Supreme Court Decides Federal Republic of Germany v. Philipp

Faegre Drinker Biddle & Reath LLP

Faegre Drinker Biddle & Reath LLP

On February 3, 2021, the U.S. Supreme Court decided Federal Republic of Germany v. Philipp, No. 19–351, holding that the expropriation exception to the Foreign Sovereign Immunities Act (FSIA) does not apply to a domestic taking of property from a country’s own citizens.

Under the FSIA, “foreign nations are presumptively immune” from suit in U.S. courts. The FSIA’s expropriation exception, however, makes a limited exception for lawsuits involving disputes over property “taken in violation of international law.”

In 1935, a consortium of Jewish art dealers sold a collection of medieval art to Prussia. Allegedly, this sale was coerced by the Nazi government. After World War II, the United States took possession of the art collection before eventually turning it over to Germany. Many years later, three heirs of the Jewish art dealers sued Germany in U.S. district court, claiming that Germany’s purchase of this art (for approximately a third of its fair market value) violated the international law of genocide. Germany moved to dismiss the case on the grounds that it was immune from suit under the FSIA, but the U.S. District Court for the District of Columbia denied Germany’s motion, and on appeal, the D.C. Circuit affirmed. The D.C. Circuit “agreed with the heirs that the exception for property taken in violation of international law was satisfied because ‘genocide perpetrated by a state even against its own nationals is a violation of international law.’”

The Supreme Court unanimously vacated and remanded. To begin with, “international law customarily concerns relations among sovereign states, not relations between states and individuals.” Consistent with this idea, the “domestic takings rule” provides that “what a country does to property belonging to its own citizens within its own borders is not the subject of international law.” A taking of property “could be ‘wrongful under international law’ only where a state deprived ‘an alien’ of property.”

“The domestic takings rule has deep roots not only in international law but also in United States foreign policy.” It was recognized in a 1938 letter from a U.S. Secretary of State to the Mexican Ambassador and was not thereafter abrogated by post-World War II human rights documents such as the Universal Declaration of Human Rights or the Convention on the Prevention of Genocide. Nor did Congress purport to alter this rule when it passed the Second Hickenlooper Amendment to the Foreign Assistance Act of 1964 or the FSIA. Thus, U.S. courts eventually concluded that “the expropriation exception’s ‘reference to “violation of international law” does not cover expropriations of property belonging to a country’s own nationals.’”

The Supreme Court declined to “change course” in this case. Even though the heirs argued that “the forced sale of their ancestors’ art constituted an act of genocide,” the Court read the FSIA’s expropriation exception “as referencing the international law of expropriation,” not the entire corpus of the international law of human rights. For one thing, the expropriation exception “places repeated emphasis on property and property-related rights, while injuries and acts we might associate with genocide are notably lacking.” Moreover, the heirs’ proposed elimination of the domestic takings rule would “derogat[e] international law’s preservation of sovereign immunity for violations of human rights law.” Notably, too, in other portions of the FSIA where Congress carved out limited exceptions for human rights claims, Congress “did so explicitly and with precision.”

The Court also addressed two counterarguments raised by the heirs. First, when Congress amended the FSIA in 2016 to generally protect foreign state participation in American art exhibits, it excepted claims brought against Germany arising out of the Nazi era. The heirs argued that this “demonstrates that Congress meant to abrogate immunity for any Nazi-era claim.” The Court disagreed. The 2016 amendment was an attempt “to preserve sovereign immunity in a narrow, particularized context—art shows.” As such, it does not support “the broad elimination of sovereign immunity across all areas of law.” Second, although it is true that Congress has passed several statutes aimed at promoting restitution to Holocaust victims, these statutes generally encourage victims to seek redress “outside of public court systems.” And none of these statutes “speak to sovereign immunity,” which “is the province of the FSIA.”

Chief Justice Roberts delivered the opinion for a unanimous Court.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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