scholarspace.manoa.hawaii.edu · 862 f.2d 1355 (9th cir. 1988); and republic of the philippines v....

Robert A. Swift Kohn, Swift & Graf, P.C. One South Broad Street, Suite 2100 Philadelphia, PA 19107 Telephone No.: (215) 238-1700

Sherry P. Broder #1880 Attorney at Law - A Law Corporation Davies Pacific Center 841 Bishop Street, Suite 800 Honolulu, Hawaii 96813 Telephone No.: (808) 531-1411

IN THE UNITED STATES DISTRICT COURT DISTRICT OF HAWAII

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,

Plaintiff,

v.

ARELMA, INC., et al., Defendants.

---------------------------------------}

} } } } } } } } } }

Civil No. CVOO-00595MLR

Defendant Pimentel's Second Amended Pretrial Memorandum

DEFENDANT PIMENTEL'S SECOND AMENDED PRETRIAL MEMORANDUM

Pursuant to the Court's Minute Order of December 5, 2001 and Hawaii Local Rule 16.6,

defendant Pimentel submits his First Amended Pretrial Memorandum. Because discovery is not

complete and certain parties are obstructing full and fair discovery, Pimentel reserves the right to

supplement up to and during the trial of this action.

A. Party. This submission is made by defendant Mariano Pimentel on behalf of himself

and the class of Filipino Judgment Creditors in rvIDL No. 840.

B. Jurisdiction and Venue. Jurisdiction is based on the Interpleader Act, 28 U.S.C.

1335 since two or more of the claimants are of diverse citizenship and the amount at issue has been

University Of Hawaii School of Law Library - Jon Van Dyke Archives Collection

deposited with the Clerk of the Court. Jurisdiction also exists pursuant to 28 U.S.C. 1655 and the

doctrines of quasi in rem and in rem jurisdiction. Venue is based upon 28 U.S.C. 1397 since two

of the claimants, Pimentel and PNB, reside in Hawaii. Arelma Inc. has questioned the personal

jurisdiction of this Court over it, but its contention is frivolous since PRCP Rule 4(k)(I)(C)

specifically provides for nationwide service of process: "Service of a summons is effective to

establish jurisdiction over the person of a defendant ... who is subject to the federal interpleader

jurisdiction under 28 U.S.C. 1335 .... " Cf. Go-Video, Inc. v. Akai Electric Co., 885 F.2d 1406 (9th

Cir. 1989). Arelma Inc. admits that a multi-million dollar trading account was maintained at

Merrill Lynch in New York for 28 years, so minimum contacts is satisfied. SIPC v. Vigman, 764

F.2d 1309, 1315-16 (9th Cir. 1985).

C. Substance of Action. This is an interpleader action filed by plaintiff Merrill Lynch

which deposited the assets in its account No. 165-07312 with the Clerk of the Court because

several claimants had asserted the right to the proceeds of the account. Arelma Inc. and Philippine

National Bank assert defenses based upon the act of state doctrine and comity.

D. Undisputed Facts. It is believed that no one disputes the following facts:

1. In 1972 a Swiss banker recommended to Ferdinand E. Marcos, through Marcos' friend

Jose Campos, that Marcos set up a securities trading account in the United States.

2. The Swiss banker recommended that the account be in the name of a Panamanian

corporation which he caused to be formed in September 1972. The Panamanian Corporation was

called Arelma Inc. Shares in Arelma Inc. were issued in blank, meaning no name was inserted on

the share certificates.

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3. The creation of Arelma coincided with the declaration of martial law in the Philippines

and massive arrests ordered by Ferdinand E. Marcos which resulted in the torture, summary

execution and disappearance of 9,539 Filipinos.

4. An account, No. 165-07312, was opened at Menill Lynch in the United States in 1972

in the name of Arelma Inc.

5. Ferdinand E. Marcos caused $2 million to be deposited in Menill Lynch account No.

165-07312 in 1972.

6. Menill Lynch deposited the entire proceeds of account No. 165-07312 with the Clerk of

the Court on and after September 17, 2001.

