Holocaust Victims of v. Magyar Nemzeti Bank

In the

United States Court of Appeals

For the Seventh Circuit

No. 11-2387

ERNO KALMAN ABELESZ et al.,Œ

Plaintiffs-Appellees,

v.

MAGYAR NEMZETI BANK,

Defendant-Appellant.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 1:10-cv-01884—Samuel Der-Yeghiayan, Judge.

Œ

These appeals had been captioned “Holocaust Victims of Bank

Theft v. Magyar Nemzeti Bank,” and “Victims of the Hungarian

Holocaust v. Hungarian State Railways.” We have reformed the

captions to reflect the first named plaintiffs. Federal Rule of

Civil Procedure 10(a) requires pleadings to name parties, not

to presume the merits of the plaintiffs’ claims, no matter

how compelling they may be. We have also revised the

caption in the railway case to reflect the proper Hungarian

name of the railway, which is abbreviated “MÁV.”

2 Nos. 11-2387 & 11-2791

No. 11-2791

PAUL CHAIM SHLOMO FISCHER et al.,

Plaintiffs-Appellees,

v.

MAGYAR ÁLLAMVASUTAK ZRT.,

Defendant-Appellant.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 1:10-cv-00868—Samuel Der-Yeghiayan, Judge.

ARGUED JANUARY 11, 2012—DECIDED AUGUST 22, 2012

Before KANNE, WILLIAMS, and HAMILTON, Circuit Judges.

HAMILTON , Circuit Judge. Holocaust survivors

and heirs of other Holocaust victims have sued several

Hungarian banks and the Hungarian national railway in

a U.S. district court alleging that the banks and the

national railway participated in expropriating prop-

erty from Hungarian Jews who were victims of the Holo-

caust. These two district court cases have produced

nine separate pending appeals and mandamus petitions

in this court. In this opinion, we address the claims

against the Hungarian national bank, defendant Magyar

Nemzeti Bank (the “national bank”), and the claims

against the Hungarian national railway, Magyar

Nos. 11-2387 & 11-2791 3

Államvasutak Zrt. (the “national railway”). In separate

opinions released today, we address the claims against

three other private banks.1

Plaintiffs’ complaints describe a part of the tragic,

historic crimes that were the Holocaust, and in par-

ticular the arrest, detention, transport, and murder of

Hungarian Jews, starting in large numbers relatively late,

in 1944, as Soviet armies were advancing west toward

the Third Reich and the countries it dominated,

including Hungary. The plaintiffs allege that both the

national bank and the national railway played critical

roles in the expropriation of Jewish property that was

essential to finance the genocide of the Holocaust in

Hungary. The plaintiffs suing the railway claim subject-

matter jurisdiction under the expropriation exception

to the Foreign Sovereign Immunities Act (“FSIA”), 28

U.S.C. § 1605(a)(3), and assert eight causes of action:

takings in violation of international law, aiding and

abetting genocide, complicity in genocide, violations

of customary international law, unlawful conversion,

unjust enrichment, fraudulent misrepresentation, and

accounting. The plaintiffs suing the banks claim subject-

matter jurisdiction over the national bank under both

the expropriation exception, 28 U.S.C. § 1605(a)(3), and

the waiver exception, 28 U.S.C. § 1605(a)(1) to the

FSIA, and assert six causes of action: genocide, aiding

and abetting genocide, bailment, conversion, constructive

1

Abelesz v. OTP Bank, ___ F.3d ___ (7th Cir. 2012); Abelesz v.

Erste Group Bank AG, ___ F.3d ___ (7th Cir. 2012).

4 Nos. 11-2387 & 11-2791

trust, and accounting. Both sets of plaintiffs seek to have

their respective cases certified as class actions — the

railway plaintiffs seek to have the national railway be

held responsible for damages of approximately $1.25

billion, and the bank plaintiffs seek to have the national

bank held jointly and severally responsible with the

private bank defendants for damages of approximately

$75 billion. The district court denied both the national

bank’s and the national railway’s respective motions

to dismiss.

We conclude that we have appellate jurisdiction

over both of these appeals under the collateral order

doctrine. We remand the cases to the district court with

instructions that both sets of plaintiffs either exhaust

any available Hungarian remedies identified by the

national bank and national railway or present to the

district court a legally compelling reason for their

failure to do so. We further direct the district court to

allow jurisdictional discovery with respect to whether

the national railway is engaged in “commercial activity”

in the United States, as required by the expropriation

exception to the FSIA.

I. Appellate Jurisdiction

We turn first to our jurisdiction over these appeals. The

appellate jurisdiction story in all of the interlocutory

appeals arising from the bank case begins with the

national bank, which moved to dismiss for lack of subject-

matter jurisdiction based on a defense of sovereign im-

munity under the FSIA, 28 U.S.C. § 1604. The district

Nos. 11-2387 & 11-2791 5

court denied the national bank’s motion. Along the

same lines, in the railway case, the national railway

also moved to dismiss for lack of subject-matter jurisdic-

tion based on a defense of sovereign immunity under

the FSIA, 28 U.S.C. § 1604, which was likewise denied

by the district court. The national bank and the national

railway have appealed the district court’s denials of

their respective motions to dismiss.

The district court’s denials of the national bank’s and

national railway’s motions to dismiss on sovereign im-

munity grounds are immediately appealable collateral

orders so that we have jurisdiction under 28 U.S.C. § 1291.

Both the national bank and national railway argue, and

we agree, that we also have appellate jurisdiction over

their treaty-based defenses because those are part of

their immunity defenses under the FSIA. We decline,

however, to exercise pendent appellate jurisdiction

over the national bank’s statute of limitations defense,

which is not inextricably intertwined with the sovereign

immunity argument.

A. Collateral Order Doctrine

As a general rule, the district court must issue a final

judgment before an appellate court has jurisdiction to

entertain an appeal under 28 U.S.C. § 1291. It is well

established, however, that certain types of interlocutory

orders denying immunity defenses in civil cases may

be appealed immediately under the collateral order

doctrine, regardless of whether the denied motion was

a motion to dismiss or a motion for summary judg-

6 Nos. 11-2387 & 11-2791

ment. Behrens v. Pelletier, 516 U.S. 299, 307 (1996)

(“[A]n order rejecting the defense of qualified immunity

at either the dismissal stage or the summary judgment

stage is a ‘final’ judgment subject to immediate appeal.”);

see also Mitchell v. Forsyth, 472 U.S. 511, 525-30

(1985) (denial of qualified immunity based on question

of law was immediately appealable); Nixon v. Fitzgerald,

457 U.S. 731, 742-43 (1982) (denial of former president’s

claim of absolute immunity was immediately appealable).

Like qualified or absolute immunity in civil rights

lawsuits, sovereign immunity is an immunity from

trial and the attendant burdens of litigation. Sovereign

immunity reflects the comity or mutual respect that is

essential in dealings between sovereign nations. See

Republic of Philippines v. Pimentel, 553 U.S. 851, 865 (2008);

Dole Food Co. v. Patrickson, 538 U.S. 468, 479 (2003);

Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 486

(1983). Based on the reasoning permitting appeals of

those other immunity defenses, we and other circuits

treat denials of sovereign immunity defenses as

appealable collateral orders. Rubin v. Islamic Republic of

Iran, 637 F.3d 783, 789-90, 795 (7th Cir. 2011) (appeal of

discovery order that rejected FSIA immunity defense);

World Holdings, LLC v. Federal Republic of Germany, 613

F.3d 1310, 1314 & n.6 (11th Cir. 2010) (appeal of denial

of FSIA immunity in suit to enforce pre-World War II

German bonds); O’Bryan v. Holy See, 556 F.3d 361, 372

(6th Cir. 2009) (appeal of denial of FSIA immunity in

case alleging sexual abuse of children by clergy); Arriba

Ltd. v. Petroleos Mexicanos, 962 F.2d 528, 532 (5th Cir. 1992)

Nos. 11-2387 & 11-2791 7

(appeal of denial of FSIA immunity in breach of contract

case); Foremost-McKesson, Inc. v. Islamic Republic of Iran,

905 F.2d 438, 443 (D.C. Cir. 1990) (appeal of denial of

FSIA immunity defense in expropriation case; collecting

cases from several circuits); Rush-Presbyterian-St. Luke’s

Med. Center v. Hellenic Republic, 877 F.2d 574, 576 n.2

(7th Cir. 1989) (appeal of denial of FSIA immunity based

on commercial activities in United States); Segni v. Com-

mercial Office of Spain, 816 F.2d 344, 347 (7th Cir. 1987)

(appeal of denial of FSIA immunity defense asserted

in breach of contract suit).

The plaintiffs in both appeals attempt to avoid this well-

established doctrine and practice by arguing that the

district court’s orders denying the defendants’ respective

motions to dismiss did not “conclusively determine”

that the defendants are not entitled to sovereign immu-

nity. The district court found that both groups of plaintiffs

had alleged sufficient facts to show at the motion to

dismiss stage that the expropriation exception to the FSIA

applied to their claims against these defendants. See 28

U.S.C. § 1605(a)(3). The court then wrote in the bank case:

“It is premature at this juncture to adjudicate [the

national bank’s] denial of the facts alleged.” Holocaust

Victims of Bank Theft v. Magyar Nemzeti Bank, 807 F. Supp.

2d 689, 697 (N.D. Ill. 2011). The district court noted that

the national bank may, if warranted, raise its arguments

regarding the expropriation exception’s nexus require-

ments again in a motion for summary judgment. Id. In

denying the national bank’s request for certification of

an interlocutory appeal pursuant to 28 U.S.C. § 1292(b),

the district court wrote:

8 Nos. 11-2387 & 11-2791

this Court did not adjudicate [the national bank’s]

defense of sovereign immunity under FSIA on the

merits. This court denied the motion to dis-

miss and indicated that the issue was not ripe for ad-

judication at the motion to dismiss stage because

Plaintiffs in opposition to the motion to dismiss

argued that the [expropriation] exception under

FSIA applies in this case and presented sufficient

allegations at the pleadings stage to proceed further

in this action at this juncture.

The district court reiterated that view in denying the

national railway’s motion to dismiss:

This court is not adjudicating [the national railway’s]

defense of sovereign immunity under FSIA on the

merits. This court is denying the motion to dismiss

because the FSIA issue is not ripe for adjudication

at the motion to dismiss stage. Plaintiffs have pre-

sented sufficient allegations at the pleadings stage

to proceed further in this action at this juncture.

Victims of the Hungarian Holocaust v. Hungarian State

Railways, 798 F. Supp. 2d 934, 938 (N.D. Ill. 2011).

Relying on Khorrami v. Rolince, 539 F.3d 782 (7th Cir.

2008), both sets of plaintiffs contend that the district

court’s disclaimer bars appellate jurisdiction. In Khorrami,

the plaintiff filed a Bivens suit against federal agents

alleging violations of his constitutional rights. The de-

fendants moved to dismiss on grounds of qualified im-

munity and failure to state a claim. The district court

granted the motion to dismiss for failure to state a

Nos. 11-2387 & 11-2791 9

claim with respect to all parts of the case except for

those relying on the Fifth Amendment, but explicitly

declined to rule on the qualified immunity motion. The

defendants filed an interlocutory appeal seeking a

ruling that qualified immunity applied and that the

remainder of the case in any event should have been

dismissed. This court found appellate jurisdiction

lacking because the district court had not yet issued an

order ruling either way on the qualified immunity de-

fense. The lack of a ruling from the district court was

not the functional equivalent of a denial of the motion.

539 F.3d at 790. We noted that in that situation, “it is

difficult, if not impossible, for an appellate court to in-

tervene.” Id. at 787.

Plaintiffs’ reliance on Khorrami is misplaced because

the district court here actually ruled on the defendants’

motions to dismiss. It denied them. Although the

district court said it had not adjudicated the sovereign

immunity defense “on the merits,” the fact remains that

the district court denied the defendants’ motions to

dismiss. In doing so, it issued the orders that both

support appellate jurisdiction in these cases and distin-

guish these cases from the failure to rule in Khorrami.

Our appellate jurisdiction based on the collateral order

doctrine extends to the defendants’ immunity defenses

based on the Treaty of Peace with Hungary, Feb. 10, 1947,

61 Stat. 2065, 41 U.N.T.S. 135 (“1947 Treaty”), and the

Agreement Between the Government of the United

States of America and the Government of the Hungarian

People’s Republic Regarding the Settlement of Claims,

10 Nos. 11-2387 & 11-2791

U.S.-Hungary, Mar. 6, 1973, 24 U.S.T. 522 (“1973 Agree-

ment”). FSIA immunity is subject to existing inter-

national agreements to which the United States was a

party at the time of enactment of the FSIA in 1976. 28

U.S.C. § 1604. Any conflict between a treaty and the

FSIA immunity provisions, whether toward more or less

immunity, is within the treaty exception. See Moore v.

United Kingdom, 384 F.3d 1079, 1084-85 (9th Cir. 2004). The

defendants’ arguments based on the earlier treaties

are simply a part of their overall defense of sovereign

immunity that we may consider in this appeal.

B. Pendent Appellate Jurisdiction

To the solid jurisdictional anchor of its sovereign im-

munity claim, the national bank attempts to hook on its

statute of limitations defense, arguing that adjudicating

the statute of limitations defense at this time will

promote judicial economy. The national bank’s reliance

on judicial economy to justify pendent appellate juris-

diction is misplaced. The Supreme Court has rejected

this justification. See Swint v. Chambers County Comm’n,

514 U.S. 35, 51 (1995); see also McCarter v. Retirement

Plan for Dist. Managers of American Family Ins. Grp., 540

F.3d 649, 653 (7th Cir. 2008) (“Swint itself held that a

court of appeals had erred in invoking pendent appel-

late jurisdiction, because ‘judicial economy’ is no

warrant for disregarding the statutory final-decision

rule.”). We do not have pendent appellate jurisdiction

over the national bank’s statute of limitations defense.

