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De Csepel v. Republic of Hungary

United States Court of Appeals, District of Columbia Circuit

June 20, 2017

David L. De Csepel, et al., Appellees
v.
Republic of Hungary, a foreign state, et al., Appellants

          Argued March 6, 2017

         Appeal from the United States District Court for the District of Columbia (No. 1:10-cv-01261)

          Thaddeus J. Stauber argued the cause for appellants. With him on the briefs were Emily Crandall Harlan and Sarah Erickson André.

          Alycia Regan Benenati argued the cause for appellees. With her on the brief were Sheron Korpus, Michael Shuster, Michael D. Hays, and Alyssa T. Saunders.

          Before: Henderson and Tatel, Circuit Judges, and Randolph, Senior Circuit Judge.

          OPINION

          Tatel, Circuit Judge

         For the second time, we consider a family's decades-long effort to recover a valuable art collection that the World-War-II-era Hungarian government and its Nazi collaborators seized during their wholesale plunder of Jewish property during the Holocaust. On remand from our earlier decision, the district court concluded that the family's claims against the Republic of Hungary, its museums, and a state university satisfy the expropriation exception to the Foreign Sovereign Immunities Act and that no other provision of the Act bars their claims. For the reasons explained below, we affirm in part, reverse in part, and along the way, resolve several issues regarding the Act's application to claims seeking to recover art stolen during the Holocaust.

         I.

         We described the background of this case in our earlier opinion, de Csepel v. Republic of Hungary, 714 F.3d 591, 594- 97 (D.C. Cir. 2013). For the reader's convenience, we repeat it virtually in full.

         Baron Mór Lipót Herzog was a "passionate Jewish art collector in pre-war Hungary" who assembled a collection of more than two thousand paintings, sculptures, and other artworks. Compl. ¶ 38. Known as the "Herzog Collection, " this body of artwork was "one of Europe's great private collections of art, and the largest in Hungary, " and included works by renowned artists such as El Greco, Diego Velázquez, Pierre- Auguste Renoir, and Claude Monet. Id. Following Herzog's death in 1934 and his wife's shortly thereafter, their daughter Erzsébet and two sons István and András inherited the Collection. Id. ¶ 39.

         Then came World War II, and Hungary joined the Axis Powers. In March 1944, Adolf Hitler sent German troops into Hungary, and SS Commander Adolf Eichmann entered the country along with the occupying forces and established headquarters at the Majestic Hotel in Budapest. Id. ¶¶ 51, 60. During this time, Hungarian Jews were subjected to anti-Semitic laws restricting their economic and cultural participation in Hungarian society and deported to German concentration camps. Id. ¶¶ 44, 47, 52. As an integral part of its oppression of Hungarian Jews, "[t]he Hungarian government, including the Hungarian state police, authorized, fully supported and carried out a program of wholesale plunder of Jewish property, stripping anyone 'of Jewish origin' of their assets." Id. ¶ 54. Jews "were required to register all of their property and valuables" in excess of a certain value, and the Hungarian government "inventoried the contents of safes and confiscated cash, jewelry, and other valuables belonging to Jews." Id. ¶ 55. "[P]articularly concerned with the retention of artistic treasures belonging to Jews, " the Hungarian government established "a so-called Commission for the Recording and Safeguarding of Impounded Art Objects of Jews . . . and required Hungarian Jews promptly to register all art objects in their possession." Id. ¶ 56. "These art treasures were sequestered and collected centrally by the Commission for Art Objects, " headed by the director of the Hungarian Museum of Fine Arts. Id.

