High Court Unlikely To Expand FSIA In Holocaust Asset Fight
The expropriation exception to the Foreign Sovereign Immunities Act, or FSIA, permits victims of international war crimes to recover property taken by a sovereign nation in violation of international law when there is a commercial nexus to the U.S. But what happens when the property, unlawfully taken decades earlier, has long since been liquidated and cannot be traced to the present day?
Such was the question before the U.S. Supreme Court at the Dec. 3 oral argument of Republic of Hungary v. Simon. While the plaintiffs present compelling equitable arguments, their position seems to contravene the basic principles of the FSIA and is likely to be rejected by the court.
Background on the Foreign Sovereign Immunities Act
Enacted in 1976 to ensure that determinations of sovereign immunity would be rendered by the judiciary rather than by the U.S. Department of State, the FSIA adopted the restrictive theory of immunity. Under this theory, a foreign state is generally immune from civil suit for sovereign acts, but not commercial or certain other specific acts, including expropriation of property taken in violation of international law.[1]
The expropriation exception is limited, however, to "that property or any property exchanged for such property which is present in the United States in connection with a commercial activity carried on in the United States by the foreign state."[2] The Supreme Court has noted that the U.S. is the only country with this type of exception.[3]
Procedural History of Republic of Hungary v. Simon
In the early 2010s, Hungarian Holocaust survivor Rosalie Simon and the heirs of other survivors sued the Republic of Hungary and its state-owned railway, Magyar Államvasutak Zrt., in the U.S. District Court for the District of Columbia, seeking to recover property taken when Hungary's Jewish population was deported to Nazi death camps. Hungary expropriated, liquidated and deposited the victims' property into the Hungarian treasury, thereby commingling it with other treasury funds.[4] It is impossible to trace the proceeds of those commingled funds.[5]
Hungary moved to dismiss the case on sovereign immunity grounds.
The respondents, citing the expropriation exception to sovereign immunity, argued that the funds from the Hungarian treasury used for commercial payments in the U.S., which include purchases of military equipment and payment of bond interest, were the product of the commingled sovereign and stolen funds, and that commingling satisfied the requirements for the exception.
The petitioners in turn argued that adoption of the commingling theory would allow the expropriations exception to swallow the general rule prohibiting lawsuits against foreign countries.
This appeal to the Supreme Court — the second time this case has been before the court, which previously remanded the case for further proceedings in 2021 — focuses primarily on the meaning of the phrase "any property exchanged for such property" in the expropriation exception.
The U.S. Court of Appeals for the District of Columbia Circuit in 2023 agreed with the respondents and held that the commingling of the funds stolen from the Hungarian Jews constitutes "property exchanged for" purposes of the expropriation exception. Hungary petitioned for review by the Supreme Court.
The Petitioners' Position
The petitioners, joined by amici from the governments of the U.S. and Germany, have urged the justices to reverse the D.C. Circuit's ruling as inconsistent with the text of the expropriation exception. The commingled proceeds of liquidated property taken from Hungarian Jews more than half a century ago were not "exchanged for" the Hungarian government's current assets for FSIA purposes.[6]
The petitioners also argued that even if the Supreme Court recognizes commingling as a method of "exchange," the expropriation exception cannot apply unless "the item at the beginning and the item at the end of the proposed transaction have [been] given in return for one another," and that there must be "some real and substantial connection between those two things."[7]
The petitioners further argue that the commingling theory would allow recovery for any human rights abuse from any nation no matter how distant in time or geography.[8] In class claims like this one involving property seized 80 years ago, the petitioners argued, the claims plus accrued interest "could be so large as to be economically destabilizing."[9]
The U.S. government agreed, arguing as amicus that property that has been liquidated and put into an undifferentiated general account with multiple withdrawals and deposits, such as the national treasury at issue, has lost the "distinct identity as having been exchanged for the original property," and therefore the expropriation exception, by its own text, should not apply.[10] The U.S. defended the strict definition of "exchanged for" by detailing how other theories of tracing used in civil and criminal forfeiture statutes would not be viable in this circumstance.[11]
The U.S. also agreed with the petitioners on policy grounds, echoing Hungary's argument that the respondents' position would "risk offending the dignity of foreign states, and would invite reciprocal actions against the United States in foreign courts."[12] As stated in 2013 in Kiobel v. Royal Dutch Petroleum Co., another FSIA case heard by the Supreme Court, "United States law governs domestically, but does not rule the world."[13]
Respondents' Position
The respondents, joined in amici by various members of Congress and several nonprofit groups,[14] argued that because money is fungible, the FSIA exception must account for commingled funds, because holding otherwise would ignore the realities of modern economics and is contrary to how fungibility is interpreted in other statutes.[15]
The respondents pointed to evidence that demonstrates it is impossible to trace from the liquidation of the respondents' property to the funds used in U.S. commerce[16] as proof that the petitioners engaged in the requisite commercial activity using expropriated funds.