Nos. 11-2387 & 11-2791 11

II. Foreign Sovereign Immunity

The parties agree that these defendants, the national

bank and national railway of Hungary, are instrumentali-

ties of a foreign sovereign under the FSIA. See 28 U.S.C.

§ 1603(b). The FSIA is the exclusive basis for exercising

jurisdiction over foreign sovereigns in U.S. courts. Argen-

tine Republic v. Amerada Hess Shipping Corp., 488 U.S.

428, 434-36 (1989). The FSIA was enacted to clarify

the confusing situation that had developed after the

executive branch had shifted away from a long-standing

policy of asserting sovereign immunity on behalf of

friendly sovereigns under virtually any circumstances

toward a more restrictive approach to immunity, one

that allowed U.S. courts to exercise jurisdiction over

claims against foreign sovereigns based on their com-

mercial activities, while most courts were still adhering

to the broader approach. See Republic of Austria v.

Altmann, 541 U.S. 677, 690-91 (2004); Verlinden, 461 U.S. at

487-88. Under the FSIA, a foreign sovereign and its in-

strumentalities are immune from suit in U.S. courts

unless a specific statutory exception applies. 28 U.S.C.

§ 1604; Samantar v. Yousuf, 130 S. Ct. 2278, 2285-86

(2010) (holding that an individual foreign official sued for

official conduct was not a “foreign state” entitled to

immunity from suit under FSIA).

The plaintiffs suing the bank argue that two FSIA

exceptions provide jurisdiction over their claims: the

waiver exception in § 1605(a)(1), and the expropriation

exception in § 1605(a)(3) for property taken in violation

of international law. The district court relied on the

12 Nos. 11-2387 & 11-2791

expropriation exception to deny the national bank’s

motion to dismiss and did not reach the waiver excep-

tion. 807 F. Supp. 2d at 697-98. The plaintiffs suing

the railway rely solely on the expropriation exception.

When evaluating a district court’s conclusions on a

Rule 12(b)(1) motion to dismiss for lack of subject-

matter jurisdiction, we review the district court’s legal

conclusions de novo. Weaver v. Hollywood Casino-Aurora,

Inc., 255 F.3d 379, 381 (7th Cir. 2001); Odyssey Marine

Exploration, Inc. v. Unidentified Shipwrecked Vessel, 657

F.3d 1159, 1169 (11th Cir. 2011) (reviewing district court’s

grant of motion to dismiss based on FSIA immunity).

Our review of factual matters depends on how the

moving party presented those issues and whether the

district court resolved disputed factual issues. If the

district court resolved disputed factual issues, we

review those findings for clear error, but if it did not, our

review is de novo. E.g., Scott v. Trump Indiana, Inc., 337

F.3d 939, 942 (7th Cir. 2003); Rexford Rand Corp. v. Ancel,

58 F.3d 1215, 1218 (7th Cir. 1995).

A. Waiver of Sovereign Immunity

The plaintiffs suing the national bank claim that

Hungary implicitly waived its sovereign immunity by

stating in its Constitution that “the Republic of Hungary

accepts the universally recognized rules and regulations

of international law, and harmonizes the internal laws

and statutes of the country with the obligations assumed

Nos. 11-2387 & 11-2791 13

under international law.” 2 The bank plaintiffs argue that

sovereign immunity is a creature of the U.S. legal system

that Hungary may not use to avoid its own embrace

of international law.

This waiver argument reaches too broadly. The FSIA

waiver exception in § 1605(a)(1)is construed narrowly.

Sampson v. Federal Republic of Germany, 250 F.3d 1145,

1150 (7th Cir. 2001). In fact, “courts rarely find that a

nation has waived its sovereign immunity, particularly

with respect to suits brought by third parties, without

strong evidence that this is what the foreign state in-

tended.” Frolova v. Union of Soviet Socialist Republics,

761 F.2d 370, 377 (7th Cir. 1985); see also Argentine

Republic, 488 U.S. at 442-43 (“Nor do we see how a

foreign state can waive its immunity under § 1605(a)(1)

by signing an international agreement that contains no

mention of a waiver of immunity to suit in United States

courts or even the availability of a cause of action in

the United States.”).

2

The official English translation of the Hungarian constitution

reads as follows: “Hungary shall ensure harmony between

international law and Hungarian law in order to fulfil its

obligations under international law. Hungary shall accept

the generally recognised rules of international law. Other

sources of international law shall become part of the Hungarian

legal system by publication in the form of legislation.” The

Fundamental Law of Hungary [Constitution] Apr. 25, 2011, art.

Q, available at http://www.kormany.hu/download/2/ab/30000/

Alap_angol.pdf.

14 Nos. 11-2387 & 11-2791

Sampson illustrates the point well. In that case, a Holo-

caust survivor sued Germany for his imprisonment in

Nazi concentration camps. The district court dismissed

the claims against Germany based on the FSIA.

Sampson argued on appeal that Germany had waived it

sovereign immunity based on: (1) a letter from the

German government stating that the German people are

responsible for the past, (2) a letter from the Claims

Conference stating that Sampson was eligible to receive

compensation payments, and (3) a holding by the

German constitutional court regarding the universal and

mandatory norms of international law known as jus

cogens norms.3 We held that these statements did not

indicate an intent by the state of Germany to be subject

to suit in U.S. courts, but “merely demonstrate[d]

that Germany recognizes that its actions during World

War II constituted violations of jus cogens norms.”

250 F.3d at 1151. Similarly here, the language of the

Hungarian Constitution falls far short of expressing an

intent by the Republic of Hungary to be subject to suit

3

A jus cogens norm, also known as a peremptory norm of

international law, “is a norm accepted and recognized by the

international community of states as a whole as a norm

from which no derogation is permitted and which can be

modified only by a subsequent norm of general international

law having the same character.” Siderman de Blake v. Republic

of Argentina, 965 F.2d 699, 714 (9th Cir. 1992), quoting

Vienna Convention on the Law of Treaties, art. 53, May 23, 1969,

1155 U.N.T.S. 332, 8 I.L.M. 679; see also Sampson, 250 F.3d

at 1149-50.

Nos. 11-2387 & 11-2791 15

in U.S. courts. Like the evidence offered in Sampson, the

language of the Hungarian Constitution demonstrates

Hungary’s recognition and acceptance of international

law norms and obligations, but is not a waiver of its

sovereign immunity. Section 1605(a)(1) does not

apply here.

B. The Expropriation Exception

The more substantial issues here concern the scope of

the expropriation exception to the FSIA. The statute

provides:

A foreign state shall not be immune from the juris-

diction of the courts of the United States or of the

States in any case — in which rights in property

taken in violation of international law are in issue

and that property or any property exchanged for

such property is present in the United States in con-

nection with a commercial activity carried on in the

United States by the foreign state; or 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 instru-

mentality is engaged in a commercial activity in

the United States . . . .

28 U.S.C. § 1605(a)(3). To break that down, the expropria-

tion exception defeats sovereign immunity where (1) rights

in property are in issue; (2) the property was taken; (3) the

taking was in violation of international law; and (4) at

least one of the two nexus requirements is satisfied. See

16 Nos. 11-2387 & 11-2791

Zappia Middle East Const. Co. v. Emirate of Abu Dhabi, 215

F.3d 247, 251 (2d Cir. 2000) (laying out four elements of

FSIA expropriation exception). The district court found

that the plaintiffs’ allegations in both cases were

sufficient to rely on the expropriation exception. 807 F.

Supp. 2d at 697-98 (bank case); 798 F. Supp. 2d at 938

(railway case). On appeal, the national bank argues that

the plaintiffs’ allegations fail on each element of the

expropriation exception. The national railway argues

that the plaintiffs’ allegations fail on the “in violation of

international law” element and the nexus element. We

conclude that the plaintiffs suing the bank have alleged

several elements of the expropriation exception but

have not sufficiently alleged a violation of international

law because they have not exhausted the Hungarian

remedies available to them or provided a legally com-

pelling explanation for their failure to do so. With

respect to the plaintiffs suing the railway, we conclude

both that they have not sufficiently alleged a violation

of international law because of their failure to exhaust

and that they have not sufficiently alleged that the

national railway is engaged in commercial activity in the

United States, as required by the nexus element of

the expropriation exception.

1. Rights in Property

The named plaintiffs in the bank case allege the ex-

propriation of bank accounts and, in one case, a home.

The national bank argues that plaintiffs’ claims based on

expropriation of bank accounts are not covered by the

expropriation exception. We reject the national bank’s

Nos. 11-2387 & 11-2791 17

arguments on this score, which are built on the faulty

premise that the expropriation exception can apply only

to a claim by an owner of tangible property.4

The national bank’s argument finds some support in

district court opinions that have held that the “rights in

property” element of the expropriation exception is

limited to claims for tangible property. See, e.g., Gutch v.

Federal Republic of Germany, 444 F. Supp. 2d 1, 10 (D.D.C.

2006) (“Most courts maintain that the expropriation

exception applies only when the property at issue is

‘tangible.’ ”), aff’d mem. on other grounds, 255 F. App’x

524 (D.C. Cir. 2007); Sampson v. Federal Republic of Germany,

4

One plaintiff-appellee with claims against the national bank,

Paul Fischer, has voluntarily dismissed his claims against the

national bank and its co-defendant, Erste Group Bank. The

national bank urges that Fischer’s dismissal strengthens its

appeal because he was “the only plaintiff-appellee whose

relatives are alleged to have had tangible assets — as opposed

to intangible bank accounts — at [the national bank].” Fischer’s

departure does not affect our analysis of the “rights in

property at issue” because we follow the D.C. Circuit in deter-

mining that the expropriation exception applies to both

tangible and intangible property. In any event, Mr. Fischer

was not the only plaintiff to allege the taking of tangible

property by the national bank. Plaintiff Istvan Somogyi

alleges that his grandparents’ home in Budapest was expropri-

ated by the national bank. Compl. ¶ 19. Also, plaintiffs seek to

hold the defendant banks jointly and severally liable, and

several plaintiffs with claims against the other defendant

banks allege the taking of tangible property, including gold

and jewelry.

18 Nos. 11-2387 & 11-2791

975 F. Supp. 1108, 1117 (N.D. Ill. 1997) (“property” under

expropriation exception refers to tangible property), aff’d

on other grounds, 250 F.3d 1145 (7th Cir. 2001); Hirsh v.

State of Israel, 962 F. Supp. 377, 383 (S.D.N.Y. 1997) (ex-

propriation exception applies only to the expropriation

of tangible property, not to a right to receive payments),

aff’d mem., 133 F.3d 907 (2d Cir. 1997).

The D.C. Circuit reached the opposite conclusion,

finding no reason to distinguish between tangible and

intangible property for purposes of the FSIA’s expro-

priation exception to immunity. In Nemariam v. Federal

Democratic Republic of Ethiopia, 491 F.3d 470 (D.C. Cir.

2007), plaintiffs of Eritrean origin or nationality filed a

proposed class action suit under the FSIA against

Ethiopia claiming unlawful takings of bank accounts and

other property. Id. at 472-73. The district court had dis-

missed the complaint for lack of subject-matter jurisdic-

tion, finding that a taking of intangible property like a

bank account is not covered by the expropriation excep-

tion. The D.C. Circuit ultimately affirmed the dismissal

on other grounds (discussed below) but rejected the

district court’s exclusion of intangible property from

“rights in property” under the expropriation excep-

tion. 491 F.3d at 475-80. The court noted that the tangible/

intangible distinction seemed to have been based

on a comment in a House committee report that the

expropriation exception was “in no way [to] affect[]

existing law on the extent to which, if at all, the ‘act of

state’ doctrine may be applicable.” H.R. Rep. No. 94-1487,

at 20 (1976), reprinted in 1976 U.S.C.C.A.N. 1604, 1618. This

comment was interpreted as requiring that the types of

property subject to the expropriation exception parallel

Nos. 11-2387 & 11-2791 19

the types of property permitted under the act of state

doctrine. See Canadian Overseas Ores Ltd. v. Compania de

Acero Del Pacifico S.A., 528 F. Supp. 1337, 1346 (S.D.N.Y.

1982), aff’d on other grounds, 727 F.2d 274 (2d Cir. 1984).

Rejecting this reasoning, the D.C. Circuit pointed out

that the statutory language of the expropriation excep-

tion did not support any distinction between tangible

and intangible property. 491 F.3d at 478. The D.C. Circuit

also dissected the legislative history and concluded

that “ ‘the tangible/intangible characterization of

property interests . . . is a distinction without a difference’

and ‘is not generally recognized in international, federal,

or state law.’ ” 491 F.3d at 478 (alteration in original),

quoting West v. Multibanco Comermex, S.A., 807 F.2d 820,

830 (9th Cir. 1987) (rejecting tangible/intangible distinc-

tion under act of state doctrine). The D.C. Circuit

therefore concluded that the expropriation exception

could apply to claims for the expropriation of the appel-

lants’ bank accounts, 491 F.3d at 480, though the

court later found that the claims were properly

dismissed for failure to meet the “owned or operated”

prong of the nexus requirement, which we discuss be-

low. Without retracing the details of the argument, suffice

it to say that on this issue, we agree with the D.C. Circuit

in Nemariam and hold that the “rights in property” element

of the FSIA’s expropriation exception applies to both

tangible and intangible property.5

5

The D.C. Circuit appears to be the only circuit that has

decided this issue. The Second Circuit explicitly declined to

(continued...)

