The International Business Transactions Blog

SCOTUS Limits the Expropriation Clause of the Foreign Sovereign Immunities Act

By BethEl Nager, Law Student Editor

On February 3, 2021, in Federal Republic of Germany v. Philipp, the United States Supreme Court unanimously ruled that the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. ch. 97, does not permit U.S. courts to exercise jurisdiction over a foreign country that expropriates the property of its citizens without compensation. This ruling explored the FSIA’s expropriation exception, 28 U.S.C. § 1605(a)(3), denies sovereign immunity in U.S. courts if rights in the property of foreign citizens are taken by their own (foreign) government.

The FSIA was created in 1976 with the intention of codifying the “restrictive theory” of foreign sovereign immunity, which defined certain exceptions to the general rule of such immunity, such as when the foreign sovereign waives its immunity. Other exceptions include commercial activities within the U.S., the expropriation of property in violation of international law, certain tortious activity within the United States, and the enforcement of arbitration agreements with foreign nations. 

This case involves the Guelph Treasure (Welfenschatz) a hoard of medieval reliquaries kept at the Brunswick Cathedral in Germany. In 1935, German art dealers, some of whom were Jewish, were allegedly forced to sell these antiquities to the Dresdner Bank at far below market value under pressure from the Nazi government. After the Second World War, Germany and Stiftung Preussischer Kulturbesitz (SPK), the Prussian Cultural Center, asserted ownership of the collection, which is displayed in a Berlin museum. In 2014, the heirs of the Jewish art dealers raised ownership claims with the German Advisory Commission in hopes of the collection’s return to their families. The German Commission determined there was no duress conditions and the sale was valid.

In 2015, when the collection was touring the United States, the heirs sued Germany in the U.S. District Court for the District of Columbia, arguing that the expropriation exception of the FSIA allowed them to proceed against the German government. The heirs claimed the forced sale qualified as an expropriation because it was done under compulsion and as part of a genocide against the Jewish people. The heirs demanded $250 million in damages and the return of the art collection. In contrast, Germany and SPK insisted the exception did not apply, because international law is not violated when a foreign country takes property from its own nationals, as occurred in 1935.

On certiorari to the U.S. Supreme Court, Chief Justice Roberts wrote the opinion, adopted unanimously by the court, that rejected the use of the expropriation exception to the FSIA in this case. He first explained the exception only applies to property law, rather than “the law of genocide or human rights.” The Court further held that international law is not concerned when states take the property of their own citizens. It appears that the Court did not realize that several instruments of international law establish a human right to own property, such as article 17 of the Universal Declaration of Human Rights, as well as article 1 of the first protocol to the European Convention on Human Rights. This body of law might be argued to include customary international law binding on both Germany and the United States, although this would not be the case at the time of the allegedly coerced sale, which preceded these instruments.

The litigation may continue regardless, however, because some heirs insist that their ancestors were not German nationals at the time of the sale, which would render this ruling moot for them.