Republic of Hungary v. Simon

LII note: The U.S Supreme Court has now decided Republic of Hungary v. Simon

Issues

Does expropriated property have a commercial nexus with the United States when the property is liquidated, the proceeds from liquidating that property are commingled with a foreign nation’s general assets, and those general assets are then later used commercially in the United States?

Oral argument:
December 03, 2024
Court below:
United States Court of Appeals for the D.C. Circuit

This case asks the Court to determine whether the expropriation exception of the Foreign Sovereign Immunities Act is satisfied when a claimant’s assets were seized and liquidated into funds that were “commingled” with the nation’s general assets, and the nation’s general assets were then used for commercial purposes within the United States. Hungary argues that commingled assets do not satisfy the expropriation exception because there is insufficient evidence to establish that the funds from the liquidated assets were directly used in a commercial capacity in the present day. The Simon survivors counter that commingled assets do satisfy the expropriation exception and that there is sufficient evidence that the funds from their seized property were later used for commercial purposes within the United States. This case touches on important questions regarding the role of American courts in international disputes, the Holocaust’s legacy, and human rights violations.

Questions as Framed for the Court by the Parties

(1) Whether historical commingling of assets suffices to establish that proceeds of seized property have a commercial nexus with the United States under the expropriation exception to the Foreign Sovereign Immunities Act; (2) whether a plaintiff must make out a valid claim that an exception to the FSIA applies at the pleading stage, rather than merely raising a plausible inference; and (3) whether a sovereign defendant bears the burden of producing evidence to affirmatively disprove that the proceeds of property taken in violation of international law have a commercial nexus with the United States under the expropriation exception to the FSIA.

Facts

Foreign sovereigns generally enjoy sovereign immunity in the United States, which prevents American courts from asserting jurisdiction over them. The Foreign Sovereign Immunities Act (FSIA) allows American courts to obtain jurisdiction over foreign sovereigns when one of the FSIA’s exceptions applies. The expropriation exception of the FSIA grants jurisdiction over foreign sovereigns that have illegally expropriated property in violation of international law, if either the expropriated property or “any property exchanged for such property” has been used in commercial activity in the United States. The Supreme Court has previously held that a foreign sovereign does not violate international law when that sovereign expropriates the property of its own nationals, and that these nationals cannot rely on the FSIA’s expropriation exception.

Throughout the Second World War, the Hungarian government organized the genocide of Hungarian Jews and Jewish people in adjacent Hungarian-controlled territories, which involved the deportation of Jewish people by railway to concentration camps. In November 1944, the Hungarian government declared all valuable objects owned by Jews to be part of the national wealth of Hungary, and agents of the Hungarian government and the Hungarian National Railway (MÁV) expropriated and liquidated Jewish property taken while transporting Jews to concentration camps and killing fields.

In October 2010, fourteen Holocaust survivors (collectively “the Simon survivors”) brought a putative class action against the Republic of Hungary and MÁV (collectively “Hungary”) in the United States District Court for the District of Columbia , seeking compensation for property that Hungary had illegally expropriated from them during the Second World War. Over the subsequent decade, the Simon survivors have argued that the expropriation exception of the FSIA establishes federal jurisdiction over their case and defeats Hungary’s claim that Hungary is entitled to sovereign immunity.

In 2021, this case appeared before the Supreme Court, which remanded the case to the district court in a per curiam decision. In district court, Hungary moved to dismiss the Simon survivors’ claims, arguing that the Simon survivors were Hungarian nationals at the time Hungary expropriated their property, and consequently could not rely on the expropriation exception. The Simon survivors asserted that they were not Hungarian nationals at the time of the expropriation, and instead were de facto stateless or Czechoslovakian nationals. The district court dismissed the claims of the Simon survivors who had claimed to be de facto stateless but allowed the claims of those who had claimed to be Czechoslovakian nationals to proceed. Hungary appealed the district court’s decision, while the Simon survivors who had claimed to be de facto stateless cross-appealed the dismissal of their claims.

The United States Court of Appeals for the District of Columbia Circuit mostly affirmed the district court’s decision. The D.C. Circuit dismissed the de facto stateless Simon survivors’ claims. The D.C. Circuit determined that four of the eleven Simon survivors alleging Czechoslovakian nationality had done so and did not dismiss their claims. The D.C. Circuit additionally affirmed the district court’s conclusion that the bonds Hungary had issued in the United States satisfied the commercial activity requirement of the expropriation exception. The D.C. Circuit remanded the case to the district court to determine whether the Hungarian property indicated by the Simon survivors in their claims derived from the Simon survivors’ expropriated property and whether MÁV engages in commercial activity in the United States.

