District of Columbia remands case about disputed property looted during Holocaust in Hungary; Congress enacted Holocaust Expropriated Art Recovery Act of 2016 during the pendency of the appeal.
Hungary moved to dismiss, arguing that the suit was barred by the Foreign Sovereign Immunities Act (FSIA). The district court denied Hungary's motion, concluding that the expropriation exception applies to the Herzog family's claims and that jurisdiction is not inconsistent with agreements between the United States and Hungary. Back in the district court, and following the close of discovery, Hungary renewed its motion to dismiss. The district court agreed with Hungary that the freshly developed record failed to show that the commercial activities. It nonetheless again concluded that the expropriation exception applies, and that no treaty forecloses its application. Id. at 163-69. The court therefore denied the motion to dismiss, except as to two paintings that Hungary acquired from third parties after the war.
Hungary now appeals, seeking dismissal of the claims regarding the remaining forty-two pieces. It argues that all claims are barred by a 1947 treaty between Hungary and the Allied Powers and, alternatively, that the expropriation exception is inapplicable. The Herzog family defends the district court's decision, but asks that, if appellate court dismiss any of their claims, they be given leave to amend their complaint in light of the Holocaust Expropriated Art Recovery Act of 2016 which Congress enacted during the pendency of this appeal to remove significant procedural obstacles facing victims of Nazi persecution seeking to recover Nazi-confiscated art.
Under the FSIA, a foreign sovereign's immunity is "[s]ubject to existing international agreements to which the United States [wa]s a party at the time of enactment of th[e] Act." 28 U.S.C. [section] 1604. Pursuant to that exception, "if there is a conflict between the FSIA and such an agreement regarding the availability of a judicial remedy against a contracting state, the agreement prevails." In the case of Simon v. Republic of Hungary, 812 F.3d 127 (D.C. Cir. 2016) it was held that where a pre-existing treaty is said to confer more immunity than under the FSIA, the treaty exception would override any of the FSIA's exceptions to immunity under which the claims otherwise could go forward. Hungary argues that the 1947 Treaty of Peace, Feb. 10, 1947, 61 Stat. 2065, 41 U.N.T.S. 135, which settled questions out-standing between the Allied Powers and Hungary, including claims of Hungarian nationals for property seized during the war, is just such a treaty. Under Article 27 of the treaty, Hungary promised to restore the property of all persons under Hungarian jurisdiction who were the subject of measures of sequestration, confiscation or control on account of the racial origin or religion of such persons. According to Hungary, these provisions created an exclusive mechanism for individuals seeking restitution of property expropriated by Hungary during World War II, thereby barring additional liability through an FSIA exception.
The district referred to the case of Simon which holds that while Article 27 secures one mechanism by which Hungarian victims may seek recovery, it does not establish the exclusive means of doing so. Hungary argued that the Simon court failed to consider the Treaty's introduction, which states that the treaty "will settle questions still outstanding as a result of" the war. 41 U.N.T.S. 135, intro. Hungary insisted that some of the family's claims are factually distinct from those in Simon. According to Hungary, Simon addresses only claims filed in lieu of attempts to recover through the treaty. In this case, by contrast, at least some of the claims concern art recovered through the treaty process and later retaken by Hungary. However, Hungary pointed to nothing in the treaty, nor to any principle of international law, suggesting that claimants who attempt to use the treaty but find the relief inadequate are either barred or estopped from bringing extra-treaty claims.
FSIA's expropriation exception has two requirements. A claim satisfies the exception if (1) "rights in property taken in violation of international law are in issue," and (2) there is an adequate commercial nexus between the United States and the defendants. Hungary argues that this case involves a bailment agreement. However, in the case of Simon it was held that Hungary's seizures of Jewish property during the Holocaust constituted genocide and were therefore takings in violation of international law. Hungary points out that the complaint's causes of action make no reference to a war-time taking rather, it says, Hungary's Holocaust expropriations are legally, factually, and temporally distinct from plaintiffs' claims of post-war, non-sovereign, private party commercial bailment breaches. Court of Appeal agreed that there must be some connection between the family's claims and Hungary's expropriation of the Herzog collection. The Herzog family conceded as much at oral argument by acknowledging that property once expropriated is not forever tainted by that expropriation. But as the family also emphasizes, most of its claims do in fact involve a tight legal, factual, and temporal connection to Hungary's expropriation of the collection. The district court found, and Hungary concedes, that some twenty-five pieces of art were never returned to the family.
