Philipp v. Germany: An upcoming watershed in the law of state immunity

Last Monday the United States Supreme Court heard oral argument in Alan Philipp et al. v. Federal Republic of Germany, a case which can have important ramifications for claims against sovereign states not only in the US but also on the international level.

The case concerns the restitution of the so-called Guelph Treasure (or Welfenschatz), a collection of medieval ecclesiastical art now exhibited at the Bode Museum in Berlin. The complaint is based on an allegation that a consortium of German-Jewish art dealers was forced to sell the Welfenschatz to agents of Hermann Goering for less than its fair market value in 1935 in the Netherlands. 

The US federal courts hearing the case found they had jurisdiction over defendant Germany under the so-called expropriation exception of the Foreign Sovereign Immunities Act (hereinafter: FSIA), the US statute governing state immunity. The exception provides in its relevant part that a "foreign state shall not be immune from the jurisdiction of the courts of the United States or of the States in any case… in which rights in property taken in violation of international law are in issue". Importantly, the lower courts found that, as the alleged forced sale had formed part of the genocide that national socialist Germany had conducted against its Jewish population, the disputed transaction may not only be voidable under the law applicable to it but also constituted a violation of international law.

In its pending motion before the Supreme Court, Germany argues, among others, that the lower courts’ reading of the expropriation exception is much broader than what the legislators enacting the statute in 1976 had in mind. Germany contends that the exception was not intended to apply to any violation of international law that involved the taking of property but only to that of a well-defined set of norms called "the international law of takings" which governed the conditions under which foreign property may be expropriated. As claimants’ predecessors in the Philipp v. Germany action were not foreigners but German nationals, an alleged taking of their property by Germany could not violate this body of laws.

Interestingly, the US Government, which participates in the proceedings as amicus curiae – a kind of intervener –, supports Germany’s position and urges the Court to dismiss the case.
 

The Foreign Sovereign Immunities Act and its changing context 

The FSIA was meant to codify that, as a rule, foreign states are immune from the jurisdiction of US courts unless certain exceptions apply. Largely in keeping with customary international law, it generally granted immunity against claims arising from the foreign state’s governmental actions while denying it for claims arising from its commercial activities. The expropriation exception, however, never fit into this general model: In deviation from customary international law, it denies foreign states immunity for the nationalization or expropriation of the property of aliens despite the governmental nature of such actions. 

To understand this, we must go back to the emergence of international investment flows in the early 20th century. In the context of government actions affecting such investments, capital-exporting Western states asserted that any taking of property from foreign investors was governed by international law, permitting expropriation only if it was non-discriminatory, served a public purpose and was accompanied by prompt and adequate compensation. Capital-importing, particularly Latin American states disputed this position arguing that a sovereign’s treatment of any property in its territory was a matter reserved for that sovereign alone. The debate continued during the Cold War, when socialist countries took the position that a state may nationalize any foreign property on its territory without compensation. 

For the US legislature, the tipping point came with the Sabbatino case in 1966, arising from the nationalization of American-owned companies in Cuba. After the US Supreme Court rejected the claimants’ claim for compensation on the ground that it had no authority to judge the governmental actions of another nation, the US Congress passed legislation allowing claims against foreign states for the taking of property if it violated "the principles of international law, including the principles of compensation" (Second Hickenlooper Amendment).  

It was in this context that the FSIA was enacted in 1976. Germany argues that the purpose of the expropriation exception was to enable lawsuits arising from the uncompensated taking of American property by foreign – mostly socialist – regimes. The ‘international law of expropriation and state responsibility’, which the exception was meant to refer to, presupposes that the property is taken from a foreigner. This means that any breach a state may commit against its own citizens – infringement of human rights norms or even crimes against humanity – are not included in its scope. If the expropriation exception could be invoked in the context of such violations, US courts would effectively act as world courts in cases brought by foreign citizens against their own government.

The dangers of an overly broad interpretation depicted by Germany’s counsel – and the representative of the US Department of Justice – forced Plaintiffs’ counsel to provide their own definition of the expropriation exception’s precise ambit during oral argument. Although he emphasized that the court should interpret the provision according to the plain meaning of its terms – suggesting that any international law norm could be relevant in the context of the taking – he argued that only such breaches will fit the exception’s scope where the violation of the norm is committed through the taking itself. He opined that this is the case with genocide – which can be committed through the stripping of the targeted group of its livelihood – but not with most other violations of human rights norms (contending, perhaps less convincingly, that depriving the victim of its personal belongings is not constitutive of slavery). 
 

International law, immunity, and expropriation

Another interesting twist is that even the narrow reading of the statute – advocated by Germany and the US government – is in violation of international law. As acknowledged by the representative of the US Department of Justice, the FSIA’s expropriation exception is without parallel in state practice, which generally grants jurisdictional immunity to foreign states for nationalization measures. For instance, the United Nations Convention on State Immunity (which is not yet in force but can be viewed as a reflection of customary international law) provides that every state enjoys immunity from the jurisdiction of the courts of another State except for certain, basically commercial, situations connected to state of the forum. The Convention does not provide immunity exceptions for governmental acts committed on the territory of the defendant state even if they violate international law. This position was confirmed in 2012 by the International Court of Justice (hereinafter: ICJ), which, in a case filed by Germany against Italy, held that, under international law Philipp v. Germany is not the only case where U.S. Courts have interpreted the expropriation exception to provide jurisdiction over claims arising from the Holocaust. Two pending Hungarian cases, Simon v. Hungary – claiming compensation for property losses suffered by plaintiffs and their predecessors in the course of their deportation during World War II – and de Csepel v. Hungary – claiming restitution of art seized from the heirs of a Jewish art collector in 1944 – are also premised on the notion that these takings formed a constitutive part of the genocide conducted against Hungarian Jews. The broad interpretation of the expropriation exception, however, could also allow future takings claims arising from notorious ethnic conflicts or other intrastate crises as long as the alleged taking could be described as a violation of an internationally recognized human right. The granting of Germany’s petition, on the other hand, would effectively close the door on claims against foreign states by their own nationals before US courts.

Whatever its ultimate outcome, Philipp v Germany will be an important watershed in the field of litigation against foreign states in the US. With regard to state immunity, it will determine how far the US Supreme Court is willing to move away from traditional standards of international law.