Supreme Court Dismisses Claim of Mixing Assets in Holocaust Asset Recovery Dispute
On February 21, 2025, the US Supreme Court issued a unanimous decision in Republic of Hungary v. Simon, providing guidance on the Foreign Sovereign Immunities Act's (FSIA) exception to sovereign immunity for expropriation claims.
The decision narrows the scope of the exception, emphasising a narrow and stringent tracing standard to maintain a balance between the need for a connection between foreign states' U.S. assets and illegal expropriation, without placing an overly burdensome tracing obligation on plaintiffs.
The key points from the case are as follows:
- The FSIA’s expropriation exception applies only if the property is “present in the United States in connection with a commercial activity” by the foreign state[2].
- The Supreme Court held that a state’s taking property from its own nationals generally does not violate international law for FSIA purposes, so claims by Hungarian nationals were rejected where Hungary was the expropriating state[2].
- The tracing rule requires a traceable link between the expropriated property or its proceeds and the assets subject to enforcement, but full tracing of liquidated funds is not mandatory for plaintiffs to meet the initial burden[3].
- Once plaintiffs meet their burden, the foreign state must prove, by a preponderance of the evidence, that its current U.S. assets are not derived from the expropriated property[2].
The Court's interpretation of the commercial nexus requirement is narrow, establishing a more demanding threshold for plaintiffs seeking to bring expropriation claims against foreign sovereigns and their agencies/instrumentalities in U.S. courts. A plaintiff does not make the necessary showing by alleging only that the foreign sovereign deposited the proceeds from the sale of expropriated property into an account at some time and eventually used that account for commercial activity in the United States.
The Court's decision requires plaintiffs to trace directly to the United States either the specific expropriated property itself or "any property exchanged for such property." The Court held that direct tracing of the expropriated property is required because § 1605(a)(3)'s plain text "treats all 'property' alike, whether that property is tangible or fungible."
The Court left open several important issues that lower courts will need to grapple with in future FSIA cases involving the expropriation exception, including whether tracing principles from non-FSIA contexts (such as common law) could inform the § 1605(a)(3) commercial nexus inquiry.
The Court also noted the settled principle of interpreting the FSIA to avoid producing friction in relations with other nations and leading some to reciprocate by granting their courts permission to embroil the United States in expensive and difficult litigation.
The expropriation exception does not apply to claims against a foreign sovereign when the commingling of funds alone cannot satisfy the commercial nexus requirement. The Court rejected plaintiffs' argument that § 1605(a)(3) will become a "nullity" if a commingling theory alone cannot satisfy the commercial nexus requirement.
The Court did not resolve whether the plausibility pleading standard in the FSIA context is higher than the typical standard. However, the decision in Simon did not establish a categorical bar on relying on commingling allegations.
In sum, Republic of Hungary v. Simon provides valuable clarification on the tracing standard for expropriation claims under the FSIA, setting a more demanding threshold for plaintiffs while ensuring a balance between enforcing property rights and maintaining diplomatic relations.
- The Supreme Court's decision in Republic of Hungary v. Simon highlighted a narrow and stringent tracing standard for expropriation claims under the Foreign Sovereign Immunities Act (FSIA).
- The FSIA's expropriation exception is applicable only if the property is present in the United States in connection with a commercial activity by the foreign state.
- The Supreme Court's interpretation of the commercial nexus requirement is narrow, establishing a more demanding threshold for plaintiffs seeking to bring expropriation claims against foreign sovereigns and their agencies/instrumentalities in U.S. courts.
- The Court requires plaintiffs to trace directly to the United States either the specific expropriated property itself or "any property exchanged for such property," as per the plain text of § 1605(a)(3).
- Lower courts will need to grapple with several important issues in future FSIA cases involving the expropriation exception, including whether tracing principles from non-FSIA contexts could inform the § 1605(a)(3) commercial nexus inquiry.
- The Court noted the settled principle of interpreting the FSIA to avoid producing friction in relations with other nations and leading some to reciprocate by granting their courts permission to embroil the United States in expensive and difficult litigation.
- The expropriation exception does not apply to claims against a foreign sovereign when the commingling of funds alone cannot satisfy the commercial nexus requirement.
- The Court did not resolve whether the plausibility pleading standard in the FSIA context is higher than the typical standard, but the decision in Simon did not establish a categorical bar on relying on commingling allegations.