Hungary argues that the expropriation exception is inapplicable because a bailment claim is, at its core, commercial, and commercial claims may proceed only under the commercial activity exception, not the expropriation exception. Hungary points out that the Herzog family seeks to recover not for the original expropriation of the Collection, but rather for the subsequent breaches of bailment agreements they say they entered into with Hungary. But Court of Appeals also expressly reserved decision on the availability of the expropriation exception, and had never held that in order to proceed against a foreign government, a claim must fall into just one FSIA exception in this case, either the expropriation exception or the commercial activity exception, but not both. Indeed, Simon explains that garden-variety common-law claims, including a quasi-contractual claim for unjust enrichment, may satisfy the expropriation exception. The same is true for the family's bailment claim.
The Court of Appeal thus concluded that "rights in property taken in violation of international law" are "in issue" as to those twenty-five or so artworks taken by Hungary during the Holocaust and never returned.
Some fifteen pieces of the Herzog collection were physically returned to family members, and others were legally released to the family on paper. The district court, however, never determined whether the temporary return of the art severed the connection between Hungary's current possession and its Holocaust-era seizure. Instead, it concluded that the return of the art is irrelevant because "the subsequent return of property confiscated by the government does not extinguish the earlier taking; it simply converts a permanent taking to a temporary one, altering the appropriate measure of damages." But the family's bailment claims do not seek only damages for Hungary's temporary possession of this artwork from World War II until its return. Instead, the family seeks to recover for Hungary's failure to return the art today in violation of bailment agreements presumably formed when the country repossessed the art. Court of Appeal therefore remanded the case to the district court for it to consider, in the first instance, the Herzog family's claims to those pieces returned by Hungary.
Having concluded that the family's claims for at least some of the artworks satisfy the expropriation exception's first requirement, court turn to the commercial-activity nexus requirement. It contains two clauses: where "rights in property taken in violation of international law are in issue," then the foreign sovereign loses its immunity if (1) "that property or any property exchanged for such property is present in the United States in connection with a commercial activity carried on in the United States by the foreign state," or (2) "that property or any property exchanged for such property is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States." 28 U.S.C. [section] 1605(a) (3). The district court concluded that the second clause is met here.
The Republic of Hungary argues that it should nonetheless be dismissed as a defendant. As it pointed out, unlike the first clause, which refers expressly to the "foreign state," the second clause --the one applicable here--refers to only "an agency or instrumentality of the foreign state." According to the Republic, then, only its "agencies and instrumentalities" are proper defendants, and it should be dismissed. For its part, the Herzog family argued as the family sees it, the foreign state (Hungary) remains a proper defendant as long as its agencies or instrumentalities (the museums and the university) engaged in the requisite commercial activity.
As to Simon, the family argues that they are bound not by that decision, but rather by an earlier decision of Agudas Chasidei Chabad of U.S. v. Russian Federation, 528 F.3d 934 (D.C. Cir. 2008), a case which also dealt with the exception's second clause. Although the court in that case found that two Russian agencies or instrumentalities "engaged in sufficient commercial activity in the United States to satisfy" that clause, it also "reversed" the district court's "finding of Russia's immunity." The precise question, then, is whether the Chabad court held that a foreign state loses immunity if the second nexus requirement is met. Court of Appeal expressed that it thinks it did not.
The issue of the Russian state's immunity was completely unaddressed by the district court and neither raised nor briefed on appeal. The court, moreover, did not explain why it kept the Russian Federation in the case. Although the Chabad court did discuss the commercial-activity nexus requirements, as the dissent notes, Dissenting Op. at 1112-14, it never considered the issue before court, namely, whether a foreign state loses its immunity simply because its agency or instrumentality satisfies the expropriation exception's second clause.
By contrast to the Chabad court, the Simon court expressly considered and decided the question of foreign state immunity under the expropriation exception. It explained that the nexus requirement for jurisdiction over foreign states "differs" from that over agencies and instrumentalities: claims against foreign states must satisfy the first nexus requirement, and claims against agencies and instrumentalities must satisfy the second. 812 F.3d at 146. Applying Simon to the facts of this case means that the Republic of Hungary retains its FSIA immunity. Although this is sufficient to resolve the question, even if court was not bound by Simon, it would have held that a foreign state retains its immunity unless the first clause of the commercial-activity nexus requirement is met.
