Schubarth v. Federal Republic of Germany

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

MADY MARIELUISE SCHUBARTH,

Plaintiff,

v. Case No. 1:14-cv-02140 (CRC)

FEDERAL REPUBLIC OF GERMANY

& BVVG,

Defendants.

MEMORANDUM OPINION

Plaintiff Mady Marieluise Schubarth, a U.S. citizen who allegedly inherited a large estate

that was expropriated by the East German government following World War II, seeks to recover

the value of the taken property from Germany and a German state-owned entity. The Foreign

Sovereign Immunities Act (“FSIA”), 28 U.S.C. § 1602, et seq., however, generally grants

sovereign entities immunity from suit, absent a relevant exception. Because Schubarth has not

alleged facts supporting the application of any relevant FSIA exception, the Court lacks

jurisdiction over her claims. The Court will therefore dismiss the case.

I. Background

Schubarth alleges that an estate she inherited—comprising over 500 acres of partially

developed agricultural land in the state of Thuringia, Germany—was expropriated by the East

German government in 1945. Compl. ¶ 11. In 1991, following Germany’s reunification,

Schubarth applied to a Thuringia state agency for restitution of the expropriated property. Id.

¶ 14. Dissatisfied with the agency’s award, which she says amounted to a small fraction of the

total estate, Schubarth reapplied in 1995 for additional compensation pursuant to a German law

that had been recently enacted. Id. ¶ 18. She claimed that under the 1956 Treaty of Friendship,

Commerce and Navigation between the United States and Germany (“FCN Treaty”), 7 U.S.T.

1839, she was entitled to the full, fair market value of the property as of the date of

expropriation. Id. Schubarth’s application remained pending for nineteen years, until February

2014, when the Thuringia state agency recognized her as the owner of the estate and proposed to

award her € 35,279 in compensation. Id. ¶¶ 18–19. Despite Schubarth’s complaint that this

amount was too low, and out of step with Germany’s obligations under the FCN Treaty, the

agency finalized the award in November 2014, without referencing the Treaty. Id. ¶ 21.

The following month, Schubarth brought suit in this Court, naming as Defendants the

Federal Republic of Germany (“Germany”) and BVVG Bodenverwertungs- und- verwaltungs

GmbH (“BVVG”)—a German state-owned entity “responsible . . . for the management,

marketing and sale of expropriated properties located in” former East Germany. Id. ¶¶ 3–4. To

execute its mission, BVVG “provides information about the expropriated properties it controls to

potential buyers, including lease and purchase prices, and other commercial terms,” and

allegedly, from 1992 to 2008, “BVVG and its predecessor, the Trust Agency, collected at least

€ 3.5 billion from successful land marketing sales.” Id. ¶ 4. Schubarth alleges that “Germany

was and is liable[] under the FCN Treaty . . . for the failure to provide [her with] full

compensation for the expropriation of [her] estate,” and that she is entitled to the estate’s fair

market value, expectation damages, prejudgment interest, and applicable attorneys’ fees. Id.

¶¶ 26, 28.

After a protracted period during which service was effectuated on Germany and BVVG,

Defendants now move to dismiss Schubarth’s action on numerous grounds. They primarily

contend that they are immune from suit under the FSIA because Schubarth has not pled facts

establishing the requirements of the expropriation exception to FSIA immunity, 28 U.S.C.

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§ 1605(a)(3). Defs.’ Mem. Supp. Mot. Dismiss (“Defs.’ MTD”) 3–9. In particular, Defendants

maintain that among other pleading deficiencies, Schubarth has not alleged sufficient facts

showing that BVVG “is engaged in a commercial activity in the United States,” 28 U.S.C.

§ 1605(a)(3), which is a prerequisite for establishing the applicability of that exception. Defs.’

MTD 3–9. Defendants also argue that the Court lacks personal jurisdiction over them, and that

Schubarth has failed to state a claim for relief. Id. at 11–12.

II. Legal Standards

Defendants have asserted immunity under the FSIA by challenging the legal sufficiency

of Schubarth’s allegations, not the underlying facts themselves. Where that is so, a court must

“take the plaintiff’s factual allegations as true and determine whether they bring the case within

. . . the [FSIA] exception[ ] to immunity invoked by the plaintiff.” Simon v. Republic of

Hungary, 812 F.3d 127, 147 (D.C. Cir. 2016) (quoting Phoenix Consulting Inc. v. Republic of

Angola, 216 F.3d 36, 40 (D.C. Cir. 2000)) (alteration in original). Ultimately, Defendants carry

the burden of persuading the court “that the plaintiff’s allegations do not bring its case within

[the relevant] exception to immunity.” Phoenix Consulting, 216 F.3d at 40 (citing

Transamerican S.S. Corp. v. Somali Democratic Republic, 767 F.2d 998, 1002 (D.C. Cir. 1985)).

