Holocaust Victims of v. Magyar Nemzeti Bank , 692 F.3d 661 ( 2012 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 11-2387
ERNO KALMAN ABELESZ et al.,Œ
Plaintiffs-Appellees,
v.
MAGYAR NEMZETI BANK,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 1:10-cv-01884—Samuel Der-Yeghiayan, Judge.
Œ
These appeals had been captioned “Holocaust Victims of Bank
Theft v. Magyar Nemzeti Bank,” and “Victims of the Hungarian
Holocaust v. Hungarian State Railways.” We have reformed the
captions to reflect the first named plaintiffs. Federal Rule of
Civil Procedure 10(a) requires pleadings to name parties, not
to presume the merits of the plaintiffs’ claims, no matter
how compelling they may be. We have also revised the
caption in the railway case to reflect the proper Hungarian
name of the railway, which is abbreviated “MÁV.”
2 Nos. 11-2387 & 11-2791
No. 11-2791
PAUL CHAIM SHLOMO FISCHER et al.,
Plaintiffs-Appellees,
v.
MAGYAR ÁLLAMVASUTAK ZRT.,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 1:10-cv-00868—Samuel Der-Yeghiayan, Judge.
ARGUED JANUARY 11, 2012—DECIDED AUGUST 22, 2012
Before KANNE, WILLIAMS, and HAMILTON, Circuit Judges.
HAMILTON , Circuit Judge. Holocaust survivors
and heirs of other Holocaust victims have sued several
Hungarian banks and the Hungarian national railway in
a U.S. district court alleging that the banks and the
national railway participated in expropriating prop-
erty from Hungarian Jews who were victims of the Holo-
caust. These two district court cases have produced
nine separate pending appeals and mandamus petitions
in this court. In this opinion, we address the claims
against the Hungarian national bank, defendant Magyar
Nemzeti Bank (the “national bank”), and the claims
against the Hungarian national railway, Magyar
Nos. 11-2387 & 11-2791 3
Államvasutak Zrt. (the “national railway”). In separate
opinions released today, we address the claims against
three other private banks.1
Plaintiffs’ complaints describe a part of the tragic,
historic crimes that were the Holocaust, and in par-
ticular the arrest, detention, transport, and murder of
Hungarian Jews, starting in large numbers relatively late,
in 1944, as Soviet armies were advancing west toward
the Third Reich and the countries it dominated,
including Hungary. The plaintiffs allege that both the
national bank and the national railway played critical
roles in the expropriation of Jewish property that was
essential to finance the genocide of the Holocaust in
Hungary. The plaintiffs suing the railway claim subject-
matter jurisdiction under the expropriation exception
to the Foreign Sovereign Immunities Act (“FSIA”), 28
U.S.C. § 1605(a)(3), and assert eight causes of action:
takings in violation of international law, aiding and
abetting genocide, complicity in genocide, violations
of customary international law, unlawful conversion,
unjust enrichment, fraudulent misrepresentation, and
accounting. The plaintiffs suing the banks claim subject-
matter jurisdiction over the national bank under both
the expropriation exception, 28 U.S.C. § 1605(a)(3), and
the waiver exception, 28 U.S.C. § 1605(a)(1) to the
FSIA, and assert six causes of action: genocide, aiding
and abetting genocide, bailment, conversion, constructive
1
Abelesz v. OTP Bank, ___ F.3d ___ (7th Cir. 2012); Abelesz v.
Erste Group Bank AG, ___ F.3d ___ (7th Cir. 2012).
4 Nos. 11-2387 & 11-2791
trust, and accounting. Both sets of plaintiffs seek to have
their respective cases certified as class actions — the
railway plaintiffs seek to have the national railway be
held responsible for damages of approximately $1.25
billion, and the bank plaintiffs seek to have the national
bank held jointly and severally responsible with the
private bank defendants for damages of approximately
$75 billion. The district court denied both the national
bank’s and the national railway’s respective motions
to dismiss.
We conclude that we have appellate jurisdiction
over both of these appeals under the collateral order
doctrine. We remand the cases to the district court with
instructions that both sets of plaintiffs either exhaust
any available Hungarian remedies identified by the
national bank and national railway or present to the
district court a legally compelling reason for their
failure to do so. We further direct the district court to
allow jurisdictional discovery with respect to whether
the national railway is engaged in “commercial activity”
in the United States, as required by the expropriation
exception to the FSIA.
I. Appellate Jurisdiction
We turn first to our jurisdiction over these appeals. The
appellate jurisdiction story in all of the interlocutory
appeals arising from the bank case begins with the
national bank, which moved to dismiss for lack of subject-
matter jurisdiction based on a defense of sovereign im-
munity under the FSIA, 28 U.S.C. § 1604. The district
Nos. 11-2387 & 11-2791 5
court denied the national bank’s motion. Along the
same lines, in the railway case, the national railway
also moved to dismiss for lack of subject-matter jurisdic-
tion based on a defense of sovereign immunity under
the FSIA, 28 U.S.C. § 1604, which was likewise denied
by the district court. The national bank and the national
railway have appealed the district court’s denials of
their respective motions to dismiss.
The district court’s denials of the national bank’s and
national railway’s motions to dismiss on sovereign im-
munity grounds are immediately appealable collateral
orders so that we have jurisdiction under 28 U.S.C. § 1291.
Both the national bank and national railway argue, and
we agree, that we also have appellate jurisdiction over
their treaty-based defenses because those are part of
their immunity defenses under the FSIA. We decline,
however, to exercise pendent appellate jurisdiction
over the national bank’s statute of limitations defense,
which is not inextricably intertwined with the sovereign
immunity argument.
A. Collateral Order Doctrine
As a general rule, the district court must issue a final
judgment before an appellate court has jurisdiction to
entertain an appeal under 28 U.S.C. § 1291. It is well
established, however, that certain types of interlocutory
orders denying immunity defenses in civil cases may
be appealed immediately under the collateral order
doctrine, regardless of whether the denied motion was
a motion to dismiss or a motion for summary judg-
6 Nos. 11-2387 & 11-2791
ment. Behrens v. Pelletier, 516 U.S. 299, 307 (1996)
(“[A]n order rejecting the defense of qualified immunity
at either the dismissal stage or the summary judgment
stage is a ‘final’ judgment subject to immediate appeal.”);
see also Mitchell v. Forsyth, 472 U.S. 511, 525-30
(1985) (denial of qualified immunity based on question
of law was immediately appealable); Nixon v. Fitzgerald,
457 U.S. 731, 742-43 (1982) (denial of former president’s
claim of absolute immunity was immediately appealable).
Like qualified or absolute immunity in civil rights
lawsuits, sovereign immunity is an immunity from
trial and the attendant burdens of litigation. Sovereign
immunity reflects the comity or mutual respect that is
essential in dealings between sovereign nations. See
Republic of Philippines v. Pimentel, 553 U.S. 851, 865 (2008);
Dole Food Co. v. Patrickson, 538 U.S. 468, 479 (2003);
Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 486
(1983). Based on the reasoning permitting appeals of
those other immunity defenses, we and other circuits
treat denials of sovereign immunity defenses as
appealable collateral orders. Rubin v. Islamic Republic of
Iran, 637 F.3d 783, 789-90, 795 (7th Cir. 2011) (appeal of
discovery order that rejected FSIA immunity defense);
World Holdings, LLC v. Federal Republic of Germany, 613
F.3d 1310, 1314 & n.6 (11th Cir. 2010) (appeal of denial
of FSIA immunity in suit to enforce pre-World War II
German bonds); O’Bryan v. Holy See, 556 F.3d 361, 372
(6th Cir. 2009) (appeal of denial of FSIA immunity in
case alleging sexual abuse of children by clergy); Arriba
Ltd. v. Petroleos Mexicanos, 962 F.2d 528, 532 (5th Cir. 1992)
Nos. 11-2387 & 11-2791 7
(appeal of denial of FSIA immunity in breach of contract
case); Foremost-McKesson, Inc. v. Islamic Republic of Iran,
905 F.2d 438, 443 (D.C. Cir. 1990) (appeal of denial of
FSIA immunity defense in expropriation case; collecting
cases from several circuits); Rush-Presbyterian-St. Luke’s
Med. Center v. Hellenic Republic, 877 F.2d 574, 576 n.2
(7th Cir. 1989) (appeal of denial of FSIA immunity based
on commercial activities in United States); Segni v. Com-
mercial Office of Spain, 816 F.2d 344, 347 (7th Cir. 1987)
(appeal of denial of FSIA immunity defense asserted
in breach of contract suit).
The plaintiffs in both appeals attempt to avoid this well-
established doctrine and practice by arguing that the
district court’s orders denying the defendants’ respective
motions to dismiss did not “conclusively determine”
that the defendants are not entitled to sovereign immu-
nity. The district court found that both groups of plaintiffs
had alleged sufficient facts to show at the motion to
dismiss stage that the expropriation exception to the FSIA
applied to their claims against these defendants. See 28
U.S.C. § 1605(a)(3). The court then wrote in the bank case:
“It is premature at this juncture to adjudicate [the
national bank’s] denial of the facts alleged.” Holocaust
Victims of Bank Theft v. Magyar Nemzeti Bank, 807 F. Supp.
2d 689, 697 (N.D. Ill. 2011). The district court noted that
the national bank may, if warranted, raise its arguments
regarding the expropriation exception’s nexus require-
ments again in a motion for summary judgment. Id. In
denying the national bank’s request for certification of
an interlocutory appeal pursuant to 28 U.S.C. § 1292(b),
the district court wrote:
8 Nos. 11-2387 & 11-2791
this Court did not adjudicate [the national bank’s]
defense of sovereign immunity under FSIA on the
merits. This court denied the motion to dis-
miss and indicated that the issue was not ripe for ad-
judication at the motion to dismiss stage because
Plaintiffs in opposition to the motion to dismiss
argued that the [expropriation] exception under
FSIA applies in this case and presented sufficient
allegations at the pleadings stage to proceed further
in this action at this juncture.
The district court reiterated that view in denying the
national railway’s motion to dismiss:
This court is not adjudicating [the national railway’s]
defense of sovereign immunity under FSIA on the
merits. This court is denying the motion to dismiss
because the FSIA issue is not ripe for adjudication
at the motion to dismiss stage. Plaintiffs have pre-
sented sufficient allegations at the pleadings stage
to proceed further in this action at this juncture.
Victims of the Hungarian Holocaust v. Hungarian State
Railways, 798 F. Supp. 2d 934, 938 (N.D. Ill. 2011).
Relying on Khorrami v. Rolince, 539 F.3d 782 (7th Cir.
2008), both sets of plaintiffs contend that the district
court’s disclaimer bars appellate jurisdiction. In Khorrami,
the plaintiff filed a Bivens suit against federal agents
alleging violations of his constitutional rights. The de-
fendants moved to dismiss on grounds of qualified im-
munity and failure to state a claim. The district court
granted the motion to dismiss for failure to state a
Nos. 11-2387 & 11-2791 9
claim with respect to all parts of the case except for
those relying on the Fifth Amendment, but explicitly
declined to rule on the qualified immunity motion. The
defendants filed an interlocutory appeal seeking a
ruling that qualified immunity applied and that the
remainder of the case in any event should have been
dismissed. This court found appellate jurisdiction
lacking because the district court had not yet issued an
order ruling either way on the qualified immunity de-
fense. The lack of a ruling from the district court was
not the functional equivalent of a denial of the motion.
539 F.3d at 790. We noted that in that situation, “it is
difficult, if not impossible, for an appellate court to in-
tervene.” Id. at 787.
Plaintiffs’ reliance on Khorrami is misplaced because
the district court here actually ruled on the defendants’
motions to dismiss. It denied them. Although the
district court said it had not adjudicated the sovereign
immunity defense “on the merits,” the fact remains that
the district court denied the defendants’ motions to
dismiss. In doing so, it issued the orders that both
support appellate jurisdiction in these cases and distin-
guish these cases from the failure to rule in Khorrami.
Our appellate jurisdiction based on the collateral order
doctrine extends to the defendants’ immunity defenses
based on the Treaty of Peace with Hungary, Feb. 10, 1947,
61 Stat. 2065, 41 U.N.T.S. 135 (“1947 Treaty”), 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,
10 Nos. 11-2387 & 11-2791
U.S.-Hungary, Mar. 6, 1973, 24 U.S.T. 522 (“1973 Agree-
ment”). FSIA immunity is subject to existing inter-
national agreements to which the United States was a
party at the time of enactment of the FSIA in 1976. 28
U.S.C. § 1604. Any conflict between a treaty and the
FSIA immunity provisions, whether toward more or less
immunity, is within the treaty exception. See Moore v.
United Kingdom, 384 F.3d 1079, 1084-85 (9th Cir. 2004). The
defendants’ arguments based on the earlier treaties
are simply a part of their overall defense of sovereign
immunity that we may consider in this appeal.
B. Pendent Appellate Jurisdiction
To the solid jurisdictional anchor of its sovereign im-
munity claim, the national bank attempts to hook on its
statute of limitations defense, arguing that adjudicating
the statute of limitations defense at this time will
promote judicial economy. The national bank’s reliance
on judicial economy to justify pendent appellate juris-
diction is misplaced. The Supreme Court has rejected
this justification. See Swint v. Chambers County Comm’n,
514 U.S. 35, 51 (1995); see also McCarter v. Retirement
Plan for Dist. Managers of American Family Ins. Grp., 540
F.3d 649, 653 (7th Cir. 2008) (“Swint itself held that a
court of appeals had erred in invoking pendent appel-
late jurisdiction, because ‘judicial economy’ is no
warrant for disregarding the statutory final-decision
rule.”). We do not have pendent appellate jurisdiction
over the national bank’s statute of limitations defense.
