Swezey v. Lynch

• Decision Date: 26 June 2012
• Docket Number: No. 88,88
• Court: New York Court of Appeals Court of Appeals
• Parties: Osqugama F. Swezey, Appellant, v. Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Respondent, Philippine National Bank, et al., Intervenors-Respondents.

2012 NY Slip Op 05093

Osqugama F. Swezey, Appellant,

v. Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Respondent,Philippine National Bank, et al., Intervenors-Respondents.

No. 88

Court of Appeals of New York

Decided June 26, 2012

Robert A. Swift, for appellant.

Daniel A. McLaughlin, for respondent.

Charles A. Rothfeld, for intervenors-respondents.

GRAFFEO, J.:

We are asked in this case whether the invocation of sovereign immunity by theRepublic of the Philippines in this turnover proceeding requires dismissal of the action under CPLR 1001.

I

Ferdinand E. Marcos was elected President of the Philippine Republic in 1965 and 1969. The constitution of that country, similar to the United States Constitution, limited the chief executive to a maximum of two four-year terms. Under that term limit, Marcos should have left office in 1973.

Rather than relinquishing power, President Marcos imposed martial law on the nation in September 1972, suspended the constitution and seized control of the entire government. He amended the constitution the following year, cementing his status as dictator of the Philippines. In that role, Marcos initiated a campaign of human rights violations against Philippine dissidents that included arrests, torture, summary executions and other actions.

President Marcos also systematically transferred public assets and property to his personal control through various schemes. Over time, he amassed a fortune that was estimated to be worth billions of dollars. Marcos was eventually deposed from power in 1986 and fled to Hawaii.

Almost immediately after President Marcos departed from his country, the Republic of the Philippines organized the Presidential Commission on Good Government (PCGG) for the purpose of identifying, locating and retrieving national assets stolen by Marcos and his administration. The PCGG relied on a 1955 Philippine law, which declared that any property derived from misfeasance in public office was deemed forfeited to the Republic when the misappropriation occurred ¹ . In addition to the efforts undertaken by the PCGG, Marcos was sued in a U.S. federal court in Hawaii by approximately 10,000 Philippine victims of his human rights abuses or their survivors, a group that is collectively known as the "Pimentel class". After Marcos died, the class obtained a judgment against his estate for almost $2 billion (see In re

Estate of Marcos Human Rights Litigation

, 910 F Supp 1460, 1464 [D Haw 1995], affd sub nom. Hilao v Estate of Marcos, 103 F3d 767 [9th Cir 1996]).

Enforcing the judgment proved to be a difficult task, however, because the Pimentel class was seeking to obtain monies and assets also sought by the Republic and PCGG ² . One such dispute involved the assets of Arelma, S.A., a Panamanian corporation. Marcos had transferred $2 million to the company for deposit in a brokerage account at the New York office of Merrill Lynch, Pierce, Fenner & Smith, Inc. The Republic subsequently discovered that the bearer shares pertaining to the ownership of Arelma (along with funds controlled by several other entities connected to Marcos) were located in Switzerland. At the PCGG's urging, Swiss authorities froze those assets and the seizure was upheld by Switzerland's Federal Supreme Court. Those assets, including the Arelma shares, were deposited in an escrow account established by the PCGG at the Philippine National Bank (PNB), pending a determination by a special Philippine anti-corruption court — the Sandiganbayan — as to whether the assets were owned by the Marcos estate or were forfeited to the people of the Republic.³

The Republic and PCGG also requested that Merrill Lynch transfer the Arelma brokerage account (valued at approximately $35 million in 2000) to the PNB escrow account. Merrill Lynch declined to do so because of competing claims to the property, including that of the Pimentel class. The brokerage firm then commenced an interpleader action in federal court in Hawaii against a number of parties, among them the Republic, PCGG, Arelma, PNB and the Pimentel class, and deposited the Arelma assets with the court clerk ⁴ . Invoking sovereign immunity, the Republic and PCGG moved to dismiss the interpleader action pursuant to Rule 19 (b) of the Federal Rules of Civil Procedure for failure to join a required party. The motion was denied and the district court awarded ownership of the Arelma assets to the Pimentel claimants.The United States Court of Appeals for the Ninth Circuit affirmed (see Merrill Lynch, Pierce, Fenner & Smith, Inc. v ENC Corp., 464 F3d 885 [9th Cir 2006]).

