de Csepel v. Republic of Hungary

• Decision Date: 14 March 2016
• Docket Number: Civil Action No. 10-1261 (ESH)
• Citation: 169 F.Supp.3d 143
• Parties: David L. de Csepel, et al., Plaintiffs, v. Republic of Hungary, et al., Defendants.
• Court: U.S. District Court — District of Columbia

169 F.Supp.3d 143

David L. de Csepel, et al., Plaintiffs,

v.Republic of Hungary, et al., Defendants.

Civil Action No. 10-1261 (ESH)

United States District Court, District of Columbia.

Signed March 14, 2016

Michael Dewayne Hays, Alyssa Tami Saunders, Cooley, LLP, Washington, DC, Alycia Regan Benenati, Megan Kathleen Zwiebel, Sheron Korpus, Kasowitz, Benson, Torres & Friedman LLP, Dorit Ungar Black, Michael S. Shuster, Holwell Shuster & Goldberg LLP, New York, NY, for Plaintiffs.

Irene Tatevosyan, Jessica N. Walker, Sarah Erickson Andre, Thaddeus J. Stauber, Nixon Peabody LLP, Los Angeles, CA, Emily C. Harlan, Nixon Peabody, L.L.P., Washington, DC, for Defendants.

MEMORANDUM OPINION

ELLEN SEGAL HUVELLE

, United States District Judge

Defendants the Republic of Hungary, the Hungarian National Gallery, the Museum of Fine Arts, the Museum of Applied Arts, and the Budapest University of Technology and Economics have moved, pursuant to Federal Rule of Civil Procedure 12(b)(1)

, to dismiss this case for want of subject matter jurisdiction. (Defendants' Renewed Motion to Dismiss, May 18, 2015 [ECF No. 106] (“Defs.' Ren. Mot.”).) It is defendants' third motion to dismiss plaintiffs' claim on jurisdictional grounds, but the first Rule 12(b)(1) motion filed and argued with the full benefit of jurisdictional and merits fact discovery.

Plaintiffs David L. de Csepel, Angela Maria Herzog, and Julia Alice Herzog are descendants of Baron Mór Lipót Herzog, a Jewish Hungarian art collector who assembled a substantial art collection (the “Herzog Collection”) prior to his death in 1934. Plaintiffs allege that Hungary and Nazi Germany seized the Herzog Collection during World War II. Plaintiffs brought this suit alleging that defendants breached bailment agreements entered into after World War II when they refused to return the pieces from the Herzog Collection to the plaintiffs in 2008.

On February 15, 2011, defendants filed a motion to dismiss, which this Court granted in part and denied in part, holding that it had subject matter jurisdiction under the expropriation exception to the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. § 1605(a)(3)

. See

d

e Csepel v. Republic of Hungary , 808 F.Supp.2d 113, 132–33 (D.D.C.2011). The D.C. Circuit affirmed in part and reversed in part. d

e Csepel v. Republic of Hungary , 714 F.3d 591 (D.C.Cir.2013). Without addressing the expropriation exception, the D.C. Circuit held that plaintiffs' Complaint alleged sufficient facts to confer subject matter jurisdiction pursuant to the commercial activity exception to the FSIA, 28 U.S.C. § 1605(a)(2). See

id. at 601. On remand, this Court ordered discovery to proceed. (Order, Dec. 9, 2013 [ECF No. 82].) All fact discovery is now complete.

Defendants assert that, in light of the evidence produced in discovery, plaintiffs cannot carry their burden of proving that this Court has subject matter jurisdiction. In particular, defendants claim that neither the FSIA's commercial activity exception nor its expropriation exception applies to plaintiffs' claim.

For the reasons stated below, this Court finds that it has subject matter jurisdiction under the expropriation exception to the FSIA, but that plaintiffs cannot show a factual basis for their claim of jurisdiction under the statute's commercial activity exception.

BACKGROUND

The factual history of this case has already been described in great detail by this Court and the Court of Appeals at 714 F.3d at 594–97

; 808 F.Supp.2d at 120–26 ; and de Csepel v. Republic of Hungary , 75 F.Supp.3d 380, 382–85 (D.D.C.2014). The Court will therefore focus on the procedural history and facts relevant to this motion.

I. FACTS

Baron Mór Lipót Herzog was a Jewish Hungarian art collector who amassed a collection of over 2,000 paintings, sculptures, and other pieces of artwork. After his death in 1934 and his wife's death in 1940, the Herzog Collection was divided up amongst his three children, Erzsébet Herzog (Elizabeth Weiss de Csepel), István (Stephen) Herzog, and András (Andrew) Herzog. (Complaint, July 27, 2010 [ECF No. 1] (“Compl.”) ¶ 39; see also Defs.' Ren. Mot., Declaration of Irene Tatevosyan (“Tatevosyan Decl.”), Ex. 5.)

