Westfield v. Federal Republic of Germany

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 11a0026p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

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FRED WESTFIELD, in his capacity as

the Estate of an Alien, Walter Westfeld; FRED --

administrator de bonis non administratis of

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No. 09-6010

WESTFIELD; ERICH WESTFIELD; HANNAH

,

>

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KAHN; LINDA PLAUT; JEANNE REES; and

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ROSIE SEGAL, as executor of the Estate of

Plaintiffs-Appellants, --

Martin Segal,

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v.

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FEDERAL REPUBLIC OF GERMANY,

Defendant-Appellee. -

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Appeal from the United States District Court

for the Middle District of Tennessee at Nashville.

No. 09-00204—Todd J. Campbell, Chief District Judge.

Argued: December 10, 2010

Decided and Filed: February 2, 2011

Before: MARTIN and SILER, Circuit Judges; BELL, District Judge.*

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COUNSEL

ARGUED: Overton Thompson III, BASS, BERRY & SIMS PLC, Nashville,

Tennessee, for Appellants. William S. Walton, MILLER & MARTIN PLLC, Nashville,

Tennessee, for Appellee. ON BRIEF: Overton Thompson III, Kathryn Hannen Walker,

BASS, BERRY & SIMS PLC, Nashville, Tennessee, Jeffrey Schoenblum,

VANDERBILT LEGAL CLINIC, Nashville, Tennessee, for Appellants. William S.

Walton, James A. Beakes III, MILLER & MARTIN PLLC, Nashville, Tennessee, Max

Riederer von Paar, RUBIN, WINSTON, DIERCKS, HARRIS & COOKE, LLP,

Washington, D.C., for Appellee.

*

The Honorable Robert Holmes Bell, United States District Judge for the Western District of

Michigan, sitting by designation.

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No. 09-6010 Westfield, et al. v. Federal Republic of Germany Page 2

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OPINION

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BOYCE F. MARTIN, JR., Circuit Judge. The Heirs of Walter Westfeld, a

prominent German art dealer during the 1930s, seek to recover the value of Westfeld’s

art collection from the Federal Republic of Germany. Westfeld had attempted to remove

his art collection to Tennessee but, before he could do so, Nazi officials seized and sold

off the collection. The district court granted Germany’s motion to dismiss, holding that

the Heirs’ claims were barred by the Foreign Sovereign Immunities Act, and do not fall

within the exception for acts in connection with commercial activity. On appeal, the

Heirs make a compelling argument that while other plaintiffs raising similar claims have

not fallen within the commercial activity exception, their claims do fall within a literal

reading of the text of the exception and should be allowed to proceed. However, while

the Heirs present a very persuasive explanation of why Germany’s actions were in

connection with commercial activity, they fail to establish that Germany’s actions had

a sufficiently direct effect in the United States to support applying this exception.

Therefore, we AFFIRM the district court’s decision granting Germany’s motion to

dismiss.

I.

Fred Westfield,1 in his capacity as the second administrator of the estate of

Walter Westfeld, and the individual heirs of Walter Westfeld, brought this action to

recover damages from the Federal Republic of Germany for the seizure and conversion

of Westfeld’s art and tapestry collection. The Heirs contend that, while under Nazi

control, German officials seized and sold the collection, which Westfeld had attempted

to protect and bring to the United States.

1

The members of the Westfeld family who emigrated to the United States and are parties to this

action now use the spelling “Westfield.”

No. 09-6010 Westfield, et al. v. Federal Republic of Germany Page 3

Westfeld was a renowned art dealer in Germany in the 1930s. Nazi officials

began persecuting and torturing Westfeld in 1933 because he was Jewish. Westfeld

attempted to flee Germany with his art collection but his passport had expired and he

was unable to get a visa from the United States. In 1938, German officials arrested

Westfeld for what the Heirs refer to as a “trumped up” currency charge. Westfeld was

sentenced to prison for three and a half years and fined Reichmarks 300,000 for the

alleged currency violation. Before the sentence and fine were finalized, the District

Attorney’s Office in Düsseldorf ordered that Westfeld’s art and tapestry collection be

sold to satisfy the fine. The Heirs explain this was a common practice in Nazi Germany

that allowed the government to raise funds. Lempertz, the German auction house,

auctioned off Westfeld’s collection under orders from the German government on

December 12 and 13, 1939. The Heirs eventually obtained a copy of the auction

catalogue, which describes more than five hundred tapestries and pieces of artwork from

Westfeld’s collection that Lempertz sold.