On February 7, 2024, Hungary petitioned the Supreme Court of the United States for a writ of certiorari . The Supreme Court granted certiorari on June 24, 2024.

Analysis

COMMINGLING OF PROCEEDS

Under the commingling theory, property acquired through or used in commercial activity can be considered as “exchanged” for expropriated property when a foreign sovereign liquidates expropriated property, mixes the proceeds from liquidating the expropriated property into accounts containing other funds, and then uses funds from those accounts in commercial activity in the United States. Hungary argues that the commingling theory does not satisfy the “property exchanged for such property” element of the FSIA’s expropriation exception. Hungary contends that under the common meaning of “exchanged for,” the Simon survivors would need to identify the expropriated property and show that the expropriated property was directly exchanged for Hungary’s present-day assets used commercially in the United States. Hungary highlights decisions by the Second and Ninth Circuits determining that the presumption that commingled funds were used to buy properties was not enough to satisfy the commercial nexus element of the expropriation exception. Hungary insists that the Simon survivors have not identified any specific property currently used by the Hungarian government or owned by MÁV that was exchanged for the expropriated property. Hungary posits that the only support for the Simon survivors’ theory that the expropriated property was exchanged for the current bonds issued by Hungary in the United States is the inference that the expropriated property was liquidated and mixed with the general revenues, which were then exchanged for the bonds in 2005 and 2010. Hungary maintains that the likelihood that the bonds or MÁV’s assets were exchanged for the property expropriated from the Simon survivors is exceedingly low. Hungary contends that poor accounting by the Communist and post-Cold War Hungarian governments made it impossible to determine whether the assets of the Simon survivors were exchanged for present-day Hungarian or MÁV-owned assets.

The Simon survivors counter that the commingling theory satisfies the “property exchanged for such property” element of the FSIA’s expropriation exception. The Simon survivors explain that the ordinary meaning of “exchanged for” is satisfied when expropriated property is liquidated for funds that are commingled within an account with other general funds because the expropriated property is being “exchanged for” funds from the account. The Simon survivors argue that the legislative history indicates Congress’s intent for the FSIA’s expropriation exception to protect property which can be easily commingled, highlighting that Congress used the same language in the FSIA’s expropriation exception as in pre-FSIA legislation requiring courts to adjudicate claims involving a foreign state’s expropriation of property where the expropriated property was later liquidated and deposited in the United States. The Simon survivors posit that whether days or years had passed between when the proceeds from liquidating expropriated property are deposited in an account and when funds are withdrawn from that account is irrelevant, because the withdrawn funds would still come from the proceeds from liquidating expropriated property. The Simon survivors draw parallels to cases where courts exercise in rem jurisdiction over currency in a forfeiture proceeding, explaining that courts have rejected the argument that jurisdiction over the currency ends simply because the currency disappears into the banking system and cannot subsequently be identified.

BURDEN OF PRODUCTION

Hungary also contends that the D.C. Circuit incorrectly shifted the burden onto Hungary to prove by a preponderance of the evidence that Hungary’s current assets do not trace back to the expropriated property of the Simon survivors. Hungary insists that once the foreign state presents a case of sovereign immunity, the burden then lies with the plaintiff to produce evidence that the sovereign is not entitled to immunity. Hungary contends that placing the burden on the plaintiff is consistent with prior court decisions and the FSIA’s legislative history and relies on similar logic to the general rule that a party asserting federal jurisdiction bears the burden of establishing federal jurisdiction when that jurisdiction is challenged. Hungary asserts that the Simon survivors must produce evidence showing it is at least as likely as not that the expropriated property was used in connection to commercial activity within the United States but have neither produced such evidence nor even advanced allegations connecting their expropriated property to commercial activity conducted by Hungary within the United States. Hungary insists that a court could not conclude that any current property of Hungary or MÁV was exchanged for property expropriated from the Simon survivors in 1944. Hungary emphasizes that the facts alleged by the Simon survivors must prove, and not just suggest, that the Simon survivors’ property was expropriated in violation of international law and used in connection with commercial activity within the United States. Hungary argues that the district court and D.C. Circuit incorrectly allowed claims from some of the Simon survivors to advance because those Simon survivors could “plausibly” have been Czechoslovakian nationals, because “plausibility” falls short of the actual proof required to satisfy the expropriation exception and establish jurisdiction.

