On February 3, 2021, the United States Supreme Court decided Federal Republic of Germany v. Philipp, narrowing the scope of the “expropriation exception” to sovereign immunity found in the Foreign Sovereign Immunities Act (“FSIA”). The “expropriation exception” grants U.S. federal courts jurisdiction to adjudicate cases against a sovereign in cases “in which rights in property taken in violation of international law are at issue.” 28 U.S.C. §1605(a)(3). In Philipp, plaintiffs were descendants of Jewish art collectors who in 1935 were forced to sell artworks to Prussia at below market value. Plaintiffs brought common-law tort claims against Germany, arguing that the U.S. courts had jurisdiction over the action under the FSIA’s expropriation exception because the phrase “property rights taken in violation of international law” required only the taking of property in connection with a violation of any aspect of international law, including human rights law. Thus, according to plaintiffs, the taking of property in the context of an act of genocide satisfied the FSIA’s expropriation exception. The Supreme Court rejected that argument, holding that the expropriation exception is limited to claims for violation of the international law of expropriation and that international law, as incorporated into the FSIA, does not protect foreign nationals against takings by their own government.
This decision will limit the availability of U.S. courts as a forum for cases brought by foreign plaintiffs against their own governments for expropriation, and for cases brought against foreign governments more generally for non-expropriation violations of international law. The Court also declined to consider the D.C. Circuit’s holding that comity-based abstention is not available in cases under the FSIA—which conflicts with a decision from the Seventh Circuit—leaving this issue unresolved.
Key Takeaways
- The Supreme Court has narrowed the scope of the FSIA’s expropriation exception to include only takings of property that violate the international law of expropriation, and to exclude other violations of international law (such as human rights law). The Court further found that the expropriation exception does not apply to claims by foreign nationals against their own governments.
- The ruling leaves undecided whether, for the purposes of the expropriation exception, a government’s taking from a domestic subsidiary of a foreign company will be considered a violation of international law. Investors whose subsidiary suffers an expropriation in a foreign country should therefore carefully evaluate their dispute resolution options, including, where possible, arbitration—and should be mindful of the risk in seeking compensation through U.S. litigation in light of the Court’s ruling here.
- The Supreme Court did not address the D.C. Circuit’s reasoning that comity-based abstention is not available in cases brought under the FSIA, which had presented a conflict with the law in the Seventh Circuit. As we have previously explained, the FSIA makes no mention of comity-based abstention. The Supreme Court’s vacatur in this case technically voided the D.C. Circuit’s holding that comity-based abstention is not available, but given that the Supreme Court declined to address the D.C. Circuit’s reasoning, future panels in the D.C. Circuit are likely to adopt the same position.
Background
In recent years, many litigants have come to U.S. courts seeking redress for violations of human and property rights committed by foreign governments. A common example has been litigation brought by victims of the Holocaust (or their descendants), who have increasingly looked to U.S. courts for relief not available elsewhere. The plaintiffs in Philipp are the American and English descendants of the Jewish owners of an art collection, the “Welfenshcatz.” They alleged that during the Holocaust, Hermann Goering forced the owners to sell the Welfenschatz to Prussia for approximately one-third of its value. The collection is now held by the Prussian Cultural Heritage Foundation, a German government body, in a museum in Berlin.
After trying unsuccessfully to recover the art in Germany, the plaintiffs sued Germany in the U.S. District Court for the District of Columbia, seeking $250 million in compensation under various common-law theories.
Germany moved to dismiss, arguing that it was immune from the suit under the FSIA. The plaintiffs argued that the action falls under the FSIA’s expropriation exception, which restricts the immunity of foreign sovereigns in cases in which “property taken in violation of international law” is at issue. The plaintiffs conceded that international law does not generally apply to takings by a government against its own nationals, but argued that the expropriation exception should be read broadly, to encompass takings of property in furtherance of a genocide—a clear violation of international law.
Germany also argued that U.S. courts should abstain from hearing the suit on international comity grounds, given the historical and political significance of the issues to Germany and the domestic German framework for addressing the plaintiffs’ claims. The plaintiffs countered that comity-based abstention is unavailable in cases under the FSIA, which they argued abrogated any common-law comity doctrines that applied to cases against foreign sovereigns.
The District Court denied Germany’s motion to dismiss and the D.C. Circuit affirmed. The D.C. Circuit agreed with the plaintiffs’ broad reading of the expropriation exception, reasoning that the taking of the Welfenschatz “amounted to the commission of genocide” because it was part and parcel of the Holocaust. And because the taking amounted to genocide, the court reasoned, the property was “taken in violation of international law.” The D.C. Circuit also held that comity-based abstention was unavailable under the FISA, concluding that nothing in the text of the FSIA authorized such a defense.
The Supreme Court’s Decision
The Supreme Court reversed in a unanimous opinion written by Chief Justice Roberts. The Court’s decision turned on two findings: (i) that a taking “in violation of international law” requires the taking to violate the international law governing expropriation; and (ii) that it is not a violation of international law for a foreign government to expropriate the property of its own nationals.
With respect to the plaintiffs’ arguments that the phrase “rights in property taken in violation of international law” should include takings involving violations of other principles of international law, such as genocide, the Court was unwilling to extend the FSIA’s reach that far. The Court refused “to subject all manner of sovereign public acts to judicial scrutiny under the FSIA by transforming the expropriation exception into an all-purpose jurisdictional hook for adjudicating human rights violations.” The Supreme Court also noted that restricting the scope of the expropriation exception is consistent with its recent decisions limiting the extraterritorial application of U.S. law, such as Kiobel v. Royal Dutch Petroleum Co., 569 U.S. 108 (2013).
Finally, the Court declined to address the second question presented: whether a court can abstain from hearing claims against a foreign sovereign on comity grounds.[1]
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[1] This comity question was also presented by a sister case, Republic of Hungary v. Simon, that was briefed simultaneously before the Supreme Court. That case involved claims by descendants of Hungarian Jews against Hungary for its participation in the Holocaust, and the D.C. Circuit judgment below had also relied on a broad reading of the expropriation exception to establish jurisdiction. In that case, the Supreme Court issued a short decision reversing and remanding that case consistent with the judgment in Philipp.
