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 David Gossett
(202-263-3384) in our Washington, D.C. office.