Nos. 11-2387 & 11-2791 11
II. Foreign Sovereign Immunity
The parties agree that these defendants, the national
bank and national railway of Hungary, are instrumentali-
ties of a foreign sovereign under the FSIA. See 28 U.S.C.
§ 1603(b). The FSIA is the exclusive basis for exercising
jurisdiction over foreign sovereigns in U.S. courts. Argen-
tine Republic v. Amerada Hess Shipping Corp., 488 U.S.
428, 434-36 (1989). The FSIA was enacted to clarify
the confusing situation that had developed after the
executive branch had shifted away from a long-standing
policy of asserting sovereign immunity on behalf of
friendly sovereigns under virtually any circumstances
toward a more restrictive approach to immunity, one
that allowed U.S. courts to exercise jurisdiction over
claims against foreign sovereigns based on their com-
mercial activities, while most courts were still adhering
to the broader approach. See Republic of Austria v.
Altmann, 541 U.S. 677, 690-91 (2004); Verlinden, 461 U.S. at
487-88. Under the FSIA, a foreign sovereign and its in-
strumentalities are immune from suit in U.S. courts
unless a specific statutory exception applies. 28 U.S.C.
§ 1604; Samantar v. Yousuf, 130 S. Ct. 2278, 2285-86
(2010) (holding that an individual foreign official sued for
official conduct was not a “foreign state” entitled to
immunity from suit under FSIA).
The plaintiffs suing the bank argue that two FSIA
exceptions provide jurisdiction over their claims: the
waiver exception in § 1605(a)(1), and the expropriation
exception in § 1605(a)(3) for property taken in violation
of international law. The district court relied on the
12 Nos. 11-2387 & 11-2791
expropriation exception to deny the national bank’s
motion to dismiss and did not reach the waiver excep-
tion. 807 F. Supp. 2d at 697-98. The plaintiffs suing
the railway rely solely on the expropriation exception.
When evaluating a district court’s conclusions on a
Rule 12(b)(1) motion to dismiss for lack of subject-
matter jurisdiction, we review the district court’s legal
conclusions de novo. Weaver v. Hollywood Casino-Aurora,
Inc., 255 F.3d 379, 381 (7th Cir. 2001); Odyssey Marine
Exploration, Inc. v. Unidentified Shipwrecked Vessel, 657
F.3d 1159, 1169 (11th Cir. 2011) (reviewing district court’s
grant of motion to dismiss based on FSIA immunity).
Our review of factual matters depends on how the
moving party presented those issues and whether the
district court resolved disputed factual issues. If the
district court resolved disputed factual issues, we
review those findings for clear error, but if it did not, our
review is de novo. E.g., Scott v. Trump Indiana, Inc., 337
F.3d 939, 942 (7th Cir. 2003); Rexford Rand Corp. v. Ancel,
58 F.3d 1215, 1218 (7th Cir. 1995).
A. Waiver of Sovereign Immunity
The plaintiffs suing the national bank claim that
Hungary implicitly waived its sovereign immunity by
stating in its Constitution that “the Republic of Hungary
accepts the universally recognized rules and regulations
of international law, and harmonizes the internal laws
and statutes of the country with the obligations assumed
Nos. 11-2387 & 11-2791 13
under international law.” 2 The bank plaintiffs argue that
sovereign immunity is a creature of the U.S. legal system
that Hungary may not use to avoid its own embrace
of international law.
This waiver argument reaches too broadly. The FSIA
waiver exception in § 1605(a)(1)is construed narrowly.
Sampson v. Federal Republic of Germany, 250 F.3d 1145,
1150 (7th Cir. 2001). In fact, “courts rarely find that a
nation has waived its sovereign immunity, particularly
with respect to suits brought by third parties, without
strong evidence that this is what the foreign state in-
tended.” Frolova v. Union of Soviet Socialist Republics,
761 F.2d 370, 377 (7th Cir. 1985); see also Argentine
Republic, 488 U.S. at 442-43 (“Nor do we see how a
foreign state can waive its immunity under § 1605(a)(1)
by signing an international agreement that contains no
mention of a waiver of immunity to suit in United States
courts or even the availability of a cause of action in
the United States.”).
2
The official English translation of the Hungarian constitution
reads as follows: “Hungary shall ensure harmony between
international law and Hungarian law in order to fulfil its
obligations under international law. Hungary shall accept
the generally recognised rules of international law. Other
sources of international law shall become part of the Hungarian
legal system by publication in the form of legislation.” The
Fundamental Law of Hungary [Constitution] Apr. 25, 2011, art.
Q, available at http://www.kormany.hu/download/2/ab/30000/
Alap_angol.pdf.
14 Nos. 11-2387 & 11-2791
Sampson illustrates the point well. In that case, a Holo-
caust survivor sued Germany for his imprisonment in
Nazi concentration camps. The district court dismissed
the claims against Germany based on the FSIA.
Sampson argued on appeal that Germany had waived it
sovereign immunity based on: (1) a letter from the
German government stating that the German people are
responsible for the past, (2) a letter from the Claims
Conference stating that Sampson was eligible to receive
compensation payments, and (3) a holding by the
German constitutional court regarding the universal and
mandatory norms of international law known as jus
cogens norms.3 We held that these statements did not
indicate an intent by the state of Germany to be subject
to suit in U.S. courts, but “merely demonstrate[d]
that Germany recognizes that its actions during World
War II constituted violations of jus cogens norms.”
250 F.3d at 1151. Similarly here, the language of the
Hungarian Constitution falls far short of expressing an
intent by the Republic of Hungary to be subject to suit
3
A jus cogens norm, also known as a peremptory norm of
international law, “is a norm accepted and recognized by the
international community of states as a whole as a norm
from which no derogation is permitted and which can be
modified only by a subsequent norm of general international
law having the same character.” Siderman de Blake v. Republic
of Argentina, 965 F.2d 699, 714 (9th Cir. 1992), quoting
Vienna Convention on the Law of Treaties, art. 53, May 23, 1969,
1155 U.N.T.S. 332, 8 I.L.M. 679; see also Sampson, 250 F.3d
at 1149-50.
Nos. 11-2387 & 11-2791 15
in U.S. courts. Like the evidence offered in Sampson, the
language of the Hungarian Constitution demonstrates
Hungary’s recognition and acceptance of international
law norms and obligations, but is not a waiver of its
sovereign immunity. Section 1605(a)(1) does not
apply here.
B. The Expropriation Exception
The more substantial issues here concern the scope of
the expropriation exception to the FSIA. The statute
provides:
A foreign state shall not be immune from the juris-
diction of the courts of the United States or of the
States in any case — in which rights in property
taken in violation of international law are in issue
and that property or any property exchanged for
such property is present in the United States in con-
nection with a commercial activity carried on in the
United States by the foreign state; or that property
or any property exchanged for such property is
owned or operated by an agency or instrumentality
of the foreign state and that agency or instru-
mentality is engaged in a commercial activity in
the United States . . . .
28 U.S.C. § 1605(a)(3). To break that down, the expropria-
tion exception defeats sovereign immunity where (1) rights
in property are in issue; (2) the property was taken; (3) the
taking was in violation of international law; and (4) at
least one of the two nexus requirements is satisfied. See
16 Nos. 11-2387 & 11-2791
Zappia Middle East Const. Co. v. Emirate of Abu Dhabi, 215
F.3d 247, 251 (2d Cir. 2000) (laying out four elements of
FSIA expropriation exception). The district court found
that the plaintiffs’ allegations in both cases were
sufficient to rely on the expropriation exception. 807 F.
Supp. 2d at 697-98 (bank case); 798 F. Supp. 2d at 938
(railway case). On appeal, the national bank argues that
the plaintiffs’ allegations fail on each element of the
expropriation exception. The national railway argues
that the plaintiffs’ allegations fail on the “in violation of
international law” element and the nexus element. We
conclude that the plaintiffs suing the bank have alleged
several elements of the expropriation exception but
have not sufficiently alleged a violation of international
law because they have not exhausted the Hungarian
remedies available to them or provided a legally com-
pelling explanation for their failure to do so. With
respect to the plaintiffs suing the railway, we conclude
both that they have not sufficiently alleged a violation
of international law because of their failure to exhaust
and that they have not sufficiently alleged that the
national railway is engaged in commercial activity in the
United States, as required by the nexus element of
the expropriation exception.
1. Rights in Property
The named plaintiffs in the bank case allege the ex-
propriation of bank accounts and, in one case, a home.
The national bank argues that plaintiffs’ claims based on
expropriation of bank accounts are not covered by the
expropriation exception. We reject the national bank’s
Nos. 11-2387 & 11-2791 17
arguments on this score, which are built on the faulty
premise that the expropriation exception can apply only
to a claim by an owner of tangible property.4
The national bank’s argument finds some support in
district court opinions that have held that the “rights in
property” element of the expropriation exception is
limited to claims for tangible property. See, e.g., Gutch v.
Federal Republic of Germany, 444 F. Supp. 2d 1, 10 (D.D.C.
2006) (“Most courts maintain that the expropriation
exception applies only when the property at issue is
‘tangible.’ ”), aff’d mem. on other grounds, 255 F. App’x
524 (D.C. Cir. 2007); Sampson v. Federal Republic of Germany,
4
One plaintiff-appellee with claims against the national bank,
Paul Fischer, has voluntarily dismissed his claims against the
national bank and its co-defendant, Erste Group Bank. The
national bank urges that Fischer’s dismissal strengthens its
appeal because he was “the only plaintiff-appellee whose
relatives are alleged to have had tangible assets — as opposed
to intangible bank accounts — at [the national bank].” Fischer’s
departure does not affect our analysis of the “rights in
property at issue” because we follow the D.C. Circuit in deter-
mining that the expropriation exception applies to both
tangible and intangible property. In any event, Mr. Fischer
was not the only plaintiff to allege the taking of tangible
property by the national bank. Plaintiff Istvan Somogyi
alleges that his grandparents’ home in Budapest was expropri-
ated by the national bank. Compl. ¶ 19. Also, plaintiffs seek to
hold the defendant banks jointly and severally liable, and
several plaintiffs with claims against the other defendant
banks allege the taking of tangible property, including gold
and jewelry.
18 Nos. 11-2387 & 11-2791
975 F. Supp. 1108, 1117 (N.D. Ill. 1997) (“property” under
expropriation exception refers to tangible property), aff’d
on other grounds, 250 F.3d 1145 (7th Cir. 2001); Hirsh v.
State of Israel, 962 F. Supp. 377, 383 (S.D.N.Y. 1997) (ex-
propriation exception applies only to the expropriation
of tangible property, not to a right to receive payments),
aff’d mem., 133 F.3d 907 (2d Cir. 1997).
The D.C. Circuit reached the opposite conclusion,
finding no reason to distinguish between tangible and
intangible property for purposes of the FSIA’s expro-
priation exception to immunity. In Nemariam v. Federal
Democratic Republic of Ethiopia, 491 F.3d 470 (D.C. Cir.
2007), plaintiffs of Eritrean origin or nationality filed a
proposed class action suit under the FSIA against
Ethiopia claiming unlawful takings of bank accounts and
other property. Id. at 472-73. The district court had dis-
missed the complaint for lack of subject-matter jurisdic-
tion, finding that a taking of intangible property like a
bank account is not covered by the expropriation excep-
tion. The D.C. Circuit ultimately affirmed the dismissal
on other grounds (discussed below) but rejected the
district court’s exclusion of intangible property from
“rights in property” under the expropriation excep-
tion. 491 F.3d at 475-80. The court noted that the tangible/
intangible distinction seemed to have been based
on a comment in a House committee report that the
expropriation exception was “in no way [to] affect[]
existing law on the extent to which, if at all, the ‘act of
state’ doctrine may be applicable.” H.R. Rep. No. 94-1487,
at 20 (1976), reprinted in 1976 U.S.C.C.A.N. 1604, 1618. This
comment was interpreted as requiring that the types of
property subject to the expropriation exception parallel
Nos. 11-2387 & 11-2791 19
the types of property permitted under the act of state
doctrine. See Canadian Overseas Ores Ltd. v. Compania de
Acero Del Pacifico S.A., 528 F. Supp. 1337, 1346 (S.D.N.Y.
1982), aff’d on other grounds, 727 F.2d 274 (2d Cir. 1984).
Rejecting this reasoning, the D.C. Circuit pointed out
that the statutory language of the expropriation excep-
tion did not support any distinction between tangible
and intangible property. 491 F.3d at 478. The D.C. Circuit
also dissected the legislative history and concluded
that “ ‘the tangible/intangible characterization of
property interests . . . is a distinction without a difference’
and ‘is not generally recognized in international, federal,
or state law.’ ” 491 F.3d at 478 (alteration in original),
quoting West v. Multibanco Comermex, S.A., 807 F.2d 820,
830 (9th Cir. 1987) (rejecting tangible/intangible distinc-
tion under act of state doctrine). The D.C. Circuit
therefore concluded that the expropriation exception
could apply to claims for the expropriation of the appel-
lants’ bank accounts, 491 F.3d at 480, though the
court later found that the claims were properly
dismissed for failure to meet the “owned or operated”
prong of the nexus requirement, which we discuss be-
low. Without retracing the details of the argument, suffice
it to say that on this issue, we agree with the D.C. Circuit
in Nemariam and hold that the “rights in property” element
of the FSIA’s expropriation exception applies to both
tangible and intangible property.5
5
The D.C. Circuit appears to be the only circuit that has
decided this issue. The Second Circuit explicitly declined to
(continued...)
