Swezey v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 2009 NY Slip Op 32650(U) (N.Y. Sup. Ct. 11/5/2009)
| Decision Date | 05 November 2009 |
| Docket Number | Sequence No. 002.,No. 104734/09.,104734/09. |
| Citation | 2009 NY Slip Op 32650 |
| Parties | OSQUGAMA F. SWEZEY Petitioner v. MERRILL LYNCH, PIERCE, FENNER & SMITH, Incorporated |
| Court | New York Supreme Court |
Motion sequence numbers 001, 002, 003 and 004 are herein consolidated for disposition.
In motion sequence 001, petitioner Osqugama F. Swezey (Petitioner) seeks a writ of turnover and execution against respondent Merrill Lynch, Pierce, Fenner & Smith, Incorporated (Merrill) directing the transfer of all funds held in the account of Arelma Inc. (Arelma), or any sums owed by Merrill to Arelma or to the estate of Ferdinand E. Marcos (Estate), and a declaration that all property held by Merrill for Arelma is the property of the Estate is are subject to judgment enforcement (CPLR §§ 5225 and 5227).
In motion sequence 002, Merrill moves to dismiss the petition without prejudice and dissolve the restraining notice (CPLR 1001 [b]; 3211 [a] [10]), or alternatively, for a stay pending the outcome of a proceeding pending in the United States Court of Appeals for the Ninth Circuit (CPLR 2201).
In motion sequence 003, the Philippine National Bank (PNB) and Arelma move to intervene (CPLR 402; 5225; 5227; 5239), or alternatively, to dismiss the petition (CPLR 3211 [a], [3], [7]), and for judgment on their counter and cross-claim to direct Merrill to transfer Arelma's assets to PNB.
In motion sequence 004, proposed intervenors PNB and Arelma move for admission pro hac vice of Charles Rothfield, Esq.1
Ferdinand E. Marcos served as the president of the Republic of Philippines until he was removed from power in 1986, whereupon he fled to Hawaii with his family. During his reign, he was responsible for grave human rights violations and corruption, including the alleged embezzlement of state funds to Switzerland and into fictitious corporations.
Subsequent to his removal from power, scores of his victims and victims' families commenced actions against him under the Alien Tort Act, seeking damages for torture, summary execution, and disappearance suffered at the hands of his henchmen. These actions were later consolidated, and certified as a class action (Class), comprising approximately 10,000 individuals in the Hawaii District Court in 1991.
The Class ultimately obtained a verdict of liability against Marcos' Estate (he died in 1989), and an award of nearly $2 billion in damages. In 1996, the Court of Appeals for the Ninth Circuit affirmed the final judgment (Judgment) (Hilao v Estate of Marcos, 103 F3d 767 [9th Cir 1996]).
This turnover proceeding has its genesis in the Class' fourteen year struggle to recover assets to fulfill the Judgment. Petitioner Swezey is a member of the Class and a New York resident.2
The Class previously sought to attach certain assets belonging to Marcos, including those of Arelma, a Panamanian corporation that he established while president. Arelma's share certificates were located in Switzerland, and its assets (Assets), totaling approximately $35 million, are being held in a brokerage account at Merrill in New York. Upon a determination by Switzerland's highest court that Arelma was the alter ego and instrumentality of Marcos, Arelma's share certificates were confiscated and transferred to an escrow account at proposed intervenor PNB, a partly-owned state run bank of the Republic of the Philippines (Republic)3 (Exhibit F, annexed to the Swift Aff.).
The Republic created the Philippines Presidential Commission on Good Government (Commission) in order to recover property wrongfully taken by Marcos during his tenure. Since its creation, the Commission has purportedly recovered approximately $1.93 billion from the Estate and other high-ranking officials who served under Marcos.
The Commission claimed entitlement to the Assets on behalf of the Republic. In 1991, the Commission commenced a forfeiture proceeding against the Estate (Philippines Proceedings) seeking the forfeiture of certain funds purportedly belonging to Marcos, including the Assets (Swift Affidavit; see also Republic of Philippines v Pimentel, ___ US ___, 128 S Ct 2180, 2185-87 [2008]).
Facing conflicting claims of ownership to the Arelma Assets from the Class, the Republic and others,4 Merrill initiated an interpleader action in the Hawaii District Court in 2000. The Republic and the Commission sought dismissal on the ground of sovereign immunity. On an interlocutory appeal, the Ninth Circuit stayed the action pending the outcome of the Philippines Proceedings (In re Republic of Philippines, 309 F 3d 1143 [9th Cir 2002]).
