David De Csepel v. Republic of Hungary , 714 F.3d 591 ( 2013 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued January 23, 2013 Decided April 19, 2013
No. 11-7096
DAVID L. DE CSEPEL, ET AL.,
APPELLEES/CROSS-APPELLANTS
v.
REPUBLIC OF HUNGARY, A FOREIGN STATE, ET AL.,
APPELLANTS/CROSS-APPELLEES
Consolidated with 12-7025, 12-7026
Appeals from the United States District Court
for the District of Columbia
(No. 1:10-cv-01261)
Thaddeus J. Stauber argued the cause for
appellants/cross-appellees. With him on the briefs were D.
Grayson Yeargin and Sarah E. André. David D. West entered
an appearance.
Michael S. Shuster argued the cause for appellees/cross-
appellants. With him on the briefs were Dorit Ungar Black,
Sheron Korpus, Alycia Regan Benenati, Michael D. Hays, and
Daniel D. Prichard. Agnes Peresztegi and Alyssa T. Saunders
entered appearances.
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Before: TATEL, Circuit Judge, WILLIAMS and SENTELLE,
Senior Circuit Judges.
Opinion for the Court filed by Circuit Judge TATEL.
TATEL, Circuit Judge: As part of the wholesale plunder
of Jewish property carried out during the Holocaust, the
Hungarian government, acting in collaboration with Nazi
Germany, confiscated the “Herzog Collection”—one of
Europe’s largest and finest private art collections. Plaintiffs,
descendants of the Collection’s owner, claim that following
World War II the Hungarian government entered into
bailment agreements with them to retain possession of the
Collection and later breached those agreements by refusing to
return the artwork. Finding Hungary’s bevy of arguments in
support of dismissal unpersuasive, we affirm the district
court’s partial denial of its motion to dismiss. But because we
agree with plaintiffs that the district court prematurely
dismissed several of their claims on international comity
grounds, we reverse that portion of the decision.
I.
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; see Atherton v. District of Columbia
Office of Mayor, 567 F.3d 672, 681 (D.C. Cir. 2009) (in
reviewing district court’s ruling on motion to dismiss, we
accept the complaint’s allegations as true). 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. Compl. ¶ 38. Following Herzog’s death in 1934 and
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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[]
4
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.
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Following the end of World War II, the Herzog family
began a seven-decade struggle to reclaim the Collection. The
complaint alleges that, “[u]pon information and belief,” some
pieces of the Herzog Collection remained in Hungary after the
war, while others were shipped to Germany or elsewhere. Id.
¶¶ 60–62. As to the artwork remaining in Hungary, “at least
forty works of art . . . are known to be in the . . . possession of
the Museum of Fine Arts (Szépmüvészeti Múzeum),
Budapest, the Hungarian National Gallery, and the Museum
of Applied Arts, Budapest . . ., as well as the Budapest
University of Technology and Economics.” Id. ¶ 2. According
to the complaint, several of these pieces “were being openly
exhibited” on the walls of these museums with “tags under the
paintings identif[ying] them as ‘From the Herzog
Collection.’ ” Id. ¶ 77.
During the Communist era, which began in the late
1940s, “little information could be obtained about the state of
the Herzog Collection.” Id. ¶ 75. After the fall of Communism
in 1989, Erzsébet Weiss de Csepel, then 89 years old, began
negotiations with the Hungarian government for return of the
Herzog Collection. Id. ¶ 78. Weiss de Csepel, however, was
only able to obtain seven pieces of lesser value, and “[t]he
identifiable masterworks remained in the Museum of Fine
Arts and the Hungarian National Gallery.” Id. Following
Weiss de Csepel’s death in 1992, her daughter, Martha
Nierenberg, continued negotiating with the Hungarian
government for return of the artwork. Id. ¶ 79.
In 1999, Martha Nierenberg, seeking return of twelve
pieces of the Herzog Collection, filed suit in Hungary. See de
Csepel v. Republic of Hungary, 808 F. Supp. 2d 113, 125
(D.D.C. 2011) (discussing the Hungarian litigation). Shortly
after that litigation began, the Museum of Fine Arts returned
one painting to her without explanation. Id. Other members of
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the Herzog family—András’s daughters Angela and Julia
Herzog, as well as István’s sons—later intervened as
defendants due to a dispute, now resolved, about which
members of the Herzog family owned certain pieces of the
Collection. Id. The Budapest Metropolitan Court initially
found in Martha Nierenberg’s favor, ordering that all but one
of the paintings be returned to her. Id. at 126. After several
appeals and many more years of litigation, however, the
Metropolitan Appellate Court ultimately dismissed the action
in 2008. As the district court here explained, the Metropolitan
Appellate Court held that “Ms. Nierenberg’s claim had been
extinguished by [an executive agreement settling certain
claims by U.S. nationals against Hungary], and that additional
defendants had acquired title through adverse possession.” Id.
at 145.
On July 27, 2010, several members of the Herzog family
filed this suit in the United States District Court for the
District of Columbia against the Republic of Hungary, the
Hungarian National Gallery, the Museum of Fine Arts, the
Museum of Applied Arts, and the Budapest University of
Technology and Economics (collectively “Hungary”),
asserting claims for bailment, conversion, constructive trust,
accounting, declaratory relief, and restitution based on unjust
enrichment. Plaintiffs are David L. de Csepel, a United States
citizen who is the grandson of the late Erzsébet Weiss de
Csepel, and Angela Maria and Julia Alice Herzog, Italian
citizens who are the daughters of the late András Herzog
(collectively “the Herzog family”). Id. ¶¶ 6–8. Having
“authority to represent all of the Herzog Heirs in this action,”
id., plaintiffs seek the return of “at least forty works of art”
from the original Herzog Collection still allegedly in
Hungary’s possession, id. ¶ 2. Their primary claim is one for
bailment. Specifically, they allege that “[i]n the years
immediately following [World War II], the Museums and the
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University, acting at Hungary’s direction, became custodians
of artworks” that had been looted during the war and
“arranged with representatives of the Herzog Heirs to retain
possession of most of the Herzog Collection . . . so that the
works could continue to be displayed in Hungary.” Id. ¶ 36.