20 Nos. 11-2387 & 11-2791
2. “Taken“
The national bank argues next that even if we agree
with Nemariam that rights in intangible property are
“rights in property” under the expropriation exception,
plaintiffs’ claims fail because the D.C. Circuit found
that the bank account proceeds in that case were not
“taken” within the meaning of the FSIA. The argument
misreads Nemariam. The D.C. Circuit held that the defen-
dant bank in that case did not “own or operate” the
allegedly expropriated property, 491 F.3d at 481, and
never discussed whether the property was “taken” within
the meaning of the expropriation exception. The term
“taken” is intended to distinguish between the acts of a
sovereign and the acts of a private enterprise. See Zappia
Middle East Const. Co., 215 F.3d at 251 (“The term ‘taken’
thus clearly refers to acts of a sovereign, not a private
enterprise, that deprive a plaintiff of property without
adequate compensation.”). The parties agree that the
5
(...continued)
decide the issue in Zappia Middle East Const. Co., 215 F.3d at 251,
and the Eighth Circuit noted but did not decide it in Brewer
v. Socialist People’s Republic of Iraq, 890 F.2d 97, 101 (8th Cir.
1989). In cases where victorious plaintiffs have sought to
attach property of foreign states in the United States, see 28
U.S.C. § 1610, other circuits have assumed that sovereign
“property” that can be attached includes intangible property,
such as a right to payment. See Peterson v. Islamic Republic of
Iran, 627 F.3d 1117, 1131 (9th Cir. 2010); FG Hemisphere Assocs.,
LLC v. République du Congo, 455 F.3d 575, 588-90 (5th Cir.
2006); Connecticut Bank of Commerce v. Republic of Congo,
309 F.3d 240, 251 (5th Cir. 2002).
Nos. 11-2387 & 11-2791 21
national bank is an instrumentality of Hungary under
the FSIA. Any property expropriated by the national
bank would qualify as “taken” and could be subject to
the expropriation exception.
3. Violation of International Law
The next element of the expropriation exception
requires a plaintiff first to allege and ultimately to
prove that the expropriation of property was a violation
of international law. This element provides the most im-
portant and complex problems for us. The national
bank advances four arguments as to why the alleged
takings could not have violated international law, two
of which are also pressed by the national railway. First,
both defendants argue that expropriations of property
from Hungarian nationals by Hungarian authorities
were “domestic takings” that could not violate inter-
national law. Second, the national bank argues that
U.S. law preempts genocide claims based on customary
international law. Third, both defendants argue that the
alleged takings were not violations of international
law because plaintiffs failed to exhaust available
remedies in Hungary. Fourth, the national bank argues
that no actionable rights exist under the treaties, charters,
or conventions cited in the complaint. We consider
these arguments in turn.
22 Nos. 11-2387 & 11-2791
a. Domestic Takings
Plaintiffs allege that the national bank and national
railway, instruments of the Hungarian sovereign, expropri-
ated assets from Hungarian nationals pursuant to
official decrees, legislation, and actions mandated by the
then Hungarian government. Defendants both argue
that during World War II, customary international law
universally recognized that a sovereign could expropriate
the property of its own nationals within its own ter-
ritory without violating international law.
This rule of international law, that a so-called “domestic
taking” cannot violate international law, has been recog-
nized and applied in many decisions in U.S. courts. See,
e.g., United States v. Belmont, 301 U.S. 324, 332 (1937)
(enforcing international agreement by which United
States effectively ratified Soviet Union’s expropriation of
Russian corporation’s property: “What another country
has done in the way of taking over property of its nation-
als, and especially of its corporations, is not a matter
for judicial consideration here. Such nationals must look
to their own government for any redress to which they
may be entitled.”); Dreyfus v. Von Finck, 534 F.2d 24, 31
(2d Cir. 1976) (“violations of international law do not
occur when the aggrieved parties are nationals of the
acting state”); Siderman de Blake v. Republic of Argentina,
965 F.2d 699, 711 (9th Cir. 1992) (“Expropriation by a
sovereign state of the property of its own nationals does
not implicate settled principles of international law.”),
quoting Chuidian v. Philippine Nat’l Bank, 912 F.2d 1095,
1105 (9th Cir. 1990); FOGADE v. ENB Revocable Trust,
Nos. 11-2387 & 11-2791 23
263 F.3d 1274, 1294 (11th Cir. 2001) (“As a rule, when
a foreign nation confiscates the property of its own nation-
als, it does not implicate principles of international law.”);
de Sanchez v. Banco Central de Nicaragua, 770 F.2d 1385, 1397
(5th Cir. 1985) (“At present, the taking by a state of its
national’s property does not contravene the international
law of minimum human rights.”); Jafari v. Islamic Republic
of Iran, 539 F. Supp. 209, 215 (N.D. Ill. 1982) (“Similarly,
the ‘law of nations’ does not prohibit a government’s
expropriation of the property of its own nationals.”); Wahba
v. National Bank of Egypt, 457 F. Supp. 2d 721, 731 (E.D.
Tex. 2006) (“The expropriation exception does not
apply, however, to a foreign state’s dealings with
property owned by its own nationals.”); see also Restate-
ment (Third) of Foreign Relations Law § 712(1) (1987) (a
state is responsible under international law for injury
resulting from “a taking by the state of the property of
a national of another state” if taking is not for public
purpose, is discriminatory, or is not accompanied by
provision for just compensation) (emphasis added).
Defendants argue that such “domestic takings” were not
a violation of international law in 1944 or today and
therefore cannot support a claim under the expropria-
tion exception to FSIA immunity.
If we were dealing with claims of only expropriation
of property, as was true in almost all of the cited cases,
we would agree and would apply the domestic takings
exception here. For example, in Chuidian, U.S. courts
applied the domestic takings rule and found no violation
of international law when officials of the new Aquino
government in the Philippines instructed a U.S. bank to
24 Nos. 11-2387 & 11-2791
dishonor a letter of credit that had been issued in favor
of a close associate of former president Marcos. 912 F.2d
at 1105, abrogated on other grounds by Samantar v. Yousuf,
130 S. Ct. 2278 (2001). In de Sanchez, the domestic takings
rule applied when a new Nicaraguan government
placed a stop-payment order on a check issued by the
national bank to the wife of a minister in the former
government. 770 F.2d at 1395. In FOGADE, the domestic
takings rule applied when the Venezuelan government
placed a Venezuelan corporation in something akin to
a receivership. 263 F.3d at 1294. In Wahba, the domestic
takings rule applied when the national bank of Egypt
seized the assets of Egyptian citizens who were
business partners with government enterprises to
retaliate against speculation in cotton markets that
harmed Egyptian interests. 457 F. Supp. 2d at 731. In
Jafari, the domestic takings rule applied to claims that a
new Iranian government had expropriated real estate,
pensions, and other property from several Iranian citi-
zens. 539 F. Supp. at 215 (“It may be foreign to our way
of life and thought, but the fact is that governmental
expropriation is not so universally abhorred that its
prohibition commands the ‘general assent of civilized
nations’ — a prerequisite to incorporation in the ‘law
of nations.’ ”) (citation omitted).
We do not question these cases applying the domestic
takings rule, which recognizes that views among
nations about private property rights and the role of
government differ, as Judge Shadur noted in Jafari.
Actions that might appear to one regime or nation as
Nos. 11-2387 & 11-2791 25
unfair expropriations might seem to another to be a just
remedy for decades or more of exploitation of the
poor and downtrodden.
We are convinced, though, that the plaintiffs’ allega-
tions about the relationship between genocide and ex-
propriation in the Hungarian Holocaust take these cases
outside the domestic takings rule and its foundations.
Genocide, the complaints here clearly imply, can be an
expensive proposition. Expropriating property from
the targets of genocide has the ghoulishly efficient result
of both paying for the costs associated with a systematic
attempt to murder an entire people and leaving destitute
any who manage to survive. The expropriations alleged
by plaintiffs in these cases — the freezing of bank accounts,
the straw-man control of corporations, the looting of safe
deposit boxes and suitcases brought by Jews to the train
stations, and even charging third-class train fares to
victims being sent to death camps — should be viewed, at
least on the pleadings, as an integral part of the genocidal
plan to depopulate Hungary of its Jews. The expropria-
tions thus effectuated genocide in two ways. They
funded the transport and murder of Hungarian Jews, and
they impoverished those who survived, depriving them
of the financial means to reconstitute their lives and
former communities.
All U.S. courts to consider the issue recognize
genocide as a violation of customary international law.
See, e.g., Sarei v. Rio Tinto, PLC, 671 F.3d 736, 759 (9th
Cir. 2011) (“Claims of genocide, therefore, fall within
the limited category of claims constituting a violation
26 Nos. 11-2387 & 11-2791
of internationally accepted norms for [Alien Tort
Statute] jurisdiction.”), petition for cert. filed, 80 U.S.L.W.
3335 (U.S. Nov. 23, 2011) (No. 11-649); Flores v. Southern
Peru Copper Corp., 414 F.3d 233, 244 n.18 (2d Cir. 2003)
(“Customary international law rules proscribing crimes
against humanity, including genocide, and war crimes,
have been enforceable against individuals since World
War II.”); Kadic v. Karadžiƒ , 70 F.3d 232, 241 (2d Cir. 1995)
(“In the aftermath of the atrocities committed during
the Second World War, the condemnation of genocide
as contrary to international law quickly achieved broad
acceptance by the community of nations.”); Siderman de
Blake, 965 F.2d at 715 (“The universal and fundamental
rights of human beings identified by Nuremberg —
rights against genocide, enslavement, and other inhumane
acts — are the direct ancestors of the universal and funda-
mental norms recognized as jus cogens.”) (internal citation
omitted); Tel-Oren v. Libyan Arab Republic, 726 F.2d 774, 791
n.20 (D.C. Cir. 1984) (Edwards, J., concurring) (“On
the basis of international covenants, agreements and
declarations, commentators have identified at least four
acts that are now subject to unequivocal international
condemnation: torture, summary execution, genocide
and slavery.”) (citations omitted); Beanal v. Freeport-
McMoRan, Inc., 969 F. Supp. 362, 371 (E.D. La. 1997)
(“Genocide, for example, violates international law,
whether undertaken by a state or nonstate actor.”), aff’d
on other grounds, 197 F.3d 161 (5th Cir. 1999); Handel v.
Artukovic, 601 F. Supp. 1421, 1428 (C.D. Cal. 1985) (“It
appears clear that the acts of genocide, torture, enslave-
ment, and religious discrimination alleged in plaintiffs’
Nos. 11-2387 & 11-2791 27
complaint constituted violations of the laws of humanity
at the time they were committed.”); see also Sosa v. Alvarez-
Machain, 542 U.S. 692, 762 (2004) (Breyer, J., concurring
in part and concurring in the judgment) (“Today inter-
national law will sometimes similarly reflect not only
substantive agreement as to certain universally
condemned behavior but also procedural agreement
that universal jurisdiction exists to prosecute a subset of
that behavior. That subset includes torture, genocide,
crimes against humanity, and war crimes.”) (internal
citation omitted); Restatement (Third) of Foreign
Relations Law of the United States § 702 (recognizing
genocide as a violation of international law).
Genocide also has been criminalized by the inter-
national criminal tribunals. See Rome Statute of the
International Criminal Court, arts. 5-6; Statute of the
International Criminal Tribunal for the former Yugoslavia,
art. 4; Statute of the International Criminal Tribunal
for Rwanda, art. 2. Genocide has been recognized as a jus
cogens norm. As we noted in Sampson, jus cogens norms
supported the prosecutions in the Nuremberg trials. 250
F.3d at 1150; see also Siderman de Blake, 965 F.2d at 715
(“The universal and fundamental rights of human beings
identified by Nuremberg — rights against genocide,
enslavement, and other inhumane acts — are the
direct ancestors of the universal and fundamental norms
recognized as jus cogens.”) (internal citation omitted).
On this general point, the “general assent of civilized
nations” is well established. The international norm
against genocide is specific, universal, and obligatory.
28 Nos. 11-2387 & 11-2791
Where international law universally condemns the ends,
we do not believe the domestic takings rule can be used
to require courts to turn a blind eye to the means used
to carry out those ends — in this case, widespread ex-
propriation of victims’ property to fund and accom-
plish the genocide itself. Plaintiffs’ allegations of these
expropriations as an integral party of the overall
genocidal plan allege violations of international law
notwithstanding the domestic takings rule that would
apply in most other circumstances.6
Defendants protest that plaintiffs cannot convert what
defendants characterize as “non-actionable domestic
takings” claims into genocide-based claims. Such
claims, as converted, could proceed, if at all, argues the
6
We are not persuaded by plaintiffs’ argument that the
domestic takings rule operates to bar the claims of only citizens
and thus should not apply in this case on the theory that
plaintiffs were not citizens of Hungary “in any meaningful
sense” at the time of expropriation. Most courts agree that the
relevant inquiry for purposes of the domestic takings rule is
whether plaintiffs are nationals of the expropriating state. See
Belmont, 301 U.S. at 332; Banco Nacional de Cuba v. Sabbatino, 376
U.S. 398, 442 (1964) (White, J., dissenting); Dreyfus, 534 F.2d at
31; Siderman de Blake, 965 F.2d at 711; Chuidian, 912 F.2d at 1105;
FOGADE, 263 F.3d at 1294; de Sanchez, 770 F.2d at 1397; Jafari,
539 F. Supp. at 215; Wahba, 457 F. Supp. at 731; see also Restate-
ment (Third) of Foreign Relations Law § 712(1) (1987). But see
de Csepel v. Republic of Hungary, 808 F. Supp. 2d 113, 129-31
(D.D.C. 2011) (adopting distinction in Holocaust case); Cassirer
v. Kingdom of Spain, 461 F. Supp. 2d 1157, 1165-66 (C.D. Cal.