“[D]ismissal is warranted if no plausible inferences can be drawn from the facts alleged that, if

proven, would provide grounds for relief.” Price v. Socialist People’s Libyan Arab Jamahiriya,

294 F.3d 82, 93 (D.C. Cir. 2002).

III. Analysis

As mentioned above, Schubarth seeks to ground this Court’s jurisdiction in the FSIA’s

expropriation exception, 28 U.S.C. § 1605(a)(3). That provision applies to a case

in which rights in property taken in violation of international law are in issue and

[either] [1] that property or any property exchanged for such property is present in

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the United States in connection with a commercial activity carried on in the United

States by the foreign state; or [2] 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.

Id. Schubarth has not alleged that the expropriated property (or property exchanged for it) is

“present in the United States,” and she therefore concedes that clause [1] is inapplicable here.

See Pl.’s Mem. Opp’n Defs.’ Mot. Dismiss (“Pl.’s Opp’n”) 10–11. She hangs her hat instead on

clause [2], arguing that provision may confer jurisdiction over both Defendants. Id.1 However,

because Schubarth has not alleged sufficient facts showing that the relevant “agency or

instrumentality,” BVVN, “is engaged in a commercial activity in the United States,” clause [2]’s

conditions are not met. Accordingly, the FSIA’s expropriation exception to immunity is

unavailable.

The FSIA defines “commercial activity” as “either a regular course of commercial

conduct or a particular commercial transaction or act.” 28 U.S.C. § 1603(d).2 “The FSIA’s

legislative history provides as examples of a ‘regular course of commercial conduct’ commercial

enterprises such as a mineral extraction company, an airline, or a state trading corporation.”

1

This argument implicates an apparent intracircuit conflict regarding whether satisfaction

of the conditions in clause [2]—the “agency or instrumentality” prong of this provision—may

confer jurisdiction only over an agency or instrumentality, or also over a parent foreign state.

See Helmerich & Payne Int’l Drilling Co. v. Bolivarian Republic of Venezuela, No. 11-CV-

01735 (CRC), 2016 WL 2771117, at *3–*5 (D.D.C. May 13, 2016) (discussing the D.C.

Circuit’s seemingly incompatible treatment of the expropriation exception’s two commercial

activity clauses in Agudas Chasidei Chabad of U.S. v. Russian Fed’n, 528 F.3d 934 (D.C. Cir.

2008) and Simon, 812 F.3d 127). Because the Court finds that clause [2]’s conditions are not

satisfied, it is unnecessary to resolve that conflict here.

2

The FSIA applies a more stringent definition to clause [1]’s phrase “commercial activity

carried on in the United States by a foreign state”: Such activity must “hav[e] substantial contact

with the United States.” 28 U.S.C. § 1603(e). This “substantial contact” requirement is

inapplicable to the Court’s analysis, which is confined to clause [2]. See Chabad, 528 F.3d at

947.

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Abelesz v. Magyar Nemzeti Bank, 692 F.3d 661, 692 (7th Cir. 2012) (citing H.R. Rep. 94–1487,

at 16). A “particular commercial transaction or act” may include “a single contract” with a U.S.

entity. Id. Given these standards and the language set forth in § 1605(a)(3), Schubarth’s task is

to allege facts making it plausible that BVVN has either “engaged” in “a regular course of

commercial conduct” or in “a particular commercial transaction or act” in the United States.

She has not done so. Schubarth alleges that BVVN’s predecessor, the “Trust Agency,”

maintained a New York office “in the early 1990s” to market and sell properties, and that those

marketing efforts resulted in a large volume of sales. Compl. ¶ 13. Courts assessing the FSIA’s

commercial activity requirement, however, have looked for evidence of recent or ongoing

transactions. See Chabad, 528 F.3d at 948 (U.S.-based contracts whose performance was

ongoing or which had been recently entered into “[a]t the time of the filing of the suit” relevant

to assessing U.S. commercial activity under FSIA); Abelesz, 692 F.3d at 693 (bonds issued in

U.S. dollars through U.S. bank sufficient to show U.S. commercial activity under FSIA where

bonds were outstanding, i.e., where they would mature at a future date); Altmann v. Republic of

Austria, 317 F.3d 954, 961, 969 & n.5 (9th Cir. 2002) (book published in the United States in

months prior to complaint filing showed relevant U.S. commercial activity). By contrast, the

activities of a predecessor entity occurring roughly two decades prior to the filing of the instant

complaint do not reveal whether BVVG “is engaged” presently—or has been engaged recently—

in commercial activity in the United States. 28 U.S.C. § 1605(a)(3).