The Simon survivors counter that the D.C. Circuit correctly shifted the burden onto Hungary to prove that Hungary’s current assets do not trace back to the expropriated property of the Simon survivors. The Simon survivors insist that once a plaintiff has met their initial burden, the defendant must then prove by a preponderance of the evidence that the alleged exception to sovereign immunity does not apply. The Simon survivors argue they produced sufficient evidence for the district court, including records from the Holocaust Museum’s archives, a study from a Hungarian scholar, and a decision from the Constitutional Court of Hungary, all showing that Hungary took the Simon survivors’ property, liquidated it, and commingled the proceeds with the rest of the state funds. The Simon survivors emphasize that Hungary does not deny that the proceeds from liquidating the Simon survivors’ expropriated property were commingled, nor that Hungary purchased military equipment and issued bonds in the United States. Regarding MÁV, the Simon survivors assert that MÁV only needs to be engaged in commercial activity in the United States and own property exchanged for the expropriated property, and that no requirement exists that there be a direct connection between the expropriated property and the commercial activity in the United States. The Simon survivors claim to have met the conditions of the FSIA’s expropriation exception as applied to MÁV by providing evidence that MÁV expropriated their property, liquidated it, then commingled it into accounts that MÁV holds today and that MÁV engaged in commercial activity by selling tickets and booking reservations in the United States.

Discussion

NATIONAL INTERESTS IN INTERNATIONAL DISPUTES

The United States, in support of Hungary, asserts that foreign sovereign immunity serves important national interests by preserving the dignity of foreign sovereigns, protecting sensitive international relations, and promoting respect between nations. The United States argues that the commingling theory proposed by the Simon survivors would harm those national interests and damage cooperation between the United States and other countries. The United States also worries that broadly reading the FSIA’s expropriation exception would be a significant deviation from customary international law and invite retaliatory actions against the United States in foreign courts. The Federal Republic of Germany, in support of Hungary, also argues that a decision supporting the commingling theory would demonstrate to foreign sovereigns that any commercial activity in the United States could subject that nation to unforeseeable litigation.

Members of the United States House of Representatives and Senate (U.S. Congress members), in support of the Simon survivors, argue that the commingling theory is necessary for the United States to enforce international law over property that can easily be commingled, such as money. The U.S. Congress members point out that the United States permits tracing property through commingling in the fields of counterterrorism, forfeiture, and money laundering because failing to permit tracing would “effectively nullify the offense.” The 1939 Society and others, in support of the Simon survivors, also point out that Hungary’s failure to provide a domestic remedy for the Simon survivors has forced the Simon survivors to seek an international remedy by bringing their claims before an American court.

RESPONDING TO THE LEGACY OF THE HOLOCAUST

The United States acknowledges that “the moral imperative has been and continues to be to provide […] justice to the victims of the Holocaust,” and implies that this “moral imperative” may be served while still agreeing with the Republic of Hungary in this case. The United States explains that limiting the availability of FSIA exceptions for challenging sovereign immunity helps the United States to persuade foreign sovereigns to appropriately compensate victims of human rights violations, including the victims of the Holocaust. The United States also maintains that litigation is an inappropriate method of redress for victims of human rights violations because litigation is a lengthy and uncertain process, and argues that dialogue, negotiation, or cooperation would be more suitable methods of seeking restitution.

The 1939 Society argues that Hungary is attempting to “hair-split” the issue to avoid facing Simon’s property-takings claims. The 1939 Society asserts that the property takings in this case are linked to the death of over six million Jews across Europe, including over half a million Hungarian Jews. The 1939 Society also contends that the property seized from the Simon survivors was used to fund Hungarian social welfare and the personal welfare of Hungarian officials. Both the 1939 Society and the U.S. Congress members observe that American courts have historically been one of the limited places where Holocaust survivors could obtain justice for their material losses. The U.S. Congress members argue that procedural barriers such as those at issue in this case should not block such claims for justice.

Conclusion

Written by:

Gregory Jameson

Kayla Espinoza

Edited by:

Nicholas Sola

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