2006) (same), aff’d in part, 616 F.3d at 1023 n.2.
Nos. 11-2387 & 11-2791 29
national bank, only under the FSIA’s non-commercial
tort exception for claims for personal injury or death, but
that exception cannot apply in these cases because it
applies only if the offending conduct occurred in the
United States. 28 U.S.C. § 1605(a)(5). We agree with the
national bank that plaintiffs cannot bring claims for
personal injury or death under the expropriation excep-
tion. Plaintiffs’ claims, however, are not for personal
injury or death. They are for property expropriated pursu-
ant to and as an integral part of a widespread campaign
to deprive Hungarian Jews of their wealth and to
fund genocide, a long-recognized violation of inter-
national law. We acknowledge that the fact that
plaintiffs can seek compensation for taken property but
not for taken lives seems anomalous. That anomaly,
however, is the product of the statutory limits of the
FSIA. The limits on remedies available in U.S. courts do
not indicate a deficiency in their claims under substan-
tive international law. Jurisdiction over plaintiffs’ claims
is not barred by the domestic takings rule.7
7
Two of the cited cases applying the domestic takings rule
are closer to our case because they alleged expropriation
motivated by religious hatred. We believe both cases are
distinguishable from the plaintiffs’ allegations of expropria-
tions to fund genocide in these cases. In Dreyfus, the Second
Circuit applied the domestic takings rule to dismiss a
German Jew’s claims against German citizens to whom he
sold his business under Nazi compulsion and duress in 1938
as he was forced to leave Germany. 534 F.2d at 31. Siderman
(continued...)
30 Nos. 11-2387 & 11-2791
b. Federal Preemption
The national bank next argues that federal law preempts
genocide claims based on customary international law.
Here, the national bank argues, we may not recognize
plaintiffs’ claims of genocide by expropriation because
the Genocide Convention Implementation Act of 1987
(the “Proxmire Act”), 18 U.S.C. §§ 1091-93, established a
federal statutory framework that precludes such claims
by: (1) defining genocide with a list of acts that does not
include theft or looting of assets among the culpable
activities; and (2) more important to the national bank,
expressly disavowing private civil claims.
As a general rule, customary international law is not
applicable in U.S. courts where a controlling federal
7
(...continued)
de Blake applied the rule to affirm dismissal of claims by
Argentine Jews against the Argentine military government
for expropriation of property, along with torture and other
wrongs motivated by religious hatred, but the court held that
a U.S. citizen could pursue an expropriation claim. 965 F.2d
at 711. In terms of international law, even these examples
of expropriation motivated by religious hatred fall well short
of the genocide alleged here. Dreyfus was forced to leave
Germany, but he was not sent to a death camp. The abominable
torture in Siderman de Blake was surely horrific for the individu-
als involved but simply was not on a scale comparable to the
Holocaust, nor was it financed by the expropriation of the
victim’s property. The case did not present the integral rela-
tionship between expropriation and genocide that is alleged
here.
Nos. 11-2387 & 11-2791 31
statute prescribes different standards. Bradvica v. I.N.S., 128
F.3d 1009, 1014 n.5 (7th Cir. 1997); Committee of U.S.
Citizens Living in Nicaragua v. Reagan, 859 F.2d 929, 939
(D.C. Cir. 1988). For example, in Enahoro v. Abubakar,
Nigerian nationals pled their claims of torture and killing
by a former Nigerian head of state as a common law
violation of the law of nations under the Alien Tort
Statute. 408 F.3d 877 (7th Cir. 2005). The defendant
argued that because the plaintiffs had not complied with
the exhaustion requirement in the Torture Victim Protec-
tion Act, their case should be dismissed. Id. at 884. The
district court rejected this argument because plaintiffs
had pled their case under the Alien Tort Statute and not
the Torture Victim Protection Act. The district court
found they had no reason to comply with the require-
ments of the latter act. Id. We rejected this argument,
finding that the Torture Victim Protection Act “occup[ied]
the field” such that plaintiffs could not choose to file
their torture and extrajudicial killing claims under
the Alien Tort Statute when they would have been prop-
erly pled under the Torture Victim Protection Act. Id.
at 884-85.
That is not the case here, however. As the national
bank itself repeatedly emphasizes, the claims in the
bank case stem from the alleged expropriation of personal
property from Hungarian nationals by the Hungarian
national bank. The jurisdiction of the Proxmire Act, the
statute that the national bank claims preempts the
bank plaintiffs’ claims, is explicitly limited to genocide
committed either in whole or in part within the United
States or, regardless of where the offense is committed,
32 Nos. 11-2387 & 11-2791
to cases where the alleged offender is a U.S. national, a
lawful permanent U.S. resident, a stateless person
residing in the United States, or present in the United
States. 18 U.S.C. § 1091; see also Sampson, 975 F. Supp. at
1119-20. Because the bank plaintiffs’ claims clearly do
not fall within the scope of the Proxmire Act, that
statute does not preempt their claims under customary
international law.
c. Exhaustion of Domestic Remedies
Defendants next argue that the alleged expropriation
cannot be considered a violation of international law
because plaintiffs have not alleged that they have
pursued and exhausted domestic remedies in Hungary,
the foreign state that is alleged to have caused the in-
jury. This argument presents two separate questions: first,
whether the FSIA itself imposes a statutory exhaustion
requirement, and second, whether international law
requires exhaustion of domestic remedies before
plaintiffs can establish a violation.
On the statutory exhaustion point, nothing in § 1605(a)(3)
suggests that plaintiffs must exhaust domestic Hungarian
remedies before bringing suit in the United States. It does
not, for example, condition the exception to immunity
on a claimant’s having first presented his claim to the
courts of the country being sued or to an international
tribunal. Defendants have identified no language in the
FSIA and no case law indicating that the FSIA contains
a statutory exhaustion requirement. The Ninth Circuit
and the D.C. Circuit have both held that it does not. See
Nos. 11-2387 & 11-2791 33
Cassirer v. Kingdom of Spain, 616 F.3d 1019, 1034-37 (9th
Cir. 2010); Agudas Chasidei Chabad of U.S. v. Russian
Fed’n, 528 F.3d 934, 948-49 (D.C. Cir. 2008). We agree
with the Ninth and D.C. Circuits that the FSIA does not
contain a statutory exhaustion requirement.8
Whether a plaintiff must exhaust domestic remedies
to assert a claim for expropriation in violation of interna-
tional law is a different question. Defendants argue that
plaintiffs cannot complain that a “taking” has not been
fairly compensated (and hence violates international
law) unless they first pursue and exhaust any available
Hungarian remedies, or at least provide a legally compel-
ling explanation for why they have not done so. Noting
that “Hungary is a well-established European state, with
a well functioning legal system that operates under
established and cognizable rules of law,” the national
bank offers a 1992 statute as an example of “the variety
of laws that Hungary has enacted to provide compensa-
tion to individuals in [plaintiffs’] position.” Plaintiffs
respond by arguing that domestic exhaustion is not
required by international law. In the alternative, they
argue that even if exhaustion is required generally, it
8
The FSIA previously contained one exception with a local
exhaustion requirement, § 1605(a)(7), which for certain suits
required that the foreign state be granted “a reasonable op-
portunity to arbitrate the claim in accordance with accepted
international rules of arbitration.” Congress repealed that
exception in 2008. See National Defense Authorization
Act for Fiscal Year 2008, Pub. L. No. 110-181, div. A,
§ 1083(b)(1)(A)(iii), 122 Stat. 3, 341 (2008).
34 Nos. 11-2387 & 11-2791
should not be required in these cases because both sets
of plaintiffs have satisfactorily explained their failure to
do so.
The international law issue therefore breaks down
into two distinct questions. One, does international law
require plaintiffs to exhaust domestic remedies before
pursuing expropriation claims elsewhere? Two, if ex-
haustion is required, have plaintiffs exhausted domestic
remedies or, in the alternative, have they provided a
legally compelling reason for their failure to do so?
On the first question, the Supreme Court has suggested
that exhaustion of domestic remedies may well be neces-
sary to assert a violation of customary international
law, but the Court has not answered the question defini-
tively. In Sosa v. Alvarez-Machain, 542 U.S. 692, 733 n.21
(2004), the Court noted that it “would certainly consider”
whether claimants must have exhausted domestic or
international remedies before asserting a claim in a
foreign forum “in an appropriate case.” In another
claim involving property expropriated during the Holo-
caust, Justice Breyer wrote that “a plaintiff may have to
show an absence of remedies in the foreign country
sufficient to compensate for any taking.” Altmann, 541
U.S. at 714 (Breyer, J., concurring). We have likewise
noted that “[i]t may be that a requirement for exhaus-
tion is itself a basic principle of international law.” Enahoro,
408 F.3d at 886.
In fact, the requirement that domestic remedies for
expropriation be exhausted before international pro-
ceedings may be instituted is “a well-established rule
Nos. 11-2387 & 11-2791 35
of customary international law” that the United States
itself has invoked. Interhandel (Switz. v. U.S.), Preliminary
Objections, 1959 I.C.J. 6, 26-27 (Mar. 21) (upholding the
United States’ Third Preliminary Objection that the
Court had no jurisdiction to hear or determine the
matters raised by the Swiss Application and Memorial
because Interhandel, whose case Switzerland was
pressing, had not exhausted the local remedies available
to it in U.S. courts); see also American Convention on
Human Rights, art. 46, Nov. 22, 1969, 1144 U.N.T.S.
123 (“Admission by the Commission of a petition or
communication lodged in accordance with Articles 44 or
45 shall be subject to the following requirements: That
the remedies under domestic law have been pursued
and exhausted in accordance with generally recognized
principles of international law . . . .”); Convention for
the Protection of Human Rights and Fundamental Free-
doms, art. 26, Nov. 4, 1950, 213 U.N.T.S. 221 (“The Com-
mission may only deal with the matter after all domestic
remedies have been exhausted, according to the gen-
erally recognised rules of international law, and within
a period of six months from the date on which the
final decision was taken.”); Millicom Int’l Cellular, S.A. v.
Republic of Costa Rica, 995 F. Supp. 14, 23 (D.D.C. 1998);
Greenpeace, Inc. (USA) v. State of France, 946 F. Supp. 773,
783 (C.D. Cal. 1996); Restatement (Third) of the Foreign
Relations Law of the United States § 713 cmt. f (“Under
international law, ordinarily a state is not required to
consider a claim by another state for an injury to its
national until that person has exhausted domestic
remedies . . . [listing exceptions.]”); Ian Brownlie, Princi-
36 Nos. 11-2387 & 11-2791
ples of Public International Law 492-501 (7th ed. 2008).9
This rule is based on the idea that the state where
the alleged violation occurred should have an
opportunity to redress it by its own means, within the
framework of its own legal system. Interhandel, 1959 I.C.J.
at 26-27; see also Brownlie at 492-93 (listing
other practical and political considerations justifying
the domestic exhaustion rule).
The Interhandel case is helpful for two reasons. First,
it lays out the sovereignty and comity concerns
underlying the domestic exhaustion rule. Second, it is a
case in which the United States requested that an inter-
national court refrain from adjudicating a claim
because the plaintiffs had not exhausted available U.S.
remedies. Comity requires that the United States be
prepared to reciprocate. In Interhandel, Switzerland filed
with the International Court of Justice an application
for interim measures of protection against the United
States. In 1942, the U.S. government seized a Swiss sub-
9
The Ninth Circuit rejected Millicom, Greenpeace, and the
Restatement as support for the proposition that the FSIA
imposes a statutory exhaustion requirement, but declined to
consider whether prudential exhaustion could be invoked to
affect when a decision on the merits may be made. Cassirer,
616 F.3d at 1037. The D.C. Circuit rejected a similar exhaus-
tion argument based on the Restatement, but ultimately
decided the issue based on the fact that, even if exhaustion
were required, the remedy identified by the defendant was
on its face inadequate. Agudas Chasidei Chabad of U.S., 528
F.3d at 949.
Nos. 11-2387 & 11-2791 37
sidiary of Interhandel as enemy property under the
Trading with the Enemy Act. The United States
contended that the subsidiary was owned by or held
for the benefit of a German company and thus was sub-
stantially under the control of an enemy corporation. See
K.R. Simmonds, The Interhandel Case, 10 Int’l & Comp. L. Q.
495, 496 (1961). Relying upon the provisions of the
Trading with the Enemy Act, Interhandel sought relief
in the U.S. District Court for the District of Columbia. The
suit bounced around the federal courts for years, and
litigation was proceeding before the U.S. Supreme
Court when the Swiss application and the United
States’ Preliminary Objections were submitted to the
International Court of Justice. Id. at 501. The United States’
Third Preliminary Objection sought a finding that the
International Court of Justice did not have jurisdiction
over the Swiss application because Interhandel had not
exhausted the local remedies available to it in the
U.S. courts. Interhandel, 1959 I.C.J. at 26.
In finding that it lacked jurisdiction due to
Interhandel’s failure to exhaust available U.S. remedies,
the International Court of Justice noted that the
domestic exhaustion rule is well established in
customary international law, generally being observed
in cases where a state has adopted the cause of its
national who claims another state violated his rights
in violation of international law. Id. at 26-27. The Inter-
national Court of Justice further found that the
domestic exhaustion rule applied with equal force when
domestic proceedings were pending and the domestic
and international proceedings were designed to obtain
the same result. Id. at 27.