20 Nos. 11-2387 & 11-2791

2. “Taken“

The national bank argues next that even if we agree

with Nemariam that rights in intangible property are

“rights in property” under the expropriation exception,

plaintiffs’ claims fail because the D.C. Circuit found

that the bank account proceeds in that case were not

“taken” within the meaning of the FSIA. The argument

misreads Nemariam. The D.C. Circuit held that the defen-

dant bank in that case did not “own or operate” the

allegedly expropriated property, 491 F.3d at 481, and

never discussed whether the property was “taken” within

the meaning of the expropriation exception. The term

“taken” is intended to distinguish between the acts of a

sovereign and the acts of a private enterprise. See Zappia

Middle East Const. Co., 215 F.3d at 251 (“The term ‘taken’

thus clearly refers to acts of a sovereign, not a private

enterprise, that deprive a plaintiff of property without

adequate compensation.”). The parties agree that the

5

(...continued)

decide the issue in Zappia Middle East Const. Co., 215 F.3d at 251,

and the Eighth Circuit noted but did not decide it in Brewer

v. Socialist People’s Republic of Iraq, 890 F.2d 97, 101 (8th Cir.

1989). In cases where victorious plaintiffs have sought to

attach property of foreign states in the United States, see 28

U.S.C. § 1610, other circuits have assumed that sovereign

“property” that can be attached includes intangible property,

such as a right to payment. See Peterson v. Islamic Republic of

Iran, 627 F.3d 1117, 1131 (9th Cir. 2010); FG Hemisphere Assocs.,

LLC v. République du Congo, 455 F.3d 575, 588-90 (5th Cir.

2006); Connecticut Bank of Commerce v. Republic of Congo,

309 F.3d 240, 251 (5th Cir. 2002).

Nos. 11-2387 & 11-2791 21

national bank is an instrumentality of Hungary under

the FSIA. Any property expropriated by the national

bank would qualify as “taken” and could be subject to

the expropriation exception.

3. Violation of International Law

The next element of the expropriation exception

requires a plaintiff first to allege and ultimately to

prove that the expropriation of property was a violation

of international law. This element provides the most im-

portant and complex problems for us. The national

bank advances four arguments as to why the alleged

takings could not have violated international law, two

of which are also pressed by the national railway. First,

both defendants argue that expropriations of property

from Hungarian nationals by Hungarian authorities

were “domestic takings” that could not violate inter-

national law. Second, the national bank argues that

U.S. law preempts genocide claims based on customary

international law. Third, both defendants argue that the

alleged takings were not violations of international

law because plaintiffs failed to exhaust available

remedies in Hungary. Fourth, the national bank argues

that no actionable rights exist under the treaties, charters,

or conventions cited in the complaint. We consider

these arguments in turn.

22 Nos. 11-2387 & 11-2791

a. Domestic Takings

Plaintiffs allege that the national bank and national

railway, instruments of the Hungarian sovereign, expropri-

ated assets from Hungarian nationals pursuant to

official decrees, legislation, and actions mandated by the

then Hungarian government. Defendants both argue

that during World War II, customary international law

universally recognized that a sovereign could expropriate

the property of its own nationals within its own ter-

ritory without violating international law.

This rule of international law, that a so-called “domestic

taking” cannot violate international law, has been recog-

nized and applied in many decisions in U.S. courts. See,

e.g., United States v. Belmont, 301 U.S. 324, 332 (1937)

(enforcing international agreement by which United

States effectively ratified Soviet Union’s expropriation of

Russian corporation’s property: “What another country

has done in the way of taking over property of its nation-

als, and especially of its corporations, is not a matter

for judicial consideration here. Such nationals must look

to their own government for any redress to which they

may be entitled.”); Dreyfus v. Von Finck, 534 F.2d 24, 31

(2d Cir. 1976) (“violations of international law do not

occur when the aggrieved parties are nationals of the

acting state”); Siderman de Blake v. Republic of Argentina,

965 F.2d 699, 711 (9th Cir. 1992) (“Expropriation by a

sovereign state of the property of its own nationals does

not implicate settled principles of international law.”),

quoting Chuidian v. Philippine Nat’l Bank, 912 F.2d 1095,

1105 (9th Cir. 1990); FOGADE v. ENB Revocable Trust,

Nos. 11-2387 & 11-2791 23

263 F.3d 1274, 1294 (11th Cir. 2001) (“As a rule, when

a foreign nation confiscates the property of its own nation-

als, it does not implicate principles of international law.”);

de Sanchez v. Banco Central de Nicaragua, 770 F.2d 1385, 1397

(5th Cir. 1985) (“At present, the taking by a state of its

national’s property does not contravene the international

law of minimum human rights.”); Jafari v. Islamic Republic

of Iran, 539 F. Supp. 209, 215 (N.D. Ill. 1982) (“Similarly,

the ‘law of nations’ does not prohibit a government’s

expropriation of the property of its own nationals.”); Wahba

v. National Bank of Egypt, 457 F. Supp. 2d 721, 731 (E.D.

Tex. 2006) (“The expropriation exception does not

apply, however, to a foreign state’s dealings with

property owned by its own nationals.”); see also Restate-

ment (Third) of Foreign Relations Law § 712(1) (1987) (a

state is responsible under international law for injury

resulting from “a taking by the state of the property of

a national of another state” if taking is not for public

purpose, is discriminatory, or is not accompanied by

provision for just compensation) (emphasis added).

Defendants argue that such “domestic takings” were not

a violation of international law in 1944 or today and

therefore cannot support a claim under the expropria-

tion exception to FSIA immunity.

If we were dealing with claims of only expropriation

of property, as was true in almost all of the cited cases,

we would agree and would apply the domestic takings

exception here. For example, in Chuidian, U.S. courts

applied the domestic takings rule and found no violation

of international law when officials of the new Aquino

government in the Philippines instructed a U.S. bank to

24 Nos. 11-2387 & 11-2791

dishonor a letter of credit that had been issued in favor

of a close associate of former president Marcos. 912 F.2d

at 1105, abrogated on other grounds by Samantar v. Yousuf,

130 S. Ct. 2278 (2001). In de Sanchez, the domestic takings

rule applied when a new Nicaraguan government

placed a stop-payment order on a check issued by the

national bank to the wife of a minister in the former

government. 770 F.2d at 1395. In FOGADE, the domestic

takings rule applied when the Venezuelan government

placed a Venezuelan corporation in something akin to

a receivership. 263 F.3d at 1294. In Wahba, the domestic

takings rule applied when the national bank of Egypt

seized the assets of Egyptian citizens who were

business partners with government enterprises to

retaliate against speculation in cotton markets that

harmed Egyptian interests. 457 F. Supp. 2d at 731. In

Jafari, the domestic takings rule applied to claims that a

new Iranian government had expropriated real estate,

pensions, and other property from several Iranian citi-

zens. 539 F. Supp. at 215 (“It may be foreign to our way

of life and thought, but the fact is that governmental

expropriation is not so universally abhorred that its

prohibition commands the ‘general assent of civilized

nations’ — a prerequisite to incorporation in the ‘law

of nations.’ ”) (citation omitted).

We do not question these cases applying the domestic

takings rule, which recognizes that views among

nations about private property rights and the role of

government differ, as Judge Shadur noted in Jafari.

Actions that might appear to one regime or nation as

Nos. 11-2387 & 11-2791 25

unfair expropriations might seem to another to be a just

remedy for decades or more of exploitation of the

poor and downtrodden.

We are convinced, though, that the plaintiffs’ allega-

tions about the relationship between genocide and ex-

propriation in the Hungarian Holocaust take these cases

outside the domestic takings rule and its foundations.

Genocide, the complaints here clearly imply, can be an

expensive proposition. Expropriating property from

the targets of genocide has the ghoulishly efficient result

of both paying for the costs associated with a systematic

attempt to murder an entire people and leaving destitute

any who manage to survive. The expropriations alleged

by plaintiffs in these cases — the freezing of bank accounts,

the straw-man control of corporations, the looting of safe

deposit boxes and suitcases brought by Jews to the train

stations, and even charging third-class train fares to

victims being sent to death camps — should be viewed, at

least on the pleadings, as an integral part of the genocidal

plan to depopulate Hungary of its Jews. The expropria-

tions thus effectuated genocide in two ways. They

funded the transport and murder of Hungarian Jews, and

they impoverished those who survived, depriving them

of the financial means to reconstitute their lives and

former communities.

All U.S. courts to consider the issue recognize

genocide as a violation of customary international law.

See, e.g., Sarei v. Rio Tinto, PLC, 671 F.3d 736, 759 (9th

Cir. 2011) (“Claims of genocide, therefore, fall within

the limited category of claims constituting a violation

26 Nos. 11-2387 & 11-2791

of internationally accepted norms for [Alien Tort

Statute] jurisdiction.”), petition for cert. filed, 80 U.S.L.W.

3335 (U.S. Nov. 23, 2011) (No. 11-649); Flores v. Southern

Peru Copper Corp., 414 F.3d 233, 244 n.18 (2d Cir. 2003)

(“Customary international law rules proscribing crimes

against humanity, including genocide, and war crimes,

have been enforceable against individuals since World

War II.”); Kadic v. Karadžiƒ , 70 F.3d 232, 241 (2d Cir. 1995)

(“In the aftermath of the atrocities committed during

the Second World War, the condemnation of genocide

as contrary to international law quickly achieved broad

acceptance by the community of nations.”); Siderman de

Blake, 965 F.2d at 715 (“The universal and fundamental

rights of human beings identified by Nuremberg —

rights against genocide, enslavement, and other inhumane

acts — are the direct ancestors of the universal and funda-

mental norms recognized as jus cogens.”) (internal citation

omitted); Tel-Oren v. Libyan Arab Republic, 726 F.2d 774, 791

n.20 (D.C. Cir. 1984) (Edwards, J., concurring) (“On

the basis of international covenants, agreements and

declarations, commentators have identified at least four

acts that are now subject to unequivocal international

condemnation: torture, summary execution, genocide

and slavery.”) (citations omitted); Beanal v. Freeport-

McMoRan, Inc., 969 F. Supp. 362, 371 (E.D. La. 1997)

(“Genocide, for example, violates international law,

whether undertaken by a state or nonstate actor.”), aff’d

on other grounds, 197 F.3d 161 (5th Cir. 1999); Handel v.

Artukovic, 601 F. Supp. 1421, 1428 (C.D. Cal. 1985) (“It

appears clear that the acts of genocide, torture, enslave-

ment, and religious discrimination alleged in plaintiffs’

Nos. 11-2387 & 11-2791 27

complaint constituted violations of the laws of humanity

at the time they were committed.”); see also Sosa v. Alvarez-

Machain, 542 U.S. 692, 762 (2004) (Breyer, J., concurring

in part and concurring in the judgment) (“Today inter-

national law will sometimes similarly reflect not only

substantive agreement as to certain universally

condemned behavior but also procedural agreement

that universal jurisdiction exists to prosecute a subset of

that behavior. That subset includes torture, genocide,

crimes against humanity, and war crimes.”) (internal

citation omitted); Restatement (Third) of Foreign

Relations Law of the United States § 702 (recognizing

genocide as a violation of international law).

Genocide also has been criminalized by the inter-

national criminal tribunals. See Rome Statute of the

International Criminal Court, arts. 5-6; Statute of the

International Criminal Tribunal for the former Yugoslavia,

art. 4; Statute of the International Criminal Tribunal

for Rwanda, art. 2. Genocide has been recognized as a jus

cogens norm. As we noted in Sampson, jus cogens norms

supported the prosecutions in the Nuremberg trials. 250

F.3d at 1150; see also Siderman de Blake, 965 F.2d at 715

(“The universal and fundamental rights of human beings

identified by Nuremberg — rights against genocide,

enslavement, and other inhumane acts — are the

direct ancestors of the universal and fundamental norms

recognized as jus cogens.”) (internal citation omitted).

On this general point, the “general assent of civilized

nations” is well established. The international norm

against genocide is specific, universal, and obligatory.

28 Nos. 11-2387 & 11-2791

Where international law universally condemns the ends,

we do not believe the domestic takings rule can be used

to require courts to turn a blind eye to the means used

to carry out those ends — in this case, widespread ex-

propriation of victims’ property to fund and accom-

plish the genocide itself. Plaintiffs’ allegations of these

expropriations as an integral party of the overall

genocidal plan allege violations of international law

notwithstanding the domestic takings rule that would

apply in most other circumstances.6

Defendants protest that plaintiffs cannot convert what

defendants characterize as “non-actionable domestic

takings” claims into genocide-based claims. Such

claims, as converted, could proceed, if at all, argues the

6

We are not persuaded by plaintiffs’ argument that the

domestic takings rule operates to bar the claims of only citizens

and thus should not apply in this case on the theory that

plaintiffs were not citizens of Hungary “in any meaningful

sense” at the time of expropriation. Most courts agree that the

relevant inquiry for purposes of the domestic takings rule is

whether plaintiffs are nationals of the expropriating state. See

Belmont, 301 U.S. at 332; Banco Nacional de Cuba v. Sabbatino, 376

U.S. 398, 442 (1964) (White, J., dissenting); Dreyfus, 534 F.2d at

31; Siderman de Blake, 965 F.2d at 711; Chuidian, 912 F.2d at 1105;

FOGADE, 263 F.3d at 1294; de Sanchez, 770 F.2d at 1397; Jafari,

539 F. Supp. at 215; Wahba, 457 F. Supp. at 731; see also Restate-

ment (Third) of Foreign Relations Law § 712(1) (1987). But see

de Csepel v. Republic of Hungary, 808 F. Supp. 2d 113, 129-31

(D.D.C. 2011) (adopting distinction in Holocaust case); Cassirer

v. Kingdom of Spain, 461 F. Supp. 2d 1157, 1165-66 (C.D. Cal.

