Swezey v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 20 N.Y.3d 546 (2013)

When a foreign sovereign nation asserts sovereign immunity in a turnover proceeding involving assets it claims were stolen from its public treasury, a New York court must dismiss the proceeding under CPLR 1001 if the sovereign is a necessary party and the five statutory factors weigh in favor of dismissal.

Summary

This case addresses whether the Republic of the Philippines’ invocation of sovereign immunity requires dismissal of a turnover proceeding initiated by the Pimentel class, seeking to execute a judgment against the Marcos estate on assets held in a Merrill Lynch account (Arelma assets). The New York Court of Appeals held that the Appellate Division correctly dismissed the proceeding. Considering the five factors under CPLR 1001(b), the Court determined that the Republic was a necessary party, its sovereign immunity was properly invoked, and allowing the case to proceed without the Republic would prejudice its claim to the Arelma assets, which the Philippine Supreme Court had declared were stolen from the Republic.

Facts

Ferdinand Marcos, former President of the Philippines, amassed a fortune through misappropriation of public funds. After being deposed in 1986, the Republic of the Philippines created the Presidential Commission on Good Government (PCGG) to recover stolen assets. The Pimentel class, consisting of victims of human rights abuses under Marcos, obtained a $2 billion judgment against his estate in U.S. federal court. Arelma, S.A., a Panamanian corporation controlled by Marcos, held a brokerage account at Merrill Lynch in New York. Both the Republic and the Pimentel class sought these Arelma assets. Swiss authorities, at the PCGG’s request, froze assets linked to Marcos, including Arelma shares, depositing them in an escrow account pending a determination by a Philippine anti-corruption court. Merrill Lynch, facing competing claims, initiated an interpleader action in federal court in Hawaii.

Procedural History

The U.S. District Court initially awarded the Arelma assets to the Pimentel class, a decision affirmed by the Ninth Circuit. The U.S. Supreme Court reversed, holding that the Republic’s sovereign immunity required dismissal of the interpleader action. Subsequently, a member of the Pimentel class commenced a turnover proceeding in New York Supreme Court against Merrill Lynch to execute the judgment against the Arelma account. The Supreme Court denied a motion to dismiss. The Appellate Division reversed, holding that sovereign immunity mandated dismissal under CPLR 1001. The Court of Appeals then certified the question of whether the Appellate Division’s decision was correct.

Issue(s)

Whether the Republic of the Philippines is a necessary party to the turnover proceeding such that its invocation of sovereign immunity requires dismissal of the action under CPLR 1001(b).

Holding

Yes, because based on a balancing of the five factors delineated in CPLR 1001(b), this case cannot be decided without the presence of the foreign government and the Republic’s absence compels dismissal without prejudice under these circumstances.

Court’s Reasoning

The Court analyzed the five factors outlined in CPLR 1001(b) to determine whether the turnover proceeding could continue without the Republic as a party, given its assertion of sovereign immunity. The first factor, availability of an effective remedy for the plaintiff, weighed in favor of the Pimentel class, as dismissal would leave them without a forum to challenge the Republic’s claim. However, the remaining factors favored the Republic. The Court emphasized that allowing the proceeding to continue would severely prejudice the Republic’s national interests, considering the Philippine Supreme Court’s ruling that the Arelma assets were stolen from the Republic. The Court deferred to the principle of international comity, recognizing the Republic’s right to adjudicate the dispute in its own courts. The court distinguished this case from Saratoga County Chamber of Commerce v. Pataki because the dispute here involved the ownership of investment assets, which does not justify an exception to the sovereign immunity doctrine. “The immunity principle is part of the natural law of nations and is ‘premised upon the ‘perfect equality and absolute independence of sovereigns, and th[e] common interest impelling them to mutual intercourse’.” The possibility of conflicting judgments also favored dismissal. The Court concluded that New York courts should not interfere in a matter within the province of Philippine self-governance and national sovereignty. The court noted, “ [I]f the Arelma assets belong to the people of the Philippines—as that country’s highest court has declared—the class has no claim to that property and the assets should be returned to the people of the Philippines, who were also victimized by the Marcos government.”