Case preview: Justices to consider immunity for Germany in claims arising from Nazi-era art sale

It has been nearly 90 years since Adolf Hitler came to power in Germany, and 75 years since the end of World War II. Despite the passage of time, efforts to recover valuable works of art that were seized by the Nazis, or sold to them under duress, are still ongoing. On Monday, the Supreme Court will hear oral argument in one such dispute, Federal Republic of Germany v. Philipp, involving a collection of medieval relics now on display at a Berlin museum. Although the legal questions before the court are, on their face, quite technical, the battle is highly charged and emotional, with the U.S. government siding with Germany in arguing that the case should be thrown out of court.

The case presents two issues: first, whether the “expropriation exception” in the Foreign Sovereign Immunities Act gives federal courts jurisdiction to resolve the claims against the German government, and second, whether principles of “international comity” require federal courts to avoid resolving the claims even if they have jurisdiction. This article discusses the first issue; a separate article previews the comity issue (along with a similar comity issue raised in Republic of Hungary v. Simon, which is also being argued on Monday).

Factual background

The plaintiffs in the case are the heirs of several German Jewish art dealers who lived and worked in Germany in the 1920s and 1930s. The dealers formed a consortium in 1929 to buy the Welfenschatz, known in English as the Guelph Treasure: a collection of medieval Christian art that included ornate crucifixes and portable altars. After the 1929 stock market crash, the consortium tried to sell the artwork, but – in the midst of the Great Depression – it was able to sell only about half of the pieces. The other half were stored in the Netherlands.

Hitler was appointed chancellor of Germany in 1933. Later that year, the mayor of Frankfurt wrote to Hitler to seek his help in acquiring the Welfenschatz. Two years later, the consortium sold 42 of the 82 pieces in the collection to the Nazi-controlled state of Prussia for 4.25 million Reichsmarks, or the equivalent of $1.7 million in 1935 dollars.

The two sides in the dispute have very different views of the fairness of the transaction. The German government depicts the sale as the product of a year’s worth of negotiations between the consortium and a German bank. The sale price, the government contends, was “about halfway between the two sides’ opening positions” and allowed the consortium to recover approximately 60% of what it paid for the entire collection six years earlier.

The heirs say that, after two years under the Nazi regime, the art dealers – who had been effectively shut out of their livelihood – were forced to sell the art at “barely a third” of its value. And even then, the heirs say, the dealers did not receive the full sale price.

When World War II ended, the art was turned over to the Prussian Cultural Heritage Foundation, a government-funded institution that manages (among other things) Berlin’s state-run museums. The collection is currently housed at the Museum of Decorative Arts in Berlin; the museum’s deputy director told The New York Times that the collection is the “heart of our medieval collection” and described one statuette as the museum’s “Mona Lisa.”

In 2014, the heirs began their efforts to recover the art, now valued at roughly $250 million. They went first to a commission created by Germany to arbitrate Nazi-era art claims. The commission ruled that the sale was fair and therefore did not recommend that the art be returned. The heirs then went to federal court in Washington, D.C., where they argued that the treasure had been taken in violation of international law.

Legal background

Foreign governments are generally immune from lawsuits in U.S. courts. A federal law, the Foreign Sovereign Immunities Act, carves out several narrow exceptions to that rule. One of those exceptions, known as the expropriation exception, allows lawsuits in any case “in which rights in property taken in violation of international law are in issue” as long as there is a sufficient commercial connection to the United States. On Monday the justices will consider whether this exception applies to claims that a foreign government took property from its own citizens within its own country.

Germany asked the district court to dismiss the case, contending that it was entitled to immunity. Both the district court and the U.S. Court of Appeals for the District of Columbia Circuit allowed the lawsuit to go forward. The court of appeals acknowledged that a government’s confiscation of its own citizens’ property does not violate the international law of takings. However, the court of appeals continued, the case still fell within the expropriation exception because the heirs had alleged that the consortium was forced to sell the art as part of the Nazi genocide, which was a violation of international law for purposes of the expropriation exception.

Germany went to the Supreme Court in September 2019, asking the justices to weigh in. The justices first sought the views of the federal government, which filed a brief in May 2020 urging the court to grant review. The court did just that in July 2020.

Arguments of Germany

In its briefs, Germany stresses that U.S. courts have historically interpreted the expropriation exception narrowly, to exclude cases in which foreign countries take their own citizens’ property. By departing from that consensus view, Germany says, the D.C. Circuit “transformed the expropriation exception into a vast grant of federal jurisdiction over foreign states.”

