Key Takeaways:
- In Hungary v. Simon, the parties and amici curiae have filed their briefs, and the U.S. Supreme Court heard oral argument on December 3, 2024.
- The Court will decide the pending appeal by June 2025. Its decision could significantly impact the circumstances in which U.S. courts may exercise jurisdiction over foreign states under the FSIA's expropriation exception to sovereign immunity.
On December 3, 2024, the U.S. Supreme Court heard oral argument in Hungary v. Simon. As discussed in a previous client alert, the case concerns whether the U.S. Court of Appeals for the D.C. Circuit correctly allowed Respondents, who are survivors of the Holocaust in Hungary, and their descendants, to sue Petitioners, which are Hungary and its state-owned railroad company, Magyar Államvasutak Zrt., in the United States. The Petitioners argue that they are immune from U.S. court jurisdiction under the Foreign Sovereign Immunities Act ("FSIA"), and Respondents argue that the FSIA's "expropriation exception" to sovereign immunity, 28 U.S.C. § 1605(a)(3), permits jurisdiction. Prior to oral argument, the parties submitted written briefs. Four amici curiae briefs have also been filed, including one by the U.S. Solicitor General in support of Petitioners. The forthcoming decision could affect whether and/or how plaintiffs seeking to recover from foreign states may establish jurisdiction in U.S. courts under the expropriation exception. The key points from the briefs and the oral argument are summarized below.
The Parties' Briefs
In their opening brief, Petitioners argued that the D.C. Circuit erred by:
- Endorsing Respondents' "commingling theory" for satisfying the commercial nexus requirement of the expropriation exception. The expropriation exception requires that the expropriated property, or property exchanged for that property, be present in the United States in connection with a commercial activity by the foreign state, or be owned or operated by a foreign state agency or instrumentality that engages in commercial activity in the United States. According to the commingling theory, a plaintiff can establish that commercial nexus by showing that the state liquidated a plaintiff's assets, commingled the liquidated funds with the state treasury, and used funds from that treasury in connection with commercial activity in the U.S.
- Placing the burden on Hungary to show that its funds in the United States do not trace back to funds obtained by selling the Respondents' expropriated assets. Petitioners argue that Respondents should bear the burden to produce evidence showing that such assets were exchanged for their allegedly expropriated property.
- Holding that, at the pleading stage, a plaintiff must merely raise a plausible inference that an exception to sovereign immunity applies rather than state a valid claim that such an exception applies.
Respondents, in their brief, urged the Court to adopt the D.C. Circuit's commingling theory based on the nature of fungible assets. Respondents also asked the Court to ignore the second and third issues presented by Petitioners.
In their reply brief, the Petitioners described Respondents' commingling theory as "extreme." They also argued that the expropriation exception does not apply absent "identifiable property traceable to seized items."
Amici Curiae Briefs
The U.S. Solicitor General and Germany each filed an amicus brief in support of the Petitioners. The Solicitor General encouraged the Court to reject the commingling theory because adopting it could strain relationships with other countries, "leading some to reciprocate by granting their courts permission to embroil the United States in expensive and difficult litigation, based on legally insufficient assertions that sovereign immunity should be vitiated." Germany endorsed that concern. The Solicitor General also raised an issue that the parties had not raised: whether courts analyzing sovereign immunity arguments under the FSIA should continue to place on foreign state defendants the ultimate burden of persuasion that no exception to sovereign immunity applies.
Additional amicus briefs in support of Respondents were filed by members of Congress and the 1939 Society, Bet Tzedek, Center for the Study of Law & Genocide, and Loyola Justice for Atrocities Clinic. The members of Congress argued that Congress intended for Holocaust survivors to be able to resolve their claims in U.S. courts. The 1939 Society argued that, without access to U.S. courts, Respondents would have no viable forum.
Oral Argument
The parties' respective counsel, as well as the Solicitor General, presented at oral argument.
Petitioners' Argument
The Justices asked Petitioners' counsel questions concerning the definition of "exchanged for," as that term is used in the FSIA's expropriation exception, and the contours and application of the commingling theory. For instance, Justice Thomas asked "what would Respondent have to show in order to make out jurisdiction using . . . the commingling theory?" Petitioners' counsel responded that there are multiple kinds of evidence that a plaintiff could use to demonstrate an "exchange even after commingling," including mathematical, direct, or indirect evidence, and cited as an example "a withdrawal from a commingled account that could not have occurred but for a deposit of tainted funds given the prior balance."
Justices Sotomayor and Barrett pressed counsel for the test or rule the Court should adopt. Petitioners' counsel responded that "the rule is that to establish an exchange, the item at the beginning and the item at the end of the proposed transaction have to be given in return for one another."
Respondents' Argument
During Respondents' argument, the Court probed the viability of the commingling theory. Justice Sotomayor characterized Respondents' argument that money which was originally deposited into an account is the same money that was withdrawn years later as "a fiction that takes quite an imagination."
Similarly, Justice Jackson expressed concern that all a plaintiff would have to prove is that, at some point, 75 years ago, the defendant foreign state took the property at issue. She noted that "[u]nless you can show" that the taken property is "in the United States or is owned by the company today — or by the foreign state today, I don't know how you satisfy this jurisdictional hook."
Justice Gorsuch queried "whatever that standard is, you acknowledge that you bear the burden of production to meet it?" Respondents' counsel confirmed, after which Justice Gorsuch declared what is really at issue is who bears "the burden of production . . . with respect to an exchange," as opposed to the burden of persuasion. Respondents' counsel agreed.
U.S. Solicitor General's Argument
The Justices asked the Solicitor General about the burden-shifting framework, with several indicating doubt that the Court needs to decide whether foreign states should have the ultimate burden to persuade a court that no exception to sovereign immunity applies. The Solicitor General, however, insisted that the Court needs to resolve that issue, noting "whether you accept or reject the commingling theory, the burden's going to matter."
Justice Kavanaugh asked the Solicitor General to address the comity concerns that could arise if other countries adopt an expansive expropriation exception and the commingling theory. The Solicitor General responded, "we are the only country that even has an expropriation exception that would recognize these sorts of takings claims, which otherwise would be barred by traditional principles like act of state and such. We . . . think we're in conformity with international law, but it is a small departure from the restrictive theory, and if that small departure becomes what this Court called in Helmerich a radical departure, we do risk retaliatory or reciprocal actions against us."
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Foley Hoag will continue to monitor this case through the Supreme Court proceedings and will provide additional updates as the case progresses. Anyone with questions about the FSIA, disputes involving foreign sovereigns or their agencies or instrumentalities, or related topics should feel free to reach out to Foley's International Litigation and Arbitration Department.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
