The U.S. Supreme Court on Dec. 3 grappled a second time in three years with whether foreigners should have access to U.S. courts in lawsuits over assets seized during the Holocaust.
Justices seemed largely sympathetic to Hungary’s arguments during the hearing in Republic of Hungary v. Simon. Like Hungary itself, Magyar Allamvasutak Zrt., or Hungarian State Railways, is also a petitioner in the case.
The respondents, most of whom are foreign nationals, filed a proposed class action lawsuit in 2010, asking to be compensated for property that was confiscated from their families during the Holocaust.
According to court papers, they claim Hungary and the railway system took the property in 1944 when families were brutalized and forcibly removed from that country under Nazi policies. The proceeds from the property “were transferred to the Hungarian government treasury and co-mingled with other Hungarian government revenues.”
Because Hungary later issued bonds in the United States from its general fund, lower courts found that connection to the United States was sufficient to give American courts authority over the case.
The respondents say they were allowed to sue in the United States because of the “expropriation exception” of the Foreign Sovereign Immunities Act (FSIA), a U.S. statute that limits the jurisdiction of U.S. courts over lawsuits against foreign governments. They say the exception permits suits against foreign governments when property is seized in violation of international law.
A federal district court dismissed the lawsuit, finding that the dispute resolution process specified in the 1947 peace treaty the United States signed with Hungary had to be followed.
In 2016, the U.S. Court of Appeals for the District of Columbia Circuit reversed, finding that the process in the treaty was not the final word on this kind of litigation.
The court determined that because the proceeds from the sale of the assets had been commingled, or mixed, with other funds, this allowed the court to infer “that the defendants retain the property or proceeds thereof, absent a sufficiently convincing indication to the contrary.”
When the district court reconsidered the case, it dismissed it again on the grounds that the litigants should have pursued the matter outside the United States.
The D.C. Circuit again reversed, holding in 2020 that the district court erred in dismissing the case because the grounds it identified were not allowed by the FSIA.
The same year, the U.S. Court of Appeals for the Second Circuit dismissed a similar lawsuit against Germany, finding the plaintiffs failed to “trace the proceeds from property expropriated more than a century ago to present‐day property owned by Germany in New York.”
During the oral argument on Dec. 3, Hungary’s attorney, Joshua Glasgow, said that the country and its railway cannot be sued in U.S. courts unless “some present-day asset having a commercial nexus within the United States was given in return for items taken from 14 individuals in 1944.”
Glasgow said one of the reasons the suit should not proceed in U.S. courts was because allowing an exception to sovereign immunity would flood the nation’s courts with foreign disputes.
“Simply showing that funds entered into the general revenue of an entire nation that … contained billions of dollars followed by untold numbers of transactions following that deposit simply isn’t consistent with the FSIA,” he said.
Justice Elena Kagan said Glasgow’s interpretation “gives foreign countries an easy way to expropriate property and make sure there’s no accountability for that expropriation.”
The respondent’s attorney, Shay Dvoretzky, said Hungary and the railway stole the “respondents’ property while forcing them on to cattle cars.”
He said Hungary and the railway sold the property and mixed the proceeds from the sale in with existing bank deposits. This meant Hungary “used commingled funds to pay interest and buy equipment in the United States [and] it put into the United States property that had been exchanged for the expropriated property.”
U.S. Justice Department attorney Sopan Joshi said the families’ commingling argument is not “supported by the FSIA’s text,” which uses phrases such as “that property,” “such property,” and “exchanged for” that “call to mind specific identifiable property and transactions.”
When cash goes into an account that has plenty of withdrawals and deposits taking place, “that money has lost its distinct identity as having been exchanged for the original property.”
Joshi also said the issue wasn’t whether Hungary did something wrong but whether the dispute should be resolved in U.S. courts.
The FSIA generally provides that disputes like this one should be kept outside U.S. courts, though it provides “a small departure from the restrictive theory of sovereign immunity,” such as when the foreign country or the misappropriated property has a strong connection to the United States, he said.
Justice Samuel Alito told Joshi, “I don’t understand your argument about retaliation.”
Alito said if lawsuits are filed in the United States based on the property of U.S. nationals being expropriated, are “foreign countries … going to entertain suits based on the expropriation in this country of the property of their nationals?”
Chief Justice John Roberts told Dvoretzky, “You’re really just asking us … to throw out the general rule that sovereigns can’t be sued for appropriations of this sort.”
“Once you say commingling counts, well, then … everything’s pretty much fair game.”
Justice Brett Kavanaugh said that to allow this kind of suit “furthers friction with foreign countries.
“It’s a big deal to hale a foreign country into a U.S. court, and also increases the risk of reciprocal actions against the United States in foreign countries abroad,” the justice said.
A “narrower interpretation” of FSIA may be “more prudent,” Kavanaugh said.
