In Republic of Philippines v. Pimentel,1 the US Supreme Court held that a case involving ownership of certain assets had to be dismissed under Federal Rule of Civil Procedure 19 when parties that were necessary to the case were beyond the jurisdiction of US courts due to sovereign immunity and the assets in question were the subject of non-US litigation by those sovereign parties. Although the Court cautioned that questions under Rule 19 are subject to a case-by-case analysis, Pimentel is important for the Court's concern with the "dignity" owed to foreign legal proceedings and the interests of foreign sovereign entities in such proceedings. The case could be important for companies doing business abroad with foreign sovereign entities, and for foreign sovereign entities themselves.
The purpose of Rule 19 is to ensure that parties materially interested in the subject of an action be joined to the action so that they may be heard and so the court may render a complete disposition of the case. Under certain circumstances, the absence of a party may mandate dismissal. Rule 19(a) lists factors under which a party is deemed "required," and includes parties without whom a court cannot grant complete relief. If required parties cannot be joined (because, for example, they are beyond the court's jurisdiction), Rule 19(b) lists factors to be considered to determine whether the case should proceed without them.
Pimentel began as a class action suit filed by victims of alleged human rights abuses by the Marcos regime in the Philippines (the "Class"). The Class ultimately was awarded US$2 billion in damages. In search of assets to satisfy the judgment, the Class sought control over the shares of Arelma, S.A., a company formed by Marcos, the shares of which were held by Merrill Lynch. At the same time, in separate Philippine legal proceedings, the Philippine government (the "Republic") and a government commission seeking to recover assets looted by the Marcos regime (the "Commission"; with the Republic, the "Sovereign Parties"), also were trying to obtain control over Arelma's shares. Merrill Lynch, wanting only to deliver the shares to the correct party (so as not to be liable to any other party), began a so-called interpleader action, asking a federal court to determine who should get the Arelma shares. That action included, among others, the Class and the Sovereign Parties.
The Sovereign Parties asserted that they could not be sued in the United States based on sovereign immunity under the US Foreign Sovereign Immunities Act. They argued that under Rule 19, the US case could not then proceed without them based on their claims to the Arelma shares in the Philippine litigation. While recognizing that the Sovereign Parties were immune from US jurisdiction, the district court did not dismiss the interpleader action and ultimately awarded the shares to the Class. In affirming, the Ninth Circuit Court of Appeals found that under Rule 19, the lower court did not have to consider whether the Sovereign Parties might be prejudiced by a decision in the interpleader action because their claims to the shares under Philippine law were unlikely to succeed.
The Supreme Court reversed, finding that under Rule 19, the interpleader action should have been dismissed because the lower courts did not give proper weight to the importance of the Sovereign Parties' immunity and the prejudice to those parties when the lower courts made findings on the likely merits of the Sovereign Parties' claims.2
There was no dispute that the Sovereign Parties were "required parties" under Rule 19(a) because, without them as parties, their interests in the Arelma shares could not be protected. Joining them in the case was, however, impossible because of their sovereign immunity. As such, the Court had to determine whether, as stated in Rule 19(b), in "equity and good conscience" the interpleader action should move forward without them. The Court stressed that the test under Rule 19(b) is a flexible one, to be determined on a case-by-case basis. In this case, however, the Court held that the case could not move forward.
By focusing on the merits of the Sovereign Parties' claims, the lower courts had "infringed" on the sovereign immunity of those Parties. The Court noted that the Sovereign Parties' claims "arise from events of historical and political significance" and that the Sovereign Parties had "a unique interest" in resolving the status of the Arelma shares in Philippine courts under Philippine law. Based on the outcome of those Philippine proceedings, the Court noted that the Sovereign Parties might have non-frivolous claims to the shares held by Merrill Lynch. By proceeding with the interpleader action and positing that the Sovereign Parties had weak claims, the lower courts ignored the interests of the Sovereign Parties and the dignity of and comity due to the Philippine proceedings. The Court also noted that the interests of the Class and Merrill Lynch in resolving the status of the shares did not outweigh the significant interests of the Sovereign Parties.
Pimentel is significant for the weight it accords the interests of the Sovereign Parties and the non-US proceedings. Even though a US court had jurisdiction over Merrill Lynch and the shares, it could not proceed to decide ownership of the shares when to do so would ignore the concurrent and competing interests of the Sovereign Parties under Philippine law. This decision could be useful to companies and sovereign entities that may want to limit the reach of US court proceedings that overlap with non-US legal proceedings involving foreign sovereign entities. Pimentel suggests that US courts should not lightly ignore the significance under Rule 19 of absent foreign sovereign parties.