Schubarth v. Fed. Republic of Ger.

• Decision Date: 01 June 2018
• Docket Number: No. 17-7004,17-7004
• Citation: 891 F.3d 392
• Parties: Mady Marieluise SCHUBARTH, Appellant v. FEDERAL REPUBLIC OF GERMANY and BVVG Bodenverwertungs- Und -Verwaltungs GMBH, Appellees
• Court: U.S. Court of Appeals — District of Columbia Circuit

891 F.3d 392

Mady Marieluise SCHUBARTH, Appellant

v.FEDERAL REPUBLIC OF GERMANY and BVVG Bodenverwertungs- Und -Verwaltungs GMBH, Appellees

No. 17-7004

United States Court of Appeals, District of Columbia Circuit.

Argued December 12, 2017

Decided June 1, 2018

Mark N. Bravin argued the cause for appellant. With him on the briefs was Alexandra A.K. Meise.

Jeffrey Harris argued the cause for appellees. With him on the brief was Walter E. Diercks.

Before: GRIFFITH, KAVANAUGH, and WILKINS, Circuit Judges.

Opinion for the Court filed by Circuit Judge WILKINS.

WILKINS, Circuit Judge : This action arises from Mady Marieluise Schubarth’s pursuit of compensation for land ("the Estate") allegedly seized from her family at the beginning of the Cold War. After achieving a partial award through restitution processes in the Federal Republic of Germany ("Germany"), where the Estate is located, Schubarth pressed her claim here. Her complaint asserts that the denial of full compensation for the Estate violated the bilateral Treaty of Friendship, Commerce and Navigation between the United States and the Federal Republic of Germany, Oct. 29, 1954, 7 U.S.T. 1839, T.I.A.S. No. 3593 (hereinafter the "FCN Treaty"), both independently and as incorporated into German domestic law.

The question before us is whether U.S. courts may exercise subject matter jurisdiction over this case under the Foreign Sovereign Immunities Act ("FSIA"). The District Court concluded Schubarth’s complaint did not sufficiently plead that either defendant, Germany itself or the German state-owned corporation that allegedly markets and manages the Estate ("BVVG"), was engaged in "commercial activity in the United States" under the FSIA’s expropriation exception. 28 U.S.C. § 1605(a)(3). For the same reason, the District Court held that Germany had not waived its sovereign immunity when enacting the FCN Treaty.

We affirm as to Germany and reverse as to BVVG. Following our holding in de Csepel v. Republic of Hungary , a foreign state is immune to claims for the expropriation of property not present in the United States, and Schubarth does not dispute that the Estate is located abroad or that Germany is the foreign state itself. See 859 F.3d 1094, 1107 (D.C. Cir. 2017). Therefore, the District Court properly concluded U.S. courts cannot exercise subject matter jurisdiction over Schubarth’s claims against Germany pursuant to the FSIA’s expropriation exception.

BVVG is a different matter. Although the question is close, reading the complaint’s factual allegations together and construing all reasonable inferences in Schubarth’s favor, it is plausible that BVVG "is engaged in a commercial activity in the United States," including ongoing sales and marketing of previously expropriated land such as the Estate. 28 U.S.C. § 1605(a)(3). We need not reach whether, in a different case, allegations of marketing alone would constitute "commercial activity" under the FSIA. We leave for the District Court to consider in the first instance whether BVVG is properly considered an "agency or instrumentality" of Germany rather than the state itself.

I.

A.

The following facts are taken from the complaint and assumed true on review of Defendants’ motion to dismiss. Price v. Socialist People’s Libyan Arab Jamahiriya , 294 F.3d 82, 93 (D.C. Cir. 2002). Schubarth is a U.S. citizen and California resident who alleges she inherited over 500 acres of German agricultural land from her parents in 1973. At that time, the Estate was located in the German Democratic Republic ("East Germany"), a satellite state of the Soviet Union divided from the then-Federal Republic of Germany ("West Germany") at the end of World War II. Beginning in 1945, the Soviet occupying authorities and, subsequently, the East German government expropriated or collectivized most privately held real property in East Germany, including the Estate.

In 1956, the United States and West Germany entered into the FCN Treaty, which in relevant part provides:

Property of nationals and companies of either Party shall receive the most constant protection and security within the territories of the other Party. ... Property of nationals and companies of either Party shall not be taken within the territories of the other Party, except for the public benefit and in accordance with due process of law, nor shall it be taken without just compensation. Such compensation shall represent the equivalent of the property taken and shall be made in an effectively realizable form and without unnecessary delay. Adequate provision shall have been made at latest by the time of the taking for the determination and the giving of the compensation.

