ARGUMENT ANALYSIS

Justices weigh Holocaust survivors’ right to sue Hungary for compensation

A long-running dispute reached the Supreme Court again on Tuesday over efforts by survivors of the Hungarian Holocaust to receive compensation for property that was seized by the Hungarian government during its extermination campaign in collaboration with the Nazis. The survivors and their heirs brought their suit in U.S. court. At issue in the case before the justices is whether the Hungarian government and the country’s national railway are entitled to immunity under the federal law governing lawsuits against foreign countries in U.S. courts, or whether a ruling by a federal appeals court in Washington allowing the survivors’ lawsuit to go forward should stand.

During nearly 90 minutes of debate, the justices grappled with the text of the law, as well their concerns about both the potential impact on U.S. foreign relations if the lawsuit is allowed to go forward and the prospect that foreign countries could easily escape liability if the justices accept Hungary’s interpretation of the law.

The federal law at the center of the case is the Foreign Sovereign Immunities Act, which establishes a general presumption that foreign countries cannot be sued in U.S. courts. But there are several exceptions to that rule, including one known as the “expropriation” exception, which allows cases to go forward when they involve property taken in violation of international law. To fall within this exception, the property – or “any property exchanged for” it – must either be located in the United States in connection with a commercial activity or it must be “owned or operated by an agency or instrumentality” of the foreign country that engages in commercial activity in the United States.

In the late stages of World War II, the Hungarian government, in collaboration with Nazi Germany, began intensifying its systematic killing of Hungarian Jews, sending cattle cars of people to death camps four times a day. The government nationalized all property of value owned by Jews and MÁV, the national railway, took property from individuals before they boarded the trains. More than 560,000 people were killed in the Hungarian Holocaust.  

The group of survivors and their heirs filed a lawsuit against Hungary and MÁV in 2010, seeking compensation for confiscated property.

In the most recent chapter of the case, the U.S. Court of Appeals for the District of Columbia Circuit allowed the survivors’ case to go forward under the expropriation exception. Even if the survivors do not allege that any of the property that Hungary and MÁV took 80 years ago is now in the United States or owned by the railway, the D.C. Circuit ruled last year, it was enough that Hungary and MÁV “commingled” the property with their other funds used to do business in and with the United States.

Representing Hungary, Joshua Glasgow urged the justices to focus on the phrase “exchanged for” in the expropriation exception. To exchange something, he argued, means “to give one thing for another.” Simply showing, as the D.C. Circuit ruled, that expropriated funds or the proceeds from expropriated property were deposited into a country’s general treasury isn’t consistent with the plain text of the FSIA.

Sopan Joshi, an assistant to the U.S. solicitor general, represented the federal government, which appeared as a “friend of the court” supporting Hungary. He too contended that the D.C. Circuit’s commingling theory was inconsistent with the FSIA’s text – which, he argued, applies to “specific identifiable property in transactions.”

Some justices pressed both governments’ lawyers to clarify exactly how their proposed rules would operate. Chief Justice John Roberts, for example, asked Glasgow whether, under his formulation of the rule, the commingling of funds in a country’s general account would rule out the application of the expropriation exception.

Glasgow indicated that commingling will generally make it very difficult, if not impossible, to trace the expropriated funds, but it is not necessarily fatal. The question, he reiterated, is whether a subsequent withdrawal from the general account is “exchanged for” expropriated funds.

Justice Sonia Sotomayor wanted more information, asking Glasgow how the court should draft its opinion. The D.C. Circuit, she observed, “espoused a ‘historical commingling’ theory,” but Hungary wants the court to “say that’s not enough.”  What, she queried, is “the clearest and most succinct way to articulate the concept?”

Glasgow responded that to show an exchange, the items at the beginning and end of a transaction must be given in return for one another. Someone gives Item A in return for Item B, he stressed.

Joshi put it slightly differently, although he told Roberts that there was no real difference between the federal government’s position and Hungary’s. In the federal government’s view, he explained, the test is whether the property that is the subject of the exchange “retains its distinct identity.” The focus, he suggested, should be on whether the property itself is tainted or instead the account in which the proceeds were placed is tainted.

Representing the survivors, Shay Dvoretzky maintained that when property is commingled with a country’s other funds, a withdrawal from those commingled funds is an exchange for purposes of the expropriation exception. Hungary’s contrary rule, he insisted, “would nullify the expropriation exception by limiting it to barter economies and inept regimes.”

Several justices appeared sympathetic to the interpretation of the expropriation exception advanced by Hungary and the United States. Justice Amy Coney Barrett outlined a hypothetical scenario involving the theft of Justice Neil Gorsuch’s car, after which she sold it for cash. “That’s an exchange,” Barrett acknowledged. But if she then used the cash to buy a painting, which appreciated in value so much that she could sell it to buy a beach house, is that really an exchange of Gorsuch’s car for the beach house? “Why is any of that,” Barrett asked, “an exchange once we go beyond the first step?”

Justice Clarence Thomas pressed Dvoretzky to explain how, once expropriated funds are deposited in a country’s general account, all of the funds in the account are “exchanged for” the original property.

Dvoretzky told Thomas that money is fungible, and so the account “always has more money in it than it would have had but for the initial exchange.”

Thomas retorted that not all funds in the account are from the expropriated property, noting that a country’s general account could include (for example) all kinds of funds in addition to the seized property.

“That is the nature of commingling,” Dvoretzky responded.

Sotomayor also appeared unconvinced. She found it difficult to believe, she said, that if her mother had put $100 in a bank account for her when she was born, more than 70 years later the same money would remain in the account. “It’s a fiction that takes quite an imagination,” she posited.

Other justices, however, were more skeptical of the theory advanced by Hungary and the federal government. Justice Elena Kagan suggested that their interpretation would provide a “roadmap” to evade liability under the expropriation exception. “Congress,” she told Glasgow, “wouldn’t have wanted to write a provision that has no meaning. Under your theory, I think there would be precious little to this. It gives foreign countries an easy way to expropriate property and make sure there’s no accountability.”

Glasgow countered that Congress expected claims under the expropriation exception to be “rare,” while Joshi later added that the FSIA was “not intended to shape the conduct” of foreign countries.

Justice Samuel Alito echoed Kagan’s concerns. He noted that Congress had been sufficiently upset about a 1964 case holding that U.S. courts could not weigh in on Cuba’s expropriation of property owned by U.S. nationals to enact a law that effectively reversed that decision. Do you think, he asked Joshi, that Congress believed that “in the vast majority of instances in which the property of U.S. nationals is expropriated overseas,” it did not want relief to be available?

Justice Brett Kavanaugh however, appeared more concerned about the effect that allowing the lawsuit to go forward might have on U.S. foreign relations. With the United States already the only country to carve out an exception to the general presumption of sovereign immunity for expropriations, Kavanaugh wondered aloud whether extending the exception further “would really seem to push us into noncompliance with international law and international norms?”

Roberts also admonished Dvoretzky that he was asking the court to dispense with “the general rule that sovereigns can’t be sued for expropriations of these kinds.” Congress, Roberts posited, had in mind “a much narrower exception,” so that adopting the survivors’ position would be “throwing out the whole sovereign immunity principle under which the rest of the world operates.”

This article was originally published at Howe on the Court.