FILED FOR PUBLICATION NOV 13 2009
MOLLY C. DWYER, CLERK UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
MERRILL LYNCH, PIERCE, No. 09-15573 FENNER AND SMITH, INCORPORATED, a corporation D.C. No. 1:00-cv-00595-MLR organized and existing under the laws of the State of Delaware with its principal place of business in New York, New York, ORDER Plaintiff - Appellee,
v.
ARELMA, INC., a corporation organized and existing under the laws of Panama with a permanent address at Ave. Justo Alosemena y Calle 41 Este, No. 40-59 Pte al Colegio Immeculada, Panama 1.Rep.de Panama, and a mailing address at c/o Suntrust Invenstment Co.S.A., ru deJargonnant 2, P.O. Box 76, 1211 Geneva 6, Switzerland; PHILIPPINE NATIONAL BANK,
Defendants - Appellants,
THE ESTATE OF ROGER ROXAS, receiver, Felix Dacanay; GOLDEN BUDHA CORPORATION, a corporation organized and existing under the laws of the State of Georgia, with a registered office at 710 West page 2
First Street, Blue Ridge, Georgia 30513, and a mailing address at 260 Carrollton St., Buchanan, GA 30113; MARIANO J. PIMENTEL, on behalf of himself and all other persons similarly situated,
Defendants - Appellees,
and
SUNTRUST INVESTMENT CO., S.A., a corporation organized and existing under the laws of Switzerland with an address at rue de Jargonnant 2, P.O. Box 76, 1211 Geneva 6, Switzerland; ENC CORPORATION, a corporation organized and existing under the laws of the State of Maryland, with an address at 232 Paula Lynn Drive, Silver Spring, MD,
Defendants.
Before: KOZINSKI, Chief Judge, D.W. NELSON and WARDLAW, Circuit Judges.
In 1972, Ferdinand Marcos, then the President of the Republic of the
Philippines, deposited approximately $2 million with Merrill Lynch in New York
City. That money sat in a Merrill Lynch account for the next thirty-odd years,
growing to approximately $33.8 million worth of cash and securities. By 2000, a page 3
number of claimants to Marcos’s estate had come knocking, so Merrill Lynch filed
an interpleader to determine who should get the money. That action ended up in
the District of Hawaii before the same judge who had presided over a multibillion-
dollar class action against Marcos for human rights abuses. As part of the
interpleader, Merrill Lynch transferred the $33.8 million worth of assets into a
court registry in September of 2000.
In 2004, the district judge held that the class action plaintiffs, now
represented by Jerry Pimentel, were entitled to the assets. With the consent of the
interpleader parties, the Merrill Lynch assets were then transferred into a
settlement account that had been established for the benefit of the class; this
account was also under the court’s control. Eventually, the Supreme Court
ordered the interpleader dismissed because the Philippine government could not be
joined as a party. Republic of Phil. v. Pimentel, 128 S. Ct. 2180, 2194 (2008).
On remand from the Supreme Court, some of the parties requested an
accounting “showing which funds should stay [in the class account] and which
funds should be transferred” back to Merrill Lynch. On October 23, 2008, the
court issued a minute order stating that the accounting was complete and that
“[t]he current balance for the Merrill Lynch account . . . is $34,689,631.27.” The
order was accompanied by a half-page “accounting” of the assets’ management page 4
during their eight years under the court’s control. The accounting is filled with
cryptic notations such as “4,944,268.28” for “OTHER DISBURSEMENTS” and
“118,745,095.36” for “TOTAL SALES.” This curious statement plainly fails to
account for all transactions involving the assets during the eight years they were
held in the clerk of court’s custody. It does not identify any earnings attributable
to interest or dividends; it does not itemize gains or losses, or the prices of any
securities bought or sold; it does not list specific transactions such as sales of
securities or transfers of funds, who authorized any such transactions or the
reasons therefor. It doesn’t give the reader even a basic understanding of the path
by which $33.8 million worth of assets deposited in September of 2000 came to be
worth $34.7 million today.
Arelma/PNB requested a more detailed accounting. Pimentel opposed and
also argued that the interest earned on the Merrill Lynch funds while comingled
with the class funds should remain in the settlement account pursuant to a 2004
stipulation by the parties. In February 2009, the District Court refused to provide
an additional accounting and ordered the Clerk of the Court “to return
$34,689,631.27 in cash, without interest, to an account at Merrill Lynch.” The
district court entered final judgment in February 2009 and Arelma/PNB appealed. page 5
After the district court entered its judgment, it convened a post-judgment
hearing in April of 2009 to deliver a further accounting from the bench. This oral
accounting, which provided barely more detail than the written accounting,
contradicted the record on several points.