FCN Treaty, art. V, ¶¶ 1, 4. According to the complaint, a 1957 German federal court decision held that the FCN Treaty was incorporated into German domestic law and required a U.S. national to be compensated with no less than fair market value for property taken by the West German government. J.A. 6-7. Schubarth became a U.S. citizen, and thereby lost her previous German citizenship, in 1963.

Following the 1990 reunification of East and West Germany, the German government faced the challenges of re-privatizing East German property and of resolving competing claims to expropriated property from prior owners and current occupants. It established the Treuhandanstalt (the "Trust Agency") to oversee conversion of the former East German communist system into a market economy, including by selling state-owned enterprises and property. The Trust Agency maintained an office in New York City to market and sell expropriated properties, including the Estate, in the United States and around the world. J.A. 5. Pursuant to its marketing efforts, the Trust Agency made $1.65 billion in sales in the United States. Id.

The Trust Agency closed in 1994. Its responsibilities were transferred to three successor agencies, including defendant BVVG, which took on the Trust Agency’s role of managing, marketing, and selling expropriated agricultural and forest lands. J.A. 2, 5. In addition, after the Trust Agency closed its New York office, it "pursued marketing efforts over the Internet." J.A. 5. "Portions of the [ ] Estate were sold by the Trust Agency, and later by the BVVG as successor to the Trust Agency, to private investors in Germany and elsewhere." Id. The complaint describes BVVG’s role as successor to the Trust Agency as follows:

The BVVG is a German state-owned entity founded by statute in 1991. It is responsible, inter alia, for the management, marketing and sale of expropriated properties located in the former [East Germany]. Specifically, the BVVG manages and privatizes agricultural and forest lands seized by East Germany in the German state[ ] of ... Thuringia. ... The BVVG provides information about the expropriated properties it controls to potential buyers, including lease and purchase prices, and other commercial terms. Its predecessor, the Trust Agency, carried out these commercial activities, inter alia, with an office and staff in the United States. Subsequently, the BVVG has continued these activities by posting links to such information on its website.

J.A. 2-3. According to the complaint, "[w]hen the BVVG succeeded to the Trust Agency’s responsibilities concerning agricultural and forest lands in the early to mid-1990s, it adopted and continued the Trust Agency’s marketing efforts. Those marketing efforts ... continue to the present day." J.A. 5. From 1992 through 2008, "BVVG and its predecessor, the Trust Agency, collected at least €3.5 billion from successful land marketing and sales." J.A. 3.

In 1991, Schubarth applied to the German State Agency for Open Property Issues in the State of Thuringia (the "Thuringia State Agency"), where the Estate was located, for restitution of the property. In 1992, the Thuringia State Agency granted restitution of a house on the Estate and some surrounding land, but denied Schubarth’s claim as to the remainder of the Estate. The complaint claims this "constituted an expropriation of her property by the new, unified Federal Republic of Germany," and that Schubarth’s American citizenship entitled her to compensation "represent[ing] the equivalent of the property taken" under the FCN Treaty. J.A. 5-6.

In 1994, Germany enacted the "Compensation Act," providing a process by which owners of expropriated property whose restitution claims had been denied could apply for some additional compensation. Schubarth so applied in 1995 and claimed she was entitled to 100% of the Estate’s fair market value as of the date of the alleged expropriation. Her application argued the FCN Treaty had been adopted as domestic German law and, therefore, entitled her to full compensation for the entire value of the Estate. The application remained pending before the Thuringia State Agency, without a decision, for nineteen years.

Almost two decades after Schubarth submitted her application, in February 2014, the Thuringia State Agency issued a proposed decision under the Compensation Act recognizing Schubarth as owner of at least some of the Estate, acknowledging that the Estate had been expropriated, and proposing a €35,279 compensation award. J.A. 7. Schubarth believed this was far less than the amount to which she was entitled. In November 2014, Schubarth requested that the Thuringia State Agency apply to Germany’s Ministry of Finance for an opinion on the applicability of the FCN Treaty to her claim. Several days later, the Thuringia State Agency issued a final administrative decision affirming its February 2014 proposed decision without discussing the FCN Treaty. According to the complaint, this final decision "admits, among other things, that Mrs. Schubarth was the owner of the [ ] Estate, that the [ ] Estate was expropriated, and that Mrs. Schubarth is entitled to compensation payable by Germany." J.A. 8.

B.

Schubarth filed this action in December 2014, approximately one month after the Thuringia State Agency issued its...