Takings Exception

The takings exception provides, in pertinent part, that a foreign state shall not be immune from jurisdiction in any case “in which rights in property taken in violation of international law are in issue and that property or any property exchanged for such property is present in the United States in connection with a commercial activity carried on in the United States by the foreign state; or that property or any property exchanged for such property is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States.” 28 U.S.C. § 1605(a)(3) (LexisNexis 2014). Thus, to establish subject matter jurisdiction pursuant to the takings exception of the FSIA, a plaintiff must demonstrate: “(1) that rights in property are at issue; (2) that the property was “taken”; (3) that the taking was in violation of international law; and either (4)(a) “that property ... is present in the United States in connection with a commercial activity carried on in the United States by the foreign state,” or (4)(b) “that property ... is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States[.]” Garb, 440 F.3d at 588 (emphasis in original).

At the pleading stage, a plaintiff must make more than a nonfrivolous argument that the jurisdictional requirements of the FSIA's takings exception are satisfied. Venezuela v. Helmerich & Payne Intern. Drilling Co., 137 S. Ct. 1312, 1316-1318 (2017). Germany argues that, in the wake of Helmerich, Plaintiffs must demonstrate at the pleading stage that each element of the takings exception applies. (Docket entry no. 43, Motion at 11-12.) In response, Plaintiffs argue that the holding in Helmerich is limited to the first three elements of the takings exception (whether (1) rights in property (2) were taken (3) in violation of international law), but does not apply to the fourth (whether the expropriated property, or property exchanged for the expropriated property, is present in the United States in connection with a commercial activity of the foreign state). (Opp. at 13.) In Helmerich, the Supreme Court rejected the lower court's application of a “wholly insubstantial” or “non-frivolous” pleading standard to the FSIA's takings exception. 137 S. Ct. at 1318. Instead, the Court held that the takings exception “grants jurisdiction only where there is a valid claim that ‘property’ has been ‘taken in violation of international law.’ A nonfrivolous argument to that effect is insufficient.”Id. at 1318-1319. Nothing in Helmerich supports Plaintiffs' contention that a more than non-frivolous pleading standard applies to the first three elements of the takings exception, but not the fourth. Indeed, the Court's reasoning in Helmerich, which is rooted in the FSIA's language, history, and structure, suggests that Plaintiffs' interpretation would “embroil the foreign sovereign in an American lawsuit for an increased period of time” and “substitute for a more workable standard ... a standard limited only by the bounds of a lawyer's (nonfrivolous) imagination.” Id. at 1321. Thus, a merely non-frivolous argument that property exchanged for expropriated property is present in the United States in connection with a commercial activity of the foreign state is insufficient under Helmerich.

*6 Assuming arguendo that Plaintiffs have sufficiently alleged under Helmerich that rights in property were taken in violation of international law, #$%4 the Court nonetheless concludes that it lacks subject matter jurisdiction of Plaintiffs' claims. As explained below, even though Plaintiffs allege sufficiently that the expropriated property, or property exchanged for the expropriated property, is present in the United States, the AC fails to allege that the expropriated property is present “in connection with a commercial activity” carried on by Germany. 28 U.S.C. § 1605(a)(3) (LexisNexis 2014).

(1) Plaintiffs Have Alleged Sufficiently That “Property Exchanged For Such Property Is Present In The United States”

Plaintiffs allege that a “portion of [Germany's] enormous wealth ... can be traced from the property it took from the Ovaherero and Nama peoples in violation of international law,” and that “[Germany's] investments in New York City constitute property exchanged for the property taken in violation of international law and which were derived from a portion of [Germany's] commingled funds.” (AC ¶ 258.) Specifically, Plaintiffs contend that the New York Properties constitute “property exchanged for [expropriated] property” that is present in the United States. #$%5 (AC ¶ 259.) In support of their position, Plaintiffs proffer the declaration of economist Stan V. Smith, who opines that revenues derived from Germany's activities in South West Africa “may be reasonably presumed to have gone into the general coffers of the German official banking system, and since money is fungible, [that] German government monies were later used to purchase various properties in New York.” (Docket entry no. 45-5, Smith Decl. ¶ 12.) Without proffering any evidence to the contrary, #$%6 Germany contends that Plaintiffs cannot, as a matter of law, prove that property taken from the Ovaherero and Nama peoples is traceable to Germany's present-day investments in the New York Properties. (Motion at 12-13.)

*7 The Court finds that the uncontroverted allegations in the AC, combined with the Smith Declaration, are sufficient to show under Helmerich that property exchanged for the allegedly expropriated property is present in the United States. Because Germany does not dispute any of the facts in the AC, the Court “assume[s] the truth of [Plaintiffs'] allegations, make[s] all reasonable inferences in [their] favor” and, because Germany asserts it is immune under the FSIA, “properly place[s] the ultimate burden of proof with the Defendant[ ].” Schubarth v. Federal Republic of Germany, 891 F.3d 392, 401 (D.C. Cir. 2018). Under this standard, the Court concludes that Plaintiffs have alleged facts sufficient to support their theory that property expropriated by Germany in the early twentieth century was either sold or leased, and that the proceeds of those transactions were commingled into the German treasury and used to purchase the New York Properties. As other courts have noted when evaluating similar commingling theories, “further factual development may reveal these allegations to be false or unsupportable, but for now they must be presumed to be true and construed liberally.” Id.; see also Simon, 812 F.3d at 147 (finding allegations that the foreign state “liquidated the stolen property, mixed the resulting funds with their general revenues, and devoted the proceeds to funding various governmental and commercial operations” sufficient to “raise a plausible inference that the defendants retain the property or proceeds thereof, absent a sufficiently convincing indication to the contrary”); Abelesz, 692 F.3d at 697 (finding commingling allegations plausible where “defendants have offered no case or fact that demonstrates conclusively that the value of the expropriated property is not traceable to their present day cash and other holdings.”).