38 Nos. 11-2387 & 11-2791
In Millicom, three corporate entities brought suit in
the United States against the Republic of Costa Rica, a
Costa Rican instrumentality, and a subsidiary of the
Costa Rican instrum en tality. The suit alleged
unlawful anti-competitive activity and other related
misconduct in the Costa Rican cellular services market.
995 F. Supp. at 15. Citing Greenpeace (which in turn cited
Interhandel), the district court noted: “As a threshold
matter, a claimant cannot complain that a ‘taking’ or
other economic injury has not been fairly compensated,
and hence violates international law unless the claimant
has first pursued and exhausted domestic remedies in
the foreign state that is alleged to have caused the in-
jury.” Id. at 23. The court then explained that none of the
exceptions recognized in the Restatement applied. Id.
Plaintiffs attempt to distinguish Millicom by arguing
that case requires plaintiffs to show domestic exhaus-
tion only where efforts to recover “taken” assets are
contemporaneous with the taking itself. The district
court in Millicom did not, however, indicate that the
timing of the plaintiffs’ complaint affected its reasoning.
Rather, the Millicom court’s citation to Interhandel seems
to indicate that its reasoning was predicated on the
comity and reciprocity concerns underpinning the domes-
tic exhaustion rule. Moreover, it would be an odd rule
of law if a plaintiff could avoid an exhaustion require-
ment by simply waiting long enough to bring the claim.
As Justice Breyer noted in his concurrence in Altmann,
U.S. constitutional law requires a claimant to exhaust
available post-deprivation remedies before a state or
local government’s taking of property can be deemed a
Nos. 11-2387 & 11-2791 39
federal constitutional violation. 541 U.S. at 714 (Breyer, J.,
concurring), citing City of Monterey v. Del Monte Dunes
at Monterey, Ltd., 526 U.S. 687, 721 (1999), and Kirby
Forest Indus., Inc. v. U.S., 467 U.S. 1, 10 (1984). “A
federal court, moreover, cannot entertain a takings
claim under § 1983 unless or until the complaining land-
owner has been denied an adequate postdeprivation
remedy.” City of Monterey, 526 U.S. at 721.
These claims of takings of property in violation of
international law are similar enough to expect
claimants in these plaintiffs’ situations either to pursue
and exhaust domestic remedies in Hungary or to show
convincingly that such remedies are clearly a sham or
inadequate or that their application is unreasonably
prolonged. See Restatement (Third) of the Foreign Rela-
tions Law of the United States § 713 cmt. f. We hope we
are not misunderstood. We do not mean to suggest that
Hungary had in place meaningful remedies at the
time of the Holocaust or during more than 40 years of
Communist government after the war. But plaintiffs
are pursuing their claims now, more than 65 years after
the expropriations took place and after Hungary has
had more than 20 years of government not dominated
by the Soviet Union. Now is the relevant time for evalu-
ating the adequacy of domestic remedies.1 0
10
In Flomo, an Alien Tort Statute case brought against private
defendants, we rejected a rigid exhaustion requirement but
recognized that a U.S. court might need to stay a case to
(continued...)
40 Nos. 11-2387 & 11-2791
As we consider this exhaustion issue, we cannot
overlook the comity and reciprocity between sovereign
nations that dominate international law. The plaintiffs
suing the railway seek a judgment from a U.S. court
ordering the national railway to pay plaintiffs as much
a $1.25 billion. The plaintiffs suing the bank seek as
much as $75 billion. The sum of damages sought by
plaintiffs would amount to nearly 40 percent of
Hungary’s annual gross domestic product in 2011.
Divided among Hungary’s current population of
10 million people, that is more than $7500 per person.
We should consider how the United States would react
if a foreign court ordered the U.S. Treasury or the
Federal Reserve Bank to pay a group of plaintiffs
40 percent of U.S. annual gross domestic product, which
would be roughly $6 trillion, or $20,000 for every
resident in the United States. And consider further
the reaction if such an order were based on events that
10
(...continued)
allow for exhaustion as a matter of comity: “The first [argument
we reject] is that plaintiffs must exhaust their legal remedies
in the nation in which the alleged violation of customary
international law occurred. The implications of this argument
border on the ridiculous; imagine having been required to
file suit in a court in Nazi Germany complaining about
genocide before being able to sue under the Alien Tort Statute.
What is true is that a U.S. court might, as a matter of interna-
tional comity, stay an Alien Tort suit that had been filed in
the U.S. court, in order to give the courts of the nation in
which the violation had occurred a chance to remedy it, pro-
vided that the nation seemed willing and able to do that.”
Flomo, 643 F.3d at 1025.
Nos. 11-2387 & 11-2791 41
happened generations ago in the United States itself,
without any effort to secure just compensation through
U.S. courts. If U.S. courts are ready to exercise jurisdic-
tion to right wrongs all over the world, including those
of past generations, we should not complain if other
countries’ courts decide to do the same.
Hungary, a modern republic and member of the Euro-
pean Union, deserves a chance to address these claims.
That is not to say that U.S. courts have no place in
this sort of case. If plaintiffs choose to pursue their
claims in Hungary but find the way barred by inaction or
hostility, the U.S. courts may be available to consider
their claims. But Hungary should first have the opportu-
nity to address these alleged takings, by its own means
and under its own legal system, before a U.S. court steps
in to resolve claims against a part of the Hungarian na-
tional government for these actions taken in Hungary
so long ago.11
We now turn to whether there is a legally compelling
reason for plaintiffs’ failure to exhaust Hungarian reme-
dies, such that the domestic exhaustion rule should not
bar their claims. Plaintiffs advance three arguments on
this point. First, plaintiffs argue that defendants’ denial
of their factual allegations means that Hungary denies
responsibility for their claims. Next, plaintiffs argue
11
Plaintiffs have advised us that Hungary has amended
its constitution to declare that there are no statutes of limita-
tions on crimes visited upon the Hungarian people during
World War II.
42 Nos. 11-2387 & 11-2791
that any potential remedies in Hungary are inadequate,
pointing out that the Constitutional Court of Hungary
ruled in 1993 that Hungary had never fully complied
with its obligation to make reparations under the 1973
Agreement. Last, they argue that any Hungarian remedy
that might exist now has been unreasonably prolonged, as
most of the claimants are surviving family members
and Hungary still has not moved to compensate these
plaintiffs or to set up procedures for such compensation.
These arguments are based on the Restatement (Third) of
the Foreign Relations Law of the United States § 713,
comment f, which addresses state-to-state claims, where a
state brings a claim on behalf of its own nationals.1 2
These arguments are not persuasive. Plaintiffs cite
defendants’ decisions to defend themselves against this
litigation as evidence that Hungary as a sovereign is
denying responsibility for plaintiffs’ claims. The
argument proves too much, for it would excuse use of
domestic remedies in any case that is actually contested.
Switzerland raised the same objection in Interhandel,
12
Section 713 is written in terms of one state’s claim on behalf
of its nationals against another state. We believe the excep-
tions in comment f to § 713 should guide this inquiry into the
adequacy of domestic remedies. Plaintiffs in these cases ulti-
mately seek judgments from a U.S. court that the U.S. govern-
ment would try to enforce against arms of the Hungarian
government. The exceptions in comment f are where
domestic remedies “are clearly sham or inadequate, or their
application is unreasonably prolonged,” or if the respondent
state “firmly denies responsibility.”
Nos. 11-2387 & 11-2791 43
arguing that the domestic exhaustion rule did not apply
because it was the U.S. government, as opposed to a
subsidiary, that had taken the action against Interhandel.
The International Court of Justice rejected the argu-
ment, attaching “decisive importance” to the fact that
the law of the United States made available adequate
remedies for the defense of the rights that Interhandel
felt had been violated. 1959 I.C.J. at 27. We agree. Defen-
dants’ decisions to defend themselves rather than to
settle or concede is not tantamount to a decision by Hun-
gary, in its sovereign capacity, to deny plaintiffs’ claims.
Plaintiffs cite no legislation, executive statement, or case
law indicating that the Hungarian government denies
these events or would refuse to entertain claims for
losses related to the Holocaust. If U.S. courts implementing
procedures established by U.S. law can provide
adequate remedies against the U.S. government itself,
comity suggests that other nations are entitled to similar
opportunities to address claims against their agencies.
Nor does the Constitutional Court’s 1993 ruling con-
vince us that there is or was no adequate remedy
available to plaintiffs in Hungary. Nearly 20 years
have passed since that ruling. In that time Hungary has
adopted a new constitution and become a member of
both the European Union and NATO. Its legal system
operates under established rules of law. The fact that the
Constitutional Court was able and willing to rule that
Hungary never fully complied with its obligations to
make reparations under the 1973 Agreement suggests
that Hungary has a functional and independent judi-
ciary. These facts all point to Hungary’s apparent ability to
44 Nos. 11-2387 & 11-2791
provide an adequate remedy to plaintiffs, whether under
a statute specifically enacted to remedy Holocaust-era
injuries or under a general takings statute.
As for plaintiffs’ argument that any presently available
remedy was unreasonably prolonged, we must recall
that plaintiffs themselves waited until 2010 to file
their complaints in the United States. The German Founda-
tion and the Austrian General Settlement Fund,
two international settlements created for the benefit of
Holocaust victims, were finalized in 2000 and 2001, re-
spectively. Whether Hungary’s 1992 compensation
statute is, as plaintiffs claim, inadequate is a separate
question from whether it was unreasonably prolonged.
For purposes of this case, we think it was not
unreasonably prolonged. It was enacted nearly a decade
before the German Foundation or the Austrian General
Settlement Fund were created, and almost 20 years
before plaintiffs filed the complaints in these cases. Plain-
tiffs have not shown that any presently available
remedy was unreasonably prolonged.
In short, there is no reason for U.S. courts to take
up these claims without a persuasive showing that Hun-
garian law is unresponsive. We acknowledge, however,
that plaintiffs offer some powerful emotional reasons
against requiring exhaustion of domestic remedies. As
survivors of the effort of an earlier Hungarian
government to exterminate them or their loved ones,
plaintiffs have an understandable fear and reluctance
to trust a Hungarian forum to try their claims fairly.
Because of resurgent anti-Semitism and violence
Nos. 11-2387 & 11-2791 45
against Jews in Hungary, plaintiffs argue, they are also
concerned that their safety could be jeopardized if
they were forced to go to Hungary to testify in court.
That is in addition to the emotional trauma that might
be inflicted on plaintiffs by being forced to pursue
their claims in Hungary. Additionally, plaintiffs argue
that a lawsuit against Hungarian banks during a deep
recession would be exploited by some political factions
to promote anti-Semitic prejudice.
We are sympathetic to plaintiffs’ fears and concerns
about the prospect of trying their claims in Hungary.
But we should also remember that the claims asserted
here arose in Hungary more than 65 years ago. Hungary
is where much of the evidence and surviving witnesses
are located. And courts often deal with emotionally
charged cases and unpopular parties. The requirement
of domestic exhaustion is not based on the relative con-
venience of two nations’ courts. It is based on the power
of U.S. courts to hear a claim and the comity between
sovereign nations that lies close to the heart of most
international law. Plaintiffs have presented nothing
to indicate that the Hungarian courts would be so ob-
viously incapable of providing a fair and impartial
hearing that U.S. courts should take the extraordinary
step of hearing these claims without even giving Hungar-
ian courts an opportunity to address them.
Based on the information presented to us, plaintiffs
have not presented a legally compelling reason for why
the domestic exhaustion rule does not apply to their
claims. We thus vacate the denial of the dismissal of
46 Nos. 11-2387 & 11-2791
plaintiffs’ claims against the national bank and
national railway and remand those claims to the district
court for a more detailed examination of this pivotal
exhaustion issue. On remand, it will be defendants’
burden to be specific about what the national bank calls
the “variety of laws that Hungary has enacted to
provide compensation to individuals in [plaintiffs’]
position,” that is, the remedies defendants claim are
(or were) available to plaintiffs. Plaintiffs will then
have three options. (1) They can voluntarily dismiss
their claims against the national bank and national rail-
way without prejudice and pursue their claims in
Hungary using the remedies identified by defendants,
with a possibility that they might refile their case in a
U.S. court if and when they exhaust their remedies in
Hungary. (2) They can ask the district court to stay
their cases against the national bank and national
railway while they pursue the Hungarian remedies identi-
fied by defendants. (3) They can ask the district court
for an opportunity to develop further their arguments
regarding the actual adequacy and availability of those
remedies and the applicability of the domestic exhaus-
tion rule.
We express no opinion on the merits of whether
plaintiffs can meet the exhaustion requirement, but we
note two additional points. First, given the delays since
plaintiffs’ claims arose, it is possible that adequate reme-
dies that would have been reasonably available to
plaintiffs in the past are no longer available. If such
remedies are no longer available, that fact would not be
sufficient by itself to show that the remedies are inade-
Nos. 11-2387 & 11-2791 47
quate. Second, domestic Hungarian remedies need not
be perfectly congruent with those available in the
United States to be deemed adequate. Cf. Minneci v.