7. Ferdinand E. Marcos died in Hawaii on September 29, 1989.

8. The class of Filipino Judgment Creditors in rvIDL No. 840 has a Final Judgment entered

February 3, 1995 against the Estate of Ferdinand E. Marcos in the principal amount of

$1,964,005,859.90 which, with interest at the rate allowed by federal statute, had a value of

$3,140,919,267.09 as of January 1, 2002.

9. The above Final Judgment has not been satisfied.

10. The class of Filipino Judgment Creditors in rvIDL No. 840 has a contempt award

against Imelda R. Marcos and Ferdinand R. Marcos, personally, in the amount of $240,800,000 as

of January 1, 2002, which has not been satisfied.

11. Arelma never had officers or directors until 1981, and then only on paper.

12. Arelma never issued stock certificates until 1981, and in 1981 it issued two bearer

certificates.

13. Arelma never had any corporate by-laws.

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14. Arelma never held annual shareholder meetings; and only held director meetings on

two occasions over 28 years to change officers and directors.

15. Arelma never maintained minutes of director meetings prior to 2000.

16. Arelma never had any employees.

17. Arelma never had an accountant.

18. Arelma never had standard financial statements, such as a balance sheet or profit and

loss statement.

19. Arelma never maintained an office or place of business, and used a Swiss address for

mail.

20. Arelma never paid taxes to any taxing authority.

21. In 1999 or 2000 the Arelma bearer share certificates were seized by the Swiss

government without the payment of any compensation.

22. Neither Golden Budha Corporation nor Felix Dacanay, as personal representative of

the Estate of Roger Roxas, has a judgment against the Estate of Ferdinand E. Marcos.

23. Golden Budha Corporation has a judgment against Imelda Marcos in her personal

capacity to the extent of her interest in the Estate of Ferdinand E. Marcos in the principal amount

of $13,275,848.37 as of October 21, 1996.

24. Felix Dacanay, as personal representative of the Estate of Roger Roxas, has a judgment

against Imelda Marcos in her personal capacity to the extent of her interest in the Estate of

Ferdinand E. Marcos in the principal amount of $6 million as of October 21, 1996.

E. Disputed Factual Issues. It is believed that the following facts are disputed:

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1. Whether the source of the money deposited in account No. 165-07312 was assets owned

by Ferdinand E. Marcos or stolen by Ferdinand E. Marcos.

2. Whether the purpose of having the Merrill Lynch account in the name of a Panamanian

corporation was to conceal the assets of Ferdinand E. Marcos.

3. Whether Arelma Inc. was an alter ego or instrumentality of Ferdinand E. Marcos and

never functioned as a legitimate corporation.

4. Whether the Arelma stock certificates were ever the property of the Philippine

government?

5. Whether the seizure of the Arelma stock certificates from Suntrust was a confiscation

without compensation and precludes a transferee from being deemed a legitimate owner?

6. Whether Arelma is acting under authority of a legitimate owner of the share

certificates?

F. Relief Prayed. Pimentel requests that the entire proceeds deposited by Merrill Lynch

with the Clerk of Court be awarded to the class of Filipino Judgment creditors in ~L No. 840.

G. Points of Law.

1. Pimentel contends that as a Judgment creditor of the Estate of Ferdinand E. Marcos the

class is entitled to the entire proceeds of the Merrill Lynch account. Alternatively, Pimentel

contends the Class is entitled to the entire proceeds of the account based on their contempt award

against Imelda R. Marcos and Ferdinand R. Marcos.

