” ( 553 U.S. at 870, 128 S.Ct. 2180 [citation and internal quotation marks omitted] ).

Seeking to bolster her argument that the Republic is not a necessary party, petitioner invokes (with the dissent's concurrence) the truism that the Sandiganbayan does not have in rem jurisdiction of the Arelma assets, which are held in an account in New York. We fail to see how this limitation on the reach of the Sandiganbayan's mandate deprives the Republic of its status as a necessary party to this proceeding. The fact remains that the Republic claims to be the true owner of the Arelma assets, which have been found by a Philippine court to constitute the proceeds of wealth stolen from the Philippine people and spirited out of that country by its faithless former president. Beyond question, the issue of title to the Arelma assets is within the jurisdiction of the Sandiganbayan, even if the fund itself—having been secreted abroad by the wrongdoer—is no longer present in the Philippines ( see Pimentel, 553 U.S. at 866, 128 S.Ct. 2180 [because the Republic's “claims ... arise from events of historical and political significance for the Republic and its people,” it has “a unique interest in resolving the ownership of or claims to the Arelma assets”] ).⁶

Unless the Sandiganbayan's ruling is overturned on the pending appeal, the Republic will be entitled—if and when it chooses to seek the aid of our courts in recovering possession of the Arelma account—to have that ruling enforced or recognized in litigation against general creditors of the Marcos estate (such as petitioner), subject to the principles governing recognition of foreign country judgments ( see 1 Restatement [Third] of Foreign Relations Law § 481[1] [subject to exceptions specified in § 482, “a final judgment of a court of a foreign state ... determining interests in property, is conclusive between the parties, and is entitled to recognition in courts in the United States”] ). In this regard, we note that petitioner is in privity with the Marcos estate for these purposes—and as such bound by the determination of the ownership of the Arelma assets reached in the litigation between the Republic and the Marcos estate—because her claim to the Arelma assets derives entirely from the estate's purported title to that fund ( see Restatement [Second] of Judgments § 43[1][b] [a judgment in an action determining interests in real or personal property “(h)as preclusive effects upon a person who succeeds to the interest of a party (in the subject property) to the same extent as upon the party himself”] ). Needless to say, “a creditor stands in no better position with respect to property of the garnishee than does his debtor” ( Smith v. Amherst Acres, 43 A.D.2d 792, 793, 350 N.Y.S.2d 236 [1973]; see also Bass v. Bass, 140 A.D.2d 251, 253, 528 N.Y.S.2d 558 [1988] [a judgment creditor “cannot ... reach assets in which the judgment debtor has no interest”]; Siegel, N.Y. Prac. § 488, at 826 [4th ed.] [“The judgment creditor stands in the shoes of the judgment debtor, and if a given property, asset,...