Pollard, 132 S. Ct. 617, 625 (2012) (recognizing, in the
context of a Bivens civil rights action, “the question is
whether, in general, state tort law remedies provide
roughly similar incentives for potential defendants to
comply with the Eighth Amendment while also
providing roughly similar compensation to victims of
violations.”); Brownlie, at 495 (“The remedies to be ex-
hausted comprise all forms of recourse as of right, in-
cluding administrative remedies of a legal nature but
not extra-legal remedies or remedies of grace. The best
test appears to be that an effective remedy must be avail-
able as a matter of possibility.”) (internal quotations
omitted).
d. Actionable Rights
For the sake of completeness, we also consider the
national bank’s final challenge to whether the plaintiffs
suing it have stated claims for expropriation in violation
of international law. The complaint alleges violations
of customary international law and relies on seven
treaties and conventions as forbidding looting, conver-
sion, and continued withholding of assets that prevent
the next of kin of victims of genocide from recon-
stituting their communities. The national bank argues
that those treaties and conventions cannot serve as the
basis for any international law violation because they
are not self-executing, do not provide private rights of
48 Nos. 11-2387 & 11-2791
action, and are inapplicable to the extent they were not
executed or ratified until after the Hungarian Holocaust
at issue here.
Customary international law encompasses “the customs
and usages of civilized nations,” Sosa, 542 U.S. at 734,
quoting The Paquete Habana, 175 U.S. 677, 700 (1900), that
are “specific, universal, and obligatory,” 542 U.S. at 732,
quoting In re Estate of Marcos Human Rights Litigation, 25
F.3d 1467, 1475 (9th Cir. 1994); see also Flomo v. Firestone
Natural Rubber Co., 643 F.3d 1013, 1016 (7th Cir. 2011).
Customary international law does not stem from any
single, definitive, readily identifiable source but is dis-
cerned from myriad decisions made in numerous and
varied international and domestic arenas. Flores v.
Southern Peru Copper Corp., 414 F.3d 233, 247-48 (2d Cir.
2003); see also Flomo, 643 F.3d at 1016. Customary inter-
national law thus resembles the domestic Anglo-American
common law in its original sense, as law arising from
custom rather than law that is formally promulgated.
Flomo, 643 F.3d at 1016, citing 1 William Blackstone,
Commentaries on the Laws of England 67-70 (1765).
As the district court noted, the plaintiffs suing
the bank have based their claims upon violations of
customary international law. Courts determine the
content of customary international law by “consulting the
works of jurists [i.e., respected scholars], writing pro-
fessedly on public law; or by the general usage and
practice of nations; or by judicial decisions recognising
and enforcing that law.” United States v. Smith, 18 U.S.
(5 Wheat.) 153, 160-61 (1820); see also Sampson, 250 F.3d
Nos. 11-2387 & 11-2791 49
at 1149, quoting Smith. It is not necessary that the
treaties, charters, or conventions cited be self-executing
or provide a private right of action. Conventions that
not all nations ratify can still be evidence of customary
international law. Flomo, 643 F.3d at 1021. As we
explained above, the expropriations alleged by plaintiffs
were an integral part of the planned genocide of the
Hungarian Holocaust. And genocide has been recog-
nized as a violation of customary international law. See
Part II.B.3.a, above.
Finally on this topic, the national bank argues that the
treaties, charters, and conventions cited in the complaint
do not apply to the extent that they were not exe-
cuted or ratified until after the Hungarian Holocaust at
issue here. This appears to be an adoption of co-defendant
OTP’s argument that genocide did not achieve the status
of a violation of international law until after the end of
World War II. As was pointed out in oral argument,
the Allies at Nuremburg hanged and imprisoned defen-
dants for genocide. Where defendants’ argument seems
to lead, then, would be to the improbable conclusion
that customary international law imposes a higher stan-
dard for making people pay money damages than for
executing or imprisoning them. At oral argument OTP
retreated from this position, and we decline to adopt
it here.
4. Nexus Requirement
In addition to showing that rights in property taken
in violation of international law are in issue, plaintiffs
50 Nos. 11-2387 & 11-2791
must also meet what has been called the “nexus require-
ment” of the expropriation exception in the FSIA. The
statute provides two paths to establish this nexus.
Plaintiffs could show that “property or any property
exchanged for such property is present in the United
States in connection with a commercial activity carried
on in the United States by the foreign state.” 28 U.S.C.
§ 1605(a)(3). Alternately, plaintiffs could show that
“property or any property exchanged for such property
is owned or operated by an agency or instrumentality
of the foreign state and that agency or instrumentality
is engaged in a commercial activity in the United States.”
28 U.S.C. § 1605(a)(3).
The plaintiffs in both the bank and railway cases rely
on the second clause and therefore must establish that
(a) the expropriated properties, or funds derived there-
from, are currently owned or operated by the defendant,
and (b) the defendant is engaged in a commercial
activity in the United States. We conclude that the plain-
tiffs suing the bank have alleged both elements
sufficiently at this stage of the case. It is not clear to us,
however, that the plaintiffs suing the railway have suf-
ficiently alleged that it is engaged in commercial activity
in the United States. We thus remand that issue to the
district court with instructions to allow jurisdictional
discovery on the issue of the national railway’s
U.S. commercial activity.
a. Owned or Operated
Defendants argue that plaintiffs fail to satisfy the
“owned or operated” prong because they have not suffi-
Nos. 11-2387 & 11-2791 51
ciently pled defendants’ retention of the taken
property, arguing that the complaints’ allegations are
inadequate and conclusory under FSIA case law and
implausible under Ashcroft v. Iqbal, 556 U.S. 662 (2009).
Even before the Supreme Court’s recent tightening
of pleading standards, some FSIA cases applying the
“owned or operated” requirement held that plaintiffs
may not merely parrot the statutory language or make
unsupported allegations in their pleadings. See Crist v.
Republic of Turkey, 995 F. Supp. 5, 11 (D.D.C. 1998)
(finding addition of “upon information and belief” to
the first disjunctive clause of the statutory language
insufficient to allege defendants currently owned or
operated allegedly expropriated property); see also
Greenpeace, 946 F. Supp. at 783; Fickling v. Commonwealth
of Australia, 775 F. Supp. 66, 71-72 (E.D.N.Y. 1991)
(finding allegation that “as a result of the acts
complained of herein, defendants operated Johned and
controlled the assets there[of]” was insufficient, noting,
“[o]ther than this bald assertion, plaintiffs have wholly
failed to set forth any facts which would lead this
Court to conclude that defendants operated or con-
trolled Johned or otherwise engaged in any com-
mercial activity related to this action”) (alterations origi-
nal). One case faltered on a requirement that plaintiffs
sufficiently allege defendant’s current ownership of the
expropriated property (or property exchanged for that
property). Alperin v. Vatican Bank, 365 F. App’x 74, 75-
76 (9th Cir. 2010) (finding plaintiffs failed to allege suf-
ficiently that defendants currently owned or operated
the property because (1) complaint alleged that de-
52 Nos. 11-2387 & 11-2791
fendants retained a “significant portion” of the illegally
expropriated property, but did not allege that the
retained portion included property illegally taken from
plaintiffs, and (2) complaint made no allegations as to
the current location of that property). Similarly, allega-
tions were held not sufficient where the expropriated
property was alleged to be “owned or operated” by the
defendant because the property had never been
returned to its owners and restitution had never been
made. Freund v. Republic of France, 592 F. Supp. 2d 540, 559-
60 (S.D.N.Y. 2008), aff’d sub nom. Freund v. Societe
Nationale des Chemins de fer Francais, 391 F. App’x 939, 940
(2d Cir. 2010). The Freund court reasoned that when
plaintiffs allege that the defendant owns or operates
property exchanged for the expropriated property, they
must sufficiently allege how the presently owned
property was derived from the expropriated property.
Id. at 560.
These demanding pleading requirements are difficult
to reconcile with Federal Rule of Civil Procedure 8(a)(2),
which provides: “A pleading that states a claim for
relief must contain a short and plain statement of the claim
showing that the pleader is entitled to relief . . .” (emphasis
added), and with the forms approved as sufficient as
part of the Federal Rules of Civil Procedure. For
example, Form 15 is a complaint for conversion of prop-
erty, which is the closest analog to plaintiffs’ claims
here. Rule 15 requires a statement of jurisdiction and then
an allegation that: “On date, at place, the defendant con-
verted to the defendant’s own use property owned by
Nos. 11-2387 & 11-2791 53
the plaintiff. The property converted consists of describe.”
With the addition of allegation of the value of the
property and a demand for relief, the complaint is suffi-
cient. See Fed. R. Civ. P. 84 (“The forms in the
Appendix suffice under these rules and illustrate the
simplicity and brevity that these rules contemplate.”). The
exceptions to the FSIA, including the expropriation ex-
ception and its elements, affect the court’s subject-
matter jurisdiction, but the Federal Rules of Civil Proce-
dure also contemplate brief allegations of the basis for
subject-matter jurisdiction. See Form 7.
In any event, we conclude that plaintiffs’ allegations to
satisfy the nexus requirement of the expropriation ex-
ception are sufficient. The plaintiffs suing the bank
allege the expropriation of bank accounts and, in one
case, a home. They further allege that the national
bank either kept the expropriated property or exchanged
it with other Hungarian banks or the Hungarian gov-
ernment for other property or rights in property, and
currently operates the expropriated property (or
property exchanged for it) in fractional reserve banking
transactions. The plaintiffs suing the railway allege the
expropriation of heirlooms, cash, suitcases, jewelry
and other valuables, as well as leaseholds and the em-
ployment contracts, insurance benefits, and pensions of
Jewish railway employees. They further allege that
the national railway either kept the expropriated
property or exchanged it for Nazi “credits” or “good-
will.” In fact, according to the plaintiffs, the national
railway to this day retains ownership of real property
54 Nos. 11-2387 & 11-2791
that was leased to Jewish railway employees at the
time they were deported to Auschwitz.1 3
13
The national railway challenges the plaintiffs’ allegations
involving intangible property. The railway argues that plain-
tiffs’ claims relating to expropriated intangible property, or
tangible property that was exchanged for intangible property —
as in the case of Nazi “credits” or “good-will” — cannot proceed
under the expropriation exception. The national bank made a
similar argument under the “rights in property” element, and
we reject the argument here as we did above. Although a
number of district courts have concluded that claims for
intangible property are not permitted under the expropria-
tion exception, the D.C. Circuit, the only circuit court to
have ruled directly on the issue, concluded that claims for
intangible property are permitted. We follow the D.C. Circuit
and conclude that the railway plaintiffs’ claims related to
intangible property are not barred under the expropriation
exception.
The national railway further urges that even if we
determine that Nazi “credits” and “good-will” count as
property for purposes of the expropriation exception, it cannot
plausibly be suggested that the national railway continues
to own or operate that property today. This argument is
similar to the national bank’s argument that post-war hyper-
inflation destroyed the value of the Hungarian currency
(and thus the value of expropriated bank accounts held in
that currency). The fact that expropriated property (or
property exchanged for that property) might no longer have
the value it did at the time it was expropriated or exchanged
would not mean that defendants no longer own or operate
that property.
Nos. 11-2387 & 11-2791 55
These allegations are not like those found insufficient
in the FSIA cases cited above. First, several of the
plaintiffs in the cited FSIA cases essentially pled them-
selves out of court. See, e.g., Freund, 391 F. App’x at 940
(noting that “the complaint itself alleges a sequence of
events that runs counter to any inference that the stolen
‘property or any property exchanged for such property
is owned or operated by’[the defendant]”); Alperin, 365
F. App’x at 75-76 (noting that complaint alleged that
defendants laundered, converted, and retained a “signifi-
cant portion” of the illegally expropriated property,
but did not allege that the retained portion included
property illegally taken from plaintiffs; complaint
alleged only that the property was laundered, converted,
and retained by defendants in the past but made no
allegations as to the current location of that property).
Moreover, unlike the plaintiffs in Fickling and Crist,
plaintiffs here have done much more than merely say
“defendant owns and operates expropriated property,”
or merely add “upon information and belief” to the
statutory language. Unlike the plaintiffs in Alperin, plain-
tiffs here allege both that the expropriated property
was retained and that defendants’ retention of the
property continues to the present. Plaintiffs may or
may not be able to prove the point, but their allega-
tions that defendants currently own or operate the al-
legedly expropriated property are sufficient at the
pleading stage.
Nor are plaintiffs’ allegations that defendants
currently own or operate the expropriated property
im plau sible. T he national bank offers several
56 Nos. 11-2387 & 11-2791
alternative explanations for what happened to plain-
tiffs’ property, including: (a) expropriated assets were
required to be turned over to a state postal bank
account (not held by the national bank); (b) the “Gold
Trains” at the end of World War II were captured by
the Allies 1 4 ; (c) post-war hyper-inflation destroyed the
value of the Hungarian currency, which was sub-
sequently discontinued altogether; (d) Hungary’s Com-
munist regime nationalized private property; and
(e) the national bank was required to alienate assets
upon Hungary’s admission in the European Union. The
national railway also urges that the complaint against
it “contains no allegations suggesting that the allegedly
taken ‘valuables’ were not on the Gold Train, when in
14
“In May 1945, forces of the U.S. Army seized a train near the
town of Werfen, Austria containing valuables spirited out of
Hungary by members of the pro-Nazi Hungarian government.
This train, referred to by U.S. authorities as the ‘Gold Train’ or
‘Werfen Train,’ consisted of 24 rail cars containing gold, jewelry,
works of art, household items, and other property, much
of which had been confiscated from the Jewish population
of Greater Hungary. U.S. authorities classified these assets as
‘enemy government’ property despite ample evidence linking
the property to the Hungarian Jewish community. As a result
of this classification, materials on the train were subject to
requisition by American officials, and in some cases, the
property was not returned.” Presidential Advisory Comm’n on
Holocaust Assets in the U.S., Plunder and Restitution: The
U.S. and Holocaust Victims’ Assets, at SR-113 to SR-114 (2000),
available at http://pcha.ushmm.org/PlunderRestitution.html/
html/Home_Contents.html.
