U.S. Supreme Court to Decide Whether Holocaust Survivors’ Lawsuit Against Hungary in the United States for Expropriation of Their Property Is Permitted Under the Commercial Activities Exception to the Foreign Sovereign Immunities Act

After it became clear that they would lose World War II, Nazi Germany and Hungary raced to complete their eradication of the Jews before the Axis surrendered.  The Axis powers wiped out more than two-thirds of Hungary’s pre-war Jewish population during the course of the war.  The overwhelming majority of those deaths came from the roughly 430,000 Hungarian Jews deported to Auschwitz and other concentration camps.  Winston Churchill described Hungary’s genocidal campaign as “probably the greatest and most horrible crime ever committed in the history of the world.”[1] 

On November 3, 1944, the Hungarian government declared all valuable objects owned by Jews—except for their most personal items—part of the national wealth of Hungary.  Hungary confiscated and liquidated much of that property.

Survivors of Hungary’s genocidal campaign sued Hungary and its national railroad, Magyar Allamvasutak Zrt. (“MAV”), in federal court in the United States in October 2010, seeking compensation for property confiscated from them and their relatives during the war—claims that could amount to tens of billions of dollars.  The case has been working its way through the courts ever since. 

This month, the United States Supreme Court agreed to decide questions arising from the case that may determine whether the plaintiffs’ claims can survive under the commercial activities exception to the Foreign Sovereign Immunities Act (“FSIA”), such that U.S. courts would have jurisdiction over the claims.[2]

The FSIA provides the sole basis for obtaining jurisdiction over a foreign state and  instrumentalities of foreign states in U.S. courts.  Absent a pre-existing agreement with the United States affecting the scope of sovereign immunity, a foreign sovereign is generally immune to suit in the United States, unless one of the FSIA’s enumerated exceptions applies.  The Hungary case concerns the FSIA’s expropriation exception.  That exception waives foreign sovereign immunity in any case in which:

[1] rights in property taken in violation of international law are in issue and [2.A.] 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; or [2.B.] 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.[3]

Thus, generally speaking, the exception has two requirements:  (1) the claim must put in issue “rights in property taken in violation of international law,” and (2) there must be an adequate connection between the defendant and both the expropriated property and some form of commercial activity in the United States.   The latter requirement is referred to as the commercial-activity nexus requirement.  The issue that the Supreme Court has agreed to decide concerns the contours of the commercial-activity nexus requirement.

The district court held that the plaintiffs’ suit met the relevant property and commercial-activity requirements by merely alleging that both Hungary and MAV continue to possess property obtained in exchange for the plaintiffs’ expropriated property, and that both engage in the requisite commercial activities in the United States.  The defendants challenged those rulings on appeal to the United States Court of Appeals for the D.C. Circuit.[4]

The D.C. Circuit ruled that the burden of proof in establishing the inapplicability of FSIA exceptions is upon the party claiming immunity.  The defendants challenged the district court’s ruling as a factual matter, submitting declarations drawing on Hungarian state archival records related to the Holocaust to conclude that it is impossible to trace the current location of the property Hungary seized or the proceeds thereof.  The plaintiffs countered with evidence that Hungary nationalized the expropriated property, sold it, and mixed the proceeds with general state funds, which are used to fund various governmental commercial operations.  The D.C. Circuit ruled that the district court erred by relying on plaintiffs’ allegations alone, and by not resolving the factual dispute.  But the court also rejected the defendants’ argument that their factual showing was sufficient to defeat jurisdiction.  The court ruled that plaintiffs need not produce evidence directly tracing the liquidated proceeds of their stolen property to funds retained by the defendants.  Rather, because defendants bear the burden of proving the statutory exception does not apply, defendants who wish to disclaim property they seized and liquidated must at least affirmatively establish by a preponderance of the evidence that their current resources do not trace back to the property originally expropriated.  Accordingly, the defendants’ declarations asserting the difficulty in tracing the proceeds hurt, rather than helped, in meeting their burden.  The D.C. Circuit therefore remanded to the district court to make the factual findings necessary to a determination of whether the property component of the commercial-activity nexus requirement was satisfied.

The defendants challenged this ruling in their petition for certiorari, arguing that the D.C. Circuit’s ruling is at odds with rulings of the Second and Eleventh Circuits, which, they said, have ruled that plaintiffs are required to present a “valid claim” or “valid argument” that the expropriate exception applies at the pleading stage, and that plaintiffs bear the burden of production in tracing proceeds, not sovereign defendants.  They argued that, under the D.C. Circuit’s approach, a plaintiff can overcome sovereign immunity merely by alleging that the proceeds of expropriated property were commingled with government assets at some distant point in the past and used for commercial activity in the United States—a rule that, they argue, threatens to disrupt key foreign relations, as the class-wide damages that plaintiffs seek from Hungary are so large as to be economically destabilizing.

The questions presented that the Supreme Court agreed to address are: 

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

[1]  Letter from Winston Churchill to Lord Melchett, July 13, 1944.

[2]  Republic of Hungary v. Simon, No. 23-867, 2024 WL 3089537 (U.S. June 24, 2024) (granting writ of certiorari).

[3]  28 U.S.C. § 1605(a)(3).

[4]  Simon v. Republic of Hungary, 77 4th 1077 (D.C. Cir. 2023).

[View source.]