According to the family, this arrangement gave rise to a
bailment agreement, whereby Hungary assumed “a duty of
care to protect the property and to return it to [the Herzog
family]” upon their demand. Id. ¶ 101. The family claims that
Hungary breached these duties in 2008 when it refused their
demand to return the Herzog Collection. Id. ¶ 104.
Hungary moved to dismiss pursuant to Federal Rules of
Civil Procedure 12(b)(1) and 12(b)(6), arguing that the district
court lacked jurisdiction under the Foreign Sovereign
Immunities Act (“FSIA”), 28 U.S.C. §§ 1602 et seq., that the
complaint failed to state a claim for bailment, and that the
family’s claims were barred by the FSIA’s “treaty exception,”
the applicable statute of limitations, the political question
doctrine, the act of state doctrine, and the doctrines of forum
non conveniens and international comity.
The district court granted the motion in part and denied it
in part. Invoking the doctrine of international comity, the
court dismissed the family’s claims to the eleven pieces of
artwork at issue in the Nierenberg litigation. de Csepel, 808 F.
Supp. 2d at 144–45. In all other respects, the district court
denied the motion to dismiss. Id. at 145. The court also
certified its order for immediate appeal pursuant to 28 U.S.C.
§ 1292(b).
Hungary now appeals the partial denial of its motion to
dismiss, reiterating many of the arguments it made in the
district court. The Herzog family cross-appeals the dismissal
of their claims to eleven pieces of artwork on international
8
comity grounds. Unless specified otherwise, our review is de
novo. See Owens v. Republic of Sudan, 531 F.3d 884, 887
(D.C. Cir. 2008) (denial of foreign sovereign’s motion to
dismiss for lack of subject matter jurisdiction is reviewed de
novo); Bombardier Corp. v. Nat’l Railroad Passenger Corp.,
333 F.3d 250, 252 (D.C. Cir. 2003) (denial of motion to
dismiss under Rule 12(b)(6) is reviewed de novo). Moreover,
and critical to many of the issues before us, in reviewing the
district court’s denial of Hungary’s motion to dismiss for
failure to state a claim under Rule 12(b)(6), “we must accept
as true all material allegations of the complaint, drawing all
reasonable inferences from those allegations in plaintiffs’
favor.” LaRoque v. Holder, 650 F.3d 777, 785 (D.C. Cir.
2011) (internal quotation marks omitted).
II.
We begin with Hungary’s appeal of the district court’s
partial denial of its motion to dismiss.
A.
Hungary first contends that the district court lacked
subject matter jurisdiction under the FSIA. Under that statute,
“a foreign state shall be immune from the jurisdiction of the
courts of the United States” unless one of several enumerated
exceptions applies. 28 U.S.C. § 1604. The Herzog family
invokes the statute’s “expropriation” and “commercial
activity” exceptions. See id. § 1605(a)(3), 1605(a)(2).
Because Hungary “challenges only the legal sufficiency of the
[family’s] jurisdictional allegations,” we “take the [family’s]
factual allegations as true and determine whether they bring
the case within” either of these exceptions. Phoenix
Consulting, Inc. v. Republic of Angola, 216 F.3d 36, 40 (D.C.
Cir. 2000).
9
The district court found it had jurisdiction under the
expropriation exception, which abrogates sovereign immunity
in any case where “rights in property taken in violation of
international law are in issue.” 28 U.S.C. § 1605(a)(3).
Although agreeing with Hungary that “a state’s taking of the
property of its own citizens, no matter how egregious, does
not constitute an international law violation,” the district court
nonetheless found that this principle posed no bar to
application of the expropriation exception because “Hungary
did not consider Ms. Nierenberg and Ms. Weiss de Csepel to
be Hungarian citizens at the time of the seizures.” de Csepel,
808 F. Supp. 2d at 129–30. Pointing to the host of “anti-
Semitic laws passed by Hungary during World War II,” the
district court concluded that the country had “de facto
stripped [Ms. Nierenberg], Ms. Weiss de Csepel, and all
Hungarian Jews of their citizenship rights” and that “the
alleged Hungarian ‘citizenship’ of plaintiffs’ predecessors”
thus did “not preclude the application of the expropriation
exception in this case.” Id. at 130. Moreover, the district court
reasoned, even if “the seizure of the Herzog Collection by
Hungary alone would not constitute a violation of
international law,” the Herzog family’s allegations regarding
“the active involvement of German Nazi officials in the
taking of at least a portion of the Herzog Collection”
distinguished this case from one where a sovereign acting
alone confiscates its own nationals’ property. Id.
Of course, we have no quarrel with the historical
underpinnings of the district court’s analysis. During World
War II, the Hungarian government did indeed enact a series of
anti-Semitic laws “designed to exclude Jews from meaningful
roles in Hungarian society.” Compl. ¶ 44. This exclusion was
both symbolic, through the requirement that Jews “wear
distinctive signs identifying themselves as Jewish,” de Csepel,
808 F. Supp. 2d at 129, and physical, through expulsion “to
10
territories under German control where they were mistreated
and massacred,” Compl. ¶ 49. According to the complaint,
moreover, the Hungarian government did not act alone when
it seized the Herzog Collection. Instead, it was “the
Hungarian government and their Nazi[] collaborators” that
“discovered the hiding place” of the Herzog Collection and
confiscated the artwork, acting “as part of a brutal campaign
of genocide” against Hungarian Jews. Compl. ¶¶ 1, 59.