* * *
1. When disputed assets are deposited into a court’s registry, “the court
holds [them] in trust . . . ‘for the benefit of whomsoever in the end [they] should
be found to belong.’” Baxter v. United Forest Prods. Co., 406 F.2d 1120, 1126
(8th Cir. 1969) (per curiam) (quoting Branch v. United States, 100 U.S. 673, 674
(1879)). Thus, when the court turns over the assets, it must “render an account
that [shows] in detail the items expended and [that shows] when, to whom, and for
what purposes the payments were made so the beneficiaries can make a reasonable
test of the accuracy of the accounts.” Otto v. Niles (In re Niles), 106 F.3d 1456,
1461 n.4 (9th Cir. 1997) (internal quotation marks omitted). When public entities
hold private assets, they must do so transparently so that the parties and the public
will not be concerned that any of the assets have been lost or mishandled.
The accounting provided by the district court plainly fails to satisfy this
obligation. It lacks any of the details necessary to confirm that the Merrill Lynch page 6
assets were properly handled during the eight years that they were under the
court’s control. We therefore remand to the district court with instructions to
provide a full and complete accounting.
2. Contrary to Pimentel’s assertion, the parties did not stipulate that any
interest earned during the post-2004 appellate process would inure to the class
regardless of the case’s ultimate outcome. The stipulation says only that the
“lower court may invest the interpleaded funds during the pendency of the instant
appeals.” We thus apply the “usual and general rule . . . that any interest on an
interpleaded and deposited fund follows the principal and is to be allocated to
those who are ultimately to be the owners of that principal.” Webb’s Fabulous
Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 162–63 (1980) (citing eight cases).
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FILED FOR PUBLICATION NOV 13 2009
MOLLY C. DWYER, CLERK UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
MERRILL LYNCH, PIERCE, No. 09-15573 FENNER AND SMITH, INCORPORATED, a corporation D.C. No. 1:00-cv-00595-MLR organized and existing under the laws of the State of Delaware with its principal place of business in New York, New York, ORDER Plaintiff - Appellee,
v.
ARELMA, INC., a corporation organized and existing under the laws of Panama with a permanent address at Ave. Justo Alosemena y Calle 41 Este, No. 40-59 Pte al Colegio Immeculada, Panama 1.Rep.de Panama, and a mailing address at c/o Suntrust Invenstment Co.S.A., ru deJargonnant 2, P.O. Box 76, 1211 Geneva 6, Switzerland; PHILIPPINE NATIONAL BANK,
Defendants - Appellants,
THE ESTATE OF ROGER ROXAS, receiver, Felix Dacanay; GOLDEN BUDHA CORPORATION, a corporation organized and existing under the laws of the State of Georgia, with a registered office at 710 West page 2
First Street, Blue Ridge, Georgia 30513, and a mailing address at 260 Carrollton St., Buchanan, GA 30113; MARIANO J. PIMENTEL, on behalf of himself and all other persons similarly situated,
Defendants - Appellees,
and
SUNTRUST INVESTMENT CO., S.A., a corporation organized and existing under the laws of Switzerland with an address at rue de Jargonnant 2, P.O. Box 76, 1211 Geneva 6, Switzerland; ENC CORPORATION, a corporation organized and existing under the laws of the State of Maryland, with an address at 232 Paula Lynn Drive, Silver Spring, MD,
Defendants.
Before: KOZINSKI, Chief Judge, D.W. NELSON and WARDLAW, Circuit Judges.
In 1972, Ferdinand Marcos, then the President of the Republic of the
Philippines, deposited approximately $2 million with Merrill Lynch in New York
City. That money sat in a Merrill Lynch account for the next thirty-odd years,
growing to approximately $33.8 million worth of cash and securities. By 2000, a page 3
number of claimants to Marcos’s estate had come knocking, so Merrill Lynch filed
an interpleader to determine who should get the money. That action ended up in
the District of Hawaii before the same judge who had presided over a multibillion-
dollar class action against Marcos for human rights abuses. As part of the
interpleader, Merrill Lynch transferred the $33.8 million worth of assets into a
court registry in September of 2000.
In 2004, the district judge held that the class action plaintiffs, now
represented by Jerry Pimentel, were entitled to the assets. With the consent of the
interpleader parties, the Merrill Lynch assets were then transferred into a
settlement account that had been established for the benefit of the class; this
account was also under the court’s control. Eventually, the Supreme Court
ordered the interpleader dismissed because the Philippine government could not be
joined as a party. Republic of Phil. v. Pimentel, 128 S. Ct. 2180, 2194 (2008).