The FSIA carefully distinguishes foreign states from their agencies and instrumentalities. Though the list of exceptions begins "[a] foreign state shall not be immune," id. [section] 1605, court has explained that the foreign state itself does not lose immunity merely because one of its agencies and instrumentalities satisfies an FSIA exception. Absent an agency relationship, the court lacks subject matter jurisdiction over the foreign state for the acts of its instrumentality. Collapsing the well-worn distinction between foreign states and agencies and instrumentalities would likewise lead to odd results. Because a foreign state would be amenable to suit whenever its agency or instrumentality is not immune, a plaintiff would be able to sue a foreign state with no commercial activity in the United States so long as the agency or instrumentality owning the property in issue is engaged in a commercial activity in the United States.
This leaves three issues. First, the remaining defendants the museums and the university argue that the claims of Erzsebet Weiss de Csepel, the Herzog daughter who became a United States citizen in 1952, are barred by a 1973 agreement between the United States and Hungary under which Hungary paid the United States $18.9 million "in full and final settlement and in discharge of all claims of the Government and nationals of the United States against the Government and nationals of the Hungarian People's Republic." Further, defendants insist that Hungary did take some of the art from Erzsebet after she became a citizen. This is true with respect to two paintings--the Cranach and the Opie however these two paintings are no longer at issue in this case. Defendants point to record evidence suggesting that other paintings may also have been taken from Erzsebet after she became a citizen. Court of Appeal expressed that as they are remanding the case for other reasons, they think it best to leave it to the district court to address this issue in the first instance as part of its review of the artwork returned and retaken by Hungary.
Defendants next argue, separate and apart from their FSIA immunity defense, that the Herzog family should have to exhaust its claims in Hungarian courts, as well as through a recently created formal claims process. This argument ignores the source of our appellate jurisdiction, i.e., the collateral order doctrine.
As a general rule, appellate jurisdiction extends only to "final decisions" of a district court, 28 U.S.C. [section] 1291, and parties may not appeal where, as here, the district court has simply denied a motion to dismiss. Hungary, however, has made no argument that the collateral order doctrine applies to denial of a motion to dismiss on freestanding exhaustion grounds.
Finally, the Herzog family asks that should court dismiss any of their claims, they be allowed to amend their complaint in light of the Holocaust Expropriated Art Recovery Act of 2016. Defendants argue to deny the motion because, they say, the family has offered "no explanation" for its failure to bring a straightforward conversion claim from the start. Court of Appeal expressed that Congress enacted the Holocaust Expropriated Art Recovery Act for the very purpose of permitting claims like these to continue despite existing statutes of limitations, "justice" quite obviously requires that the family be given leave to amend their complaint.
Court affirm the district court's ruling that the Herzog family's claims to art never returned to them satisfy the FSIA's expropriation exception. With respect to art that was returned to the Herzog family, matter is remanded for the district court to determine whether the claim to recover each piece may proceed under the expropriation exception. Court of Appeal granted relief and instructed the district court to dismiss the Republic of Hungary as a defendant and to grant the Herzog family leave to amend their complaint in light of the Holocaust Expropriated Art Recovery Act. Finally, Court of Appeal dismissed appeal for lack of appellate jurisdiction Hungary's appeal from the denial of its motion to dismiss on exhaustion grounds.
RANDOLPH, Senior Circuit Judge, concurring in part and dissenting from part expressed that it disagreed from the majority decision that the Republic of Hungary is immune from the jurisdiction of the federal courts in this case. He expressed that as between Chabad and Simon, the earlier Chabad decision controls for the reasons Judge Sentelle stated for this court in Sierra Club v. Jackson, 648 F.3d 848, 854 (D.C. Cir. 2011). Yet the majority decides that Hungary is immune from suit. It is expressed that the apparent basis for its conclusion is that the italicized portion of [section] 1605(a)(3) does not divest a "foreign state" of immunity. It is further expressed that the majority dismisses the reasoning of Chabad because it believes that a "foreign state" in [section] 1605(a)(3) may sometimes not be a "foreign state." Having adopted this unfounded reading of the statute, the majority then faults Chabad for not explicitly addressing it. In the later decision in Simon, the panel recognized that the relevant portion of Chabad had precedential effect. Dissenting opinion concludes that the only reasonable explanation for Simon's treatment of Chabad is that it made a mistake. The majority's decision in this case only compounds the error.