During the Holocaust, Hungarian Jews, including the Herzogs, were required to register their art treasuries. In 1943, the Herzog family sought to save their artworks from damage and confiscation by hiding the bulk of the collection in the cellar of one of the family's factories. Sometime prior to May 23, 1944, the artworks were discovered by the Hungarian government and its Nazi collaborators and were seized. It appears that some of the artworks were transferred to Germany and other territories of the Third Reich, while the rest were stored in Hungary.

Several of the Herzog heirs and their families escaped from Hungary during the war: Elizabeth fled to Portugal and settled in the United States in 1946, becoming a U.S. citizen on June 23, 1952. Plaintiffs Angela and Julia Herzog left Hungary following the deportation and death of their father András and settled eventually in Italy. István remained in Hungary until his death in 1966.

Forty-four pieces from the Herzog Collection are at issue in this litigation. According to interrogatory responses from plaintiffs, twenty-four are owned by the heirs of András Herzog, twelve are owned by the heirs of Erzsébet Herzog, and eight are owned by the heirs of István Herzog. (See id. ) Defendants concede that forty of the forty-four artworks named in plaintiffs' Complaint are still in the museums' possession.¹ They also concede that forty-two of the forty-four properties were seized by Hungary and the Nazis during the Holocaust as part of Germany's campaign of genocide against the Jews. The remaining two artworks appear to have been first acquired well after World War II. In 1952, Lucas Cranach the Elder's “The Annunciation to Saint Joachim” (Compl. ¶ 16(vi)) was seized by the State Security Authority from an attorney, Dr. Henrik Lorant. (Tatevosyan Decl. at Ex. 29). The Cranach seems to have been placed in Lorant's house by Ferenc Kelemen, who claims to have been keeping it safe for Erzsébet Herzog. (Id. ) In 1963, John Opie's “Portrait of a Lady” (Compl. ¶ 16(xiii)) was donated to the Museum of Fine Arts by an individual named Endre Gyamarthy. (Tatevosyan Decl. at Ex. 32.) It is unclear from the record how Gyamarthy came to possess the painting.

Following the conclusion of the war, certain artworks from the Herzog Collection that had been scattered across Nazi-occupied Europe were shipped back to Hungary, consistent with the Allies' post-war restitution policy. (Plaintiffs' Opposition to Ren. Mot., June 24, 2015 [ECF No. 110] (“Pls.' Opp'n”) at 7.) A one-party Communist dictatorship would eventually come to power in 1948, beginning a period during which “Hungary did not recognize individual property rights.” (Compl. ¶ 93.) However, in the years between the end of World War II and the start of Communist rule (1946-1948), the post-war coalition government in Hungary made some effort to return property confiscated during the Holocaust to its rightful owners.

The parties dispute how much of the art collection seized from the cellars of the Herzog factory was actually returned to the family. As best as the Court can determine, fifteen of the properties seized during the Holocaust were , at least temporarily, physically transferred into the custody of the Herzog family members or their legal representatives in the late 1940s. (See Tatevosyan Decl. at Exs. 7, 9, 10, 11, 14, 15.) All of these transfers occurred in Budapest. Pursuant to multiple customs and smuggling laws from the 1920s prohibiting the export of cultural patrimony,² the transfers were conditioned upon the explicit agreement that the paintings remain in Hungary. (See id. at Ex. 18 (letter from Ministerial Commissioner Sandor Jeszensky about the release of Herzog paintings noting that the “handover protocol” requires “that the art works in question may not...be removed from the country's territory”).) Indeed, in every known instance in which art from the Herzog Collection was physically returned to the family, the art was handed over in Budapest and has remained there. (See id. at Exs. 44, 45, 49.) Plaintiffs concede that no member of the Herzog family has ever asked Hungary to return art to the United States. (See Hearing Transcript, Dec. 2, 2015 [ECF No. 118] (“Hearing Transcript”), at 29.)

Ten additional artworks at issue in the Complaint appear to have been legally released to the family on paper, but plaintiffs dispute whether they were ever actually returned to their physical custody. (Opp'n at 8 (stating that “these ‘returns' were largely on paper or short-lived, and the vast majority of the Herzog Collection either remained in, or was ultimately returned to, Defendants' possession”); Tatevosyan Decl. at Exs. 8, 12, 18.) Defendants agree that at least some of the properties that Hungary released to Herzog ownership were never physically handed over to plaintiffs or their family members. (Defs.’ Ren. Mot. at 7 (citing Tatevosyan Decl. at Ex. 17).) Plaintiffs have produced compelling documentary evidence suggesting why many of these “paper releases” were never consummated. The financial burden of accepting and removing the art to other countries was enormous. A December 9, 1947 Report by the Ministerial Commissioner in charge of repatriating art collections to Hungary discusses the return of privately owned artworks from Germany on the so-called “Art Treasure Train and the Silver Train” in the following way:

At acceptance, the owners are obliged to pay a duty fee of 11 per cent of the value of the privately owned artworks returned from Germany. It is understandable that the owners of larger collections and artworks of higher value do not hurry to take out their artworks, knowing that such items are in a good place. Thus, I still have 192 artworks in my custody from the consignments of the Art Treasure Train

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