Thus, although there may be a nexus to the U.S., because the property was liquidated instead of retained and exchanged for tangible property, the respondents would not have a case. Such a rule would render application of the expropriation exception dependent on the type of property at issue, a weak basis to distinguish between acceptable and unacceptable exchanges in a modern economy.[17]
The respondents argued that denying the commingling theory would be contrary to the intent of the expropriation exception because "the United States has long sought to protect the property of its citizens abroad as part of the defense of America's free enterprise system."[18]
Conclusion
This case presents the classic dilemma of equity versus law.
For many, a sense of justice drives a response wanting the respondents to succeed — after all, it is undisputed that Hungary and the railway company seized and liquidated the respondents' property while they were being sent to their deaths during the Holocaust. But achieving a desirable and intuitively just result means ignoring the legal parameters of the FSIA.
Not surprisingly for a court where the conservative majority are strict textualists, the justices appear poised to overrule the appellate court, reaffirm the FSIA as a narrow exception to jurisdiction and avoid expanding the role of the U.S. as the arbiter of extraterritorial international claims.
The most interesting part of the decision will be how the court interprets the term "exchanged for property" — that is, whether the court will require tangible and identifiable property, or articulate a more flexible rule that includes fungible property. And, if the latter, what nexus is required between the property taken and the commercial activity in the U.S.
Annika Conrad is an associate at Lewis Baach Kaufmann Middlemiss PLLC.
Adam S. Kaufmann is an executive partner at the firm. He previously served as an assistant district attorney at the New York County District Attorney's Office.
[1] Brief of Amicus Curie by United States at 15, Republic of Hungary v. Simon, No. 23-867 (U.S. Oct. 18, 2024), citing Verlinden B.V. v. Central Bank of Nigeria , 461 U.S. at 486-487. 28 U.S.C. § 1604.
[2] 28 U.S.C. § 1605(a)(3).
[3] Transcript of Oral Arguments at 30, Republic of Hungary v. Simon, No. 23-867 (U.S. Dec. 3, 2024).
[4] Brief for Respondent at 29, Republic of Hungary v. Simon, No. 23-867 (U.S. May 14, 2024).
[5] Brief for Respondent at 29-30, Republic of Hungary v. Simon, No. 23-867 (U.S. May 14, 2024); Transcript of Oral Arguments at 14, Republic of Hungary v. Simon, No. 23-867 (U.S. Dec. 3, 2024).
[6] Petitioners Opening Brief at 2, Republic of Hungary v. Simon, No. 23-867 (U.S. Aug. 26, 2024), citing Rukoro v. Federal Republic of Germany , 976 F.3d 218, 225-26 (2d Cir. 2020).
[7] Transcript of Oral Arguments at 13, Republic of Hungary v. Simon, No. 23-867 (U.S. Dec. 3, 2024).
[8] Petitioners Opening Brief at 2, Republic of Hungary v. Simon, No. 23-867 (U.S. Aug. 26, 2024).
[9] Transcript of Oral Arguments at 24, Republic of Hungary v. Simon, No. 23-867 (U.S. Dec. 3, 2024).
[10] Transcript of Oral Arguments at 27-29, Republic of Hungary v. Simon, No. 23-867 (U.S. Dec. 3, 2024).
[11] Transcript of Oral Arguments at 36-37, Republic of Hungary v. Simon, No. 23-867 (U.S. Dec. 3, 2024).
[12] Brief of Amicus Curie by United States at 9, Republic of Hungary v. Simon, No. 23-867 (U.S. Oct. 18, 2024).
[13] Kiobel v. Royal Dutch Petro. Co. , 569 U.S. 108 (2013).
[14] The nonprofits, consisting of the 1939 Society, Bet Tzedek, Center for the Study of Law & Genocide, and the Loyola Justice for Atrocities Clinic, take a far more aggressive stance, saying that Hungary, Germany and the U.S. have not demonstrated good faith on this issue by focusing on the formalistic — and incorrect — "hair-splitting scrutiny" of the FSIA instead of the reality of the situation. See Brief of Amicus Curie by The 1939 Society, et al. at 4, Republic of Hungary v. Simon, No. 23-867 (U.S. Dec. 3, 2024). While recognizing that Germany paid billions in reparations to Holocaust survivors, "amici say to Germany: You started this and you made it happen. Take responsibility. Solve the problems created by your own actions." Id. at 6-7. Amici also shame the U.S., long a leader in Holocaust restitution, for siding with Hungary and advocating for a domestic solution where it knows that Hungary "would not pay ... a pittance" to the survivors. Id. at 7.
[15] Brief for Respondents at 3, Republic of Hungary v. Simon, No. 23-867 (U.S. Oct. 11, 2024).
[16] For Hungary, the commercial nexus to the U.S. was the selling of commercial bonds and payment of interest, and the purchase military equipment from the U.S.; for the national railway company it was the selling of tickets and booking reservations in the U.S.
[17] Transcript of Oral Arguments at 20-22, 71-72, Republic of Hungary v. Simon, No. 23-867 (U.S. Dec. 3, 2024).
[18] Brief for Respondents at 26, Republic of Hungary v. Simon, No. 23-867 (U.S. Oct. 11, 2024).
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