Supreme Court: FSIA's Expropriation Exception Applies Only to Sovereign's Taking of Foreigner's Property

Jones Day

In Short

The Situation: On July 10, 2018, the D.C. Circuit held that the Foreign Sovereign Immunities Act's ("FSIA") expropriation exception to sovereign immunity extended to a sovereign's taking of its own nationals' property in an act of alleged genocide. Philipp v. Federal Republic of Germany, 894 F.3d 406, 410-14 (D.C. Cir. 2018) (relying on Simon v. Republic of Hungary, 812 F.3d 127 (D.C. Cir. 2016)).The U.S. Supreme Court considered the issue.

The Result:On February 3, 2021, the Court ruled unanimously that the expropriation exception applies only to a sovereign's taking of a foreign national's property, not to domestic takings.

Looking Ahead: The Court confirmed that the expropriation exception remains an important means by which to protect the property of U.S. citizens abroad. The decision also provides helpful guidance to parties with disputes involving sovereign entities and sheds light on the approach of U.S. courts to matters concerning foreign relations.

The Supreme Court in Federal Republic of Germany v. Philipp, No. 19-351, 592 U.S. __ (2021), held that the FSIA's expropriation exception to sovereign immunity refers to a country's taking of property from foreign nationals, and so does not extend to a country's taking of property from its own nationals, even if the taking is alleged to amount to an act of genocide.

In the years between World Wars I and II, a consortium of Jewish-owned art firms in Frankfurt purchased a collection of medieval relics known as the Welfenschatz. In 2015, three descendants of consortium members sued in U.S. district court, alleging that, in 1935, a Nazi official used political persecution and physical threats to coerce the consortium into selling collection pieces to Prussia for one-third of their value. The descendants sought $250 million in compensation from Germany and the Prussian Cultural Heritage Foundation (an instrumentality of Germany), invoking the FSIA's exception to sovereign immunity for "property taken in violation of international law." 28 U.S.C. § 1605(a)(3).

The district court and the D.C. Circuit ruled for the heirs on jurisdiction, holding that the exception to immunity 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." Philipp v. Federal Republic of Germany, 894 F.3d 406, 410-11 (D.C. Cir. 2018) (internal quotation marks omitted).

The Supreme Court unanimously reversed. The Court explained that, historically, a sovereign's taking of a foreigner's property implicated international law, whereas a sovereign's taking of its own citizens' property did not. That is because international law regulates relations between states. Thus, a sovereign's taking of a foreigner's property historically implicated the international legal system only to the extent that it constituted an injury to the foreign national's state. By contrast, a domestic taking did not interfere with inter-state relations. Based on this background, U.S. courts had arrived at a consensus that the FSIA incorporates a "domestic takings rule," such that the expropriation exception to sovereign immunity does not "cover expropriations of property belonging to a country's own nationals." Slip op. at 8 (internal quotation marks omitted). The Court observed that the United States' foreign policy reflected that understanding.

The heirs conceded that the international law of expropriation exempted domestic takings, but urged the Court to read "property taken in violation of international law" as an invocation of not only the international law of expropriation, but all international norms, including those regarding genocide. The Court rejected that interpretation, while also declining to determine whether the underlying sale constituted an act of genocide. The Court analyzed the statute's text, context, and history to conclude that "the expropriation exception is best read as referencing the international law of expropriation rather than of human rights." Slip op. at 9. In particular, the Court highlighted the boundaries Congress had placed elsewhere in the FSIA with respect to human rights violations. Where Congress intended to target injuries associated with such violations, "it did so explicitly and with precision," slip op. at 12; those limitations would be circumvented if human rights violations generally were imported into the expropriation exception. In addition, the Court noted that it was interpreting the FSIA—as it does other statutes affecting international relations—to avoid friction with or retaliation from other nations.

In the end, the Court held that, because the FSIA's expropriation exception was tied to the international law of expropriation, it refers only to a state's deprivation of an alien's property. A contrary ruling could have transformed the expropriation exception into a broader jurisdictional hook for U.S. courts to adjudicate human rights violations. Even though the Court took a narrower view, however, it emphasized the continuing vitality of the expropriation exception as a means to protect the property of U.S. citizens abroad.

The Court did not address whether the district court could have abstained from deciding the case on international comity grounds, nor did it address arguments that the consortium members were not German nationals at the time of the transaction. In a separate ruling issued on the same day, the Court vacated the D.C. Circuit's opinion in Simon v. Republic of Hungary, a similar dispute in which Hungarian Holocaust survivors sued Hungary. The D.C. Circuit had applied the expropriation exception, and later held that the district court had no authority to abstain from exercising jurisdiction under the FSIA for reasons of international comity, and that the district court erred by relying on forum non conveniens as an alternative ground for dismissal. The Supreme Court remanded for further proceedings consistent with its opinion in Philipp.

Four Key Takeaways

  1. The expropriation exception to sovereign immunity in the Foreign Sovereign Immunities Act applies only to a sovereign's taking of foreign nationals' property, not to a sovereign's taking of its own nationals' property.
  2. The FSIA's expropriation exception is tied to the international law of expropriation specifically, and does not extend to encompass the larger corpus of international law, including human rights law.
  3. Where Congress intended to target injuries associated with human rights violations in the FSIA, it did so explicitly and with precision.
  4. The Court reaffirmed its approach to interpreting statutes affecting international relations to avoid, where possible, producing friction with or retaliation from other nations.

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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