2006) (same), aff’d in part, 616 F.3d at 1023 n.2.

Nos. 11-2387 & 11-2791 29

national bank, only under the FSIA’s non-commercial

tort exception for claims for personal injury or death, but

that exception cannot apply in these cases because it

applies only if the offending conduct occurred in the

United States. 28 U.S.C. § 1605(a)(5). We agree with the

national bank that plaintiffs cannot bring claims for

personal injury or death under the expropriation excep-

tion. Plaintiffs’ claims, however, are not for personal

injury or death. They are for property expropriated pursu-

ant to and as an integral part of a widespread campaign

to deprive Hungarian Jews of their wealth and to

fund genocide, a long-recognized violation of inter-

national law. We acknowledge that the fact that

plaintiffs can seek compensation for taken property but

not for taken lives seems anomalous. That anomaly,

however, is the product of the statutory limits of the

FSIA. The limits on remedies available in U.S. courts do

not indicate a deficiency in their claims under substan-

tive international law. Jurisdiction over plaintiffs’ claims

is not barred by the domestic takings rule.7

7

Two of the cited cases applying the domestic takings rule

are closer to our case because they alleged expropriation

motivated by religious hatred. We believe both cases are

distinguishable from the plaintiffs’ allegations of expropria-

tions to fund genocide in these cases. In Dreyfus, the Second

Circuit applied the domestic takings rule to dismiss a

German Jew’s claims against German citizens to whom he

sold his business under Nazi compulsion and duress in 1938

as he was forced to leave Germany. 534 F.2d at 31. Siderman

(continued...)

30 Nos. 11-2387 & 11-2791

b. Federal Preemption

The national bank next argues that federal law preempts

genocide claims based on customary international law.

Here, the national bank argues, we may not recognize

plaintiffs’ claims of genocide by expropriation because

the Genocide Convention Implementation Act of 1987

(the “Proxmire Act”), 18 U.S.C. §§ 1091-93, established a

federal statutory framework that precludes such claims

by: (1) defining genocide with a list of acts that does not

include theft or looting of assets among the culpable

activities; and (2) more important to the national bank,

expressly disavowing private civil claims.

As a general rule, customary international law is not

applicable in U.S. courts where a controlling federal

7

(...continued)

de Blake applied the rule to affirm dismissal of claims by

Argentine Jews against the Argentine military government

for expropriation of property, along with torture and other

wrongs motivated by religious hatred, but the court held that

a U.S. citizen could pursue an expropriation claim. 965 F.2d

at 711. In terms of international law, even these examples

of expropriation motivated by religious hatred fall well short

of the genocide alleged here. Dreyfus was forced to leave

Germany, but he was not sent to a death camp. The abominable

torture in Siderman de Blake was surely horrific for the individu-

als involved but simply was not on a scale comparable to the

Holocaust, nor was it financed by the expropriation of the

victim’s property. The case did not present the integral rela-

tionship between expropriation and genocide that is alleged

here.

Nos. 11-2387 & 11-2791 31

statute prescribes different standards. Bradvica v. I.N.S., 128

F.3d 1009, 1014 n.5 (7th Cir. 1997); Committee of U.S.

Citizens Living in Nicaragua v. Reagan, 859 F.2d 929, 939

(D.C. Cir. 1988). For example, in Enahoro v. Abubakar,

Nigerian nationals pled their claims of torture and killing

by a former Nigerian head of state as a common law

violation of the law of nations under the Alien Tort

Statute. 408 F.3d 877 (7th Cir. 2005). The defendant

argued that because the plaintiffs had not complied with

the exhaustion requirement in the Torture Victim Protec-

tion Act, their case should be dismissed. Id. at 884. The

district court rejected this argument because plaintiffs

had pled their case under the Alien Tort Statute and not

the Torture Victim Protection Act. The district court

found they had no reason to comply with the require-

ments of the latter act. Id. We rejected this argument,

finding that the Torture Victim Protection Act “occup[ied]

the field” such that plaintiffs could not choose to file

their torture and extrajudicial killing claims under

the Alien Tort Statute when they would have been prop-

erly pled under the Torture Victim Protection Act. Id.

at 884-85.

That is not the case here, however. As the national

bank itself repeatedly emphasizes, the claims in the

bank case stem from the alleged expropriation of personal

property from Hungarian nationals by the Hungarian

national bank. The jurisdiction of the Proxmire Act, the

statute that the national bank claims preempts the

bank plaintiffs’ claims, is explicitly limited to genocide

committed either in whole or in part within the United

States or, regardless of where the offense is committed,

32 Nos. 11-2387 & 11-2791

to cases where the alleged offender is a U.S. national, a

lawful permanent U.S. resident, a stateless person

residing in the United States, or present in the United

States. 18 U.S.C. § 1091; see also Sampson, 975 F. Supp. at

1119-20. Because the bank plaintiffs’ claims clearly do

not fall within the scope of the Proxmire Act, that

statute does not preempt their claims under customary

international law.

c. Exhaustion of Domestic Remedies

Defendants next argue that the alleged expropriation

cannot be considered a violation of international law

because plaintiffs have not alleged that they have

pursued and exhausted domestic remedies in Hungary,

the foreign state that is alleged to have caused the in-

jury. This argument presents two separate questions: first,

whether the FSIA itself imposes a statutory exhaustion

requirement, and second, whether international law

requires exhaustion of domestic remedies before

plaintiffs can establish a violation.

On the statutory exhaustion point, nothing in § 1605(a)(3)

suggests that plaintiffs must exhaust domestic Hungarian

remedies before bringing suit in the United States. It does

not, for example, condition the exception to immunity

on a claimant’s having first presented his claim to the

courts of the country being sued or to an international

tribunal. Defendants have identified no language in the

FSIA and no case law indicating that the FSIA contains

a statutory exhaustion requirement. The Ninth Circuit

and the D.C. Circuit have both held that it does not. See

Nos. 11-2387 & 11-2791 33

Cassirer v. Kingdom of Spain, 616 F.3d 1019, 1034-37 (9th

Cir. 2010); Agudas Chasidei Chabad of U.S. v. Russian

Fed’n, 528 F.3d 934, 948-49 (D.C. Cir. 2008). We agree

with the Ninth and D.C. Circuits that the FSIA does not

contain a statutory exhaustion requirement.8

Whether a plaintiff must exhaust domestic remedies

to assert a claim for expropriation in violation of interna-

tional law is a different question. Defendants argue that

plaintiffs cannot complain that a “taking” has not been

fairly compensated (and hence violates international

law) unless they first pursue and exhaust any available

Hungarian remedies, or at least provide a legally compel-

ling explanation for why they have not done so. Noting

that “Hungary is a well-established European state, with

a well functioning legal system that operates under

established and cognizable rules of law,” the national

bank offers a 1992 statute as an example of “the variety

of laws that Hungary has enacted to provide compensa-

tion to individuals in [plaintiffs’] position.” Plaintiffs

respond by arguing that domestic exhaustion is not

required by international law. In the alternative, they

argue that even if exhaustion is required generally, it

8

The FSIA previously contained one exception with a local

exhaustion requirement, § 1605(a)(7), which for certain suits

required that the foreign state be granted “a reasonable op-

portunity to arbitrate the claim in accordance with accepted

international rules of arbitration.” Congress repealed that

exception in 2008. See National Defense Authorization

Act for Fiscal Year 2008, Pub. L. No. 110-181, div. A,

§ 1083(b)(1)(A)(iii), 122 Stat. 3, 341 (2008).

34 Nos. 11-2387 & 11-2791

should not be required in these cases because both sets

of plaintiffs have satisfactorily explained their failure to

do so.

The international law issue therefore breaks down

into two distinct questions. One, does international law

require plaintiffs to exhaust domestic remedies before

pursuing expropriation claims elsewhere? Two, if ex-

haustion is required, have plaintiffs exhausted domestic

remedies or, in the alternative, have they provided a

legally compelling reason for their failure to do so?

On the first question, the Supreme Court has suggested

that exhaustion of domestic remedies may well be neces-

sary to assert a violation of customary international

law, but the Court has not answered the question defini-

tively. In Sosa v. Alvarez-Machain, 542 U.S. 692, 733 n.21

(2004), the Court noted that it “would certainly consider”

whether claimants must have exhausted domestic or

international remedies before asserting a claim in a

foreign forum “in an appropriate case.” In another

claim involving property expropriated during the Holo-

caust, Justice Breyer wrote that “a plaintiff may have to

show an absence of remedies in the foreign country

sufficient to compensate for any taking.” Altmann, 541

U.S. at 714 (Breyer, J., concurring). We have likewise

noted that “[i]t may be that a requirement for exhaus-

tion is itself a basic principle of international law.” Enahoro,

408 F.3d at 886.

In fact, the requirement that domestic remedies for

expropriation be exhausted before international pro-

ceedings may be instituted is “a well-established rule

Nos. 11-2387 & 11-2791 35

of customary international law” that the United States

itself has invoked. Interhandel (Switz. v. U.S.), Preliminary

Objections, 1959 I.C.J. 6, 26-27 (Mar. 21) (upholding the

United States’ Third Preliminary Objection that the

Court had no jurisdiction to hear or determine the

matters raised by the Swiss Application and Memorial

because Interhandel, whose case Switzerland was

pressing, had not exhausted the local remedies available

to it in U.S. courts); see also American Convention on

Human Rights, art. 46, Nov. 22, 1969, 1144 U.N.T.S.

123 (“Admission by the Commission of a petition or

communication lodged in accordance with Articles 44 or

45 shall be subject to the following requirements: That

the remedies under domestic law have been pursued

and exhausted in accordance with generally recognized

principles of international law . . . .”); Convention for

the Protection of Human Rights and Fundamental Free-

doms, art. 26, Nov. 4, 1950, 213 U.N.T.S. 221 (“The Com-

mission may only deal with the matter after all domestic

remedies have been exhausted, according to the gen-

erally recognised rules of international law, and within

a period of six months from the date on which the

final decision was taken.”); Millicom Int’l Cellular, S.A. v.

Republic of Costa Rica, 995 F. Supp. 14, 23 (D.D.C. 1998);

Greenpeace, Inc. (USA) v. State of France, 946 F. Supp. 773,

783 (C.D. Cal. 1996); Restatement (Third) of the Foreign

Relations Law of the United States § 713 cmt. f (“Under

international law, ordinarily a state is not required to

consider a claim by another state for an injury to its

national until that person has exhausted domestic

remedies . . . [listing exceptions.]”); Ian Brownlie, Princi-

36 Nos. 11-2387 & 11-2791

ples of Public International Law 492-501 (7th ed. 2008).9

This rule is based on the idea that the state where

the alleged violation occurred should have an

opportunity to redress it by its own means, within the

framework of its own legal system. Interhandel, 1959 I.C.J.

at 26-27; see also Brownlie at 492-93 (listing

other practical and political considerations justifying

the domestic exhaustion rule).

The Interhandel case is helpful for two reasons. First,

it lays out the sovereignty and comity concerns

underlying the domestic exhaustion rule. Second, it is a

case in which the United States requested that an inter-

national court refrain from adjudicating a claim

because the plaintiffs had not exhausted available U.S.

remedies. Comity requires that the United States be

prepared to reciprocate. In Interhandel, Switzerland filed

with the International Court of Justice an application

for interim measures of protection against the United

States. In 1942, the U.S. government seized a Swiss sub-

9

The Ninth Circuit rejected Millicom, Greenpeace, and the

Restatement as support for the proposition that the FSIA

imposes a statutory exhaustion requirement, but declined to

consider whether prudential exhaustion could be invoked to

affect when a decision on the merits may be made. Cassirer,

616 F.3d at 1037. The D.C. Circuit rejected a similar exhaus-

tion argument based on the Restatement, but ultimately

decided the issue based on the fact that, even if exhaustion

were required, the remedy identified by the defendant was

on its face inadequate. Agudas Chasidei Chabad of U.S., 528

F.3d at 949.

Nos. 11-2387 & 11-2791 37

sidiary of Interhandel as enemy property under the

Trading with the Enemy Act. The United States

contended that the subsidiary was owned by or held

for the benefit of a German company and thus was sub-

stantially under the control of an enemy corporation. See

K.R. Simmonds, The Interhandel Case, 10 Int’l & Comp. L. Q.

495, 496 (1961). Relying upon the provisions of the

Trading with the Enemy Act, Interhandel sought relief

in the U.S. District Court for the District of Columbia. The

suit bounced around the federal courts for years, and

litigation was proceeding before the U.S. Supreme

Court when the Swiss application and the United

States’ Preliminary Objections were submitted to the

International Court of Justice. Id. at 501. The United States’

Third Preliminary Objection sought a finding that the

International Court of Justice did not have jurisdiction

over the Swiss application because Interhandel had not

exhausted the local remedies available to it in the

U.S. courts. Interhandel, 1959 I.C.J. at 26.