In their complaint, however, the Herzog family seeks to
recover not for the original expropriation of the Collection,
but rather for the subsequent breaches of bailment agreements
they say they entered into with Hungary. Specifically, the
complaint alleges that Hungary’s “possession or re-possession
of any portion of the Herzog Collection following [World
War II] constituted an express or implied-in-fact bailment
contract,” under which Hungary assumed “a duty of care to
protect the property and to return it to [the Herzog family],”
and which Hungary breached by refusing to return the
Collection in 2008. Id. ¶¶ 100–01, 104. The family’s claims,
they reiterate, are nothing “more than straightforward
bailment claims that are cognizable in a United States court.”
Appellees’ Br. 26. Indeed, every one of their other substantive
claims—conversion, constructive trust, accounting, restitution
based on unjust enrichment—appears to stem from the alleged
repudiation of the bailment agreements. Moreover, as we shall
explain below, in responding to Hungary’s arguments that
their claims are barred by the FSIA’s “treaty exception,” the
statute of limitations, the political question doctrine, and the
act of state doctrine, the family repeatedly emphasizes that
their claims are firmly rooted in bailment. Given that
plaintiffs are “masters of the complaint” with the power to
bring those claims they see fit, see Caterpillar, Inc. v.
Williams, 482 U.S. 386, 395 (1987), it is incumbent upon us
to address Hungary’s jurisdictional challenge in light of the
11
bailment claims the family actually brings. Viewed this way,
and without ruling on the availability of the expropriation
exception, we believe the family’s claims fall comfortably
within the FSIA’s commercial activity exception. See Carney
v. American University, 151 F.3d 1090, 1096 (D.C. Cir. 1998)
(explaining that “we can affirm a district court judgment on
any basis supported by the record”).
The Herzog family invokes the provision of the
commercial activity exception that abrogates sovereign
immunity in any case where “the action is based . . . upon an
act outside the territory of the United States in connection
with a commercial activity of the foreign state elsewhere and
that act causes a direct effect in the United States.” 28 U.S.C.
§ 1605(a)(2). To satisfy this exception, “1) the lawsuit must
be based upon an act that took place outside the territory of
the United States; 2) the act must have been taken in
connection with a commercial activity[;] and 3) the act must
have caused a direct effect in the United States.” Rong v.
Liaoning Province Government, 452 F.3d 883, 888–89 (D.C.
Cir. 2006). Because Hungary’s actions obviously occurred
outside the United States, the exception’s applicability turns
on (1) whether Hungary’s repudiation of bailment agreements
with respect to the Collection constitutes an act taken in
connection with a commercial activity and (2) whether this
act caused a “direct effect” in the United States.
Under the first inquiry, we assess “[t]he commercial
character of an activity . . . by reference to the nature of the
. . . particular transaction or act, rather than by reference to its
purpose.” 28 U.S.C. § 1603(d). We must examine “not
whether the foreign government is acting with a profit motive
or instead with the aim of fulfilling uniquely sovereign
objectives” but “whether the particular actions that the foreign
state performs (whatever the motive behind them) are the type
12
of actions by which a private party engages in trade and
traffic or commerce.” Republic of Argentina v. Weltover, Inc.,
504 U.S. 607, 614 (1992) (internal quotation marks omitted).
Hungary’s alleged breach of bailment agreements easily
satisfies this standard. A bailment is a form of contract, and a
foreign state’s repudiation of a contract is precisely the type
of activity in which a “private player within the market”
engages. Saudi Arabia v. Nelson, 507 U.S. 349, 360 (1993)
(internal quotation marks omitted); see also Janini v. Kuwait
University, 43 F.3d 1534, 1537 (D.C. Cir. 1995) (“Private
parties often repudiate contracts in everyday commerce and
may be held liable therefor.”). Moreover, the alleged contract
addresses and establishes commercial relations with respect to
artwork, for “[t]here is nothing ‘sovereign’ about the act of
lending art pieces . . . . Loans between and among museums
(both public and private) occur around the world regularly.”
Malewicz v. City of Amsterdam, 362 F. Supp. 2d 298, 314
(D.D.C. 2005) (interpreting the term “commercial activity” in
section 1605(a)(3) of the FSIA).
Hungary contends that its alleged repudiation of these
bailment agreements constitutes a sovereign act not subject to
the commercial activity exception. See Janini, 43 F.3d at 1536(explaining that the commercial activity exception “cannot
confer jurisdiction over a foreign state ‘where a claim rests
entirely upon activities sovereign in character, . . . regardless
of any connection the sovereign acts may have with
commercial activity’ ” (alteration in original) (quoting Nelson,
507 U.S. at 358 n.4)). As Hungary sees it, the bailment
obligations alleged by the family arise from a World War II
Peace Treaty with the Allied Powers that requires Hungary to
restore or provide compensation for certain property
expropriated during the Holocaust. See Treaty of Peace with
Hungary art. 27, Feb. 10, 1947, 61 Stat. 2065, 41 U.N.T.S.
135 (“the Peace Treaty”). As a result, Hungary contends, any
13
breach of these bailment obligations would amount to
sovereign conduct, for “failure to adequately address war
reparations as required by a treaty does not constitute a
commercial activity.” Appellants’ Br. 42.
Contrary to Hungary’s argument, however, the complaint
does not rely on the Peace Treaty as the sole source of the
bailment obligations. Instead, the complaint contains
allegations that the parties directly agreed to a bailment
relationship, with Hungary “arrang[ing] with representatives
of the Herzog Heirs to retain possession of most of the
Herzog Collection” and the Herzog family “agree[ing] to
allow the artworks to be ‘returned’ to the Museums or the
University for safekeeping.” Compl. ¶¶ 36, 72. Although the
complaint refers to the Peace Treaty, it nowhere alleges that
the Treaty is the source of the bailment obligations. Instead, it
clarifies that Hungary obtained only a custodial interest in
looted property, rather than ultimate ownership rights. See id.
