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Mayer Brown's Supreme Court and Appellate Practice Group distributes a Docket Report whenever the Supreme Court grants certiorari in a case of interest to the business community. We also email the Docket Report to our subscribed members and if you don't already subscribe to the Docket Report and would like to, please click here.

October Term 2007 - No. 5 - December 3, 2007

The Supreme Court granted certiorari today in two cases of interest to the business community:

Sovereign Immunity--Indispensable Parties. Federal courts are increasingly being asked to resolve disputes over assets located or originating in foreign countries. When those assets are also claimed by foreign governments, deciding who owns them can implicate sovereign immunity. The Supreme Court has granted certiorari in one such case, Republic of the Philippines v. Pimentel, No. 06-1204, which is an interpleader action to resolve competing claims to assets stolen by Ferdinand Marcos in his time as President of the Republic of the Philippines. The Supreme Court granted certiorari to decide two questions: (1) whether a foreign government that has sovereign immunity and is a necessary party under Federal Rule of Civil Procedure 19(a), is also an "indispensable" party under Rule 19(b); and (2) whether the Republic had the right to appeal the district court's judgment and to seek review of the Ninth Circuit’s decision affirming the district court. The first question was raised by the petitioner, and the Court instructed the parties to brief the second question.

As president of the Republic of the Philippines, Ferdinand Marcos misappropriated a vast amount of assets. Under Philippine law, assets derived from misuse of public office are forfeit to the Republic, and these assets are now claimed by the Republic, which has initiated legal proceedings in the Philippines. They are also claimed by a group of plaintiffs who previously obtained a judgment against the Marcos estate in a suit in the United States. The district court instructed Merrill Lynch, which held approximately $35 million in disputed assets, to begin this interpleader action to settle ownership. The district court dismissed the Republic on the ground that it had no enforceable claim to the disputed assets, but the Ninth Circuit reversed. Subsequently, the district court dismissed the Republic on sovereign immunity grounds--but then proceeded to decide ownership of the assets despite the fact that the Republic was no longer a party. In doing so, the court decided that even though the Republic was a "necessary" party under Rule 19(a), it was not an "indispensable" party under Rule 19(b). Accordingly, the court awarded the disputed assets to the group of plaintiffs who had previously obtained a judgment against the Marcos estate.

On appeal, the Ninth Circuit affirmed. The court rejected the argument that a case must be dismissed when a necessary party has sovereign immunity, and created a circuit split with the First, Second, and D.C. Circuits. The court also discounted the concern that, by disposing of the disputed assets, the district court’s decision threatened to cause friction with an important ally of the United States.

This case is of great importance to foreign governments as well as the United States, Indeed, the Solicitor General filed an amicus brief urging the Court to grant certiorari because the decision threatened to impair the Nation’s foreign policy interests, and the Swiss government sent a diplomatic note about the case to the U.S. State Department. The case also has great importance to financial services corporations because they often hold assets that are claimed by foreign states and American plaintiffs and, as a consequence, can be trapped in the middle of such legal disputes. More broadly, the case is of interest to the business community because it affects contractual relations with foreign governments and the use of United States courts as the forum of choice for resolving foreign governments' claims against former leaders.

Mayer Brown LLP represents the petitioners in this case. Amicus briefs in support of the petitioners will be due on January 24, 2008; amicus briefs in support of the respondent will be due on February 25, 2008.  Any questions about this case should be directed to Charles Rothfeld (202-263-3233) in our Washington, D.C. office.

Tucker Act--Recovery Of Tax Overpayments And Interest.  The Tucker Act, 28 U.S.C. § 1491(a), authorizes private parties to bring certain claims against the United States, including claims “founded * * * upon the Constitution.”  The limitations period for filing a Tucker Act claim is six years.  See 28 U.S.C. § 2501.  By contrast, under the Tax Code any person who seeks a refund of a tax overpayment must file an administrative claim with the Internal Revenue Service within three years of the filing of the tax return or within two years of the payment of the tax, whichever is later.  26 U.S.C. § 6511(a). The Supreme Court granted certiorari in United States v. Clintwood Elkhorn Mining Co., No. 07-308, to resolve whether the Tucker Act’s six-year limitation period permits an action for recovery of taxes assessed in violation of the Export Clause of the Constitution--as well as interest on those tax payments--if the taxpayer had not filed an administrative refund action within the three-year limitation period under the Tax Code.

Respondents, three coal companies, sought a refund of taxes they had paid under a statute later declared to be unconstitutional.  In 1978, Congress levied a tax on the sale of all coal mined in the United States.  Twenty years later, a federal district court held that the tax was unconstitutional under the Export Clause of the Constitution.  See Ranger Fuel Corp. v. United States, 33 F. Supp. 2d 466 (E.D. Va. 1998).  The government did not appeal the Ranger Fuel decision, and the Internal Revenue Service subsequently announced that it would refund taxes collected under the invalidated statute to any taxpayer that filed an administrative claim within the three-year limitation period set forth in 26 U.S.C. § 6511(a).

In this case, the coal companies filed timely administrative claims (i.e., within three years) for the refund of their tax overpayments and interest on those overpayments for the years 1997, 1998, and 1999.  In addition, they sued the government under the Tucker Act, seeking damages in the amount of their overpayments and interest for the years 1994, 1995, and 1996—claims that could not be sought through the administrative process because of the Tax Code’s three-year limitation period.  The Court of Federal Claims held that the Tucker Act’s six-year statute of limitations permitted the coal companies to pursue their claims for overpayments but not to recover interest on those overpayments, because their claims were for damages rather than for tax refunds.  On appeal, the Federal Circuit reversed in part, holding that the Tucker Act and 28 U.S.C. § 2411 entitled the coal companies to seek interest as well as damages for the overpayment of taxes.

This case is significant for all taxpayers seeking to determine the limitations on their potential recourse against the federal government for repayment of improper tax assessments.  If the Tucker Act’s six-year limitation period applies to all such claims, that would allow taxpayers to obtain greater recoveries than permitted under the administrative claim process.  Amicus briefs in support of the petitioner will be due on January 24, 2008, and amicus briefs in support of the respondents will be due on February 25, 2008.  Any questions about this case should be directed to appellate@mayerbrown.com.

Mayer Brown Supreme Court Docket Reports provide information and comments on legal issues and developments of interest to our clients and friends. They are not a comprehensive treatment of the subject matter covered and are not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed.

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