In finding that it lacked jurisdiction due to

Interhandel’s failure to exhaust available U.S. remedies,

the International Court of Justice noted that the

domestic exhaustion rule is well established in

customary international law, generally being observed

in cases where a state has adopted the cause of its

national who claims another state violated his rights

in violation of international law. Id. at 26-27. The Inter-

national Court of Justice further found that the

domestic exhaustion rule applied with equal force when

domestic proceedings were pending and the domestic

and international proceedings were designed to obtain

the same result. Id. at 27.

38 Nos. 11-2387 & 11-2791

In Millicom, three corporate entities brought suit in

the United States against the Republic of Costa Rica, a

Costa Rican instrumentality, and a subsidiary of the

Costa Rican instrum en tality. The suit alleged

unlawful anti-competitive activity and other related

misconduct in the Costa Rican cellular services market.

995 F. Supp. at 15. Citing Greenpeace (which in turn cited

Interhandel), the district court noted: “As a threshold

matter, a claimant cannot complain that a ‘taking’ or

other economic injury has not been fairly compensated,

and hence violates international law unless the claimant

has first pursued and exhausted domestic remedies in

the foreign state that is alleged to have caused the in-

jury.” Id. at 23. The court then explained that none of the

exceptions recognized in the Restatement applied. Id.

Plaintiffs attempt to distinguish Millicom by arguing

that case requires plaintiffs to show domestic exhaus-

tion only where efforts to recover “taken” assets are

contemporaneous with the taking itself. The district

court in Millicom did not, however, indicate that the

timing of the plaintiffs’ complaint affected its reasoning.

Rather, the Millicom court’s citation to Interhandel seems

to indicate that its reasoning was predicated on the

comity and reciprocity concerns underpinning the domes-

tic exhaustion rule. Moreover, it would be an odd rule

of law if a plaintiff could avoid an exhaustion require-

ment by simply waiting long enough to bring the claim.

As Justice Breyer noted in his concurrence in Altmann,

U.S. constitutional law requires a claimant to exhaust

available post-deprivation remedies before a state or

local government’s taking of property can be deemed a

Nos. 11-2387 & 11-2791 39

federal constitutional violation. 541 U.S. at 714 (Breyer, J.,

concurring), citing City of Monterey v. Del Monte Dunes

at Monterey, Ltd., 526 U.S. 687, 721 (1999), and Kirby

Forest Indus., Inc. v. U.S., 467 U.S. 1, 10 (1984). “A

federal court, moreover, cannot entertain a takings

claim under § 1983 unless or until the complaining land-

owner has been denied an adequate postdeprivation

remedy.” City of Monterey, 526 U.S. at 721.

These claims of takings of property in violation of

international law are similar enough to expect

claimants in these plaintiffs’ situations either to pursue

and exhaust domestic remedies in Hungary or to show

convincingly that such remedies are clearly a sham or

inadequate or that their application is unreasonably

prolonged. See Restatement (Third) of the Foreign Rela-

tions Law of the United States § 713 cmt. f. We hope we

are not misunderstood. We do not mean to suggest that

Hungary had in place meaningful remedies at the

time of the Holocaust or during more than 40 years of

Communist government after the war. But plaintiffs

are pursuing their claims now, more than 65 years after

the expropriations took place and after Hungary has

had more than 20 years of government not dominated

by the Soviet Union. Now is the relevant time for evalu-

ating the adequacy of domestic remedies.1 0

10

In Flomo, an Alien Tort Statute case brought against private

defendants, we rejected a rigid exhaustion requirement but

recognized that a U.S. court might need to stay a case to

(continued...)

40 Nos. 11-2387 & 11-2791

As we consider this exhaustion issue, we cannot

overlook the comity and reciprocity between sovereign

nations that dominate international law. The plaintiffs

suing the railway seek a judgment from a U.S. court

ordering the national railway to pay plaintiffs as much

a $1.25 billion. The plaintiffs suing the bank seek as

much as $75 billion. The sum of damages sought by

plaintiffs would amount to nearly 40 percent of

Hungary’s annual gross domestic product in 2011.

Divided among Hungary’s current population of

10 million people, that is more than $7500 per person.

We should consider how the United States would react

if a foreign court ordered the U.S. Treasury or the

Federal Reserve Bank to pay a group of plaintiffs

40 percent of U.S. annual gross domestic product, which

would be roughly $6 trillion, or $20,000 for every

resident in the United States. And consider further

the reaction if such an order were based on events that

10

(...continued)

allow for exhaustion as a matter of comity: “The first [argument

we reject] is that plaintiffs must exhaust their legal remedies

in the nation in which the alleged violation of customary

international law occurred. The implications of this argument

border on the ridiculous; imagine having been required to

file suit in a court in Nazi Germany complaining about

genocide before being able to sue under the Alien Tort Statute.

What is true is that a U.S. court might, as a matter of interna-

tional comity, stay an Alien Tort suit that had been filed in

the U.S. court, in order to give the courts of the nation in

which the violation had occurred a chance to remedy it, pro-

vided that the nation seemed willing and able to do that.”

Flomo, 643 F.3d at 1025.

Nos. 11-2387 & 11-2791 41

happened generations ago in the United States itself,

without any effort to secure just compensation through

U.S. courts. If U.S. courts are ready to exercise jurisdic-

tion to right wrongs all over the world, including those

of past generations, we should not complain if other

countries’ courts decide to do the same.

Hungary, a modern republic and member of the Euro-

pean Union, deserves a chance to address these claims.

That is not to say that U.S. courts have no place in

this sort of case. If plaintiffs choose to pursue their

claims in Hungary but find the way barred by inaction or

hostility, the U.S. courts may be available to consider

their claims. But Hungary should first have the opportu-

nity to address these alleged takings, by its own means

and under its own legal system, before a U.S. court steps

in to resolve claims against a part of the Hungarian na-

tional government for these actions taken in Hungary

so long ago.11

We now turn to whether there is a legally compelling

reason for plaintiffs’ failure to exhaust Hungarian reme-

dies, such that the domestic exhaustion rule should not

bar their claims. Plaintiffs advance three arguments on

this point. First, plaintiffs argue that defendants’ denial

of their factual allegations means that Hungary denies

responsibility for their claims. Next, plaintiffs argue

11

Plaintiffs have advised us that Hungary has amended

its constitution to declare that there are no statutes of limita-

tions on crimes visited upon the Hungarian people during

World War II.

42 Nos. 11-2387 & 11-2791

that any potential remedies in Hungary are inadequate,

pointing out that the Constitutional Court of Hungary

ruled in 1993 that Hungary had never fully complied

with its obligation to make reparations under the 1973

Agreement. Last, they argue that any Hungarian remedy

that might exist now has been unreasonably prolonged, as

most of the claimants are surviving family members

and Hungary still has not moved to compensate these

plaintiffs or to set up procedures for such compensation.

These arguments are based on the Restatement (Third) of

the Foreign Relations Law of the United States § 713,

comment f, which addresses state-to-state claims, where a

state brings a claim on behalf of its own nationals.1 2

These arguments are not persuasive. Plaintiffs cite

defendants’ decisions to defend themselves against this

litigation as evidence that Hungary as a sovereign is

denying responsibility for plaintiffs’ claims. The

argument proves too much, for it would excuse use of

domestic remedies in any case that is actually contested.

Switzerland raised the same objection in Interhandel,

12

Section 713 is written in terms of one state’s claim on behalf

of its nationals against another state. We believe the excep-

tions in comment f to § 713 should guide this inquiry into the

adequacy of domestic remedies. Plaintiffs in these cases ulti-

mately seek judgments from a U.S. court that the U.S. govern-

ment would try to enforce against arms of the Hungarian

government. The exceptions in comment f are where

domestic remedies “are clearly sham or inadequate, or their

application is unreasonably prolonged,” or if the respondent

state “firmly denies responsibility.”

Nos. 11-2387 & 11-2791 43

arguing that the domestic exhaustion rule did not apply

because it was the U.S. government, as opposed to a

subsidiary, that had taken the action against Interhandel.

The International Court of Justice rejected the argu-

ment, attaching “decisive importance” to the fact that

the law of the United States made available adequate

remedies for the defense of the rights that Interhandel

felt had been violated. 1959 I.C.J. at 27. We agree. Defen-

dants’ decisions to defend themselves rather than to

settle or concede is not tantamount to a decision by Hun-

gary, in its sovereign capacity, to deny plaintiffs’ claims.

Plaintiffs cite no legislation, executive statement, or case

law indicating that the Hungarian government denies

these events or would refuse to entertain claims for

losses related to the Holocaust. If U.S. courts implementing

procedures established by U.S. law can provide

adequate remedies against the U.S. government itself,

comity suggests that other nations are entitled to similar

opportunities to address claims against their agencies.

Nor does the Constitutional Court’s 1993 ruling con-

vince us that there is or was no adequate remedy

available to plaintiffs in Hungary. Nearly 20 years

have passed since that ruling. In that time Hungary has

adopted a new constitution and become a member of

both the European Union and NATO. Its legal system

operates under established rules of law. The fact that the

Constitutional Court was able and willing to rule that

Hungary never fully complied with its obligations to

make reparations under the 1973 Agreement suggests

that Hungary has a functional and independent judi-

ciary. These facts all point to Hungary’s apparent ability to

44 Nos. 11-2387 & 11-2791

provide an adequate remedy to plaintiffs, whether under

a statute specifically enacted to remedy Holocaust-era

injuries or under a general takings statute.

As for plaintiffs’ argument that any presently available

remedy was unreasonably prolonged, we must recall

that plaintiffs themselves waited until 2010 to file

their complaints in the United States. The German Founda-

tion and the Austrian General Settlement Fund,

two international settlements created for the benefit of

Holocaust victims, were finalized in 2000 and 2001, re-

spectively. Whether Hungary’s 1992 compensation

statute is, as plaintiffs claim, inadequate is a separate

question from whether it was unreasonably prolonged.

For purposes of this case, we think it was not

unreasonably prolonged. It was enacted nearly a decade

before the German Foundation or the Austrian General

Settlement Fund were created, and almost 20 years

before plaintiffs filed the complaints in these cases. Plain-

tiffs have not shown that any presently available

remedy was unreasonably prolonged.

In short, there is no reason for U.S. courts to take

up these claims without a persuasive showing that Hun-

garian law is unresponsive. We acknowledge, however,

that plaintiffs offer some powerful emotional reasons

against requiring exhaustion of domestic remedies. As

survivors of the effort of an earlier Hungarian

government to exterminate them or their loved ones,

plaintiffs have an understandable fear and reluctance

to trust a Hungarian forum to try their claims fairly.

Because of resurgent anti-Semitism and violence

Nos. 11-2387 & 11-2791 45

against Jews in Hungary, plaintiffs argue, they are also

concerned that their safety could be jeopardized if

they were forced to go to Hungary to testify in court.

That is in addition to the emotional trauma that might

be inflicted on plaintiffs by being forced to pursue

their claims in Hungary. Additionally, plaintiffs argue

that a lawsuit against Hungarian banks during a deep

recession would be exploited by some political factions

to promote anti-Semitic prejudice.

We are sympathetic to plaintiffs’ fears and concerns

about the prospect of trying their claims in Hungary.

But we should also remember that the claims asserted

here arose in Hungary more than 65 years ago. Hungary

is where much of the evidence and surviving witnesses

are located. And courts often deal with emotionally

charged cases and unpopular parties. The requirement

of domestic exhaustion is not based on the relative con-

venience of two nations’ courts. It is based on the power

of U.S. courts to hear a claim and the comity between

sovereign nations that lies close to the heart of most

international law. Plaintiffs have presented nothing

to indicate that the Hungarian courts would be so ob-

viously incapable of providing a fair and impartial

hearing that U.S. courts should take the extraordinary

step of hearing these claims without even giving Hungar-

ian courts an opportunity to address them.

Based on the information presented to us, plaintiffs

have not presented a legally compelling reason for why

the domestic exhaustion rule does not apply to their

claims. We thus vacate the denial of the dismissal of

46 Nos. 11-2387 & 11-2791

plaintiffs’ claims against the national bank and

national railway and remand those claims to the district

court for a more detailed examination of this pivotal

exhaustion issue. On remand, it will be defendants’

burden to be specific about what the national bank calls

the “variety of laws that Hungary has enacted to

provide compensation to individuals in [plaintiffs’]

position,” that is, the remedies defendants claim are

(or were) available to plaintiffs. Plaintiffs will then

have three options. (1) They can voluntarily dismiss

their claims against the national bank and national rail-

way without prejudice and pursue their claims in

Hungary using the remedies identified by defendants,

with a possibility that they might refile their case in a

U.S. court if and when they exhaust their remedies in

Hungary. (2) They can ask the district court to stay

their cases against the national bank and national

railway while they pursue the Hungarian remedies identi-

fied by defendants. (3) They can ask the district court

for an opportunity to develop further their arguments

regarding the actual adequacy and availability of those

remedies and the applicability of the domestic exhaus-

tion rule.

We express no opinion on the merits of whether

plaintiffs can meet the exhaustion requirement, but we

note two additional points. First, given the delays since

plaintiffs’ claims arose, it is possible that adequate reme-

dies that would have been reasonably available to

plaintiffs in the past are no longer available. If such

remedies are no longer available, that fact would not be

sufficient by itself to show that the remedies are inade-

Nos. 11-2387 & 11-2791 47

quate. Second, domestic Hungarian remedies need not

be perfectly congruent with those available in the

United States to be deemed adequate. Cf. Minneci v.