¶ 31 (“Pursuant to the 1947 Treaty of Peace between Hungary
and the Allies . . . , Hungary received only a custodial interest
in art that had been looted during the war and subsequently
returned to Hungary by the Allies, including the Herzog
Collection.”); id. ¶ 69 (“The 1947 Peace Treaty . . . confirmed
that Hungary was to act solely as a custodian or trustee of
looted or heirless property [and] under no circumstances
could Hungary itself possess any right, title or interest in that
property.”). Accordingly, as the district court explained,
although “plaintiffs’ bailment claim is consistent with
Hungary’s representations in the 1947 Peace Treaty, plaintiffs
do not assert that the bailment was created by virtue of the
Peace Treaty.” de Csepel, 808 F. Supp. 2d at 136 (citation
omitted). It is true, as Hungary emphasizes, that certain
statements in the family’s district court briefs seem to suggest
that the bailment arose from the Peace Treaty. But as the
district court noted, the family subsequently “clarified that
14
they do not rely upon or challenge the terms, conditions, or
validity of the Peace Treaty, or seek to claim directly under
the Peace Treaty,” id. at 136 n.6 (internal quotation marks
omitted), and nothing in the complaint contradicts this
assertion. Accordingly, the Peace Treaty provides no basis for
converting the commercial act of contract repudiation into the
sovereign act of “treaty participation,” as Hungary urges.
Appellants’ Br. 42.
Nor does the fact that the Herzog Collection was initially
expropriated by the Hungarian government compel a contrary
conclusion. To be sure, expropriation “constitute[s] a
quintessentially sovereign act” falling outside the scope of the
commercial activity exception. Rong, 452 F.3d at 890. Here,
however, the particular conduct upon which the family’s suit
is “based” for purposes of the commercial activity exception
is not the initial expropriation of the Collection during the
Holocaust but instead Hungary’s creation and repudiation of
subsequently formed bailment agreements. See Appellees’ Br.
49 (“Here, the relevant ‘act’ or ‘acts’ for purposes of Section
1605(a)(2) . . . is the creation of a bailment with respect to
each of the artworks described in the Complaint.”). Taking
issue with the family’s characterization of their claims,
Hungary insists that “[a]lthough Plaintiffs attempt to dress
their claim as a bailment, it is simply a claim that Hungary
took property from Hungarian citizens near the end of World
War II and . . . refused to restitute specific items.” Appellants’
Reply Br. 35. This is inaccurate. The complaint actually
alleges that, by entering into bailment agreements to retain
possession of the expropriated artwork and later breaching
those agreements by refusing to return the artwork, Hungary
took affirmative acts beyond the initial expropriation to
deprive the family of their property rights in the Collection.
These allegations distinguish this case from one “in essence
based on disputed takings of property” and thus outside the
15
purview of the commercial activity exception. Garb v.
Republic of Poland, 440 F.3d 579, 588 (2d Cir. 2006); see
Agudas Chasidei Chabad of U.S. v. Russian Federation, 528
F.3d 934, 944–45 (D.C. Cir. 2008) (endorsing theory of a
separate deprivation of property rights apart from initial
expropriation where court decree required return of the
property and foreign state allegedly frustrated enforcement of
the decree).
Turning to the second inquiry—whether the act in
question caused a “direct effect” in the United States—we ask
whether the complaint alleges that Hungary promised to
perform specific obligations in the United States. See
Weltover, 504 U.S. at 619 (“Because New York was . . . the
place of performance for Argentina’s ultimate contractual
obligations, the rescheduling of those obligations necessarily
had a ‘direct effect’ in the United States: Money that was
supposed to have been delivered to a New York bank for
deposit was not forthcoming.”); cf. Peterson v. Royal
Kingdom of Saudi Arabia, 416 F.3d 83, 90 (D.C. Cir. 2005)
(finding the requisite “direct effect” lacking where plaintiff
failed to allege “that Saudi Arabia was supposed to refund his
GOSI contribution to him in the United States” (internal
quotation marks omitted)). Applying this standard, the Sixth
Circuit found that Nazi Germany’s seizure of a German
resident’s artwork caused no “direct effect” in the United
States where plaintiffs had “not alleged that Germany ever
promised to deliver [the] art collection to the United States.”
Westfield v. Federal Republic of Germany, 633 F.3d 409, 415
(6th Cir. 2011). Here, by contrast, the family alleges that
Hungary promised to return the artwork to members of the
Herzog family it knew to be residing in the United States and
then breached that obligation by refusing to do so. See Compl.
¶¶ 36, 101 (alleging that Hungary “knew at all relevant times
that the Herzog Heirs owned the Herzog Collection and that
16
certain of the Herzog Heirs resided in the United States”;
“owed the Herzog Heirs a duty of care to protect the property
and to return it to them” under the bailment contract; and
breached that obligation by “fail[ing] to restitute the Herzog
Collection following demand by the U.S. Herzog Heirs”).
Although the complaint never expressly alleges that the return
of the artwork was to occur in the United States, we think this
is fairly inferred from the complaint’s allegations that the
bailment contract required specific performance—i.e., return
of the property itself—and that this return was to be directed
to members of the Herzog family Hungary knew to be
residing in the United States. See id. Indeed, Hungary does
not argue that the bailment contract envisioned performance
outside the United States, nor did it seek jurisdictional
discovery in the district court with respect to the contract’s
place of performance. Accordingly, drawing all reasonable
inferences from the complaint in the family’s favor, as we
must at this stage of the proceedings, see Council for
Urological Interests v. Sebelius, 668 F.3d 704, 713 (D.C. Cir.