On remand from the Supreme Court, some of the parties requested an
accounting “showing which funds should stay [in the class account] and which
funds should be transferred” back to Merrill Lynch. On October 23, 2008, the
court issued a minute order stating that the accounting was complete and that
“[t]he current balance for the Merrill Lynch account . . . is $34,689,631.27.” The
order was accompanied by a half-page “accounting” of the assets’ management page 4
during their eight years under the court’s control. The accounting is filled with
cryptic notations such as “4,944,268.28” for “OTHER DISBURSEMENTS” and
“118,745,095.36” for “TOTAL SALES.” This curious statement plainly fails to
account for all transactions involving the assets during the eight years they were
held in the clerk of court’s custody. It does not identify any earnings attributable
to interest or dividends; it does not itemize gains or losses, or the prices of any
securities bought or sold; it does not list specific transactions such as sales of
securities or transfers of funds, who authorized any such transactions or the
reasons therefor. It doesn’t give the reader even a basic understanding of the path
by which $33.8 million worth of assets deposited in September of 2000 came to be
worth $34.7 million today.
Arelma/PNB requested a more detailed accounting. Pimentel opposed and
also argued that the interest earned on the Merrill Lynch funds while comingled
with the class funds should remain in the settlement account pursuant to a 2004
stipulation by the parties. In February 2009, the District Court refused to provide
an additional accounting and ordered the Clerk of the Court “to return
$34,689,631.27 in cash, without interest, to an account at Merrill Lynch.” The
district court entered final judgment in February 2009 and Arelma/PNB appealed. page 5
After the district court entered its judgment, it convened a post-judgment
hearing in April of 2009 to deliver a further accounting from the bench. This oral
accounting, which provided barely more detail than the written accounting,
contradicted the record on several points.
* * *
1. When disputed assets are deposited into a court’s registry, “the court
holds [them] in trust . . . ‘for the benefit of whomsoever in the end [they] should
be found to belong.’” Baxter v. United Forest Prods. Co., 406 F.2d 1120, 1126
(8th Cir. 1969) (per curiam) (quoting Branch v. United States, 100 U.S. 673, 674
(1879)). Thus, when the court turns over the assets, it must “render an account
that [shows] in detail the items expended and [that shows] when, to whom, and for
what purposes the payments were made so the beneficiaries can make a reasonable
test of the accuracy of the accounts.” Otto v. Niles (In re Niles), 106 F.3d 1456,
1461 n.4 (9th Cir. 1997) (internal quotation marks omitted). When public entities
hold private assets, they must do so transparently so that the parties and the public
will not be concerned that any of the assets have been lost or mishandled.
The accounting provided by the district court plainly fails to satisfy this
obligation. It lacks any of the details necessary to confirm that the Merrill Lynch page 6
assets were properly handled during the eight years that they were under the
court’s control. We therefore remand to the district court with instructions to
provide a full and complete accounting.
2. Contrary to Pimentel’s assertion, the parties did not stipulate that any
interest earned during the post-2004 appellate process would inure to the class
regardless of the case’s ultimate outcome. The stipulation says only that the
“lower court may invest the interpleaded funds during the pendency of the instant
appeals.” We thus apply the “usual and general rule . . . that any interest on an
interpleaded and deposited fund follows the principal and is to be allocated to
those who are ultimately to be the owners of that principal.” Webb’s Fabulous
Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 162–63 (1980) (citing eight cases).
On remand, the district court shall order all interest accrued on the interpleaded
funds returned to Merrill Lynch.
3. Two Supreme Court Justices remarked on the desirability of transferring
this case to a different district judge. Pimentel, 128 S. Ct. at 2196 (Stevens, J.,
concurring in part and dissenting in part) (explaining “that the District Judge
would likely have substantial difficulty in putting out of his or her mind
previously-expressed views” (internal quotation marks omitted)); id. at 2198 page 7
(Souter, J., concurring in part and dissenting in part) (“For reasons given by
Justice Stevens, I would order that any further proceedings in the District Court be
held before a judge fresh to the case.”). The district judge’s handling of the case
on remand confirms the prescience of these views. We therefore remand this case
to the Chief Judge of the District of Hawaii for reassignment to a different district
judge, see United States v. Sears, Roebuck & Co., 785 F.2d 777, 780 (9th Cir.
1986) (per curiam), and expedited proceedings in conformity with our order.
REMANDED.
The mandate shall issue forthwith. See Fed. R. App. P. 2; 41(b). page 8
Counsel
Argued by Charles A. Rothfeld, Mayer Brown LLP, Washington, DC, who was joined on the briefs by Kenneth S. Geller and David M. Gossett, Mayer Brown LLP, Washington, DC; Barry A. Smith and Jay R. Ziegler, Buchalter Nemer, Los Angeles, CA; and Bruce L. Lamon and Carol A. Eblen, Goodsill Anderson Quinn & Stifel, Honolulu, HI, for defendants-appellants, Arelma, Inc., et al.
Argued by Robert A. Swift, Kohn, Swift & Graf, P.C., Philadelphia, PA, for defendants-appellees, Pimentel, et al.