The Dismissal of the Class Suit Claims in the Arelma Inc./Merill Lynch case
Arelma Inc. is a dummy Panamanian corporation that Ferdinand Marcos formed in 1972, the year he declared Martial Law in the Philippines.
Simultaneous to the formation of the corporation, Marcos opened a USD 2 million account at the brokerage firm of Merrill, Lynch, Pierce, Ferner & Smith in New York.
Through the years, said amount ballooned to USD 35 million. Two bearer share certificates located in Switzerland represented its ownership. The Swiss Federal Supreme Court turned over the certificates to PNB as Escrow Agent. However, the assets totaling USD 35 million were held in a brokerage account at Merrill Lynch in New York.
The Philippines has claimed ownership of the Arelma deposit based on PNB’s custody of the Arelma share certificates and requested Merrill Lynch to transfer the brokerage account to the PNB escrow account. Citing the competing claim of the Marcos’ human rights victims who had won the Hawaii case, however, the Merrill Lynch refused to release the amounts and instead deposited them to the clerk of court and filed an interpleader motion with the US Courts to settle ownership of the funds.
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.
At the lower courts, the motion to dismiss 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]).
But in 2008, the United States Courts 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 versus Pimentel, 553 US 851 ). The 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.” (http://law.justia.com/cases/new-york/court-of-appeals/2012/88.html)
In April 2012, the Philippines Supreme Court upheld a previous Sandiganbayan anti-graft court ruling forfeiting the Arelma assets in favor of the Republic of Philippines. The Supreme Court denied petitions that Mrs. Marcos and her son Bongbong filed and challenged the Sandiganbayan’s decision. (Republic of the Philippines Supreme Court, Ferdinand R. Marcos, Jr. v. Republic of the Philippines, G.R. No. 189434 and Imelda Romualdez-Marcos versus Republic of Philippines, G.R. No. 189505, Decision, 25 April 2012, http://sc.judiciary.gov.ph/jurisprudence/2012/april2012/189434.htm.)
In June 2012, the New York Court of Appeals upheld the New York State Appellate Court decision a year earlier ruling that the case of Swezey (representing the class of human rights victims) versus Merrill Lynch, et al, cannot proceed without the participation of the Republic of Philippines, making reference to the Philippines’ Supreme Court ruling that the Arelma assets belonged to the People of the Philippines and should be returned to them. (Swezey v. Merrill Lynch, Pierce, Fenner, et al, National Bank of Philippines, et al (Intervenor), New York Court of Appeals, No. 88 (June 26, 2012); 2011 NY Slip Op 05208 [appellate court decision].) (http://star.worldbank.org/corruption-cases/node/18500)