Pollard, 132 S. Ct. 617, 625 (2012) (recognizing, in the

context of a Bivens civil rights action, “the question is

whether, in general, state tort law remedies provide

roughly similar incentives for potential defendants to

comply with the Eighth Amendment while also

providing roughly similar compensation to victims of

violations.”); Brownlie, at 495 (“The remedies to be ex-

hausted comprise all forms of recourse as of right, in-

cluding administrative remedies of a legal nature but

not extra-legal remedies or remedies of grace. The best

test appears to be that an effective remedy must be avail-

able as a matter of possibility.”) (internal quotations

omitted).

d. Actionable Rights

For the sake of completeness, we also consider the

national bank’s final challenge to whether the plaintiffs

suing it have stated claims for expropriation in violation

of international law. The complaint alleges violations

of customary international law and relies on seven

treaties and conventions as forbidding looting, conver-

sion, and continued withholding of assets that prevent

the next of kin of victims of genocide from recon-

stituting their communities. The national bank argues

that those treaties and conventions cannot serve as the

basis for any international law violation because they

are not self-executing, do not provide private rights of

48 Nos. 11-2387 & 11-2791

action, and are inapplicable to the extent they were not

executed or ratified until after the Hungarian Holocaust

at issue here.

Customary international law encompasses “the customs

and usages of civilized nations,” Sosa, 542 U.S. at 734,

quoting The Paquete Habana, 175 U.S. 677, 700 (1900), that

are “specific, universal, and obligatory,” 542 U.S. at 732,

quoting In re Estate of Marcos Human Rights Litigation, 25

F.3d 1467, 1475 (9th Cir. 1994); see also Flomo v. Firestone

Natural Rubber Co., 643 F.3d 1013, 1016 (7th Cir. 2011).

Customary international law does not stem from any

single, definitive, readily identifiable source but is dis-

cerned from myriad decisions made in numerous and

varied international and domestic arenas. Flores v.

Southern Peru Copper Corp., 414 F.3d 233, 247-48 (2d Cir.

2003); see also Flomo, 643 F.3d at 1016. Customary inter-

national law thus resembles the domestic Anglo-American

common law in its original sense, as law arising from

custom rather than law that is formally promulgated.

Flomo, 643 F.3d at 1016, citing 1 William Blackstone,

Commentaries on the Laws of England 67-70 (1765).

As the district court noted, the plaintiffs suing

the bank have based their claims upon violations of

customary international law. Courts determine the

content of customary international law by “consulting the

works of jurists [i.e., respected scholars], writing pro-

fessedly on public law; or by the general usage and

practice of nations; or by judicial decisions recognising

and enforcing that law.” United States v. Smith, 18 U.S.

(5 Wheat.) 153, 160-61 (1820); see also Sampson, 250 F.3d

Nos. 11-2387 & 11-2791 49

at 1149, quoting Smith. It is not necessary that the

treaties, charters, or conventions cited be self-executing

or provide a private right of action. Conventions that

not all nations ratify can still be evidence of customary

international law. Flomo, 643 F.3d at 1021. As we

explained above, the expropriations alleged by plaintiffs

were an integral part of the planned genocide of the

Hungarian Holocaust. And genocide has been recog-

nized as a violation of customary international law. See

Part II.B.3.a, above.

Finally on this topic, the national bank argues that the

treaties, charters, and conventions cited in the complaint

do not apply to the extent that they were not exe-

cuted or ratified until after the Hungarian Holocaust at

issue here. This appears to be an adoption of co-defendant

OTP’s argument that genocide did not achieve the status

of a violation of international law until after the end of

World War II. As was pointed out in oral argument,

the Allies at Nuremburg hanged and imprisoned defen-

dants for genocide. Where defendants’ argument seems

to lead, then, would be to the improbable conclusion

that customary international law imposes a higher stan-

dard for making people pay money damages than for

executing or imprisoning them. At oral argument OTP

retreated from this position, and we decline to adopt

it here.

4. Nexus Requirement

In addition to showing that rights in property taken

in violation of international law are in issue, plaintiffs

50 Nos. 11-2387 & 11-2791

must also meet what has been called the “nexus require-

ment” of the expropriation exception in the FSIA. The

statute provides two paths to establish this nexus.

Plaintiffs could show 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.” 28 U.S.C.

§ 1605(a)(3). Alternately, plaintiffs could show 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.”

28 U.S.C. § 1605(a)(3).

The plaintiffs in both the bank and railway cases rely

on the second clause and therefore must establish that

(a) the expropriated properties, or funds derived there-

from, are currently owned or operated by the defendant,

and (b) the defendant is engaged in a commercial

activity in the United States. We conclude that the plain-

tiffs suing the bank have alleged both elements

sufficiently at this stage of the case. It is not clear to us,

however, that the plaintiffs suing the railway have suf-

ficiently alleged that it is engaged in commercial activity

in the United States. We thus remand that issue to the

district court with instructions to allow jurisdictional

discovery on the issue of the national railway’s

U.S. commercial activity.

a. Owned or Operated

Defendants argue that plaintiffs fail to satisfy the

“owned or operated” prong because they have not suffi-

Nos. 11-2387 & 11-2791 51

ciently pled defendants’ retention of the taken

property, arguing that the complaints’ allegations are

inadequate and conclusory under FSIA case law and

implausible under Ashcroft v. Iqbal, 556 U.S. 662 (2009).

Even before the Supreme Court’s recent tightening

of pleading standards, some FSIA cases applying the

“owned or operated” requirement held that plaintiffs

may not merely parrot the statutory language or make

unsupported allegations in their pleadings. See Crist v.

Republic of Turkey, 995 F. Supp. 5, 11 (D.D.C. 1998)

(finding addition of “upon information and belief” to

the first disjunctive clause of the statutory language

insufficient to allege defendants currently owned or

operated allegedly expropriated property); see also

Greenpeace, 946 F. Supp. at 783; Fickling v. Commonwealth

of Australia, 775 F. Supp. 66, 71-72 (E.D.N.Y. 1991)

(finding allegation that “as a result of the acts

complained of herein, defendants operated Johned and

controlled the assets there[of]” was insufficient, noting,

“[o]ther than this bald assertion, plaintiffs have wholly

failed to set forth any facts which would lead this

Court to conclude that defendants operated or con-

trolled Johned or otherwise engaged in any com-

mercial activity related to this action”) (alterations origi-

nal). One case faltered on a requirement that plaintiffs

sufficiently allege defendant’s current ownership of the

expropriated property (or property exchanged for that

property). Alperin v. Vatican Bank, 365 F. App’x 74, 75-

76 (9th Cir. 2010) (finding plaintiffs failed to allege suf-

ficiently that defendants currently owned or operated

the property because (1) complaint alleged that de-

52 Nos. 11-2387 & 11-2791

fendants retained a “significant portion” of the illegally

expropriated property, but did not allege that the

retained portion included property illegally taken from

plaintiffs, and (2) complaint made no allegations as to

the current location of that property). Similarly, allega-

tions were held not sufficient where the expropriated

property was alleged to be “owned or operated” by the

defendant because the property had never been

returned to its owners and restitution had never been

made. Freund v. Republic of France, 592 F. Supp. 2d 540, 559-

60 (S.D.N.Y. 2008), aff’d sub nom. Freund v. Societe

Nationale des Chemins de fer Francais, 391 F. App’x 939, 940

(2d Cir. 2010). The Freund court reasoned that when

plaintiffs allege that the defendant owns or operates

property exchanged for the expropriated property, they

must sufficiently allege how the presently owned

property was derived from the expropriated property.

Id. at 560.

These demanding pleading requirements are difficult

to reconcile with Federal Rule of Civil Procedure 8(a)(2),

which provides: “A pleading that states a claim for

relief must contain a short and plain statement of the claim

showing that the pleader is entitled to relief . . .” (emphasis

added), and with the forms approved as sufficient as

part of the Federal Rules of Civil Procedure. For

example, Form 15 is a complaint for conversion of prop-

erty, which is the closest analog to plaintiffs’ claims

here. Rule 15 requires a statement of jurisdiction and then

an allegation that: “On date, at place, the defendant con-

verted to the defendant’s own use property owned by

Nos. 11-2387 & 11-2791 53

the plaintiff. The property converted consists of describe.”

With the addition of allegation of the value of the

property and a demand for relief, the complaint is suffi-

cient. See Fed. R. Civ. P. 84 (“The forms in the

Appendix suffice under these rules and illustrate the

simplicity and brevity that these rules contemplate.”). The

exceptions to the FSIA, including the expropriation ex-

ception and its elements, affect the court’s subject-

matter jurisdiction, but the Federal Rules of Civil Proce-

dure also contemplate brief allegations of the basis for

subject-matter jurisdiction. See Form 7.

In any event, we conclude that plaintiffs’ allegations to

satisfy the nexus requirement of the expropriation ex-

ception are sufficient. The plaintiffs suing the bank

allege the expropriation of bank accounts and, in one

case, a home. They further allege that the national

bank either kept the expropriated property or exchanged

it with other Hungarian banks or the Hungarian gov-

ernment for other property or rights in property, and

currently operates the expropriated property (or

property exchanged for it) in fractional reserve banking

transactions. The plaintiffs suing the railway allege the

expropriation of heirlooms, cash, suitcases, jewelry

and other valuables, as well as leaseholds and the em-

ployment contracts, insurance benefits, and pensions of

Jewish railway employees. They further allege that

the national railway either kept the expropriated

property or exchanged it for Nazi “credits” or “good-

will.” In fact, according to the plaintiffs, the national

railway to this day retains ownership of real property

54 Nos. 11-2387 & 11-2791

that was leased to Jewish railway employees at the

time they were deported to Auschwitz.1 3

13

The national railway challenges the plaintiffs’ allegations

involving intangible property. The railway argues that plain-

tiffs’ claims relating to expropriated intangible property, or

tangible property that was exchanged for intangible property —

as in the case of Nazi “credits” or “good-will” — cannot proceed

under the expropriation exception. The national bank made a

similar argument under the “rights in property” element, and

we reject the argument here as we did above. Although a

number of district courts have concluded that claims for

intangible property are not permitted under the expropria-

tion exception, the D.C. Circuit, the only circuit court to

have ruled directly on the issue, concluded that claims for

intangible property are permitted. We follow the D.C. Circuit

and conclude that the railway plaintiffs’ claims related to

intangible property are not barred under the expropriation

exception.

The national railway further urges that even if we

determine that Nazi “credits” and “good-will” count as

property for purposes of the expropriation exception, it cannot

plausibly be suggested that the national railway continues

to own or operate that property today. This argument is

similar to the national bank’s argument that post-war hyper-

inflation destroyed the value of the Hungarian currency

(and thus the value of expropriated bank accounts held in

that currency). The fact that expropriated property (or

property exchanged for that property) might no longer have

the value it did at the time it was expropriated or exchanged

would not mean that defendants no longer own or operate

that property.

Nos. 11-2387 & 11-2791 55

These allegations are not like those found insufficient

in the FSIA cases cited above. First, several of the

plaintiffs in the cited FSIA cases essentially pled them-

selves out of court. See, e.g., Freund, 391 F. App’x at 940

(noting that “the complaint itself alleges a sequence of

events that runs counter to any inference that the stolen

‘property or any property exchanged for such property

is owned or operated by’[the defendant]”); Alperin, 365

F. App’x at 75-76 (noting that complaint alleged that

defendants laundered, converted, and retained a “signifi-

cant portion” of the illegally expropriated property,

but did not allege that the retained portion included

property illegally taken from plaintiffs; complaint

alleged only that the property was laundered, converted,

and retained by defendants in the past but made no

allegations as to the current location of that property).

Moreover, unlike the plaintiffs in Fickling and Crist,

plaintiffs here have done much more than merely say

“defendant owns and operates expropriated property,”

or merely add “upon information and belief” to the

statutory language. Unlike the plaintiffs in Alperin, plain-

tiffs here allege both that the expropriated property

was retained and that defendants’ retention of the

property continues to the present. Plaintiffs may or

may not be able to prove the point, but their allega-

tions that defendants currently own or operate the al-

legedly expropriated property are sufficient at the

pleading stage.

Nor are plaintiffs’ allegations that defendants

currently own or operate the expropriated property

im plau sible. T he national bank offers several

56 Nos. 11-2387 & 11-2791

alternative explanations for what happened to plain-

tiffs’ property, including: (a) expropriated assets were

required to be turned over to a state postal bank

account (not held by the national bank); (b) the “Gold

Trains” at the end of World War II were captured by

the Allies 1 4 ; (c) post-war hyper-inflation destroyed the

value of the Hungarian currency, which was sub-

sequently discontinued altogether; (d) Hungary’s Com-

munist regime nationalized private property; and

(e) the national bank was required to alienate assets

upon Hungary’s admission in the European Union. The

national railway also urges that the complaint against

it “contains no allegations suggesting that the allegedly

taken ‘valuables’ were not on the Gold Train, when in

14

“In May 1945, forces of the U.S. Army seized a train near the

town of Werfen, Austria containing valuables spirited out of

Hungary by members of the pro-Nazi Hungarian government.

This train, referred to by U.S. authorities as the ‘Gold Train’ or

‘Werfen Train,’ consisted of 24 rail cars containing gold, jewelry,

works of art, household items, and other property, much

of which had been confiscated from the Jewish population

of Greater Hungary. U.S. authorities classified these assets as

‘enemy government’ property despite ample evidence linking

the property to the Hungarian Jewish community. As a result

of this classification, materials on the train were subject to

requisition by American officials, and in some cases, the

property was not returned.” Presidential Advisory Comm’n on

Holocaust Assets in the U.S., Plunder and Restitution: The

U.S. and Holocaust Victims’ Assets, at SR-113 to SR-114 (2000),

available at http://pcha.ushmm.org/PlunderRestitution.html/

html/Home_Contents.html.