2. This Court should take judicial notice of the finding in Hilao v. Estate of Ferdinand

Marcos, ~L No.840 CD.Haw. 11/20/91) that "[t]he Marcoses had a very highly developed and

sophisticated pattern and practice of concealing and secreting their assets by various methods,"

5


which was affirmed by the Ninth Circuit at 25 F.3d 1467 (1994). This Court should also take

judicial notice of decisions in the Ninth and Second Circuit Courts which affirmed findings of " ... a

pattern and practice by the Marcoses of secreting their assets through foreign bank accounts by the

use of aliases and shell corporations." Id. 25 F.3d at 1480; Republic of the Philippines v. Marcos,

862 F.2d 1355 (9th Cir. 1988); and Republic of the Philippines v. Marcos Republic, 806 F.2d 344

(2nd Cir. 1986). This Court should take judicial notice that the February 3, 1995 Judgment in Hilao

v. Estate of Ferdinand E. Marcos was affirmed by the Ninth Circuit in an opinion reported at 103

F.3d 767 (1996); and the contempt citation and award was affirmed by the Ninth Circuit in an

opinion reported at 103 F.3d 762 (1996). Finally, this Court should take judicial notice of the facts

set forth in the opinion in In re Estate of Ferdinand E. Marcos Human Rights Litigation, 910

F.Supp. 1460 (D. m 1995). See U.S. ex rei Robinson Rancheria Citizens Council v. Borneo, Inc.,

971 F.2d 244, 248 (9th Cir. 1992); San Luis v. Badgley, 136 F.Supp. 2d 1136, 1145-46 (B.D.Cal.

2000); Toxic Injuries Corp. v. Safety-Kleen Corp., 57 F.Supp. 947, 951 (C.D.Cal. 1999).

Alternatively, the findings of the District Court and Court of Appeals in:rvIDL No. 840 are binding

on Arelma Inc. (and therefore PNB) by virtue of res judicata and collateral estoppel since there is

privity between Arelma Inc., on the one hand, and Ferdinand E. Marcos and his Estate, on the other

hand. See Sparks Nugget, Inc. v. Commissioner, 458 F.2d 631,639 (9th Cir. 1972)(" ... public

policy underlying the doctrine of res judicata, as a bar to repetitious litigation, would support a

finding of privity between a close corporation and its sole or controlling shareholder. "); In re

Gottheiner, 703 F.2d 1136, 1139-40 (9th Cir. 1983)(sole shareholder is in privity with corporation

and bound by collateral estoppel).

6


3. Because this Court has federal subject matter jurisdiction based on the Federal

Interpleader Statute, 28 U.S.C. 1335, and in rem jurisdiction under 28 U.S.C. 1655, federal

substanti ve law applies, although a federal court may look to state law for guidance. Board of

Trustees v. Valley Cabinet & Mfg. Co., 877 F.2d 769, 772 (9th Cir. 1989).

factors:

4. Under federal common law, a corporation's veil may be pierced based upon three

a) the amount of respect given to the separate identity of the corporation by its shareholders; b) the degree of injustice visited upon the litigants by recognition of the corporate entity; and c) the fraudulent intent of the incorporators.

Board of Trustees v. Valley Cabinet & Mfg. Co., supra. For a party to prevail, he must satisfy the

first prong and either the second or third prong. UA Local 343 v. Nor-Cal Plumbing, Inc:., 48 F.3d

1465, 1475 (9th Cir.), cert. denied, 133 L.Ed.2d 203 (1995). Piercing of the corporate veil is an

equitable remedy addressed to the discretion of the court. McClaran v. Plastic Industries, Inc., 97

F.3d 347 (9th Cir. 1996).

5. Whether the fact that the Arelma share certificates were never the property of the

Philippine government precludes this Court from recognizing or giving comity to decisions of the

Swiss authorities transferring the share certificates to the Philippine government, which then

transferred them to PNB? See Tchacosh v. Rockwell International Corp., 766 F.2d 1333, (9th Cir.

1985)(US courts will not give extraterritorial effect to a confiscatory decree of a foreign state);

Republic of Iraq v. First National City Bank, 353 F.2d 47,51 (2nd Cir. 1965), cert. denied 382 U.S.

1027 (1966)(US will not give effect to attempted confiscation by foreign sovereign of assets in the

US); In re Treco, 240 F.3d 148 (2nd Cir. 2001)(comity should not be extended to foreign

7


proceedings when those proceedings violate the law, public policy or interests of the United

States); Laker Airways Ltd. v. Sabena, 731 F.2d 909 (D.C. Cir. 1984)(" ... a state is not required to

give effect to foreign judicial proceedings grounded on policies which do violence to its own

fundamental interests.")

