A Narrow Interpretation of the FSIA’s Expropriation Exception

Introduction

 Three generations of the Herzog family have sought to recover some $100 million in artwork stolen by Hungarian government officials and Nazi collaborators during and following World War II. The looted works included pieces by the renowned artists El Greco, Renoir, and Monet. To the family’s disappointment, the Court of Appeals for the D.C. Circuit recently affirmed the district court’s dismissal of the family’s claims in de Csepel v. Republic of Hungary.  The ruling interprets the expropriation exception to foreign sovereign immunity narrowly – perhaps more narrowly than necessary – and likely marks the end of this fifteen-year legal dispute in U.S. courts.

Background

After unsuccessful litigation in Hungarian courts, the family brought various common-law claims against the Republic of Hungary, the Hungarian National Asset Management Inc., the Budapest University of Technology and Economics, and three art museums (the Budapest Museum of Fine Arts, the Hungarian National Gallery, and the Budapest Museum of Applied Arts). The defendants are presumptively immune from suit under the Foreign Sovereign Immunities Act (FSIA).

The plaintiffs invoke the statute’s expropriation exception, 28 U.S.C. §1605(a)(3), which – if applicable – would both lift immunity and confer subject matter jurisdiction. The exception applies if other requirements are met and “rights in property taken in violation of international law are in issue.” Several prior decisions by both the district and appellate courts resulted in the dismissal of most of the plaintiffs’ claims. In the two related decisions involved in the most recent appeal, de Csepel VII and de Csepel VIII, the district court dismissed all remaining claims. The key issues on appeal were: (1) whether the plaintiffs had adequately alleged that the property was “taken in violation of international law” as required under §1605(a)(3); and (2) whether immunity was foreclosed by an international agreement to which the United States was a party when the FSIA was enacted.

Wartime Takings – Figure of Santa Barbara

In order to satisfy the “rights taken in violation of international law” requirement of the expropriation exception, plaintiffs must allege a violation of the international law that governs expropriations.  As the Supreme Court clarified in Federal Republic of Germany v. Philipp (2021), a taking in violation of other international norms such as genocide, does not suffice. And, as Phillipp also held, the international law of expropriations does not prohibit a state from taking the property of its own national – the so called “domestic takings” rule. Under this framework, it was not enough for the de Csepel plaintiffs to allege that the Hungarian government stole property from Jewish Hungarians, nor would it suffice to allege that German Nazi officials seized the property of Jewish Hungarians as an act of genocide or in violation of international human rights law.

With respect to an early sixteenth-century German sculpture called Figure of Santa Barbara, the plaintiffs successfully avoided the domestic-taking rule by producing evidence that the sculpture was “seized by [non-Hungarian] officials and removed from Hungary to a salt mine in Bad Ischl, Austria.” But the claim was nonetheless dismissed because the plaintiffs failed to show that a wartime expropriation is “violation of international law” within the meaning of the expropriation exception. The D.C. Circuit focused heavily on the language of the Second Restatement of Foreign Relations Law (“Restatement”), affording it “authoritative weight.” The Restatement describes the discriminatory, uncompensated taking of a foreign national’s property as a violation of international law but limits this language to “times of peace.” It is undisputed that the Figure of Santa Barbara was taken during Germany’s wartime occupation of Hungary. It therefore falls outside the Restatement’s language.

The plaintiffs also relied on the Hague Conventions governing the laws of war, which prohibit exactly the kind of conduct alleged with respect to the Santa Barbara: expropriation during wartime occupations. The problem here is that an alleged violation of the laws of war is not enough – the plaintiffs must allege a violation of the international law specifically governing expropriation.  At least that is how the D.C. Circuit interpreted the Supreme Court’s reasoning in Philipp. The appellate court acknowledged that a wartime taking may violate both the laws of war and laws governing expropriation but reasoned that the plaintiffs in this case had only demonstrated a violation of the laws of war.

The appellate court’s interpretation of the expropriation exception is narrow – narrower perhaps than the Philipp case requires. The Supreme Court reasoned in Philipp that the forced sale of property owned by Jewish people, even if an act of genocide that violated international human rights law, would not come within the expropriation exception. The exception, the Court reasoned, focused on property and property law, which were not the focus of the prohibition on genocide (which does not itself say anything about property). But the law of occupation is different. It does specifically regulate the conduct of an occupying army with respect to property.  A violation of these norms regulating property should, it seems, be enough to satisfy the expropriation exception.

Hungary’s Expropriations and “De Facto Statelessness”

For the twenty-five pieces of art taken by the Hungarian government, plaintiffs sought to avoid the domestic-taking rule by asserting that Germany was involved in the expropriations in various ways. The district court rejected these efforts to attribute conduct to Germany for lack of evidence. The D.C. Circuit did not revisit the issue because even if Germany were legally responsible, plaintiffs still failed to show a violation of the international law of expropriation, just as they had with respect to the Santa Barbara.

The plaintiffs also argued that the Herzogs were rendered de facto stateless when their property was confiscated by the Hungarian government, and that therefore they were not Hungarian nationals so that the domestic-takings rule did not apply. The court of appeals accepted the factual premise that the Herzogs were de facto stateless but nonetheless held the expropriation exception inapplicable. This reasoning, too, focused on the Restatement Second, which the court interpreted to mean that the taking of a stateless persons’ property would not violate the international law governing expropriations. That conclusion was buttressed by the observation that the uncompensated taking of a foreign national’s property is understood in the international law of expropriation as violating the rights of the foreign state itself – not those of the foreign national.  Understood in this way, the taking of stateless persons’ property does not violate the law of expropriations because taking their property does not cause harm to any state. Further, the D.C. Circuit noted that the Restatement Third (adopted after the FSIA came into force) clarifies that the international law of expropriation protects that property of foreign nationals, not that of stateless persons.

The Postwar “Re-takings”

The final category of claims involved Portrait of the Architect and In the Studio, which were allegedly re-taken after the war was over and the owners had become U.S. and Italian citizens.  These pieces were apparently returned to the Herzog families when World War II ended but were taken back by the government for various reasons, including a criminal-forfeiture judgment against one family member, hence the argument that they were “re-taken.” The key questions here were whether the evidence adequately supported a re-taking after the owners changed citizenship, and whether a 1973 agreement barring expropriation claims of U.S. nationals applied to In the Studio.

The district court concluded that the defendants’ evidence showed that Portrait of the Architect was transferred into the museum’s ownership in May 1951, at a time when the plaintiffs’ predecessors were still Hungarian citizens. The district court also credited the defendants’ evidence that In the Studio was identified by the Hungarian Financial Institution Authority as one of the works covered by the 1973 U.S.–Hungary settlement agreement and that the plaintiffs’ predecessor apparently received full compensation for In the Studio from a U.S. claims commission in 1959. The D.C. Circuit found no error.

Conclusion  

It is difficult to satisfy the expropriation exception to the FSIA, and this decision only adds to the obstacles. The court’s reasoning with respect to expropriations by occupying powers might be open to challenge en banc or in a cert petition – or indirectly through litigation in other circuits. Beyond that, the final sentence of the D.C. Circuit’s opinion decision may be read as suggesting that plaintiffs take their case to Congress. Although it may be difficult to convince Congress to enact legislation that would allow Hungary to be held liable, it has already passed the Holocaust Expropriated Art Recovery Act of 2016, which mandated a new six-year statute of limitations (running from the passage of the Act) for people seeking recovery of Nazi-confiscated art. Indeed, Congress is currently considering amendments to that statute, so perhaps the plaintiffs have reason for some optimism on the legislative front.