The text, context and history of the FSIA all weigh against the D.C. Circuit’s interpretation of the expropriation exception, Germany continues. The FSIA’s use of the phrase “taken in violation of international law” refers to the international law of expropriation, which does not include a country’s seizure of its own citizens’ property. It is also clear from the history of the FSIA that Congress understood the phrase “taken in violation of international law” as a term of art, Germany writes, and the phrase should have that meaning.

Germany argues that the D.C. Circuit’s interpretation of the exception as applying to cases like this one is also inconsistent with the context and purpose of the FSIA, which “focuses on unlawful invasions of property rights.” Genocide is the crime of deliberately killing or harming a particular group with the intent to destroy it; it has nothing to do with property rights, Germany contends. Indeed, Germany notes, Congress carved out other exceptions in the FSIA to address violations of human rights that result in personal injury. And in any event, Germany concludes, the heirs’ claims do not amount to genocide: This case involves allegations that a group of Jewish-owned art dealerships sold art in 1935 at a price below its market value. The Prussian government, Germany asserts, wanted to buy the art “not to cause anyone’s death, but because” the art was “historically, artistically, and national-politically valuable.”

As a practical matter, Germany warns, the D.C. Circuit’s decision could lead to “a flood of suits” in U.S. courts against foreign countries, claiming that a foreign government’s actions at home violated the rights of its own citizens. That theory, Germany observes, “has prompted suits over other historical events, such as claims against Turkey over allegedly genocidal takings of property from ethnic Armenians, and against Germany over alleged genocide in colonial Africa.”

Arguments of the United States

In its “friend of the court” brief supporting Germany, the U.S. government makes clear that it “deplores the atrocities committed against victims of the Nazi regime and supports efforts to provide victims with remedies for the wrongs they suffered.” Having said that, it agrees with Germany that the expropriation exception does not apply when a foreign state is accused of taking its own citizens’ property.

It cautions the justices that the D.C. Circuit’s contrary interpretation would require U.S. courts to make “sensitive foreign-policy determinations regarding the existence and scope of a genocide or other human-rights violation merely to assess” whether a case can more forward. That would “enmesh the judiciary in sensitive foreign policy determinations.”

Arguments of the heirs

The heirs — Alan Philipp, a citizen of the United Kingdom, and Gerald Stiebel and Jed Leiber, both U.S. citizens – emphasize that the Nazis’ scheme to steal art “is an unparalleled property crime that Congress has called the ‘greatest displacement of art in human history.’” If the coerced sale at the center of this case, which was initiated by Hitler himself, “is not a taking in violation of international law, then nothing is,” they tell the justices.

Citing last term’s decision in Bostock v. Clayton County — which held on textualist grounds that a federal employment discrimination law applies to LGBTQ employees — the heirs stress that nothing in the FSIA’s expropriation exception limits U.S. courts’ jurisdiction based on the citizenship of the victim. Germany’s argument asks the justices to “insert text that Congress did not write into” the expropriation exception, the heirs contend: Congress could have easily drafted the FSIA to provide that the expropriation exception applies only to the rights of noncitizens in property taken in violation of international law – but it did not.

But in any event, the heirs add, the below-market sale of the Welfenschatz was undoubtedly a taking of property in violation of international law. Any suggestion that it was not because it was “merely a domestic issue,” they assert, flies in the face of the history of the Holocaust. Senior Nazi officials played key roles in the efforts to force the dealers to sell the art, they reason. And the Nazis’ ultimate goal was genocide, which is always a violation of international law: They wanted to steal the property of Jews (whom they no longer regarded as German) as part of their effort to destroy the Jewish community.

The history of the FSIA also indicates that when Congress passed the FSIA, Nazi-era seizures of art were regarded as “property taken in violation of international law,” and Congress expected that claims would be brought under the expropriation exception for a country’s seizure of its own citizens’ property. Indeed, the heirs explain, recent legislation confirmed this understanding by making clear that simply loaning art to museums in the United States would not satisfy the FSIA’s requirement of a commercial connection to the United States. In doing so, the heirs argue, Congress “specifically clarified that this limitation would not apply to cases involving the Nazis’ takings of art and other cultural property.” To the extent that Germany believes that the D.C. Circuit’s interpretation conflicts with Congress’ purpose in enacting the FSIA, the heirs conclude, it can take it up with Congress.

A decision in the case is expected sometime next year.

This article was originally published at Howe on the Court.