6. Whether it is contrary to the public policy of the United States to apply the law of

Panama when, based on Arelma's contention, Panamanian law precludes use of the alter ego

doctrine among private parties? See First National City Bank v. Banco Para el Comercio Exterior,

462 U.S. 611, 621 (1983)("As a general matter, the law of the state of incorporation normally

determines issues relating to the internal affairs of a corporation. Application of that body of law

achieves the need for certainty and predictability of result while generally protecting the justified

expectations of parties with interests in the corporation. Different conflicts principles apply,

however, where the rights of third parties external to the corporation are at issue. To give

conclusive effect to the law of the chartering state in determining whether the separate juridical

status of its instrumentality should be respected would permit the state to violate with impunity the

rights of third parties under international law while effectively insulating itself from liability in

foreign courts. We decline to permit such a result." [citations and footnotes omitted]); Itel

Containers International Corp. v. Atlanttrafik Express Service Ltd., 1988 U.S.Dist. LEXIS 7051 at

12 (S.D.N.Y. 1988); Edwards v. Schillinger, 245 TIL 231, 91 N.E. 1048, 1053 (1910)(term

"internal affairs" does not extend to cheating creditors, but must be confined to relations affecting

only stockholders and corporation among themselves).

H. Previous Motions.

8


1. Motion of Estate of Roxas and Golden Budha to Compel Discovery from Merrill Lynch

-Denied.

2. Motion of the Republic and PCGG to recuse, dismiss, transfer or stay - the motion to

recuse was denied (per Judge Kay); the motion to stay was denied; the motion to dismiss or

transfer was denied as moot.

3. Motion of Pimentel for Expedited Discovery - Granted.

4. Motion of ENC to set aside default - Granted.

5. Motion of Pimentel to Join Philippine National Bank as a Party Defendant - Granted.

6. Motion of Estate of Roxas and Golden Budha to file a cross-complaint against Republic

-Denied.

7. Motion to Serve remaining defendants by alternative means - Granted.

8. Motion for Stay Pending Appeal - Denied as moot.

9. Pimentel's Motion for Class Certification - Granted.

10. Pimentel's Motion to Strike Affidavit~ of Daniel, Kurer, Tejeiro and Espino - Granted.

11. Motion of Republic and PCGG to dismiss for Sovereign Immunity - Denied as moot.

12. Motion of Arelma and Philippine National Bank to Dismiss - Denied.

13. Pimentel's Motion to Compel Discovery from Republic and PCGG - Denied as moot.

14. Suntrust Motion to Dismiss - Denied.

15. Suntrust Motion for Protective Order - Denied.

16. Motion of Pimentel to Compel Sunier Deposition in Hawaii - Granted.

17. Arelma Motion for Protective order - Denied.

18. Pimentel Motion to Compel Depositions of Espina and Tejeira - Granted.

9


19. Suntrust, PNB and Arelma oral motions for interlocutory appeal - Denied.

20. Suntrust Motion for Summary Judgment - Stayed

21. Pimentel Motion to Compel Execution of Waiver by PNB and Arelma - Granted.

22. Suntrust Renewed Motion to Dismiss - Denied.

23. Merrill Lynch Motion for Discharge - Granted.

24. Merrill Lynch Motion for Default against certain parties - pending.

I. Witnesses To Be Called.

1. Mariano Pimentel

2. Paul Wachendorfer (per excerpts of deposition transcript)

3. John Bums (per excerpts of deposition transcript)

4. Witnesses to identify and/or authenticate documents to be placed in evidence.

J. Exhibits, Schedules and Summaries. Pimentel has not yet finalized his list of

exhibits to be offered at trial, but anticipates introducing the following, reserving the right to

supplement prior to or during trial:

1. Letter from Swiss Bank Corp. (Geneva) to Swiss Bank Corp. (Panama) dated 9/20/72

2. Letter Sunier to Campos dated September 21, 1972.

3. Merrill Lynch fonn defining Arelma as a Panamanian holding company 9/25/72 (ML-3)

4. Letter from Swiss Bank Corp. (Panama) to Swiss Bank Corp. (Geneva) dated 10/4/72

5. Letter from Swiss Bank Corp. (Geneva) to Swiss Bank Corp. (Panama) dated 10/26/72

6. Merrill Lynch New Account Holding Fonn 1119/72 (ML-l)

7. Merrill Lynch First Account Statement 1119/72 (ML-2)

8. Letter Campos to Swiss Bank Corporation dated November 14, 1972.

10


9. Check to Merrill Lynch funding account with $2 million dated 11/20/72 (ML-4)

10. Merrill Lynch Hypothecation Card dated 1/73 (ML-7)

II. Merrill Lynch Transmittal Form dated 1/3/73 (?v.IL-5)

12. Merrill Lynch Transmittal Form dated 1//14/75 (ML-6)

13. Letter Sunier to Benedicto dated 5/16/75 (ML-2412 to ?v.IL-2422)

14. Letter Sunier to Benedicto dated 5/27/77 (?v.IL-2406 to ?v.IL-24 I 1)

15. Copy of Panamanian document attesting to change in Arelma's Board of Directors dated

2/16/83 (ML-12 to ML-16)

16. Merrill Lynch account statement for Acct. 165-07312 for period 3/26/83 to 4/29/83 (?v.IL-

1359 to ?v.IL-1361)

17. Merrill Lynch Corporate Authorization to Trade dated 4/29/83 (ML-IO)

18. Letter Amadruz to Wachendorfer dated May 3, 1983 (ML-8 to ?v.IL-9 and Suntrust doc.)

19. Letter Sunier to Ferdinand E. Marcos dated May 19, 1983 with attachments.

20. Letter Swiss Bank Corp. to Ferdinand E. Marcos dated May 19, 1983

21. Merrill Lynch Address Change for Arelma dated 6/8/84 (ML-19)

22. Tax Exemption Certificate for Arelma 7/31184 (ML-17)

23. Letter from Wachendorfer to Arelma Inc. dated 10/21/87 (ML-1721)

24. Fax from Wachendorfer to Suntrust dated 5/17/93 with notation 8/93 (?v.IL-1724)

25. Communication from Suntrust to Wachendorfer dated 9/16/94 (ML-2435)

26. Tax Exemption Certificate for Arelma dated 12/28/94 (ML-20)

27. Imelda Marcos Power of Attorney to Bums dated July 25, 1997 (Bums Ex.6).

28. Ferdinand R. Marcos Power of Attorney to Bums dated August 19,1997 (Bums Ex. 7)

11


29. Memorandum from Sunier to Cosandey and Wicki dated November 3, 1997.

30. Tax Exemption Certificate for Arelma dated 12/23/97 (ML-21)

31. Imelda Marcos Power of Attorney to Burns dated December 9, 1999 (Burns Ex.29).

32. Merrill Lynch account statement for Acct. 165-07312 for July 2000 (ML-1337 to ML-

1356).

33. Summary of accounts of Ferdinand E. Marcos with Swiss Banks 1968 to 1991.

34. Account opening statement at Swiss Bank Corporation dated March 21, 1968 signed by

Ferdinand E. Marcos.

35. Judgment in Hilao v. Estate of Ferdinand E. Marcos entered February 3, 1995.

36. Contempt Order in Hilao v. Estate of Ferdinand E. Marcos entered May 26, 1995.

37. Opinion in Hilao v. Estate of Ferdinand Marcos, MDL No.840 (D.Haw. 11/20/91).

38. Opinion in Republic of the Philippines v. Marcos, 862 F.2d 1355 (9th Cir. 1988).

39. Opinion in Republic of the Philippines v. Marcos Republic, 806 F.2d 344 (2nd Cir. 1986).

40. Opinion in In re Estate of Ferdinand E. Marcos Human Rights Litigation, 910 F.Supp. 1460

(D. HI 1995)

41. Responses of Arelma S.A. and Philippine National Bank to Defendant Pimentel's

Combined Request for Admission, Interrogatory and Document Request dated June 27,

2002. (Pimentel contends Arelma and PNB admitted the request since its only assertion to

the contrary was based on affidavits and declarations submitted by the Philippine

government in March 2001 which a) do not refute the requested admission and b) were

stricken in Pretrial Order No.2.)