Schubarth also alleges that BVVG’s predecessor entity “pursued marketing efforts over

the Internet,” and that BVVG later “adopted and continued those marketing efforts . . . to the

present day.” Compl. ¶ 13. Those efforts include “posting links to . . . information [about

expropriated properties available for lease or sale] on its website.” Id. ¶ 4. In subsequent

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briefing and attached exhibits, Schubarth elaborates that the website includes “forms for the

submission of bids” on available properties, a page permitting “users from throughout the world

to sign up for newsletters alerting them to newly available properties that meet desired criteria,”

and sections “presented in English [that] are clearly targeted to foreigners.” Pl.’s Opp’n 7.3

These allegations are marked by one critical deficiency: None of them links BVVG’s

commercial activity to the United States. At most, BVVG’s website—some of which is in

English, the international language of commerce—shows an effort to solicit business from

foreigners generally. But none of those webpages bespeak an attempt to target the United States

market specifically. In fact, the website screenshots attached to Schubarth’s Opposition

affirmatively suggest an alternative reason for the use of English: “Since the year 2000, BVVG

[has] provide[d] consultancy services to Eastern European and Central Asian countries on the

privatization of farm and forest land, land market development, institution building and land

administration. In this context, BVVG has contributed to various projects of international

cooperation.” Pl.’s Opp’n, Ex. E (emphasis added). BVVG’s consulting service is also the

subject of the English-language brochure Schubarth highlights. See Pl.’s Opp’n 7 & Ex. I. In

this context, English is clearly being utilized as an international—not an American—language.

The cases Schubarth cites for support do little to aid her cause. Every one of them

involved at least one alleged commercial transaction or solicitation that was indisputably tied to

the United States. See Simon, 812 F.3d at 147 (defendant railway maintained “an agency for

selling tickets, booking reservations, and conducting similar business in the United States”

3

As noted above, Defendants have not contested the factual allegations underlying

Plaintiff’s assertion of jurisdiction under the FSIA. The Court therefore need not consider

factual allegations or evidence presented outside of the Complaint in resolving Defendants’

motion to dismiss. The Court does so here only for the sake of efficiency, in order potentially to

avoid the time and expense of litigating a renewed complaint containing the relevant allegations.

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(quoting complaint)); Chabad, 528 F.3d at 948 (defendant library and archive “entered [into]

transactions for joint publishing and sales in the United States”); Abelesz, 692 F.3d at 693

(defendant bank “issued [$200 million in] bonds denominated and payable in U.S. dollars . . .

through a U.S. investment bank”); Cassirer v. Kingdom of Spain, 616 F.3d 1019, 1032 (9th Cir.

2010) (defendant foundation engaged in long list of “commercial activities in the United States,”

including “shipping gift shop items to purchasers in the United States” and “placing

advertisements in magazines distributed in the United States”); Altmann, 317 F.3d at 969

(defendant art gallery “author[ed], edit[ed], and publish[ed] in the United States” a book of

paintings and “an English-language guidebook”); Siderman de Blake v. Republic of Argentina,

965 F.2d 699, 712 (9th Cir. 1992) (sovereign defendant, through corporation, “solicit[ed] and

entertain[ed] . . . American guests” and “accept[ed] . . . American credit cards and traveler’s

checks”); Malewicz v. City of Amsterdam, 517 F. Supp. 2d 322, 332 (D.D.C. 2007) (defendant

city “contracted with [U.S.] [m]useums,” “received nearly € 25,000 as consideration for the

contract,” and “agreed to send several employees . . . to the United States”).

In short, Schubarth has not alleged facts plausibly showing that BVVN “is engaged in a

commercial activity in the United States.” 28 U.S.C. § 1605(a)(3). The FSIA’s expropriation

exception is therefore inapplicable, and this Court is without subject matter jurisdiction over

Schubarth’s claims.4 Accordingly, none of the Defendants’ other grounds for dismissal need be

addressed.

4

Neither has Germany “waived sovereign immunity on behalf of the BVVG” by

operation of the FCN Treaty and the FSIA’s waiver exception to immunity, 28 U.S.C.

§ 1605(a)(1). Pl.’s Opp’n 27. The relevant FCN Treaty waiver applies to BVVG only “if it

engages in commercial, industrial, shipping or other business activities within the territories of”

the United States. Treaty of Friendship, Commerce and Navigation, U.S.-Germany, art. XVIII,

July 14, 1956, 7 U.S.T. 1839. Schubarth does not posit any material distinction between this

commercial-activity condition and the one set forth in FSIA’s § 1605(a)(3). Accordingly, the

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IV. Conclusion

For the reasons outlined above, the Court will grant Defendants’ dismissal motion.5 An

Order accompanies this Memorandum Opinion.

CHRISTOPHER R. COOPER

United States District Judge

Date: December 7, 2016

FCN’s waiver provision is inapplicable on account of the same deficiency precluding application

of the expropriation exception.

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Plaintiff also filed a Motion to Strike Portions of Defendants’ Reply Memorandum.

Because the Court in reaching its holding has not relied on arguments advanced uniquely in

Defendants’ Reply, the Court will deny as moot Plaintiff’s Motion to Strike.

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