Nos. 11-2387 & 11-2791 57

fact that disposition of the property is exceedingly

likely.” These possibilities do not, as a matter of

law, render plaintiffs’ allegations facially implausible.

Plaintiffs argue, and we are inclined to agree, that this

argument may be a continuation of a now 65-year-

long shell game. Even if it were appropriate to try to

resolve such issues on the pleadings alone, and it

is not, defendants have offered no case or fact

that demonstrates conclusively that the value of the

expropriated property is not traceable to their present

day cash and other holdings. The national bank and

national railway survived the war, the hyper-inflation

and subsequent discontinuation of the Hungarian cur-

rency, the nationalization of property, and the admis-

sion to the European Union. It is not implausible that

the value of plaintiffs’ allegedly expropriated property

also survived. And the national bank itself argues that

the expropriation process was decentralized, so while

national bank branches may have turned over ex-

propriated assets to the state postal bank account

(and those assets may have ended up on the Gold Trains),

they also may not have. It is certainly possible that

the value of plaintiffs’ expropriated property was lost

during one or more of these transitions. But it is also

plausible that defendants retain the value of plaintiffs’

expropriated property. Plaintiffs’ claims that defendants

currently own or operate their expropriated property

(or property exchanged for such property) is not so im-

plausible as to permit resolution on the pleadings alone.

The national bank has raised a more funda-

mental question that applies to some of the allegedly

58 Nos. 11-2387 & 11-2791

expropriated property, which is whether bank accounts

can be “owned or operated” at all within the meaning

of the expropriation exception. The national bank cited

the D.C. Circuit’s decision in Nemariam v. Federal

Democratic Republic of Ethiopia, 491 F.3d 470 (D.C. Cir.

2007), for the proposition that the bank accounts were

not “taken” for purposes of the expropriation exception.

Because the Nemariam court framed the issue as

whether defendants “owned or operated” the property

taken in violation of international law, that is how we

address it here. In Nemariam, the D.C. Circuit, held

that, although “rights in property” under § 1605(a)(3)

include intangible property, the expropriation excep-

tion did not apply to plaintiffs’ claims because the

bank accounts at issue were not owned or operated by

the defendant bank. 491 F.3d at 481. Defining “owned

or operated” as “possessed or exerted control or

influence over,” the court reasoned that the property

right at issue was only the plaintiffs’ “contractual right

to receive payment,” and that the defendant bank had

not taken possession of that right. Id. (emphasis omit-

ted). Rather, the bank extinguished plaintiffs’ contract

rights by declining to perform its own contractual ob-

ligations. Id. We respectfully question the D.C. Circuit’s

holding on this point.

The statutory language and FSIA’s legislative history

do not contain a definition of “owned or operated,” but

the House Report defined the phrase “taken in violation

of international law,” saying the term “would include

the nationalization or expropriation of property with-

out payment of the prompt adequate and effective com-

Nos. 11-2387 & 11-2791 59

pensation required by international law.” H.R. Rep. No. 94-

1487, at 19-20. As the D.C. Circuit recognized, “the

plain meaning of ‘nationalization or expropriation’ dove-

tails with the plain meaning of ‘owned or operated.’ ”

491 F. 3d at 481.

For plaintiff Istvan Somogyi’s claim that the national

bank seized his grandparents’ home, there is no

question that the national bank “possessed or exerted

control or influence over” the property at issue. See

Nemariam, 491 F.3d at 481 (defining “owned or operated”

as “possessed or exerted control or influence over”).

Likewise, there would be no question if the national

bank had coerced plaintiffs to sell their real property

and to give the national bank the proceeds. Nor do we

think there should be a question if the national bank

had coerced plaintiffs to sell their real property and

deposit the proceeds in an account with the national

bank, and the national bank had then appropriated

the value of that deposit account for its own purposes.

We see no reason to distinguish, for purposes of inter-

national law of expropriation, between the latter and

what allegedly occurred here — that the national bank

seized plaintiffs’ assets in the form of bank accounts

and appropriated their value for its own use.

The Supreme Court has long held under American

law that the exercise of eminent domain over intangible

property constitutes a “taking,” entitling the owner of

the taken intangible property to just compensation. See,

e.g., Long Island Water Supply Co. v. Brooklyn, 166 U.S. 685,

690 (1897) (“[A] contract is property, and, like any

60 Nos. 11-2387 & 11-2791

other property, may be taken under condemnation pro-

ceedings for public use.”); U.S. Trust Co. of New York v.

New Jersey, 431 U.S. 1, 19 n.16 (1977) (“Contract rights are

a form of property and as such may be taken for a

public purpose provided that just compensation is

paid.”). Here the national bank of Hungary is alleged to

have expropriated plaintiffs’ bank accounts and taken

the value of those assets for itself. Furthermore,

plaintiffs allege that the national bank continues to lever-

age the value of their expropriated property by using it

as part of the national bank’s fractional reserves in

loan operations, which plaintiffs allege is a continuous

source of profits to the bank.

The D.C. Circuit supported its line of reasoning in

Nemariam by citing a bankruptcy case, Citizens Bank of

Maryland v. Strumpf, 516 U.S. 16 (1995), an FSIA case

involving breach of an employment contract, Brewer v.

Socialist People’s Republic of Iraq, 890 F.2d 97 (8th Cir. 1989),

and a district court case holding that the expropriation

exception covered only tangible property, Canadian Over-

seas Ores Ltd. v. Compania de Acero Del Pacifico S.A., 528

F. Supp. 1337 (S.D.N.Y. 1982).

In Strumpf, when the debtor filed for bankruptcy, he

had both a checking account with the bank and a loan

from the same bank, for which he was in default. Under

the bankruptcy code, Strumpf’s bankruptcy filing gave

rise to an automatic stay of various types of activity by

his creditors. The bank then placed what it termed

an “administrative hold” on an amount in Strumpf’s

checking account equal to the amount due on his loan.

Nos. 11-2387 & 11-2791 61

516 U.S. at 17-18. The Supreme Court noted that a bank

account “consists of nothing more or less than a promise

to pay, from the bank to the depositor,” but its decision

that the bank’s “temporary refusal to pay was neither a

taking of possession of respondent’s property nor an

exercise of control over it” was informed by the fact

that the bankruptcy code permits a creditor to refuse

temporarily to pay a debt that is subject to setoff

against a debt owed by the debtor. Id. at 21 (emphasis

added). There is nothing temporary about the

takings alleged here, which occurred more than 65

years ago. Nor has the national bank provided any

legal justification for its refusal to grant plaintiffs access

to their bank accounts. The only similarity between

the present case and Strumpf is the fact that both

relate to bank accounts.

Brewer also presented a very different fact situation.

The Brewer plaintiffs entered into an employment

contract with the Iraqi government to work at a tourist

facility in Iraq. 890 F.2d at 98. A couple of years after

plaintiffs began work, the defendants terminated the

agreement and refused to pay plaintiffs, who were then

evicted from their home in Iraq by unknown armed

men and forced to board a plane leaving Iraq. Id. Plain-

tiffs’ complaint contained three counts: breach of

contract, reimbursement for converted property, and

damages for infliction of emotional distress arising out

of their forced eviction and expulsion from Iraq. Id. at 98-

99. The district court granted plaintiffs default judg-

ment on all three claims pursuant to the FSIA, but ap-

proved execution only on plaintiffs’ claim for reimburse-

62 Nos. 11-2387 & 11-2791

ment for converted property, reasoning that the breach

of contract claim judgment did not create “rights in

property” as defined in the FSIA, thereby foreclosing

execution pursuant to 28 U.S.C. § 1610(a)(3). Id. at 100-01.

Plaintiffs appealed the district court’s denial of attach-

ment and execution on their breach of contract and emo-

tional distress claims, arguing that they were entitled

to execution pursuant to § 1610(a)(3) because their

claims created property rights. The Eighth Circuit

noted that the district court had exercised jurisdiction

over the breach of contract claim under the “commercial

activity” exception, not the expropriation exception.

The Eighth Circuit went on to declare that the district

court could not have exercised jurisdiction over the

breach of contract claim under the expropriation ex-

ception because the defendant’s breach did not expropri-

ate plaintiffs’ contract rights. Rather, defendant’s

breach constituted a repudiation of the contract, and

the Eighth Circuit decided that such a repudiation was

not equivalent to expropriation. Id. at 101.

The plaintiffs here allege that the national bank did

much more than repudiate some contracts. Plaintiffs

allege that the national bank froze bank accounts pursuant

to a series of discriminatory Hungarian laws and ordi-

nances aimed at systematically stripping Hungarian

Jews of their wealth. The plaintiffs further allege that

the national bank expropriated the value of those

accounts for its own enrichment. We believe the

national bank’s argument also fails to recognize the

special nature of a contract establishing a bank account.

It is not a typical exchange of money for goods or ser-

Nos. 11-2387 & 11-2791 63

vices. A customer who deposits money in a bank trusts

that bank, often with his life savings. Because of the

high stakes, banks are subject to extensive regulation

to assure their solvency and thus their ability to honor

their contractual obligations. A solvent national bank’s

unilateral decision to keep its customers’ money for

itself cannot be compared to an ordinary breach of a

commercial contract.

Nor does Canadian Overseas provide support for the

argument that the national bank did not “own or operate”

the expropriated property. As noted above, the Canadian

Overseas court ruled that the expropriation exception

applied only to tangible property, 528 F. Supp. at 1346,

a position that Nemariam itself rejected, 491 F.3d at 478.

Although we question the D.C. Circuit’s holding in

Nemariam on the expropriation of bank accounts, we do

not need to come to closure on the question in this ap-

peal. Despite plaintiff Fischer’s voluntary dismissal

from the bank case, plaintiff Somogyi maintains a

direct claim against the bank for the taking of his grand-

parents’ home, which is tangible property. Furthermore,

the bank plaintiffs seek to hold the defendant banks

jointly and severally liable, and several plaintiffs with

claims against the other defendant banks allege the

taking of tangible property. Somogyi’s claim and the

fact that the other bank plaintiffs have alleged that a

wide variety of property was taken mean that the

Nemariam holding on bank accounts would not resolve

the claims against the national bank. If plaintiffs

eventually overcome the other obstacles they face

64 Nos. 11-2387 & 11-2791

against the national bank, including the exhaustion of

Hungarian remedies, we think the better course would

be to allow further development of the factual record

and legal arguments on the issue of expropriation of

bank accounts. As for all other forms of property

allegedly expropriated, the plaintiffs have sufficiently

alleged that the national bank currently owns or

operates the allegedly expropriated property or property

exchanged for it.

b. Commercial Activity

We turn to the next element of the nexus requirement

in the FSIA’s expropriation exception. 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). The FSIA’s legisla-

tive 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. H.R. Rep. 94-1487, at 16. The

House committee report went on to note that “a

single contract, if of the same character as a contract

which might be made by a private person, could

constitute a ‘particular transaction or act.’ ” Id.

For example, in Altmann, the defendant had authored,

edited, and published in the United States a book about

the women in paintings by Gustav Klimt and a guide-

book with photographs of the stolen paintings, and had

advertised exhibitions in this country. Those facts were

Nos. 11-2387 & 11-2791 65

sufficient to demonstrate that the defendant had engaged

in commercial activity in the United States. 317 F.3d

954, 969 (9th Cir. 2002), amended, 327 F.3d 1246 (9th Cir.

2003), aff’d on other grounds, 541 U.S. 677 (2004). Similarly,

the fact that defendants entered transactions for joint

publishing and sales in the United States constituted

“commercial activity” in Agudas Chasidei Chabad. 528

F.3d at 946-48; see also Cassirer, 616 F.3d at 1032-34 (com-

mercial activity included wide range of activities in

connection with U.S. museum tour of artwork and sale of

related merchandise); de Csepel, 808 F. Supp. 2d at 132

(commercial activity included loaning art to museums

in the United States and receiving reciprocal benefits in

exchange; encouraging U.S. tourism and allowing U.S.

visitors to purchase admission tickets over the internet;

publishing guide books in English that are sold to

visitors from the United States at a gift shop that accepts

U.S. credit cards; authoring and promoting books and

selling them online through U.S. distributor, accepting

orders for printed reproductions directly from U.S. resi-

dents shipping those prints directly to the United States,

and engaging in tourist advertising in the United States).

For purposes of the FSIA expropriation exception,

the commercial character of an activity “shall be deter-

mined by reference to the nature of the course of

conduct or particular transaction or act, rather than by

reference to its purpose.” 28 U.S.C. § 1603(d). This

means that the question is not whether the foreign gov-

ernment’s motive is profit- or sovereignty-based. The

issue is whether the actions that the foreign state

66 Nos. 11-2387 & 11-2791

performs are the same type of actions by which a private

party engages in commerce. Republic of Argentina v.

Weltover, Inc., 504 U.S. 607, 614-15 (1992).

The bank complaint alleges that the national bank

has “substantial” contacts with the United States as the

principal banking arm of the Hungarian government.

The bank plaintiffs allege that the national bank not only

places and clears “substantial” sums of funds with U.S.

financial institutions but also supports and finances

“hundreds of millions of dollars of direct investment”

into the United States. Compl. ¶ 34. The jurisdictional

discovery showed that the national bank has issued

bonds denominated and payable in U.S. dollars and

that one series is still outstanding. The $200 million

bond series was issued in 1993 through a U.S. investment

bank, and the bonds will mature on November 1, 2013.