Nos. 11-2387 & 11-2791 57
fact that disposition of the property is exceedingly
likely.” These possibilities do not, as a matter of
law, render plaintiffs’ allegations facially implausible.
Plaintiffs argue, and we are inclined to agree, that this
argument may be a continuation of a now 65-year-
long shell game. Even if it were appropriate to try to
resolve such issues on the pleadings alone, and it
is not, defendants have offered no case or fact
that demonstrates conclusively that the value of the
expropriated property is not traceable to their present
day cash and other holdings. The national bank and
national railway survived the war, the hyper-inflation
and subsequent discontinuation of the Hungarian cur-
rency, the nationalization of property, and the admis-
sion to the European Union. It is not implausible that
the value of plaintiffs’ allegedly expropriated property
also survived. And the national bank itself argues that
the expropriation process was decentralized, so while
national bank branches may have turned over ex-
propriated assets to the state postal bank account
(and those assets may have ended up on the Gold Trains),
they also may not have. It is certainly possible that
the value of plaintiffs’ expropriated property was lost
during one or more of these transitions. But it is also
plausible that defendants retain the value of plaintiffs’
expropriated property. Plaintiffs’ claims that defendants
currently own or operate their expropriated property
(or property exchanged for such property) is not so im-
plausible as to permit resolution on the pleadings alone.
The national bank has raised a more funda-
mental question that applies to some of the allegedly
58 Nos. 11-2387 & 11-2791
expropriated property, which is whether bank accounts
can be “owned or operated” at all within the meaning
of the expropriation exception. The national bank cited
the D.C. Circuit’s decision in Nemariam v. Federal
Democratic Republic of Ethiopia, 491 F.3d 470 (D.C. Cir.
2007), for the proposition that the bank accounts were
not “taken” for purposes of the expropriation exception.
Because the Nemariam court framed the issue as
whether defendants “owned or operated” the property
taken in violation of international law, that is how we
address it here. In Nemariam, the D.C. Circuit, held
that, although “rights in property” under § 1605(a)(3)
include intangible property, the expropriation excep-
tion did not apply to plaintiffs’ claims because the
bank accounts at issue were not owned or operated by
the defendant bank. 491 F.3d at 481. Defining “owned
or operated” as “possessed or exerted control or
influence over,” the court reasoned that the property
right at issue was only the plaintiffs’ “contractual right
to receive payment,” and that the defendant bank had
not taken possession of that right. Id. (emphasis omit-
ted). Rather, the bank extinguished plaintiffs’ contract
rights by declining to perform its own contractual ob-
ligations. Id. We respectfully question the D.C. Circuit’s
holding on this point.
The statutory language and FSIA’s legislative history
do not contain a definition of “owned or operated,” but
the House Report defined the phrase “taken in violation
of international law,” saying the term “would include
the nationalization or expropriation of property with-
out payment of the prompt adequate and effective com-
Nos. 11-2387 & 11-2791 59
pensation required by international law.” H.R. Rep. No. 94-
1487, at 19-20. As the D.C. Circuit recognized, “the
plain meaning of ‘nationalization or expropriation’ dove-
tails with the plain meaning of ‘owned or operated.’ ”
491 F.3d at 481.
For plaintiff Istvan Somogyi’s claim that the national
bank seized his grandparents’ home, there is no
question that the national bank “possessed or exerted
control or influence over” the property at issue. See
Nemariam, 491 F.3d at 481 (defining “owned or operated”
as “possessed or exerted control or influence over”).
Likewise, there would be no question if the national
bank had coerced plaintiffs to sell their real property
and to give the national bank the proceeds. Nor do we
think there should be a question if the national bank
had coerced plaintiffs to sell their real property and
deposit the proceeds in an account with the national
bank, and the national bank had then appropriated
the value of that deposit account for its own purposes.
We see no reason to distinguish, for purposes of inter-
national law of expropriation, between the latter and
what allegedly occurred here — that the national bank
seized plaintiffs’ assets in the form of bank accounts
and appropriated their value for its own use.
The Supreme Court has long held under American
law that the exercise of eminent domain over intangible
property constitutes a “taking,” entitling the owner of
the taken intangible property to just compensation. See,
e.g., Long Island Water Supply Co. v. Brooklyn, 166 U.S. 685,
690 (1897) (“[A] contract is property, and, like any
60 Nos. 11-2387 & 11-2791
other property, may be taken under condemnation pro-
ceedings for public use.”); U.S. Trust Co. of New York v.
New Jersey, 431 U.S. 1, 19 n.16 (1977) (“Contract rights are
a form of property and as such may be taken for a
public purpose provided that just compensation is
paid.”). Here the national bank of Hungary is alleged to
have expropriated plaintiffs’ bank accounts and taken
the value of those assets for itself. Furthermore,
plaintiffs allege that the national bank continues to lever-
age the value of their expropriated property by using it
as part of the national bank’s fractional reserves in
loan operations, which plaintiffs allege is a continuous
source of profits to the bank.
The D.C. Circuit supported its line of reasoning in
Nemariam by citing a bankruptcy case, Citizens Bank of
Maryland v. Strumpf, 516 U.S. 16 (1995), an FSIA case
involving breach of an employment contract, Brewer v.
Socialist People’s Republic of Iraq, 890 F.2d 97 (8th Cir. 1989),
and a district court case holding that the expropriation
exception covered only tangible property, Canadian Over-
seas Ores Ltd. v. Compania de Acero Del Pacifico S.A., 528
F. Supp. 1337 (S.D.N.Y. 1982).
In Strumpf, when the debtor filed for bankruptcy, he
had both a checking account with the bank and a loan
from the same bank, for which he was in default. Under
the bankruptcy code, Strumpf’s bankruptcy filing gave
rise to an automatic stay of various types of activity by
his creditors. The bank then placed what it termed
an “administrative hold” on an amount in Strumpf’s
checking account equal to the amount due on his loan.
Nos. 11-2387 & 11-2791 61
516 U.S. at 17-18. The Supreme Court noted that a bank
account “consists of nothing more or less than a promise
to pay, from the bank to the depositor,” but its decision
that the bank’s “temporary refusal to pay was neither a
taking of possession of respondent’s property nor an
exercise of control over it” was informed by the fact
that the bankruptcy code permits a creditor to refuse
temporarily to pay a debt that is subject to setoff
against a debt owed by the debtor. Id. at 21 (emphasis
added). There is nothing temporary about the
takings alleged here, which occurred more than 65
years ago. Nor has the national bank provided any
legal justification for its refusal to grant plaintiffs access
to their bank accounts. The only similarity between
the present case and Strumpf is the fact that both
relate to bank accounts.
Brewer also presented a very different fact situation.
The Brewer plaintiffs entered into an employment
contract with the Iraqi government to work at a tourist
facility in Iraq. 890 F.2d at 98. A couple of years after
plaintiffs began work, the defendants terminated the
agreement and refused to pay plaintiffs, who were then
evicted from their home in Iraq by unknown armed
men and forced to board a plane leaving Iraq. Id. Plain-
tiffs’ complaint contained three counts: breach of
contract, reimbursement for converted property, and
damages for infliction of emotional distress arising out
of their forced eviction and expulsion from Iraq. Id. at 98-
99. The district court granted plaintiffs default judg-
ment on all three claims pursuant to the FSIA, but ap-
proved execution only on plaintiffs’ claim for reimburse-
62 Nos. 11-2387 & 11-2791
ment for converted property, reasoning that the breach
of contract claim judgment did not create “rights in
property” as defined in the FSIA, thereby foreclosing
execution pursuant to 28 U.S.C. § 1610(a)(3). Id. at 100-01.
Plaintiffs appealed the district court’s denial of attach-
ment and execution on their breach of contract and emo-
tional distress claims, arguing that they were entitled
to execution pursuant to § 1610(a)(3) because their
claims created property rights. The Eighth Circuit
noted that the district court had exercised jurisdiction
over the breach of contract claim under the “commercial
activity” exception, not the expropriation exception.
The Eighth Circuit went on to declare that the district
court could not have exercised jurisdiction over the
breach of contract claim under the expropriation ex-
ception because the defendant’s breach did not expropri-
ate plaintiffs’ contract rights. Rather, defendant’s
breach constituted a repudiation of the contract, and
the Eighth Circuit decided that such a repudiation was
not equivalent to expropriation. Id. at 101.
The plaintiffs here allege that the national bank did
much more than repudiate some contracts. Plaintiffs
allege that the national bank froze bank accounts pursuant
to a series of discriminatory Hungarian laws and ordi-
nances aimed at systematically stripping Hungarian
Jews of their wealth. The plaintiffs further allege that
the national bank expropriated the value of those
accounts for its own enrichment. We believe the
national bank’s argument also fails to recognize the
special nature of a contract establishing a bank account.
It is not a typical exchange of money for goods or ser-
Nos. 11-2387 & 11-2791 63
vices. A customer who deposits money in a bank trusts
that bank, often with his life savings. Because of the
high stakes, banks are subject to extensive regulation
to assure their solvency and thus their ability to honor
their contractual obligations. A solvent national bank’s
unilateral decision to keep its customers’ money for
itself cannot be compared to an ordinary breach of a
commercial contract.
Nor does Canadian Overseas provide support for the
argument that the national bank did not “own or operate”
the expropriated property. As noted above, the Canadian
Overseas court ruled that the expropriation exception
applied only to tangible property, 528 F. Supp. at 1346,
a position that Nemariam itself rejected, 491 F.3d at 478.
Although we question the D.C. Circuit’s holding in
Nemariam on the expropriation of bank accounts, we do
not need to come to closure on the question in this ap-
peal. Despite plaintiff Fischer’s voluntary dismissal
from the bank case, plaintiff Somogyi maintains a
direct claim against the bank for the taking of his grand-
parents’ home, which is tangible property. Furthermore,
the bank plaintiffs seek to hold the defendant banks
jointly and severally liable, and several plaintiffs with
claims against the other defendant banks allege the
taking of tangible property. Somogyi’s claim and the
fact that the other bank plaintiffs have alleged that a
wide variety of property was taken mean that the
Nemariam holding on bank accounts would not resolve
the claims against the national bank. If plaintiffs
eventually overcome the other obstacles they face
64 Nos. 11-2387 & 11-2791
against the national bank, including the exhaustion of
Hungarian remedies, we think the better course would
be to allow further development of the factual record
and legal arguments on the issue of expropriation of
bank accounts. As for all other forms of property
allegedly expropriated, the plaintiffs have sufficiently
alleged that the national bank currently owns or
operates the allegedly expropriated property or property
exchanged for it.
b. Commercial Activity
We turn to the next element of the nexus requirement
in the FSIA’s expropriation exception. The FSIA defines
“commercial activity” as “either a regular course of
commercial conduct or a particular commercial
transaction or act.” 28 U.S.C. § 1603(d). The FSIA’s legisla-
tive history provides as examples of a “regular course of
commercial conduct” commercial enterprises such as a
mineral extraction company, an airline, or a state
trading corporation. H.R. Rep. 94-1487, at 16. The
House committee report went on to note that “a
single contract, if of the same character as a contract
which might be made by a private person, could
constitute a ‘particular transaction or act.’ ” Id.
For example, in Altmann, the defendant had authored,
edited, and published in the United States a book about
the women in paintings by Gustav Klimt and a guide-
book with photographs of the stolen paintings, and had
advertised exhibitions in this country. Those facts were
Nos. 11-2387 & 11-2791 65
sufficient to demonstrate that the defendant had engaged
in commercial activity in the United States. 317 F.3d
954, 969 (9th Cir. 2002), amended, 327 F.3d 1246 (9th Cir.
2003), aff’d on other grounds, 541 U.S. 677 (2004). Similarly,
the fact that defendants entered transactions for joint
publishing and sales in the United States constituted
“commercial activity” in Agudas Chasidei Chabad. 528
F.3d at 946-48; see also Cassirer, 616 F.3d at 1032-34 (com-
mercial activity included wide range of activities in
connection with U.S. museum tour of artwork and sale of
related merchandise); de Csepel, 808 F. Supp. 2d at 132
(commercial activity included loaning art to museums
in the United States and receiving reciprocal benefits in
exchange; encouraging U.S. tourism and allowing U.S.
visitors to purchase admission tickets over the internet;
publishing guide books in English that are sold to
visitors from the United States at a gift shop that accepts
U.S. credit cards; authoring and promoting books and
selling them online through U.S. distributor, accepting
orders for printed reproductions directly from U.S. resi-
dents shipping those prints directly to the United States,
and engaging in tourist advertising in the United States).
For purposes of the FSIA expropriation exception,
the commercial character of an activity “shall be deter-
mined by reference to the nature of the course of
conduct or particular transaction or act, rather than by
reference to its purpose.” 28 U.S.C. § 1603(d). This
means that the question is not whether the foreign gov-
ernment’s motive is profit- or sovereignty-based. The
issue is whether the actions that the foreign state
66 Nos. 11-2387 & 11-2791
performs are the same type of actions by which a private
party engages in commerce. Republic of Argentina v.
Weltover, Inc., 504 U.S. 607, 614-15 (1992).
The bank complaint alleges that the national bank
has “substantial” contacts with the United States as the
principal banking arm of the Hungarian government.
The bank plaintiffs allege that the national bank not only
places and clears “substantial” sums of funds with U.S.
financial institutions but also supports and finances
“hundreds of millions of dollars of direct investment”
into the United States. Compl. ¶ 34. The jurisdictional
discovery showed that the national bank has issued
bonds denominated and payable in U.S. dollars and
that one series is still outstanding. The $200 million
bond series was issued in 1993 through a U.S. investment
bank, and the bonds will mature on November 1, 2013.