2011), we find that the family has alleged facts that, if true,
would satisfy the commercial activity exception’s requirement
of a “direct effect” in the United States.
B.
We next turn to Hungary’s contention that the FSIA’s
“treaty exception” deprived the district court of subject matter
jurisdiction. Because FSIA immunity is “[s]ubject to existing
international agreements to which the United States [was] a
party at the time of enactment of [the FSIA],” 28 U.S.C.
§ 1604, “[i]f 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,” Moore v.
United Kingdom, 384 F.3d 1079, 1085 (9th Cir. 2004). “This
existing-treaty exception applies, however, only if there is an
express conflict between the treaty and the FSIA exception.”
17
Wyatt v. Syrian Arab Republic, 266 F. App’x 1, 2 (D.C. Cir.
2008).
According to Hungary, two international agreements
create such an “express conflict”: the above-mentioned Peace
Treaty between Hungary and the Allied Powers; and the
Agreement Between the Government of the United States of
America and the Government of the Hungarian People’s
Republic Regarding the Settlement of Claims, U.S.-Hungary,
Mar. 6, 1973, 24 U.S.T. 522 (“the 1973 Agreement”).
We begin with the Peace Treaty. Hungary contends that
the Treaty conflicts with its amenability to suit under the
FSIA because the Treaty precludes litigation against it for
claims, like the Herzog family’s, that seek restitution of
property expropriated during World War II. In support,
Hungary cites two provisions of the Treaty. Article 27, as
noted above, requires Hungary to restore or provide
compensation “in all cases where the property, legal rights or
interests in Hungary of persons under Hungarian jurisdiction
have, since September 1, 1939, been the subject of measures
of sequestration, confiscation or control on account of the
racial origin or religion of such persons.” Peace Treaty, art.
27. Article 40, in turn, provides that “any dispute concerning
the interpretation or execution of the Treaty” that “is not
settled by direct diplomatic negotiations” is to be “referred to
the Three Heads of [Diplomatic Missions from the Soviet
Union, the United Kingdom, and the United States].” Id. art.
40. Taken together, Hungary contends, these provisions
establish an exclusive treaty-based mechanism for resolving
all claims seeking restitution of property discriminatorily
expropriated during World War II from individuals subject to
Hungarian jurisdiction.
18
Hungary’s argument falters for the simple reason that the
Herzog family’s claims fall outside the Treaty’s scope. Article
27 concerns property discriminatorily expropriated during
World War II. As we have explained, however, the family’s
claims rest not on war-time expropriation but rather on
breaches of bailment agreements formed and repudiated after
the war’s end. See supra at 10–11. Accordingly, the Peace
Treaty presents no conflict with Hungary’s amenability to suit
under the FSIA.
Hungary makes a similar challenge with respect to the
1973 Agreement, contending that the Agreement bars
litigation against it for claims based on expropriation of
property during World War II. The 1973 Agreement, on
which the Hungarian Metropolitan Appellate Court relied in
dismissing the Nierenberg litigation, effectuated a “full and
final settlement and . . . discharge” of certain specified claims
against Hungary by “nationals and the Government of the
United States,” including, as relevant here, claims for
“property, rights and interests affected by Hungarian
measures of nationalization, compulsory liquidation,
expropriation, or other taking on or before the date of this
Agreement” and claims for “obligations of the Hungarian
People’s Republic under Articles 26 and 27 of the [Peace
Treaty].” 1973 Agreement, arts. 1–2. According to Hungary,
“[b]ecause (1) Plaintiffs’ predecessor (Erzsébet Weiss de
Csepel) was a U.S. national at the time the Agreement went
into effect, (2) Plaintiffs’ claims related to Hungarian property
lost as a result of World War II, and (3) Plaintiffs’ claims are
subject to Article 27 of the Peace Treaty, the 1973 Agreement
. . . bars Plaintiffs’ claims.” Appellants’ Br. 36 (internal
quotation marks omitted).
The district court rejected this argument, finding that the
1973 Agreement settled only claims of “persons who were
19
United States citizens at the time of their injury” and thus
could not have barred the claims of Erszébet Weiss de Csepel,
who was instead a Hungarian citizen at the time of the alleged
expropriation. de Csepel, 808 F. Supp. 2d at 133–34.
Vigorously disputing this interpretation, Hungary argues that
the 1973 Agreement applies to all individuals who were U.S.
nationals at the time the Agreement was executed, regardless
of their nationality when injured.
We need not settle the question of whom the Agreement
covers because we can easily resolve the issue by examining
what claims the Agreement covers. To repeat, the Herzog
family seeks to recover for breaches of bailment agreements
formed and repudiated after World War II, not for the initial
expropriation of their property during the war. But because
the 1973 Agreement settles claims for property expropriated
by Hungary prior to the date of the Agreement, it has no
application to bailment agreements allegedly repudiated in
2008. Thus, nothing in the Agreement conflicts with
Hungary’s amenability to suit under the FSIA.
C.
Next, Hungary argues that the Herzog family’s claims are
time-barred. As both parties recognize, the relevant statute of
limitations is the District of Columbia’s three-year limitations
period for claims relating to “the recovery of personal
property or damages for its unlawful retention.” D.C. Code
§ 12-301(2); see Gilson v. Republic of Ireland, 682 F.2d 1022,
1024 n.7 (D.C. Cir. 1982) (“The applicable statute of
limitations [in an FSIA case] is determined by the local law of
the forum.”). A bailment claim accrues “when the plaintiff
demands the return of the property and the defendant refuses,
or when the defendant takes some action that a reasonable
person would understand to be either an act of conversion or
inconsistent with a bailment.” Malewicz v. City of Amsterdam,
20
517 F. Supp. 2d 322, 335 (D.D.C. 2007) (citing In re
McCagg, 450 A.2d 414, 416 (D.C. 1982)). In order to trigger
the statute of limitations, a defendant’s refusal to return the
property “must be absolute and unconditional.” Id. (internal
quotation marks omitted). Given this, the family’s claims are
barred if Hungary “absolute[ly] and unconditional[ly]”
refused to return the property prior to July 27, 2007—three
years before they filed their complaint.