"In our prior opinion, we described the family's seven-decade effort to reclaim the Collection, including through Hungarian courts. de Csepel, 714 F.3d at 595-96; see de Csepel v. Republic of Hungary, 808 F.Supp.2d 113, 134-35 (D.D.C. 2011). When those efforts proved unsuccessful, the Herzog family filed suit in U.S. district court against the Republic of Hungary, three art museums--the Budapest Museum of Fine Arts, the Hungarian National Gallery, and the Museum of Applied Arts--and the Budapest University of Technology and Economics (collectively, "Hungary"). The family alleges that Hungary's taking of forty-four pieces of the Herzog Collection "constituted an express or implied-in-fact bailment contract," and that its failure to return them upon demand breached the bailment contract and constituted conversion and unjust enrichment. Compl. [paragraph][paragraph] 96-110. The family seeks imposition of a constructive trust, an accounting, and a declaration of its ownership of the Herzog collection, all aimed at either recovering the artwork or obtaining over $100 million in compensation. Id. [paragraph][paragraph] 111-28 & pt. V." [paragraph] 1099]
"Hungary argues that the expropriation exception is inapplicable because a bailment claim is, at its core, commercial, and commercial claims may proceed only under the commercial activity exception, not the expropriation exception. Moreover, as Hungary points out, we explained in our earlier decision that the Herzog family "seeks to recover not for the original expropriation of the Collection, but rather for the subsequent breaches of bailment agreements they say they entered into with Hungary." de Csepel, 714 F.3d at 598. But we also expressly reserved decision on the availability of the expropriation exception, and we have never held that in order to proceed against a foreign government, a claim must fall into just one FSIA exception--in this case, either the expropriation exception or the commercial activity exception, but not both. Whether an activity is commercial and whether the claim is "based upon" such activity, as the commercial activity exception requires, are altogether different questions from whether the claim places "in issue" an expropriated property right, as the expropriation exception requires. See 28 U.S.C. [section] 1605(a)(2) (depriving a foreign state of immunity when "the action is based upon a commercial activity carried on in the United States by the foreign state"); OBB Personenverkehr AG v. Sachs,--U.S.--, 136 S.Ct. 390, 396, 193 L.Ed.2d 269 (2015) ("[A]n action is "based upon' the "particular conduct' that constitutes the "gravamen' of the suit."). Indeed, Simon explains that garden-variety common-law claims, including a quasi-contractual claim for unjust enrichment, may satisfy the expropriation exception. Simon, 812 F.3d at 142; see id. at 146 ("There is no reason to assume that, in every discrete context in which [the FSIA] exceptions might be applied ..., there would be perfect coherence in outcome across all of the exceptions."). The same is true for the family's bailment claim." [paragraph] 1103]
"For its part, the Herzog family argues that the second clause must be read in the context of the entire expropriation exception, and read this way, the provision states that "a foreign state shall not be immune ... in any case ... in which rights in property taken in violation of international law are in issue" and "that property or any property exchanged for such property is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States." 28 U.S.C. [section] 1605(a)(3). In other words, as the family sees it, the foreign state (Hungary) remains a proper defendant as long as its agencies or instrumentalities (the museums and the university) engaged in the requisite commercial activity." [paragraph] 1105]
"To conclude that the foreign state loses its immunity if either clause is satisfied would produce an anomalous result: the court would have no jurisdiction over the agencies and instrumentalities that actually own or operate the expropriated property. That is because, although the FSIA generally allows for "an agency or instrumentality of a foreign state" to count as a "foreign state," id. [section] 1603, the agencies or instrumentalities would fail to satisfy either of the expropriation exception's two clauses if considered to be the relevant "foreign state" throughout the exception. Take this case. The family would be unable to pursue its claims against the very entities that actually possess the Herzog collection--the museums and the university--because the collection is not "present in the United States" (clause one) nor "owned or operated by an agency or instrumentality" of the museums and the university (clause two). Thus, the expropriation exception's two clauses make sense only if they establish alternative thresholds a plaintiff must meet depending on whether the plaintiff seeks to sue a foreign state or an agency or instrumentality of that state." [paragraph] 1108]
CITATION: De Csepel v. Republic of Hungary, 859 F. 3d 1094 (Court of Appeals, Dist. of Columbia Circuit 2017).
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|Title Annotation:||SOVEREIGN IMMUNITY|
|Publication:||International Law Update|
|Date:||Apr 1, 2017|
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