The national bank did not offer the bonds directly to
the public; they were offered by the investment bank,
and the national bank had no contacts with the
American public in this transaction. Decl. of Dr. Orsolya
Kerekes ¶ 11, Jan. 28, 2011, D. Ct. ECF No. 110. The na-
tional bank also makes periodic payments to the Inter-
national Monetary Fund in Washington on behalf of the
Republic of Hungary and acts as Hungary’s authorized
fiscal agent with respect to operations and transactions
that may be carried out pursuant to the IMF Articles of
Agreement. Id. ¶ 12. The national bank maintains that
such activities are “conducted solely in connection with
the management of its official reserves of the Republic
of Hungary and debt management.”
Nos. 11-2387 & 11-2791 67
The fact that the national bank’s U.S. activities
are conducted “solely in connection with the
management of its official reserves of the Republic of
Hungary and debt management” does not control our
inquiry, which requires us to look at the actions that
are taken, not why they are taken. When a foreign gov-
ernment acts in the same manner as a private player in
a market, the foreign sovereign’s acts are “commercial”
within the meaning of the FSIA. See Weltover, 504 U.S.
at 614-15. Since maintaining correspondent banking
relationships and issuing debt instruments are activities
that private banks engage in, the national bank’s activity
is “commercial” in character.
The bank plaintiffs have alleged sufficiently that the
national bank is engaged in a “commercial activity in
the United States.” Although its commercial activity is
not as extensive as that of the defendants in Altmann,
Agudas Chasidei Chabad, Cassirer, or de Csepel, the FSIA
includes “a particular commercial transaction or act”
within the definition of “commercial activity.” A single
contract, “if of the same character as a contract which
might be made by a private person, could constitute a
‘particular transaction or act.’ ” H.R. Rep. 94-1487, at 16.
Particularly in light of the outstanding bond issue, the
national bank’s U.S. activities are sufficient to find that
it is engaged in a commercial activity in the United States.
The national bank also takes a slightly different tack,
claiming that due process considerations underlying
the FSIA require a traditional personal jurisdiction in-
quiry. The national bank argues that it does not have
68 Nos. 11-2387 & 11-2791
sufficient “minimum contacts” for due process purposes
so that the district court cannot exercise personal juris-
diction over it. See generally International Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945). That may well be, for
as we explain in the separate opinion addressing
bank defendants OTP and MKB, the plaintiffs suing
the banks do not have a basis for exercising personal
jurisdiction over those private banks in this case. Abelesz
v. OTP Bank, ___ F.3d at ___.
As the plaintiffs correctly point out, however, the
“commercial activity” inquiry under the FSIA is not
congruent with a general personal jurisdiction in-
quiry. Other circuits have confronted the issue and have
held that foreign states are not “persons” entitled to
rights under the Due Process Clause. Frontera Resources
Azerbaijan Corp. v. State Oil Co. of the Azerbaijan Republic,
582 F.3d 393, 398-400 (2d Cir. 2009); see also Price v.
Socialist People’s Libyan Arab Jamahiriya, 294 F.3d 82, 95-100
(D.C. Cir. 2002). We agree. The FSIA requires only that
a sovereign defendant be engaged in “commercial
activity in the United States,” and the allegations of the
national bank’s U.S. activities are sufficient to meet
that standard.
The commercial activity issue with respect to the
national railway is not as clear. The plaintiffs allege that
the national railway conducts business in Illinois,
including the solicitation and sale of tickets and passes
for access to railway transportation in Hungary. To that
end, the plaintiffs further allege, the national railway
advertises unlimited travel on the National Rail Network
Nos. 11-2387 & 11-2791 69
of Hungary and accepts U.S. currency, credit and debit
card payments, and bank drafts as payment.
If the national railway does all of the things the
plaintiffs allege in their complaint, it is certainly
possible that it is involved in commercial activity in the
United States. The national railway, however, submitted
in the district court a Declaration from Ferenc Szarvas,
its chief executive officer, that contradicts plaintiffs’
allegations. The railway plaintiffs argue that we should
not credit the Szarvas Declaration because it is “sub-
stantially inadmissible because it is based on almost
no personal knowledge” and is of a “general nature
that does not contrast the specific facts Plaintiffs allege.”
Plaintiffs are incorrect. In his Declaration, Szarvas
states: “The statements made in this declaration are based
upon my own personal knowledge or otherwise
based upon historical facts and my review of [the
national railway’s] relevant records.” He then goes on
to contradict specifically each assertion made by the
plaintiffs. He states that the national railway does not
advertise, solicit, or sell tickets and passes for
Hungarian rail travel, or accept payment for those
services, in Illinois or in the United States. Szarvas
further states that, since 2006, rail service in Hungary
has been provided by MÁV START, a wholly-owned
but legally distinct affiliate of the national railway.
The Szarvas Declaration is enough to raise a question
as to what, if any, commercial activity the national
railway conducts in the United States, and that jurisdic-
tional question cannot be resolved on the pleadings.
70 Nos. 11-2387 & 11-2791
We therefore remand the railway case to the district
court with instructions to allow jurisdictional discovery
on the extent of the national railway’s U.S. activity, as
well as the relationship between the national railway
and the wholly-owned affiliate that actually provides
rail service in Hungary.
To sum up our extended discussion of the FSIA’s ex-
propriation exception, we find that plaintiffs have suf-
ficiently alleged that rights in property are at issue,
that their property was taken, and that the national
bank meets the nexus requirement. We remand the
railway case for jurisdictional discovery on whether the
national railway meets the nexus requirement. Whether
the takings violated international law depends on
whether Hungary offers or has offered a meaningful
domestic remedy, and we remand both cases for
further proceedings on that question.
C. Treaty-Based Defenses
Apart from the expropriation exception, both the na-
tional bank and national railway argue that Hungary’s
treaties with the United States bar jurisdiction over
the claims against them. FSIA immunity is “[s]ubject to
existing international agreements to which the United
States is a party at the time of enactment” of the FSIA. 28
U.S.C. § 1604. This “treaty exception” applies “when
international agreements ‘expressly conflic[t]’ with the
immunity provisions of the FSIA.” Amerada Hess Shipping
Corp., 488 U.S. at 442, quoting H.R. Rep. No. 94-1487, at 17.
Any conflict between a treaty and the FSIA immunity
Nos. 11-2387 & 11-2791 71
provisions, whether toward more or less immunity, is
within the treaty exception. See Moore v. United Kingdom,
384 F.3d 1079, 1084-85 (9th Cir. 2004). Thus, “[i]f there
is a conflict between the FSIA and [an existing inter-
national agreement] regarding the availability of a
judicial remedy against a contracting state, the agree-
ment prevails.” Id. at 1085.
Defendants argue that the 1947 Treaty, 61 Stat. 2065,
and the 1973 Agreement, 24 U.S.T. 522, give them
greater sovereign immunity than the FSIA does from
U.S. litigation of Holocaust-era property expropriation
claims and preclude the district court from exercising
jurisdiction over them. Defendants argue that because
the 1947 Treaty (a) addressed property discriminatorily
expropriated by Hungary during World War II, (b)
created an executive branch mechanism to resolve
disputes regarding the performance of treaty obligations,
and (c) did not expressly create a private right of
action, the 1947 Treaty expressly conflicts with the
FSIA. Likewise, the national bank argues that the 1973
Agreement codified the executive branch’s exclusive
dominion over Hungarian Holocaust reparations claims
by providing for the Foreign Claims Settlement Com-
mission to administer any covered claims process
without allowing for judicial oversight.
The 1947 Treaty and the 1973 Agreement do not “ex-
pressly conflict” with the immunity provisions of the
FSIA. Defendants are correct that, under Article 27 of the
1947 Treaty, Hungary was responsible for returning
expropriated property or providing fair compensation
72 Nos. 11-2387 & 11-2791
in its stead. But Article 27 spoke exclusively to
Hungary’s obligations. It said nothing about the rights
and responsibilities of the people from whom Hungary
expropriated property. Article 40 of the 1947 Treaty did
establish an exclusively executive branch mechanism —
but only for disputes concerning the interpretation or
execution of the Treaty, not for disputes concerning
restitution for expropriated property. Nor does the fact
that the 1947 Treaty lacks a private cause of action
shed any light on the subject. Plaintiffs’ claim is
predicated on expropriation in violation of customary
international law, not the 1947 Treaty.
As for the 1973 Agreement, it operates to provide “full
and final settlement and [ ] discharge of all claims of the
Government and nationals of the United States against the
Government and nationals of the Hungarian People’s
Republic . . . .” 24 U.S.T. 522, art. 1 (emphasis added). It
is the position of the State Department Office of the
Legal Advisor that the 1973 Agreement settled and dis-
charged claims of U.S. nationals who were U.S. nationals
at the time their claims arose. See de Csepel, 808 F. Supp. 2d
at 133-34. “Although not conclusive, the meaning attrib-
uted to treaty provisions by the Government agencies
charged with their negotiation and enforcement is
entitled to great weight.” Sumitomo Shoji America, Inc. v.
Avagliano, 457 U.S. 176, 184-85 (1982). Regardless of plain-
tiffs’ present citizenships, as defendants have argued
regarding the “domestic takings” rule, the claims in
these cases are those of people who were Hungarian
nationals at the time of the alleged expropriations. Thus,
the 1973 Agreement’s provision for the Foreign Claims
Nos. 11-2387 & 11-2791 73
Settlement Commission to administer covered claims
does not apply in this case. Because the 1947 Treaty and
the 1973 Agreement do not “expressly conflict” with the
FSIA, the “treaty exception” does not deprive the
district court of subject-matter jurisdiction in this case.
D. Immunity from Remaining Claims
The national railway argues that beyond Count I of
the railway complaint (and certain allegations in Counts
IV, VIII, and IX), plaintiffs’ remaining claims in the
railway complaint cannot fit within the expropriation
exception to FSIA immunity, assuming it applies, because
they concern personal injuries or other non-property-
based torts (Count II — Aiding and Abetting Genocide,
Count III — Complicity in Genocide, Count VII — Fraudu-
lent Misrepresentations) or else they rest on domestic
rather than international, law (Count V — Unlawful
Conversion and Count VI — Unjust Enrichment). The
district court did not discuss these remaining claims,
and the national railway argues that the district court
erred in not dismissing them because none of these
claims can proceed under any of the FSIA’s exceptions.
The railway plaintiffs respond by noting that the FSIA
is a jurisdictional statute — circumscribing the subject-
matter that can be heard by the federal courts. They
contend that once a court determines it has subject-
matter jurisdiction over a plaintiff’s claims, other legal
sources provide the substantive causes of action that
make up that plaintiff’s claims. From there, the railway
plaintiffs argue, once subject-matter jurisdiction is estab-
74 Nos. 11-2387 & 11-2791
lished under the FSIA for one claim, plaintiffs may
bring any claims they have against the sovereign defen-
dant.
Plaintiffs are right up to a point, but their conclusion
does not follow. The FSIA is a jurisdictional statute and
does not create an independent cause of action. So, for
our purposes, the expropriation exception provides that
a foreign sovereign will not be immune to suit in U.S.
court where “rights in property taken in violation of
international law are in issue” and one of two nexus
requirements is met. 28 U.S.C. § 1605(a)(3). The FSIA
does not tell us when property was expropriated “in
violation of international law” — we must look to other
domestic and international legal sources to make that
determination. But the expropriation exception in the
FSIA authorizes jurisdiction only for claims for the
taking of property in violation of international law.
The analysis under the expropriation exception must
be on a claim-by-claim basis. See 28 U.S.C. § 1606 (“As
to any claim for relief with respect to which a foreign
state is not entitled to immunity under section 1605 or
1607 of this chapter, the foreign state shall be liable in
the same manner and to the same extent as a private
individual under like circumstances . . . .”) (emphasis
added); Siderman de Blake, 965 F.2d at 706 (“As a
threshold matter . . . a court adjudicating a claim against
a foreign state must determine whether the FSIA provide
subject matter jurisdiction over the claim.”) (emphasis
added). Claims against foreign sovereigns that do not
fall within the ambit of an FSIA exception are barred by
Nos. 11-2387 & 11-2791 75
sovereign immunity. As we noted above in discussing
the “domestic takings” rule, we agree that plaintiffs
cannot bring claims for personal injury or death under
the expropriation exception.
Conclusion
Because plaintiffs have not exhausted their Hungarian
remedies and have not yet provided a legally com-
pelling reason for their failure to do so, they have not
established that their expropriation claims fall within
an exception to the FSIA’s grant of sovereign immunity.
In addition, the plaintiffs suing the national railway
have not established yet that the railway is engaged in
commercial activity in the United States, as required
to apply the expropriation exception to the FSIA. We
V ACATE the denials of the motions to dismiss for lack
of subject-matter jurisdiction by the national bank
(MNB) and the national railway (MÁV) and REMAND
for further consideration of the exhaustion issue. The
first step will be to ensure that the defendants have
already identified or now identify one or more specific
remedies that are or were adequate and reasonably avail-
able to plaintiffs. If the defendants do so, the district
court may stay these proceedings or dismiss without
prejudice while plaintiffs pursue their claims in Hungary.
If plaintiffs believe they can demonstrate a legally com-
pelling reason for their failure to exhaust identified
Hungarian remedies, one sufficient to overcome the
comity due between nations, they may ask the district
court for a hearing to develop the record further on this
76 Nos. 11-2387 & 11-2791
point. In addition, the district court shall allow plaintiffs
in the railway case to pursue jurisdictional discovery
on the commercial activity issue and then reconsider
whether the national railway is engaged in commercial
activity in the United States.
V ACATED AND R EMANDED.
8-22-12