12


42. Suntrust Investment Company's Response to Request for Admission from Estate of Roxas

and Golden Budha Corporation dated March 21, 2001, Responses 1,6, and 7.

42. Arelma stock transfer ledger (Zenarosa Dep Ex. 3).

K. Further Discovery or Motions.

1. Pimentel has serious discovery disputes with Suntrust, Arelma and Philippine National

Bank which have resulted in motions to compel and/or for sanctions. Because Arelma has refused

to sign a waiver of Swiss banking privilege in favor of Jean Louis Sunier, an executive of Suntrust,

he is refusing to testify. Arelma and Philippine National Bank are surrogates for the Republic and

PCGG. Arelma and its board are controlled by the Republic and PCGG; Philippine National Bank

is 16% owned by the Republic. Arelma and Philippine National Bank have refused to produce

witnesses to authenticate documents they intend to rely upon. Pimentel intends to move to

preclude Arelma from adducing any evidence in support of its claim to the Merrill Lynch assets

due to its refusal to cooperate in the taking of relevant testimony. In addition, Pimentel intends to

move to strike as witnesses listed on Arelma and PNB's Pretrial Memorandum if Arelma has

refused to produce them for deposition.

2. Suntrust has moved to be dismissed as a party.

3. Arelma has moved for summary judgment.

L. Stipulations. It is expected that the parties will stipulate to the authenticity of

documents and business records of non-contested documents. In addition, Pimentel reserves the

right to introduce particular responses to discovery furnished by other defendants or Merrill Lynch.

M. Amendments, Dismissals. Prior to trial it is expected that the Court will discharge

Merrill Lynch and dismiss any parties not claiming the Merrill Lynch account.

13


N. Settlement Discussion. There have been no settlement discussions among counsel.

o. Agreed Statement. A presentation of the dispute upon an agreed set of facts is not

feasible.

P. Bifurcation, Separate Trial of Issues. Pimentel believes all issues can be tried

together in a single proceeding.

Q. Reference to Master or Magistrate Judge. Pimentel believes that there is no need

to refer the issues to a special master or magistrate judge.

R. Appointment and Limitation of Experts. At this point only Philippine National

Bank and Arelma have identified an expert witness, Simon Tejeiro, to testify at trial. Pimentel

expects to move to preclude or limit his testimony at trial.

S. Trial. Pimentel requests a trial date in July 2002, which will enable the parties to

complete discovery.

T. Estimate of Trial Time. Trial is expected to last 2 days.

U. Claims of Privilege or Work Product. Certain documents from Merrill Lynch and

Suntrust have been produced under stipulations of confidentiality which also protect the use of the

documents at trial.

v. Miscellaneous. Pimentel may request the Court to hold a Rule 104(a) hearing

regarding the authenticity and admissibility of certain foreign documents relied upon by Arelma

and Philippine National Bank.

Dated: July ,2002

14

ROBERT A. SWIFT Kohn, Swift & Graf, P.C.


15

One South Broad Street, Suite 2100 Philadelphia, PA 19107 Telephone No.: (215) 238-1700

SHERRY P. BRODER #1880 Attorney at Law - A Law Corporation Davies Pacific Center 841 Bishop Street, Suite 800 Honolulu, Hawaii 96813 Telephone No.: (808) 531-1411

JON VANDYKE 2515 Dole Street Honolulu, ill 96822 Telephone No.: (808) 956-5569

Attorneys for Defendant Mariano Pimentel and the Class of Filipino Judgment Creditors


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