In prison, officials interrogated Westfeld and discovered that he had more

artwork. From 1943 to 1944, after Westfeld had been killed, Nazi officials seized and

sold the rest of his collection. After the war, the Regional Court Düsseldorf declared

Westfeld’s sentence and fine to be null and void.

In 2004, Fred Westfield discovered that the Boston Museum of Fine Arts was

seeking information about his uncle, Walter Westfeld, in relation to a painting in its

collection of Dutch Masters. Through the Museum, Fred learned that Germany had

seized his uncle’s art collection and discovered that much of it had been sold at auction

by Lempertz.

The Heirs seek to recover the value of this property, arguing that Germany

improperly seized it from Westfeld. Important to establishing jurisdiction, the Heirs

contend that Westfeld had intended to send these items to Nashville, Tennessee where

his brother lived. The complaint alleges that Germany’s actions had a direct effect in the

United States because they prevented valuable assets from reaching the United States,

deprived Westfeld’s family members in the United States the benefit of the property

No. 09-6010 Westfield, et al. v. Federal Republic of Germany Page 4

intended for them, deprived Westfeld’s family members of property that would have

passed to them by intestacy, and deprived the United States art market of access to the

collection.

Fred Westfield initiated an action in a Tennessee probate court, which appointed

him administrator de bonis non administratis, the second administrator, of Walter

Westfeld’s estate. The probate court also designated the individual plaintiffs in this suit

the sole heirs of Walter Westfeld after litigation with German citizens who also claimed

to be heirs.2

The Heirs then filed this lawsuit in Tennessee state court. Germany removed to

federal court and filed a motion to dismiss for lack of subject matter jurisdiction based

on the Foreign Sovereign Immunities Act. The district court granted Germany’s motion

to dismiss and the Heirs appealed.

II.

A. Standard of Review.

This Court reviews decisions regarding subject matter jurisdiction under the

Foreign Sovereign Immunities Act de novo. O’Bryan v. Holy See, 556 F.3d 361, 372

(6th Cir. 2009). We may affirm the district court’s judgment on any ground supported

by the record, including on a basis not mentioned in the district court’s opinion.

Louisiana Sch. Employees’ Ret. Sys. v. Ernst & Young, LLP, 622 F.3d 471, 477 (6th Cir.

2010); In re Comshare Inc. Sec. Litig., 183 F.3d 542, 547-48 (6th Cir. 1999). For

purposes of this motion to dismiss, we must accept all of the factual allegations in the

complaint as true. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).

2

There appears to be some dispute as to whether the parties to this lawsuit are actually Westfeld’s

only heirs. However, as it does not affect the outcome in this case, we need not address this issue.

No. 09-6010 Westfield, et al. v. Federal Republic of Germany Page 5

B. The Commercial Activity Exception to Sovereign Immunity.

The Foreign Sovereign Immunities Act, 28 U.S.C. § 1602 et seq. (2006),

provides the sole basis for a court in this country to obtain jurisdiction over a foreign

sovereign. Republic of Arg. v. Weltover, Inc., 504 U.S. 607, 611 (1992). The Act

provides that a “foreign state shall be immune from the jurisdiction of the courts of the

United States and of the States except as provided in sections 1605 to 1607 of this

chapter.” 28 U.S.C. § 1604. The plaintiff has the burden of proving that one of the

statutorily defined exceptions applies and the court has jurisdiction. See Am. Telecom

Co., L.L.C. v. Republic of Leb., 501 F.3d 534, 537 (6th Cir. 2007); see also Verlinden

B.V. v. Cent. Bank of Nig., 461 U.S. 480, 494 n.20 (1983) (requiring courts to determine

that immunity is unavailable under the Act even if the foreign state does not enter an

appearance).

At issue on this appeal is the “commercial activities” exception, 28 U.S.C.

§ 1605(a)(2), which provides that foreign sovereigns are not immune from suit in any

case:

[1] in which the action is based upon a commercial activity carried on in

the United States by the foreign state; [2] or upon an act performed in the

United States in connection with a commercial activity of the foreign

state elsewhere; [3] or upon an act outside the territory of the United

States in connection with a commercial activity of the foreign state

elsewhere and that act causes a direct effect in the United States.

The Heirs rely on the exception contained in the third clause of this section and assert

that Germany’s act of seizing Westfeld’s valuable art collection was “in connection

with” the “commercial activity” of selling it on the private market. Although the district

court rejected this argument, on appeal the Heirs quite persuasively navigate the morass

of reported decisions and make a convincing argument that, based on Germany’s sale

of the collection at auction to raise capital, the seizure of Westfeld’s artwork was

sufficiently in connection with commercial activity to fall within this exception.

