May 30, 2019 Top Story

German Heirs Allowed to Sue in U.S. for Nazi Art Seizures

D.C. Circuit exercises jurisdiction over some foreign entities, but not all

By Onika K. Williams

A party does not have to exhaust all available foreign remedies before suing a foreign entity in the United States under the Foreign Sovereign Immunities Act’s (FSIA) expropriation exception, according to at least one federal circuit court.

The argument that heirs of Jewish art dealers must assert claims related to Nazi seizures in German courts before any other jurisdiction rejected

The argument that heirs of Jewish art dealers must assert claims related to Nazi seizures in German courts before any other jurisdiction rejected

Photo illustration by Genuine Pyun | iStockphoto by Getty Images

In Philipp v. Federal Republic of Germany, the U.S. Court of Appeals for the District of Columbia Circuit rejected Germany’s argument that the heirs of Jewish art dealers must assert claims related to Nazi seizures in German courts before any other jurisdiction.

ABA Section of Litigation leaders agree this decision will likely impact many other litigants filing suit under FSIA’s expropriation exception, which creates jurisdiction for claims against foreign governments that might otherwise enjoy immunity from suit. Nonetheless, the decision does create some limits on the exercise of jurisdiction against entities without a presence in the United States, raising further questions regarding the scope of relief available under this statute.

Heirs Sue for Return of Rare Art

The conflict in Philipp began in 2014, when the heirs of several Jewish art dealers sought to recover the Welfenschatz, a collection of rare medieval art their German ancestors were forced to sell to the Nazis in the 1930s. The heirs first submitted a claim against the Stiftung Preussischer Kulturbesitz (SPK), a German agency that oversees the museum displaying the Welfenschatz, through the German Advisory Commission. The advisory commission, which acts as a mediator between current possessors and former owners of property seized through Nazi persecution, concluded that the sale of the Welfenschatz was not a compulsory sale due to persecution. Therefore, it announced, it could not recommend the return of the art to the heirs.

Instead of seeking further relief through German courts, the heirs filed suit against the Federal Republic of Germany and the SPK in the U.S. District Court for the District of Columbia, asserting District of Columbia common law claims for replevin, conversion, unjust enrichment, and bailment. The heirs sought return of the Welfenschatz and/or $250 million. Germany moved to dismiss, arguing, among other things, that it enjoyed immunity from suit under the FSIA and that international comity required the court to decline jurisdiction until the heirs had exhausted their remedies in German courts.

When the district court denied Germany’s motion to dismiss, Germany immediately appealed the FSIA immunity portion of the decision. The D.C. Circuit largely affirmed the district court.

FSIA Jurisdictional Requirements

Under FSIA, 28 U.S.C. § 1604, foreign sovereigns and their agencies enjoy immunity from suit in the United States unless an exception applies. The heirs asserted jurisdiction under FSIA’s expropriation exception, 28 U.S.C. § 1605(a)(3), which has two requirements: (1) rights in property taken in violation of international law are at issue; and (2) there is an adequate commercial nexus between the United States and the defendant. The party challenging jurisdiction—in this case Germany—bears the burden of proving that the exception does not apply.

Exhaustion of Foreign Remedies Not Required

In Philipp, the D.C. Circuit ultimately concluded that the expropriation exception applied to create jurisdiction over the heirs’ claims. Consequently, the heirs were not required to exhaust available remedies in German courts before suing in the United States. The court acknowledged that its holding is contrary to Fischer v. Magyar Államvasutak Zrt, in which the U.S. Court of Appeals for the Seventh Circuit required survivors of the Hungarian Holocaust to exhaust any available Hungarian remedies or show a legally compelling reason for their failure to do so prior to bringing claims in the United States. Nonetheless, the court explained, its decision was consistent with U.S. Supreme Court precedent established by Republic of Argentina v. NML Capital, Ltd., a case in which the Court rejected Argentina’s claim of immunity as a matter of international comity because nothing in the FSIA’s plain text provided for such immunity.

The court declined to allow the heirs’ claims to move forward against Germany, however. Relying on two of its prior decisions involving the Republic of Hungary, the court dismissed Germany as a party because the property at issue, the Welfenschatz, is located in Berlin and not the United States. In contrast, the court found that SPK could remain a defendant because the commercial nexus requirement can be satisfied because SPK oversees the Welfenschatz and engages in commercial activity in the United States.

Decision Raises Additional Legal Questions

Section of Litigation leaders agree the case raises several interesting legal questions, creating circuit splits as to multiple issues. For one, the case “splits from the Seventh Circuit with regard to what extent plaintiffs must exhaust domestic remedies before pursuing a claim under the FSIA in U.S. courts against an instrumentality of a foreign government,” explains Brian A. Berkley, Philadelphia, PA, cochair of the Section’s Business Torts & Unfair Competition Committee.

Interestingly, the court’s dismissal of Germany may have created another circuit split, observes Andrew M. Zeitlin, Stamford, CT, vice chair of the Section’s Business Torts & Unfair Competition Committee. “The D.C. Circuit’s narrow interpretation of the FSIA’s expropriation exception is at odds with the U.S. Court of Appeals for the Ninth Circuit,” Zeitlin says. The Ninth Circuit “has held that property that was expropriated need not physically be present in this country in order for a U.S. court to exercise jurisdiction over a foreign state, as long as an agency or instrumentality of the foreign state is engaged in commercial activity in the United States,” he explains.

The D.C. Circuit allowed the case to proceed against SPK, a German agency, because of its commercial activity in the United States. However, “the opinion does not say what commercial activity the SPK conducts in the U.S.,” observes Chad S.C. Stover, Wilmington, DE, who also serves as cochair of the Section’s Business Torts & Unfair Competition Committee.

Finally, the opinion raises an issue as to what might be recoverable under the statute. “If the heirs are successful on their claims, another interesting question could be whether they can recover either the art itself or money damages from the SPK,” Stover adds.


Onika K. Williams is an associate editor for Litigation News.

Hashtags: #FSIA, #exemption, #exhaustion

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