Hungary argues that the Herzog family’s bailment claims
accrued in 1999 when Martha Nierenberg filed suit in
Hungary. According to Hungary, that litigation was prompted
by its “refus[al] to negotiate with Ms. Nierenberg” and thus
marked a clear repudiation of the bailment agreements.
Appellants’ Br. 63 n.18. Though not addressing the question
of accrual, the district court equitably tolled the family’s
claims during the pendency of the Nierenberg litigation in
order to account for their efforts to exhaust remedies in the
Hungarian courts. de Csepel, 808 F. Supp. 2d at 141–42.
Hungary challenges this decision, arguing that because
equitable tolling is appropriate only where plaintiffs are
unaware of the basis for their claims, tolling should not apply
here given that the Herzog family demonstrated knowledge of
their claims by suing in Hungary. Moreover, Hungary asserts,
equitable tolling designed to account for exhaustion of
remedies should have no application to the claims of Angela
and Julia Herzog “as there can be no assertion that they were
prosecuting their rights (and exhausting their remedies) when
they were brought into the Hungarian lawsuit.” Appellants’
Reply Br. 39 n.14.
We have no need to wade into these equitable-tolling
waters because nothing in the complaint indicates that the
family’s claims did in fact accrue in 1999 when Martha
Nierenberg filed suit in the Hungarian court. As our case law
21
makes clear, “because statute of limitations issues often
depend on contested questions of fact, dismissal is appropriate
only if the complaint on its face is conclusively time-barred.”
Firestone v. Firestone, 76 F.3d 1205, 1209 (D.C. Cir. 1996).
The complaint nowhere alleges that Martha Nierenberg sued
because Hungary refused to engage in further negotiations.
Cf. Compl. ¶ 79 (alleging only that “Martha Nierenberg . . .
continued her mother’s efforts to recover portions of the
Herzog Collection, ultimately pursuing legal proceedings in
Hungary”). Indeed, although litigation is often filed in
response to refusal of a demand, it can also serve as a vehicle
for increasing pressure to settle during ongoing negotiations.
See David C. Croson & Robert H. Mnookin, Scaling the
Stonewall: Retaining Lawyers to Bolster Credibility, 1 Harv.
Negot. L. Rev. 65, 65 (1996) (explaining that a “plaintiff
might hope to extract a settlement by threatening suit in pre-
trial negotiations”); Juliet Macur, Government Joins Suit
Against Armstrong, N.Y. Times, Feb. 22, 2013, at D1
(quoting an attorney who explained that the government may
“have brought the case [against Armstrong] to try to increase
their leverage in working out a deal”).
For statute of limitations purposes, the critical point is
that the complaint alleges that Hungary’s refusal of the
family’s demand for the Collection did not occur until
January 2008, when “Hungary issued its final decision that it
would not honor its obligation to return the Herzog Collection
to the Herzog Heirs.” Compl. ¶ 94. It was only then, the
complaint alleges, that Hungary “made clear that any further
demand by the Herzog Heirs for restitution of any portion of
the Herzog Collection would be futile.” Id. At summary
judgment, Hungary may well be able to show that the
family’s bailment claims accrued either when the Nierenberg
litigation was filed or at some other point prior to 2008. But at
the motion to dismiss stage, we look only at the complaint, in
22
which we see nothing that conflicts with the family’s
allegation that their bailment claims accrued in January 2008.
Because the family filed their complaint within three years of
that date, we reject Hungary’s statute of limitations argument.
D.
We can easily dispose of Hungary’s remaining
arguments.
Hungary contends that the Herzog family’s claims are
barred by the political question doctrine. As the district court
explained, this argument is “based entirely on the notion that
plaintiffs’ claims are addressed and settled by the 1947 Peace
Treaty and the 1973 Agreement between Hungary and the
United States,” but the Herzog family instead “charge[s] that
Hungary has breached certain agreements regarding specific
artwork in a manner that does not implicate existing
international compensatory frameworks at all.” de Csepel,
808 F. Supp. 2d at 143–44. Given this, the family’s claims
raise no “separation-of-powers concerns that would justify
invocation of the political question doctrine.” Id. at 144.
We are equally unpersuaded by Hungary’s reliance on
the act of state doctrine. This doctrine, which “requires
American courts to presume the validity of an official act of a
foreign sovereign performed within its own territory,”
Republic of Austria v. Altmann, 541 U.S. 677, 713 (2004)
(internal quotation marks omitted), applies only to “conduct
that is by nature distinctly sovereign, i.e., conduct that cannot
be undertaken by a private individual or entity,” McKesson
Corp. v. Islamic Republic of Iran, 672 F.3d 1066, 1073 (D.C.
Cir. 2012). Given that the family seeks to recover for breaches
of bailment agreements, the district court got it just right: their
claims challenge “not sovereign acts, but rather commercial
acts” entitled to no “deference under the act of state doctrine.”
23
de Csepel, 808 F. Supp. 2d at 143 (internal quotation marks
omitted).