The national bank did not offer the bonds directly to

the public; they were offered by the investment bank,

and the national bank had no contacts with the

American public in this transaction. Decl. of Dr. Orsolya

Kerekes ¶ 11, Jan. 28, 2011, D. Ct. ECF No. 110. The na-

tional bank also makes periodic payments to the Inter-

national Monetary Fund in Washington on behalf of the

Republic of Hungary and acts as Hungary’s authorized

fiscal agent with respect to operations and transactions

that may be carried out pursuant to the IMF Articles of

Agreement. Id. ¶ 12. The national bank maintains that

such activities are “conducted solely in connection with

the management of its official reserves of the Republic

of Hungary and debt management.”

Nos. 11-2387 & 11-2791 67

The fact that the national bank’s U.S. activities

are conducted “solely in connection with the

management of its official reserves of the Republic of

Hungary and debt management” does not control our

inquiry, which requires us to look at the actions that

are taken, not why they are taken. When a foreign gov-

ernment acts in the same manner as a private player in

a market, the foreign sovereign’s acts are “commercial”

within the meaning of the FSIA. See Weltover, 504 U.S.

at 614-15. Since maintaining correspondent banking

relationships and issuing debt instruments are activities

that private banks engage in, the national bank’s activity

is “commercial” in character.

The bank plaintiffs have alleged sufficiently that the

national bank is engaged in a “commercial activity in

the United States.” Although its commercial activity is

not as extensive as that of the defendants in Altmann,

Agudas Chasidei Chabad, Cassirer, or de Csepel, the FSIA

includes “a particular commercial transaction or act”

within the definition of “commercial activity.” A single

contract, “if of the same character as a contract which

might be made by a private person, could constitute a

‘particular transaction or act.’ ” H.R. Rep. 94-1487, at 16.

Particularly in light of the outstanding bond issue, the

national bank’s U.S. activities are sufficient to find that

it is engaged in a commercial activity in the United States.

The national bank also takes a slightly different tack,

claiming that due process considerations underlying

the FSIA require a traditional personal jurisdiction in-

quiry. The national bank argues that it does not have

68 Nos. 11-2387 & 11-2791

sufficient “minimum contacts” for due process purposes

so that the district court cannot exercise personal juris-

diction over it. See generally International Shoe Co. v.

Washington, 326 U.S. 310, 316 (1945). That may well be, for

as we explain in the separate opinion addressing

bank defendants OTP and MKB, the plaintiffs suing

the banks do not have a basis for exercising personal

jurisdiction over those private banks in this case. Abelesz

v. OTP Bank, ___ F.3d at ___.

As the plaintiffs correctly point out, however, the

“commercial activity” inquiry under the FSIA is not

congruent with a general personal jurisdiction in-

quiry. Other circuits have confronted the issue and have

held that foreign states are not “persons” entitled to

rights under the Due Process Clause. Frontera Resources

Azerbaijan Corp. v. State Oil Co. of the Azerbaijan Republic,

582 F.3d 393, 398-400 (2d Cir. 2009); see also Price v.

Socialist People’s Libyan Arab Jamahiriya, 294 F.3d 82, 95-100

(D.C. Cir. 2002). We agree. The FSIA requires only that

a sovereign defendant be engaged in “commercial

activity in the United States,” and the allegations of the

national bank’s U.S. activities are sufficient to meet

that standard.

The commercial activity issue with respect to the

national railway is not as clear. The plaintiffs allege that

the national railway conducts business in Illinois,

including the solicitation and sale of tickets and passes

for access to railway transportation in Hungary. To that

end, the plaintiffs further allege, the national railway

advertises unlimited travel on the National Rail Network

Nos. 11-2387 & 11-2791 69

of Hungary and accepts U.S. currency, credit and debit

card payments, and bank drafts as payment.

If the national railway does all of the things the

plaintiffs allege in their complaint, it is certainly

possible that it is involved in commercial activity in the

United States. The national railway, however, submitted

in the district court a Declaration from Ferenc Szarvas,

its chief executive officer, that contradicts plaintiffs’

allegations. The railway plaintiffs argue that we should

not credit the Szarvas Declaration because it is “sub-

stantially inadmissible because it is based on almost

no personal knowledge” and is of a “general nature

that does not contrast the specific facts Plaintiffs allege.”

Plaintiffs are incorrect. In his Declaration, Szarvas

states: “The statements made in this declaration are based

upon my own personal knowledge or otherwise

based upon historical facts and my review of [the

national railway’s] relevant records.” He then goes on

to contradict specifically each assertion made by the

plaintiffs. He states that the national railway does not

advertise, solicit, or sell tickets and passes for

Hungarian rail travel, or accept payment for those

services, in Illinois or in the United States. Szarvas

further states that, since 2006, rail service in Hungary

has been provided by MÁV START, a wholly-owned

but legally distinct affiliate of the national railway.

The Szarvas Declaration is enough to raise a question

as to what, if any, commercial activity the national

railway conducts in the United States, and that jurisdic-

tional question cannot be resolved on the pleadings.

70 Nos. 11-2387 & 11-2791

We therefore remand the railway case to the district

court with instructions to allow jurisdictional discovery

on the extent of the national railway’s U.S. activity, as

well as the relationship between the national railway

and the wholly-owned affiliate that actually provides

rail service in Hungary.

To sum up our extended discussion of the FSIA’s ex-

propriation exception, we find that plaintiffs have suf-

ficiently alleged that rights in property are at issue,

that their property was taken, and that the national

bank meets the nexus requirement. We remand the

railway case for jurisdictional discovery on whether the

national railway meets the nexus requirement. Whether

the takings violated international law depends on

whether Hungary offers or has offered a meaningful

domestic remedy, and we remand both cases for

further proceedings on that question.

C. Treaty-Based Defenses

Apart from the expropriation exception, both the na-

tional bank and national railway argue that Hungary’s

treaties with the United States bar jurisdiction over

the claims against them. FSIA immunity is “[s]ubject to

existing international agreements to which the United

States is a party at the time of enactment” of the FSIA. 28

U.S.C. § 1604. This “treaty exception” applies “when

international agreements ‘expressly conflic[t]’ with the

immunity provisions of the FSIA.” Amerada Hess Shipping

Corp., 488 U.S. at 442, quoting H.R. Rep. No. 94-1487, at 17.

Any conflict between a treaty and the FSIA immunity

Nos. 11-2387 & 11-2791 71

provisions, whether toward more or less immunity, is

within the treaty exception. See Moore v. United Kingdom,

384 F.3d 1079, 1084-85 (9th Cir. 2004). Thus, “[i]f there

is a conflict between the FSIA and [an existing inter-

national agreement] regarding the availability of a

judicial remedy against a contracting state, the agree-

ment prevails.” Id. at 1085.

Defendants argue that the 1947 Treaty, 61 Stat. 2065,

and the 1973 Agreement, 24 U.S.T. 522, give them

greater sovereign immunity than the FSIA does from

U.S. litigation of Holocaust-era property expropriation

claims and preclude the district court from exercising

jurisdiction over them. Defendants argue that because

the 1947 Treaty (a) addressed property discriminatorily

expropriated by Hungary during World War II, (b)

created an executive branch mechanism to resolve

disputes regarding the performance of treaty obligations,

and (c) did not expressly create a private right of

action, the 1947 Treaty expressly conflicts with the

FSIA. Likewise, the national bank argues that the 1973

Agreement codified the executive branch’s exclusive

dominion over Hungarian Holocaust reparations claims

by providing for the Foreign Claims Settlement Com-

mission to administer any covered claims process

without allowing for judicial oversight.

The 1947 Treaty and the 1973 Agreement do not “ex-

pressly conflict” with the immunity provisions of the

FSIA. Defendants are correct that, under Article 27 of the

1947 Treaty, Hungary was responsible for returning

expropriated property or providing fair compensation

72 Nos. 11-2387 & 11-2791

in its stead. But Article 27 spoke exclusively to

Hungary’s obligations. It said nothing about the rights

and responsibilities of the people from whom Hungary

expropriated property. Article 40 of the 1947 Treaty did

establish an exclusively executive branch mechanism —

but only for disputes concerning the interpretation or

execution of the Treaty, not for disputes concerning

restitution for expropriated property. Nor does the fact

that the 1947 Treaty lacks a private cause of action

shed any light on the subject. Plaintiffs’ claim is

predicated on expropriation in violation of customary

international law, not the 1947 Treaty.

As for the 1973 Agreement, it operates to provide “full

and final settlement and [ ] discharge of all claims of the

Government and nationals of the United States against the

Government and nationals of the Hungarian People’s

Republic . . . .” 24 U.S.T. 522, art. 1 (emphasis added). It

is the position of the State Department Office of the

Legal Advisor that the 1973 Agreement settled and dis-

charged claims of U.S. nationals who were U.S. nationals

at the time their claims arose. See de Csepel, 808 F. Supp. 2d

at 133-34. “Although not conclusive, the meaning attrib-

uted to treaty provisions by the Government agencies

charged with their negotiation and enforcement is

entitled to great weight.” Sumitomo Shoji America, Inc. v.

Avagliano, 457 U.S. 176, 184-85 (1982). Regardless of plain-

tiffs’ present citizenships, as defendants have argued

regarding the “domestic takings” rule, the claims in

these cases are those of people who were Hungarian

nationals at the time of the alleged expropriations. Thus,

the 1973 Agreement’s provision for the Foreign Claims

Nos. 11-2387 & 11-2791 73

Settlement Commission to administer covered claims

does not apply in this case. Because the 1947 Treaty and

the 1973 Agreement do not “expressly conflict” with the

FSIA, the “treaty exception” does not deprive the

district court of subject-matter jurisdiction in this case.

D. Immunity from Remaining Claims

The national railway argues that beyond Count I of

the railway complaint (and certain allegations in Counts

IV, VIII, and IX), plaintiffs’ remaining claims in the

railway complaint cannot fit within the expropriation

exception to FSIA immunity, assuming it applies, because

they concern personal injuries or other non-property-

based torts (Count II — Aiding and Abetting Genocide,

Count III — Complicity in Genocide, Count VII — Fraudu-

lent Misrepresentations) or else they rest on domestic

rather than international, law (Count V — Unlawful

Conversion and Count VI — Unjust Enrichment). The

district court did not discuss these remaining claims,

and the national railway argues that the district court

erred in not dismissing them because none of these

claims can proceed under any of the FSIA’s exceptions.

The railway plaintiffs respond by noting that the FSIA

is a jurisdictional statute — circumscribing the subject-

matter that can be heard by the federal courts. They

contend that once a court determines it has subject-

matter jurisdiction over a plaintiff’s claims, other legal

sources provide the substantive causes of action that

make up that plaintiff’s claims. From there, the railway

plaintiffs argue, once subject-matter jurisdiction is estab-

74 Nos. 11-2387 & 11-2791

lished under the FSIA for one claim, plaintiffs may

bring any claims they have against the sovereign defen-

dant.

Plaintiffs are right up to a point, but their conclusion

does not follow. The FSIA is a jurisdictional statute and

does not create an independent cause of action. So, for

our purposes, the expropriation exception provides that

a foreign sovereign will not be immune to suit in U.S.

court where “rights in property taken in violation of

international law are in issue” and one of two nexus

requirements is met. 28 U.S.C. § 1605(a)(3). The FSIA

does not tell us when property was expropriated “in

violation of international law” — we must look to other

domestic and international legal sources to make that

determination. But the expropriation exception in the

FSIA authorizes jurisdiction only for claims for the

taking of property in violation of international law.

The analysis under the expropriation exception must

be on a claim-by-claim basis. See 28 U.S.C. § 1606 (“As

to any claim for relief with respect to which a foreign

state is not entitled to immunity under section 1605 or

1607 of this chapter, the foreign state shall be liable in

the same manner and to the same extent as a private

individual under like circumstances . . . .”) (emphasis

added); Siderman de Blake, 965 F.2d at 706 (“As a

threshold matter . . . a court adjudicating a claim against

a foreign state must determine whether the FSIA provide

subject matter jurisdiction over the claim.”) (emphasis

added). Claims against foreign sovereigns that do not

fall within the ambit of an FSIA exception are barred by

Nos. 11-2387 & 11-2791 75

sovereign immunity. As we noted above in discussing

the “domestic takings” rule, we agree that plaintiffs

cannot bring claims for personal injury or death under

the expropriation exception.

Conclusion

Because plaintiffs have not exhausted their Hungarian

remedies and have not yet provided a legally com-

pelling reason for their failure to do so, they have not

established that their expropriation claims fall within

an exception to the FSIA’s grant of sovereign immunity.

In addition, the plaintiffs suing the national railway

have not established yet that the railway is engaged in

commercial activity in the United States, as required

to apply the expropriation exception to the FSIA. We

V ACATE the denials of the motions to dismiss for lack

of subject-matter jurisdiction by the national bank

(MNB) and the national railway (MÁV) and REMAND

for further consideration of the exhaustion issue. The

first step will be to ensure that the defendants have

already identified or now identify one or more specific

remedies that are or were adequate and reasonably avail-

able to plaintiffs. If the defendants do so, the district

court may stay these proceedings or dismiss without

prejudice while plaintiffs pursue their claims in Hungary.

If plaintiffs believe they can demonstrate a legally com-

pelling reason for their failure to exhaust identified

Hungarian remedies, one sufficient to overcome the

comity due between nations, they may ask the district

court for a hearing to develop the record further on this

76 Nos. 11-2387 & 11-2791

point. In addition, the district court shall allow plaintiffs

in the railway case to pursue jurisdictional discovery

on the commercial activity issue and then reconsider

whether the national railway is engaged in commercial

activity in the United States.

V ACATED AND R EMANDED.

8-22-12