         In response to widespread looting of Jewish property, the Herzogs "attempted to save their art works from damage and confiscation by hiding the bulk of [them] in the cellar of one of the family's factories at Budafok." Id. ¶ 58. Despite these efforts, "the Hungarian government and their Nazi[ ] collaborators discovered the hiding place" and confiscated the artworks. Id. ¶ 59. They were "taken directly to Adolf Eichmann's headquarters at the Majestic Hotel in Budapest for his inspection, " where he "selected many of the best pieces of the Herzog Collection" for display near Gestapo headquarters and for eventual transport to Germany. Id. ¶ 60. "The remainder was handed over by the Hungarian government to the Museum of Fine Arts for safekeeping." Id. After seizure of the Collection, a pro-Nazi newspaper ran an article in which the director of the Hungarian Museum of Fine Arts boasted that "[t]he Mór Herzog collection contains treasures the artistic value of which exceeds that of any similar collection in the country. . . . If the state now takes over these treasures, the Museum of Fine Arts will become a collection ranking just behind Madrid." Id. ¶ 59.

         "Fearing for their lives, and stripped of their property and livelihoods, the Herzog family was forced to flee Hungary or face extermination." Id. ¶ 63. Erzsébet Herzog (Erzsébet Weiss de Csepel following her marriage) fled Hungary with her children, first reaching Portugal and eventually settling in the United States, where she became a U.S. citizen in 1952. Id. István Herzog was nearly sent to Auschwitz but "escaped after his former sister-in-law's husband . . . arranged for him to be put in a safe house under the protection of the Spanish Embassy." Id. ¶ 42. Several members of his family escaped to Switzerland while others remained in Hungary. Id. ¶ 64. István Herzog died in 1966, leaving his estate to his two sons, Stephan and Péter Herzog, and his second wife, Mária Bertalanffy. Id. ¶ 42. András Herzog was "sent . . . into forced labor in 1942 and he died on the Eastern Front in 1943." Id. ¶ 41. His daughters, Julia Alice Herzog and Angela Maria Herzog, fled to Argentina and eventually settled in Italy. Id. ¶ 64.

         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. ¶¶ 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. ¶¶ 111-28 & pt. V.

         Hungary moved to dismiss, arguing that the suit was barred by the Foreign Sovereign Immunities Act (FSIA). That Act authorizes federal jurisdiction over civil actions against foreign states, as relevant here, only in certain cases involving expropriated property or commercial activity, and only to the extent such jurisdiction is not inconsistent with certain international agreements. 28 U.S.C. §§ 1604-05. 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. de Csepel, 808 F.Supp. 2d. at 128-35. Hungary appealed, and "without ruling on the availability of the expropriation exception, " we concluded that the family's claims satisfied the Act's commercial activity exception. de Csepel, 714 F.3d at 597-603.

         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, i.e., the bailment agreements, had any "direct effect" in the United States, as required by the commercial activity exception. de Csepel v. Republic of Hungary, 169 F.Supp.3d 143, 158-63 (D.D.C. 2016) (quoting 28 U.S.C. § 1605(a)(2)). 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-Lucian Cranach the Elder's "The Annunciation to Saint Joachim" and John Opie's "Portrait of a Lady"-that Hungary acquired from third parties after the war. Id. at 165- 67.

         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. For its part, the Herzog family defends the district court's decision, but asks that, should we dismiss any of their claims, they be given leave to amend their complaint in light of the Holocaust Expropriated Art Recovery Act of 2016, Pub. L. 114-308, 130 Stat. 1524, which Congress enacted during the pendency of this appeal to remove "significant procedural obstacles" facing "[v]ictims of Nazi persecution" seeking to "recover Nazi-confiscated art." Id. § 2(6). We have jurisdiction under the collateral order doctrine, see Kilburn v. Socialist People's Libyan Arab Jamahiriya, 376 F.3d 1123, 1126 (D.C. Cir. 2004) (holding that "denial of a motion to dismiss on the ground of sovereign immunity" is subject to interlocutory review under the collateral order doctrine), and our review is de novo, de Csepel, 714 F.3d at 597.