Hungary next argues that the complaint fails to state a
claim for bailment because it nowhere alleges the necessary
element of “mutual consent of the parties.” Appellants’ Br. 59
(internal quotation marks omitted). Reiterating its contention
that the family’s bailment claims rest solely on the Peace
Treaty, Hungary insists that “an international treaty to end a
world war” cannot demonstrate intent to form a bailment
agreement. Appellants’ Reply Br. 37. But as we have
explained, supra at 13, the complaint contains allegations that
the parties directly agreed to a bailment relationship, with
Hungary “arrang[ing] with representatives of the Herzog
Heirs to retain possession of most of the Herzog Collection”
and the Herzog family “agree[ing] to allow the artworks to be
‘returned’ to the Museums or the University for safekeeping.”
Compl. ¶¶ 36, 72.
According to Hungary, however, any showing of consent
is negated by the complaint’s allegations that the Herzog
family “had no choice but to agree to allow most of the works
belonging to the Herzog Collection to remain in the physical
possession of the Museums and the University” because they
were “harassed and threatened” by Hungarian government
officials. Id. ¶¶ 72–73. We disagree. Even if the family’s
consent was induced by duress—a conclusion we would be
reluctant to draw at the motion to dismiss stage—that would
mean only that the family could disclaim the agreement, not
that the agreement was invalid. See Restatement (Second) of
Contracts § 175(1) (1981) (“If a party’s manifestation of
assent is induced by an improper threat by the other party that
leaves the victim no reasonable alternative, the contract is
voidable by the victim.”); see also U.S. ex rel. Siewick v.
Jamieson Science & Engineering, Inc., 214 F.3d 1372, 1378
24
(D.C. Cir. 2000) (explaining that voidable contracts only
become invalid if injured party exercises right to disclaim).
Thus, for purposes of a motion to dismiss, the family has
adequately pleaded the element of consent.
Finally, Hungary argues that the doctrine of forum non
conveniens requires dismissal of the family’s claims. The
forum non conveniens analysis calls for the court to consider
“(1) whether an adequate alternative forum for the dispute is
available and, if so, (2) whether a balancing of private and
public interest factors strongly favors dismissal.” Chabad,
528 F.3d at 950. Here, the district court assumed that Hungary
was an adequate alternative forum but found that it “failed to
show that the balance of private and public factors favors
dismissal in this case.” de Csepel, 808 F. Supp. 2d at 138. We
review the district court’s balancing of these factors for “clear
abuse of discretion.” Chabad, 528 F.3d at 950 (internal
quotation marks omitted).
In determining that the private interest factors did not
favor dismissal, the district court acknowledged Hungary’s
contention that the events at issue took place in Hungary but
reasoned that “many relevant witnesses—namely, plaintiffs
themselves as well as Martha Nierenberg—all live outside
Hungary.” de Csepel, 808 F. Supp. 2d at 139. As a result, the
district court concluded that “[l]anguage concerns . . . do not
shift the balance in favor of Hungary, as relevant depositions
and documents would require translation regardless of where
this matter is heard.” Id. With respect to the public interest
factors, although Hungary claimed “an interest in having local
controversies decided at home” and a superior ability “to
interpret and apply both current and historical Hungarian
laws,” the district court relied, among other public interest
factors, on the FSIA’s designation of the United States
District Court for the District of Columbia as a forum for
25
actions brought under the statute to conclude that dismissal
was unwarranted. Id.
On appeal, Hungary argues that witnesses and
documentary evidence are likely to be located in Hungary and
that translations would be needed if trial is held here. Hungary
also argues that it has a strong interest in the subject matter of
the litigation and a greater familiarity with the applicable
laws. But as explained above, the district court considered all
of these arguments, and although Hungary obviously
disagrees with the district court’s analysis, it has failed to
show any “clear abuse of discretion.” Chabad, 528 F.3d at
950 (internal quotation marks omitted).
III.
This brings us to the family’s cross-appeal. Recall that
Martha Nierenberg filed a lawsuit in Hungary seeking return
of certain pieces of the Herzog Collection and that the
Hungarian Metropolitan Appellate Court dismissed the case.
The district court granted comity to the Hungarian judgment
and dismissed the family’s claims to the eleven pieces of
artwork at issue in that litigation. This court has never
expressly addressed the standard by which we review a
district court’s decision to grant comity to a foreign judgment,
and other courts of appeals have divided as between de novo
and abuse of discretion review. See Asvesta v. Petroutsas, 580
F.3d 1000, 1009–10 (9th Cir. 2009) (noting divergence
among courts of appeals with respect to the proper standard of
review). We need not resolve this question, however, because
we would reverse under either standard.
The term “ ‘[c]omity’ summarizes in a brief word a
complex and elusive concept—the degree of deference that a
domestic forum must pay to the act of a foreign government
not otherwise binding on the forum.” Laker Airways Ltd. v.
26
Sabena, Belgian World Airlines, 731 F.2d 909, 937 (D.C. Cir.
1984). In determining whether to grant comity to a foreign
judgment, we look to the Supreme Court’s decision in Hilton
v. Guyot, 159 U.S. 113 (1895). There, the Court explained
that “the merits of the case should not, in an action brought in
this country upon the judgment, be tried afresh” based “upon
the mere assertion of the party that the judgment was
erroneous in law or in fact,” provided
there has been opportunity for a full and fair trial
abroad before a court of competent jurisdiction,
conducting the trial upon regular proceedings, after
due citation or voluntary appearance of the
defendant, and under a system of jurisprudence
likely to secure an impartial administration of justice
between the citizens of its own country and those of
other countries, and there is nothing to show either
prejudice in the court, or in the system of laws under
which it was sitting, or fraud in procuring the
judgment, or any other special reason why the
comity of this nation should not allow it full
effect . . . .
Id. at 202–03. In addition to the due process concerns
identified by Hilton, the case law recognizes a narrow “public
policy” exception to the doctrine of comity where the foreign
judgment is “repugnant to fundamental notions of what is
decent and just in the State where enforcement is sought.”
