In Republic of Hungary v. Simon (No. 23-867), the Supreme Court addressed, for the second time, whether Jewish survivors of the Hungarian Holocaust have alleged enough facts to pierce the sovereign immunity of Hungary and its state-owned railway. And just as it did the last time, a unanimous Court concluded that the plaintiffs hadn’t done enough for U.S. courts’ exercise of jurisdiction over Hungary. In so doing, the Court rejected the D.C. Circuit’s “comingling” theory of the FSIA’s expropriation exception. We’ll explain exactly what that means in a second, but for those who want to cut to the chase, the end result is that it is now very difficult for plaintiffs to sue foreign states over alleged expropriations of property in cases where the foreign state long ago sold the disputed property, effectively limiting the expropriation exception to disputes over specifically identifiable pieces of property that are still in the foreign state’s possession.

Understanding Simon’s holding requires a bit of background on the complicated law of sovereign immunity. For most of its history, the United States adhered to the “absolute” theory of foreign sovereign immunity, under which foreign states were essentially always immune from suit in United States court. That changed in 1952, when the State Department adopted the so-called restrictive theory of immunity, which “restricts” sovereign immunity to cases where the foreign state is acting in its sovereign capacity, while abrogating immunity for commercial acts. In 1976, Congress codified the restrictive approach with the Foreign Sovereign Immunities Act (“FSIA”). It grants foreign states and their agencies and instrumentalities a baseline of immunity in U.S. court, subject to various statutory exceptions. Consistent with the restrictive theory, most of those exceptions deny states sovereign immunity for their commercial activities (like entering contracts). One of them, though, the so-called expropriation exception, has a different focus. Drafted in response to Communist nations’ expropriation of American-owned property abroad, it eliminates a foreign state’s sovereign immunity in any suit where “rights in property taken in violation of international law are in issue.” But the exception also contains what’s called the “commercial nexus,” which limits the exception to cases where the expropriated “property or any property exchanged for it” is present in the United States in connection with certain types of commercial activity here.

In 2010, a group of Jewish survivors of the Hungarian Holocaust sued Hungary and Hungary’s national railroad in federal court, seeking compensation for Hungary’s genocide of hundreds of thousands of Hungarian Jews in 1944–45. One part of Hungary’s genocidal campaign was property expropriations: Before sending Jews to their death, Hungary stripped them of their personal property, which it then auctioned off. While no recognized FSIA exception allowed the plaintiffs to assert tort-like claims over their mistreatment, they asserted that they could sue for the value of that stolen property under the expropriation exception. But unlike most expropriation-exception cases—where a plaintiff seeks to reclaim an identifiable piece of property still in the foreign state’s possession—the property was long gone. Plaintiffs tried to avoid that problem by arguing that the proceeds Hungary obtained from selling off their property amounted to “property exchanged for” their long-lost possessions. And while the plaintiffs could not trace those specific funds to Hungary’s present day commercial activity in the United States, they argued they didn’t have to: Because Hungary “commingled” the proceeds from those property confiscations with the funds in its general treasury, all the money in its treasury became “property exchanged for” their stolen property. And because Hungary uses money in its general treasury to engage in some commercial activity in the United States (like buying military hardware), a small piece of those proceeds are likely present in the United States now in connection with commercial activity here. 

The District Court and then the D.C. Circuit endorsed this “commingling” theory, holding that plaintiffs’ allegations were enough to satisfy the expropriation exception’s commercial nexus and that the burden should be on Hungary to disprove that any of the proceeds from its property theft had made their way to the United States. At the same time, the lower courts rejected several other arguments made by Hungary that the expropriation exception didn’t cover the plaintiffs’ claims. One of those other holdings made its way to the Supreme Court back in 2020, alongside a companion case, Federal Republic of Germany v. Philipp. In that case, the Court ultimately held that the expropriation exception is not satisfied by allegations that a foreign state expropriated the property of its own nationals. Hungary argued that Philipp disposed of the case, but on remand, the D.C. Circuit concluded that some of the Simon plaintiffs were not Hungarian nationals when their property was taken. In the meantime, though, the Second Circuit had considered and rejected the D.C. Circuit’s comingling theory, holding that in order to satisfy the expropriation exception, a plaintiff had to plead and prove that identifiable property—or in cases of sold property, specifically identifiable proceeds from the sale of that property—were present in the United States. The D.C. Circuit declined to reexamine its earlier decision endorsing the commingling theory, so the Supreme Court granted cert to resolve this newly arisen circuit split. 

Writing for a unanimous court, Justice Sotomayor rejected the D.C. Circuit’s expansive approach to the expropriation exception’s commercial nexus. She started with some points where the parties agreed: In a suit involving a piece of property that the foreign state still owns—say a work of art—the expropriation exception clearly requires the plaintiff to plead that the property is “present in the United States” in connection with commercial activity here. And if the foreign state exchanged that originally expropriated work of art for another piece of identifiable property—say another work of art—the plaintiff would have to show that this subsequently acquired work of art is present here in the United States. But what happens if rather than exchanging the expropriated work of art for another piece of art, the foreign state sells it? In some cases, the proceeds from that sale can still be traced to the United States, say if the foreign state transferred the proceeds to a particular bank account and then used those funds for some transaction here. But plaintiffs and the D.C. Circuit held that this level of specificity wasn’t required given the fungible nature of money: In essence, they argued the once a foreign state sells expropriated property and commingles the proceeds in its general treasury, any specific tracing requirement goes out the window and all the state’s money presumptively becomes property “exchanged for” the original disputed property unless the foreign state can disprove any alleged connection. 

The Court concluded that this went too far for two main reasons. First, not unlike plaintiffs in any other suit, plaintiffs in FSIA cases have to “plausibly” allege that an exception to foreign immunity applies. But states raise money from all sorts of sources, and they spend it on a wide range of commercial and non-commercial activities both at home and abroad. As a general matter, then, it is not “plausible” that the specific proceeds from Hungary’s auctioning off of Jewish-owned property in 1944 and 1945 have ended up in the United States today in connection with one of Hungary’s limited commercial actions here. The factual connection between 1944 Hungary and present-day Hungary’s purchases of military hardware in the United States is just not that plausible given all that’s happened in the interim. Second, the expropriation exception is itself a bit of an anomaly, as it departs from the “restrictive” theory of sovereign immunity by subjecting foreign states to suit in the United States for takings of property, “sovereign” acts if there ever were any. Justice Sotomayor was thus unwilling to read the expropriation exception’s commercial-nexus requirement in a way that would further extend the exception’s reach.

All this is not to say that a plaintiff can never rely on the expropriation exception to sue a foreign state over the expropriation of property the foreign state has since sold. Rather, Justice Sotomayor took pains to point out prior examples—including one that figured prominently in Congress’s creation of the expropriation exception—where the proceeds from the sale of expropriated property could be directly tied to the United States without relying on some commingling presumption. And while Sotomayor acknowledged that it may be difficult for plaintiffs to provide similar evidence in many other cases, including perhaps this one, that is the inevitable result of the statute Congress created. The Court thus once again remanded to the D.C. Circuit where the plaintiffs can decide whether to try to plead and prove that the specific proceeds from the sale of property stolen from them can be traced to the United States.