However, we need not, and do not, decide whether the actions as alleged are sufficiently

in connection with commercial activity to fall within this exception. Even if Germany’s

No. 09-6010 Westfield, et al. v. Federal Republic of Germany Page 6

actions were sufficiently in connection with commercial activity, Germany is

nonetheless entitled to immunity because the Heirs have not established that those

actions caused a direct effect in the United States.

III.

The district court did not reach the issue of whether Germany’s actions caused

a direct effect in the United States in light of its holding that the seizure of Westfeld’s

art collection was insufficiently connected to commercial activity.3 “An effect is direct

if it follows as an immediate consequence of the defendant’s . . . activity.” Weltover,

504 U.S. at 618 (internal quotations omitted). The effect need not be foreseeable or

substantial but “jurisdiction may not be predicated on purely trivial effects in the United

States.” Id.; see also Virtual Countries, Inc. v. Republic of S. Afr., 300 F.3d 230, 236 (2d

Cir. 2002) (“Congress did not intend to provide jurisdiction whenever the ripples caused

by an overseas transaction manage eventually to reach the shores of the United States.”

(internal quotations omitted)). Unlike some of our sister circuits, we have expressly

rejected the requirement that a “legally significant act” take place in the United States

in order to establish a direct effect.4 Keller v. Cent. Bank of Nig., 277 F.3d 811, 817-18

(6th Cir. 2002); see Am. Telecom, 501 F.3d at 539-40. When considering whether an

action caused a direct effect in the United States we are cognizant of the Act’s

presumption that foreign sovereigns are immune, and wary of applying this requirement

too loosely such that our courts become a haven for airing the world’s disputes.

Courts have struggled to announce objective standards and clear rules for

determining what does and does not qualify as a direct effect in the United States.

Without objective standards to guide us, much of our analysis is drawn from comparison

to other decisions addressing the scope of the direct effect requirement, many of which

involve bonds issued by foreign governments. For example, Weltover involved bonds

3

While the district court did not reach this issue, Germany addressed the direct effect requirement

in its brief, and the Heirs responded to Germany’s argument in their reply.

4

This opinion refers to decisions from some of the circuits that require a “legally significant act”

take place in the United States to find a direct effect. However, we do not adopt this requirement or refer

to discussion relating to this requirement in the opinions that are cited.

No. 09-6010 Westfield, et al. v. Federal Republic of Germany Page 7

issued by Argentina that allowed the creditor to elect to receive payment in either the

London, Frankfurt, Zurich or New York markets. Weltover, 504 U.S. at 609-10.

Argentina attempted to reschedule payment on the bonds and the bondholders demanded

immediate payment in New York. Id. at 610. The Supreme Court held that Argentina’s

refusal to pay caused a direct effect in the United States. Id. at 618-19. “Because New

York was thus the place of performance for Argentina’s ultimate contractual obligations,

the rescheduling of those obligations necessarily had a ‘direct effect’ in the United

States: Money that was supposed to have been delivered to a New York bank for deposit

was not forthcoming.” Id. at 619.

Similarly, when considering claims arising out of a scam perpetrated by an

individual purporting to be an official in the Nigerian government, we concluded that the

direct effect requirement was satisfied when the foreign government failed to comply

with its alleged obligation to make payment in the United States. Keller, 277 F.3d at

814, 818. The plaintiff in Keller alleged that the Central Bank of Nigeria, an entity

controlled by Nigeria and entitled to sovereign immunity, had agreed to pay funds to an

account at a bank in Cleveland, Ohio but failed to do so. Id. at 818. Because of the

preexisting duty to pay funds in the United States, we concluded that, as in Weltover, the

failure to do so caused a direct effect in this country. Id.; accord Hanil Bank v. PT. Bank

Negara Indon., 148 F.3d 127, 132 (2d Cir. 1998) (failing to remit funds to a designated

bank account in the United States caused a direct effect in the United States); Voest-

Alpine Trading USA Corp. v. Bank of China, 142 F.3d 887, 896 (5th Cir. 1998).

However, here, the Heirs have not alleged that Germany ever promised to deliver

Westfeld’s art collection to the United States. Because Germany had not obligated itself

to do anything in the United States, we cannot say that its actions caused a direct effect

in the United States based on the Weltover line of cases.

The Heirs also cannot establish that Germany’s actions had direct effects in the

United States based on allegations that its expropriation of the artwork prohibited

Westfeld from sending his collection to Nashville. Even this Court’s recent decision in

DRFP L.L.C. v. Republica Bolivariana de Venezuela, 622 F.3d 513 (6th Cir. 2010),

No. 09-6010 Westfield, et al. v. Federal Republic of Germany Page 8

which liberally interpreted “direct effect,” focused its analysis on whether the bonds

allowed the holder to demand payment in the United States and not on where the creditor

intended to move the funds on receipt. Over dissent, the majority concluded that the

terms of the notes placed no restrictions on where the holder could demand payment.