Tahan v. Hodgson, 662 F.2d 862, 864 (D.C. Cir. 1981)
(internal quotation marks omitted).
The district court found no basis for declining to grant
comity to the Hungarian judgment, explaining that “ ‘[t]he
central precept of comity teaches that, when possible, the
decisions of foreign tribunals should be given effect in
27
domestic courts.’ ” de Csepel, 808 F. Supp. 2d at 145 (quoting
Laker Airways, 731 F.2d at 937). It found unpersuasive the
Herzog family’s claim that the Hungarian court violated
United States public policy by misinterpreting the 1973
Agreement, viewing this argument as nothing more than a
request to reexamine the merits of the Hungarian judgment.
Id. The district court also believed that the family had failed
to assert that it lacked “an ‘opportunity for a full and fair trial’
in Hungary ‘before a court of competent jurisdiction,
conducting the trial upon regular proceedings.’ ” Id. (quoting
Hilton, 159 U.S. at 202). Accordingly, the court dismissed the
family’s claims to the eleven pieces of artwork at issue in the
Hungarian proceedings.
On appeal, the family renews their contention that the
Hungarian judgment violated the United States’ “strong
public interest in ensuring that its executive agreements . . .
are interpreted correctly” by adopting an “indefensible”
construction of the 1973 Agreement under which Martha
Nierenberg’s claims were deemed barred. Appellees’ Br. 74–
75. As the district court explained, however, this claim “is
precisely the type of ‘mere assertion’ by a party that a foreign
judgment ‘was erroneous in law or in fact’ that the Supreme
Court has held may not be grounds for declining to respect the
results of foreign judgments.” de Csepel, 808 F. Supp. 2d at
145 (quoting Hilton, 159 U.S. at 203); see also Medellin v.
Dretke, 544 U.S. 660, 670 (2005) (“It is the long-recognized
general rule that, when a judgment binds or is respected as a
matter of comity, a ‘let’s see if we agree’ approach is out of
order.”).
The family also claims that comity is inappropriate
because the Hungarian judgment was rendered “as a result of
proceedings that were not conducted in accordance with
internationally recognized standards of due process or in
28
accordance with international law.” Compl. ¶ 79. Granting
comity would certainly be inappropriate if the Hungarian
proceedings in fact failed to satisfy Hilton’s requirements of
an “opportunity for a full and fair trial” under “a system of
jurisprudence likely to secure an impartial administration of
justice.” Hilton, 159 U.S. at 202; see also Bank Melli Iran v.
Pahlavi, 58 F.3d 1406, 1410 (9th Cir. 1995) (“It has long
been the law of the United States that a foreign judgment
cannot be enforced if it was obtained in a manner that did not
accord with the basics of due process.”); Restatement (Third)
of the Foreign Relations Law of the United States § 482(1)
(1987) (“A court in the United States may not recognize a
judgment of the court of a foreign state if . . . the judgment
was rendered under a judicial system that does not provide
impartial tribunals or procedures compatible with due process
of law . . . .”). The family contends that they “should have
been given the opportunity to develop [the] factual record”
regarding these alleged due process violations “further past
the Rule 12 stage.” Appellees’ Br. 76. We agree. The
complaint’s allegations of due process violations present just
the kind of fact-intensive issues inappropriate for resolution
on a Rule 12(b)(6) motion.
Hungary argues that the family’s complaint fails to
specify any “cognizable allegations of wrongdoing” and is
thus “devoid of any allegations sufficient to demonstrate (or
even suggest) that [Martha Nierenberg] was not afforded due
process.” Appellants’ Reply Br. 55. But “comity is an
affirmative defense” for which the party seeking recognition
of the judgment bears the burden of proof, see Taveras v.
Taveraz, 477 F.3d 767, 783 (6th Cir. 2007) (internal quotation
marks and alteration omitted), and although it is certainly true
that plaintiffs must plead the elements of their claims with
specificity, they are “not required to negate an affirmative
defense in [their] complaint,” Flying Food Group, Inc. v.
29
NLRB, 471 F.3d 178, 183 (D.C. Cir. 2006) (internal quotation
marks omitted); see also Kim v. United States, 632 F.3d 713,
718–19 (D.C. Cir. 2011) (concluding that a plaintiff need not
plead exhaustion of statutory remedies under the Taxpayer
Bill of Rights because failure to exhaust is an affirmative
defense); Davis v. Indiana State Police, 541 F.3d 760, 763–64
(7th Cir. 2008) (explaining that the Supreme Court’s decision
in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), did
not alter the principle that “[c]omplaints need not anticipate,
and attempt to plead around, potential affirmative defenses”).
Instead, as long as a plaintiff’s potential “rejoinder to the
affirmative defense [is not] foreclosed by the allegations in
the complaint,” dismissal at the Rule 12(b)(6) stage is
improper. Goodman v. Praxair, Inc., 494 F.3d 458, 466 (4th
Cir. 2007) (en banc); see also Smith-Haynie v. District of
Columbia, 155 F.3d 575, 578 (D.C. Cir. 1998) (explaining
that an affirmative defense may only “be raised by pre-answer
motion under Rule 12(b) when the facts that give rise to the
defense are clear from the face of the complaint”). Because
nothing in the complaint contradicts the family’s claims of
due process violations, dismissal at this stage was
inappropriate. Of course, we express no opinion as to whether
the due process violations alleged by the family actually
occurred or, if so, whether they amounted to such “outrageous
departures from our notions of civilized jurisprudence” as to
require non-recognition of the Hungarian judgment. Bird v.
Glacier Electric Cooperative, Inc., 255 F.3d 1136, 1142 (9th
Cir. 2001) (internal quotation marks omitted). These issues
are properly addressed at summary judgment or trial.
IV.
For the foregoing reasons, we affirm in part and reverse
in part.
So ordered.