         Before considering the parties' arguments, we think it helpful to explain that the issues before us relate to two distinct groups of art. The first-some twenty-five pieces-was never physically returned to the family. As the district court explained, after being seized, they were "scattered across Nazi-occupied Europe, " and then "shipped back" to Hungary after the war. de Csepel, 169 F.Supp.3d at 149. According to the family, these paintings are "being held by Hungary in a custodial role" under a bailment arrangement. Id. at 149-51, 160. The second category-some fifteen pieces-was returned to the family after the war, but Hungary later regained custody through various procedures not relevant to the issues before us. See id. at 149-51.

         II.

         The Foreign Sovereign Immunities Act provides that "a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States, " subject to certain exceptions. 28 U.S.C. § 1604. When a "defendant foreign state has asserted the jurisdictional defense of immunity, the defendant state bears the burden of proving that the plaintiff's allegations do not bring its case within a statutory exception to immunity." Belize Social Development Ltd. v. Government of Belize, 794 F.3d 99, 102 (D.C. Cir. 2015) (citation and internal quotation marks omitted).

         Two FSIA provisions are central to this appeal: the treaty exception, which Hungary contends bars all of the family's claims; and the expropriation exception, which the family, echoing the district court, argues vitiates Hungary's sovereign immunity. We consider each in turn.

         A.

         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. § 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." de Csepel, 714 F.3d at 601 (alteration, citation, and internal quotation marks omitted). As our court recently explained in Simon v. Republic of Hungary, 812 F.3d 127 (D.C. Cir. 2016), which also involved the Hungarian government's wartime seizure of Jewish property-in that case, the personal property of Jews sent to death camps-where "a pre-existing treaty is said to confer more immunity than would the FSIA, the treaty exception would override any of the FSIA's exceptions to immunity under which the claims otherwise could go forward." Id. at 135-36.

         Hungary argues that the 1947 Treaty of Peace, Feb. 10, 1947, 61 Stat. 2065, 41 U.N.T.S. 135, which settled questions outstanding 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." Id. art. 27. Article 40 established a mechanism for resolving "any dispute concerning the . . . execution of the Treaty, " i.e., direct diplomatic negotiations followed by referral to the "Heads of the Diplomatic Missions in Budapest of the Soviet Union, the United Kingdom and the United States of America, acting in concert." Id. arts. 39-40. 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.

         As the district court correctly noted, however, Hungary's argument is completely foreclosed by 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." 812 F.3d at 137; see de Csepel, 169 F.Supp.3d at 164-65. "The terms of Article 27, " Simon explains, "do not speak in the language of exclusivity, " and although "[a] sovereign generally has the authority to espouse and settle the claims of its nationals against foreign countries[, ] . . . it has no authority to espouse and extinguish the claims of another state's nationals." Simon, 812 F.3d at 137-38 (citation and internal quotation marks omitted). In executing the 1947 Treaty, then, "the United States and the other Allied Powers . . . lacked the power to eliminate (or waive) the claims of another state's-i.e., Hungary's-nationals in the treaty's terms." Id. at 138.

         Hungary argues 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. According to Hungary, the family's claims are barred because they were "affirmatively 'settled'" by the treaty. Appellants' Br. at 35. But this ignores Simon's holding that the Allies had "no power to settle or waive the extra-treaty claims of . . . [Hungary's] nationals." 812 F.3d at 138.

         Hungary insists 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. As the Herzog family observes, this is a "distinction without a difference." Appellee's Br. at 52. Because the Herzog family believes that Hungary failed to give them full relief through the treaty, Simon allows them to proceed either through the treaty or through other means like "an Allied nation's courts." Simon, 812 F.3d at 138. Hungary points 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. Indeed, Hungary's view of the treaty makes little sense: as Simon explains, such a reading would require Hungarian nationals to enforce the treaty through Article 40, a state-to-state process, despite having "no obvious nation to speak and negotiate on their behalf against Hungary." Id. at 139.

         B.

         The rather abstruse text of the FSIA's expropriation ...


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