Id. at 517 (noting that the “parties implicitly agreed to leave it to the bearer to demand

payment of the notes anywhere, including, perforce, Columbus, Ohio”). Because the

majority believed that the holder could demand payment anywhere, when the holder

demanded payment in Ohio, the failure to pay caused a direct effect in the United States.

Id. at 518. Although the panel disagreed over the result, the dispositive issue was

whether the terms of the bonds called for Venezuela to make payment in the United

States. Id. If they did not, and the creditor merely intended to move funds it received

in Venezuela to the United States, Venezuela’s failure to make payment would not have

caused a direct effect in the United States. See id. at 517; id. at 521 (Martin, J.,

dissenting). Here, the Heirs’ allegations are, in a sense, that Germany interfered with

Westfeld’s plan to transfer property in Germany to the United States by unlawfully

seizing it. However, although Germany’s actions caused effects in the United States, our

holding in DRFP does not establish that they were direct effects. Consistent with the

Weltover line of cases, because Germany was under no obligation to send the collection

to the United States, we cannot conclude that seizing the artwork in Germany caused a

direct effect in the United States based on our decision in DRFP.

In contrast to situations where foreign sovereigns promised to pay funds to

accounts in the United States, if the funds are only payable in a foreign country, failure

to receive those funds does not cause direct effects in the United States. This is true

even where the entity that was not paid alleges that it intended to transfer the funds to

the United States on receipt. When funds are due abroad and not paid, the direct effects

occur abroad. Although the entity might ultimately feel the financial injury at home in

the United States, we have held that those reverberations are too attenuated to qualify

as direct effects. Am. Telecom, 501 F.3d at 541; see Guirlando v. T.C. Ziraat Bankasi

A.S., 602 F.3d 69, 78 (2d Cir. 2010) (noting that “the mere fact that a foreign state’s

commercial activity outside of the United States caused physical or financial injury to

No. 09-6010 Westfield, et al. v. Federal Republic of Germany Page 9

a United States citizen is not itself sufficient to constitute a direct effect in the United

States”); Big Sky Network Can., Ltd. v. Sichuan Provincial Gov’t, 533 F.3d 1183, 1191

(10th Cir. 2008) (holding that “failure to receive promised funds abroad will not qualify

as a ‘direct effect in the United States’”); Antares Aircraft, L.P. v. Fed. Republic of Nig.,

999 F.2d 33, 36-37 (2d Cir. 1993) (“If a loss to an American individual and firm

resulting from a foreign tort were sufficient standing alone to satisfy the direct effect

requirement, the commercial activity exception would in large part eviscerate the [Act’s]

provision of immunity for foreign states.”); Zedan v. Kingdom of Saudi Arabia, 849 F.2d

1511, 1515 (D.C. Cir. 1988). The Heirs claim that Germany unlawfully seized

Westfeld’s art collection. Because Westfeld intended to send the art collection to the

United States, this seizure interrupted those plans and ultimately affected his family in

Nashville. However, this loss, suffered in the United States, is not a direct effect of

Germany’s actions. Seizing Westfeld’s art collection caused a direct effect in Germany.

Allegations that Westfeld intended to send his art collection to the United States do not

broaden the scope of the direct effects. Although the action that prevented the transfer

was in this case an illegal seizure and not a failure to pay, that does not distinguish the

cases cited above, which recognize that a foreign country’s actions do not cause direct

effects in the United States merely because the entity to which it owed money planned

to move the funds to the United States. While we do not question that Westfeld

genuinely wished to transfer his artwork to Nashville, finding a direct effect based on

plans to send property to the United States would largely eliminate the protections of

sovereign immunity.

Unlike sovereigns that obligated themselves to make payment in the United

States, the only reason effects were felt in the United States is because Westfeld had

intended to send his art collection to Nashville. In American Telecom, we noted that the

only immediate consequences, and hence direct effects, of disqualifying an American

corporation from bidding on a contract to perform services in Lebanon were felt in

Lebanon. 501 F.3d at 541 (noting that “everything else is entirely derivative of that

action, and therefore not an ‘immediate consequence’ and not a direct effect”). Although

we do not hold that the only actions that may cause a direct effect in the United States

No. 09-6010 Westfield, et al. v. Federal Republic of Germany Page 10

are those where the sovereign is obligated to perform in the United States, similar to

American Telecom, here, Germany’s actions did not extend beyond its borders. The only

connection to the United States is through Westfeld and derivative of Germany’s action.