On remand, the Hawaii District Court determined that the Republic and the Commission were not indispensable parties, and permitted a trial as to ownership of the Assets to proceed. Extensive factual findings were rendered, and the court awarded the Assets to the Class upon the determination that the funds transferred to Arelma belonged to Marcos, and that Arelma was Marcos' alter ego (Merrill Lynch, Pierce, Fenner & Smith v Arelma, Inc., 2004 WL 5326929 [D HI 2004]).
The Ninth Circuit affirmed the dissolution of the stay and the judgment, reasoning that, although the Republic and Commission were necessary parties, the action could proceed in their absence because they were unlikely to succeed on their claim to the Assets because it would be time-barred under New York law (Merrill Lynch, Pierce, Fenner and Smith, Inc. v ENC Corp., 446 F 3d 1019 [9th Cir 2006]).
Shortly thereafter, the Republic moved in the Philippines Proceedings for summary judgment as to its claim that the Assets (and other funds not at issue here) were the ill-gotten gains of Marcos. The Class and other claimants to the Assets were not permitted to intervene in the Philippines Proceedings (Swift Aff., ¶¶ 5-6).
In 2007, the U.S. Supreme Court granted certiorari, reversed the Ninth Circuit, and dismissed the interpleader action (Republic of the Philippines, 128 S Ct 2180). The Supreme Court held that where a sovereign asserts a claim to property, and that claim is not frivolous, dismissal for non-joinder under Federal Rule 19 is appropriate where the sovereign elects to assert immunity (Republic of Philippines, 128 S Ct at 2190-91).
In the meantime, on April 2, 2008, the court in the Philippines Proceedings determined that the Assets be forfeited to the Republic as ill-gotten gains, and is subject to an appeal by the Estate. The judgment is not yet final, and is being appealed by the Estate (Tr 14:22-25). The Republic has not sought satisfaction of the foreign judgment in New York.
Petitioner, on behalf of the Class, registered the original Judgment obtained against the Estate in the class action in New York Supreme Court. By this petition (Petition), Petitioner seeks a writ of execution and turnover against Merrill for the Assets, pursuant to CPLR 5225 and 5227.5
Merrill6 moves to dismiss the Petition for non-joinder of the Republic and Commission. Alternatively, Merrill moves for a stay pending the outcome of accounting proceedings that is currently before the Ninth Circuit.7
PNB and Arelma (together, PNB) move to intervene in this proceeding. Upon intervention, they move to dismiss the Petition on the ground of non-joinder, and alternatively, on the ground that the Judgment against the Estate has lapsed. Additionally they move for judgment on their counter and cross-claim for an order directing Merrill to transfer the Assets to PNB.
The Petitioner contends that the Class is entitled to seek satisfaction of its valid Judgment because it was the first judgment creditor to file and seek to levy against the Assets. Further, she asserts that a turnover proceeding is exempt from the application of joinder principles, and, even if applicable, dismissal for non-joinder is strongly disfavored in New York. As to the PNB and Arelma's application for intervention, she asserts that only adverse claimants are entitled to participate in a turnover proceeding.
CPLR 5225 (b) enables a judgment creditor to seek satisfaction of a judgment by the commencement of a special proceeding against a third person in possession or custody of money or property in which the judgment debtor has an interest ("turnover proceeding"). A related provision is CPLR 5227, that is applicable where the garnishee is indebted to the judgment debtor.
Under its plain terms, CPLR 5225 and 5227 do not require a petitioner to join rival claimants to the property as respondents (accord Togut v Thurm & Heller, NYLJ, September 16, 1999, at col 1 [Sup Ct, NY County 1999]; Ruvolo v Long Island R. Co., 45 Misc 2d 136, 145-47 [Sup Ct, Queens County 1965]; RCA Corp. v Tucker, 696 F Supp 845, 851 [ED NY 1988]; but see Bergdorf Goodman, Inc. v Marine Midland Bank, 97 Misc 2d 311 [Sup Ct, NY County 1978]).
By reference to CPLR 5239, CPLR 5225 and 5227 expressly contemplate that any person claiming an interest in the property may seek intervention in the proceeding, that effectively converts it into a "race of diligence" between rival claimants (Ruvolo, 45 Misc 2d at 145-47). Upon intervention of adverse claimants, the court may proceed to determine the validity and priority of the rival claims to the disputed property, as in a plenary action (National Union Fire Ins. Co. of Pittsburgh, Pa v Eland Motor Car Co., 85 NY2d 725, 729 [1995]; Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C5225:5, CPLR C5239:1). Property is applied in satisfaction of the execution in the order in which the execution order is delivered (CPLR 5234 [b]).
Although there is no explicit requirement in Article 52 that a petitioner join adverse claimants in a turnover proceeding, joinder principles are relevant, particularly to the extent that the rights of persons who cannot be joined, or who decline to intervene and are not subject to the court's jurisdiction, might be inequitably affected by the...
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