In 2008, the United States Supreme Court reversed that determination and held that the assertion of sovereign immunity by the Republic and PCGG required dismissal for lack of a required party under Rule 19 (b) (see Republic of the Philippines v Pimentel, 553 US 851 [2008]). The Supreme Court explained 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" (id. at 867). Observing that the "Republic and the [PCGG] have a unique interest in resolving the ownership of or claims to the Arelma assets," the Court noted that there was "a comity interest in allowing a foreign state to use its own courts for a dispute if it has a right to do so" (id. at 866). In this regard, the Court explained that the "dignity of a foreign state is not enhanced if other nations bypass its courts without right or good cause" (id.).

Yet, the Supreme Court recognized the interests of the Pimentel class, stating that the passage of time or the occurrence of specific events could alter the balance of the equities under a Rule 19 (b) analysis. In particular, a relevant consideration would be "if it appears that the Sandiganbayan cannot or will not issue its ruling within a reasonable period of time" (id. at 873). Similarly, a decision by the Sandiganbayan that the Arelma assets do not belong to the Republic would cause its claim in the interpleader case to be "less substantial" (id.). But if the Sandiganbayan were to rule in favor of the Republic and PCGG, the Republic could waive sovereign immunity and seek enforcement of its judgment in American courts or consent to join an interpleader action (see id.).

As a result of the Pimentel decision in 2008, the federal district court in Hawaii returned the Arelma assets to Merrill Lynch in early 2009. Two events occurred shortly afterward. First, petitioner Osqugama Swezey — a member of the Pimentel class — commenced this CPLR 5225 turnover proceeding in New York Supreme Court against Merrill Lynch seeking to execute the Pimentel $2 billion judgment against the Arelma brokerage account. Second, the Sandiganbayan ruled that the funds Marcos used to establish the Arelma account had been stolen from the Republic and that the company's assets had therefore been forfeited to the Republic.⁵

In the New York Supreme Court turnover proceeding, PNB and Arelma moved to intervene and requested dismissal of the action under CPLR 1001, asserting that the Republic and PCGG were necessary parties but could not be subject to joinder in light of the assertion of sovereign immunity. Supreme Court denied the motion to dismiss, finding that a balancing of the interests allowed the matter to go forward without the Philippine government as a party ⁶ . The Appellate Division reversed, concluding that the invocation of sovereign immunity mandated dismissal under CPLR 1001 (87 AD3d 119 [1st Dept 2011]). The Appellate Division then certified a question to us asking if its decision was correctly made.

II

Swezey, representing the Pimentel class, urges us to answer the certified question in the negative and hold that dismissal of this turnover proceeding is not required by CPLR 1001. She contends that the Appellate Division placed undue emphasis on the Republic's sovereign status and too little weight on the ability of the Pimentel class to challenge the Republic's claim that it owns the Arelma assets. Swezey also submits that the motion to dismiss should have been denied under Saratoga County Chamber of Commerce v Pataki (100 NY2d 801 [2003]). She further maintains that it is unnecessary to join the Republic as a party in this case because the statute of limitations bars the Republic's claim to the Arelma account.

Notably, the day after oral argument was heard on the appeal in our Court, a panel of the Philippine Supreme Court affirmed the Sandiganbayan's decision, ruling that the Arelma assets were forfeited to the Republic (see Marcos v Republic of the Philippines, G.R. Nos. 189434 & 189505 [Sup Ct, 2d Div, April 25, 2012]). In light of that decision, Swezey claims that she is not bound by the order awarding the Arelma assets to the Republic since she was not a party to the litigation in the Philippines.

CPLR 1001 (a) states that an individual or entity is a necessary party to litigation "if complete relief is to be accorded between the persons who are parties to the action" or if the entity "might be inequitably affected by a judgment in the action." Joinder is mandatory if the nonparty is subject to the court's jurisdiction (see CPLR 1001 [b]). If jurisdiction can be obtained only by the entity's consent or voluntary appearance — as in the situation where a sovereign nation invokes its right to immunity — "the court, when justice requires, may allow the action to proceed without [the entity] being made a party" (id.). Five factors must be considered in reaching a determination:

"1. whether the plaintiff has another effective remedy in case the action is dismissed on account of the nonjoinder;

"2. the prejudice which may accrue from the nonjoinder to the defendant or to the person not joined;

"3. whether and by whom prejudice might have been avoided or may in the future be avoided;

"4. the feasibility of a protective provision by order of the court or in the

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