As appalling as the Nazis’ actions were, the reverberations felt from them in Nashville

were derivative of Germany’s seizure and not direct effects.

Consistent with this, we have also noted that the foreign sovereign’s actions, and

not the plaintiff’s, must have caused the effects in the United States. In American

Telecom, we held that the foreign sovereign’s actions in disqualifying a United States

corporation from submitting a bid on a project did not cause a direct effect in the United

States where the performance was to occur entirely in a foreign locale. 501 F.3d at 541.

One result of the sovereign’s actions was that American Telecom lost $30,000 that it had

paid from its United States bank account. However, that effect was not caused by the

foreign sovereign. Id. (noting that the corporation “was not required to submit payment

from an American bank; it chose to do so”). This approach is the only sensible way to

apply the direct effect requirement. Otherwise, any payment to a foreign sovereign from

a United States account would be sufficient to establish a direct effect and dissolve a

foreign sovereign’s immunity. Similarly, focusing on the plaintiff’s actions and ties to

the United States would be inconsistent with our prior decisions recognizing that an

American entity’s mere financial loss is insufficient to establish a direct effect in the

United States. Therefore, this too counsels against concluding that Germany’s actions

caused a direct effect in the United States because Germany did not itself do anything

here. The only ties to the United States are Westfeld’s.

We recognize that “direct effect” is amorphous and hard to define. However, in

light of the Supreme Court’s pronouncement in Weltover, and our decisions interpreting

this requirement, we hold that the Heirs have not alleged that Germany’s actions caused

a direct effect in the United States. The seizure undoubtedly prevented Westfeld from

disposing of his collection, but any effects felt in the United States did not follow as an

immediate consequence of Germany’s actions. Germany acted entirely within its

borders and the only connection to the United States is because Westfeld planned to send

No. 09-6010 Westfield, et al. v. Federal Republic of Germany Page 11

the artwork to Nashville. The complaint does not state that Germany ever promised to

send the artwork to the United States. Additionally, none of the Heirs or Westfeld’s

relatives in the United States had any actual ownership interest in the property at the

time of the seizure. While Westfeld’s plans to send the artwork to the United States

meant that Germany’s actions had effects here, they were not direct. Concluding

otherwise would effectively read the “direct” requirement out of the statute and greatly

expand the jurisdiction of our courts in contrast to Congress’s goals in enacting the

Foreign Sovereign Immunities Act.

Although we are very sympathetic to the Heirs’ claims, we cannot conclude that

Walter Westfeld’s intention to transfer the proceeds to the United States caused a direct

effect here. Our longstanding tradition of foreign sovereign immunity, and prior

decisions recognizing that an American entity’s failure to receive funds due abroad does

not cause direct effects in the United States, compel the conclusion that Germany’s

actions did not cause direct effects in this case. Accordingly, we hold that the district

court did not err by granting the motion to dismiss for lack of subject matter jurisdiction.

Germany’s actions in seizing Westfeld’s art and tapestry collection, as abhorrent as they

were, do not fall within the commercial activity exception to sovereign immunity.

IV.

We find the Heirs’ argument that this case does not involve a sovereign act

because a German court declared Westfeld’s sentence and fine “null and void”

unpersuasive. Sovereigns were historically entitled to absolute immunity and the Act

was intended to codify the “restrictive theory” of sovereign immunity, waiving immunity

only in certain limited situations. Verlinden B.V., 461 U.S. at 488; see also Alfred

Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 703 (1976). Although the

Heirs are correct in arguing that it would be “nonsense” to require a domestic court to

respect the acts of a foreign state that the foreign state itself declared null and void, that

is not what this Court is being asked to do here. Rather, this Court is being asked to not

consider the actions—the initial fine and imprisonment or the subsequent declaration

that the acts were null and void. These actions, even though they have been declared

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null and void, and even though they constituted an abuse of police and prosecutorial

powers by the German government at the time, were nonetheless the acts of a sovereign.

Congress did not create an exception for lawless activities in the Act. Therefore, even

though we agree that this Court should not recognize Westfeld’s fine and imprisonment,

it should still respect that they were acts of a sovereign.

V.

We are deeply sympathetic to the loss the Heirs suffered as a result of Germany’s

unspeakable acts. However, our jurisdiction is limited by both Article III of the

Constitution and the statutes Congress enacts. We must operate within those restrictions,

and because the Heirs failed to establish that Germany’s actions caused a direct effect

in the United States, their claims do not fall within the commercial activity exception to

sovereign immunity. Therefore, the district court’s decision dismissing this action is

AFFIRMED.