To the extent that Germany argues that it is impossible, as a matter of law, to trace funds expropriated over a century ago, Germany presents no legal authority to support its position. The only case cited by Germany in support of its argument, Alperin v. Vatican Bank, 365 Fed. App'x 74, 75 (9th Cir. 2010), is unpersuasive because the plaintiff in that case failed to make any allegation in the pleadings that the expropriated property, or property exchanged for such property, was currently in the United States.

(2) Plaintiffs Have Failed To Allege That Property In The United States Is Present “In Connection With” A German Commercial Activity

Germany next argues that, even if the New York Properties are property exchanged for expropriated property within the meaning of the takings exception, Plaintiffs have failed to show, as a matter of law, that these properties are present in the United States in connection with a commercial activity carried on in the United States by Germany. (Motion at 15-17.) The FSIA defines a “commercial activity carried on in the United States by a foreign state” as a “commercial activity carried on by such state and having substantial contact with the United States.” 28 U.S.C. § 1603(e) (LexisNexis 2014). A “commercial activity” is “either a regular course of commercial conduct or a particular commercial transaction or act.” 28 U.S.C. § 1603(d) (LexisNexis 2014). The statute notes that “[t]he commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.” Id. Courts have found that a state engages in “commercial activity” where it acts “in the manner of a private player within the market.” Nelson, 507 U.S. at 358-59.

Plaintiffs contend that the New York Properties are present in the United States in connection primarily with two types of commercial activities. First, Plaintiffs argue that the “performance and existence of contractual obligations” related to housing, maintenance, and insurance at each of the four properties is sufficient to demonstrate that the properties are present “in connection with” commercial activities. (See AC ¶¶ 261, 263, 265, 269.) This argument, however, ignores the primary function of each property, and focuses instead on activities that are incidental to the property's operations. Although contracts for construction, maintenance, insurance, and repair are concomitant commercial aspects of property ownership, they bear no “substantive connection” or “causal link” to the primary purposes for which these properties are held and operated. Garb, 440 F.3d at 587 (“The statutory term ‘in connection,’ as used in the FSIA, is a term of art, and we interpret it narrowly.”). As the parties acknowledge, the New York Properties are used principally as a private residence for Germany's diplomats or to house Germany's mission to the United Nations, its consulate general, or other entities engaged in the propagation of German culture such as the German Academic Exchange Service, the Goethe Institute, and the German Academy of Art. (See Motion at 15-16; AC ¶¶ 262, 267-68.) To conclude that contracts for restoration work or boiler repairs render these properties present “in connection with” a commercial activity of a foreign state would expand the scope of the FSIA takings exception well beyond the boundaries of the “restrictive” theory of sovereign immunity embodied in the statute. See Helmerich, 137 S. Ct. at 1320 (“The [FSIA] ... by and large continues to reflect basic principles of international law, in particular those principles embodied in what jurists refer to as the ‘restrictive’ theory of sovereign immunity”); Restatement (Third) of Foreign Relations Law of the United States § 451 cmt. a (1986) (“Under the restrictive theory, a state is immune from any exercise of judicial jurisdiction by another state in respect of claims arising out of governmental activities.”). Under Plaintiffs' interpretation, a foreign state would be amenable to suit under to the takings exception simply because its personnel have to be housed, fed, or transported while in the United States. Plaintiffs' reading of the commercial nexus requirement conflates commerce in connection with property and property held in connection with commerce, and it swallows the general rule that foreign states are presumptively immune from the jurisdiction of the courts of the United States. Accordingly, the Court finds, as a matter of law, that Plaintiffs' allegations are insufficient to establish subject matter jurisdiction under the takings exception. #$%7

*8 Second, Plaintiffs argue that each of the New York Properties is present in connection with a “commercial” activity because they are involved in “cultural propagation, German-language programs, and other programs to develop American interest in the German people, language, culture, and country with the ultimate goal of commercial growth through cultural growth.” (AC ¶¶ 261, 263, 265, 269.) In support of their allegations, Plaintiffs proffer the declaration of attorney Michael Lockman, who claims to have visited each of the New York Properties and states, among other things, that he “saw no indication of official state use” at any of the four properties. (Docket entry no. 45-6, Lockman Decl. ¶¶ 5, 6-8.) Plaintiffs' arguments and evidence seek to stretch the definition of “commercial” to encompass activities that are ordinarily considered governmental. The use of the New York Properties to support cultural exchange or arts programs is not fundamentally concerned with “the buying and selling of goods,” nor are these activities goods “[m]anufactured for the markets” or “put up for trade,” or related to “the ability of a product or business to make a profit.” Black's Law Dictionary (10th ed. 2014); see also Restatement (Third) of Foreign Relations Law of the United States § 453 cmt. b (1986) (“An activity is deemed commercial ... if it is concerned with production, sale, or purchase of goods; hiring or leasing of property; borrowing or lending of money; performance of or contracting for the performance of services; and similar activities of the kind....”). Plaintiffs proffer no evidence of a commercial relationship between, for instance, Germany and the German Academic Exchange Service, and unlike the sale of railway tickets or the issuance of bonds—activities which other courts have determined to be sufficiently “commercial” in nature—the programs and activities described in the AC and referenced in the Lockman Declaration appear to be sovereign and diplomatic undertakings aimed at promoting interest in German culture and are thus not the “type of actions by which a private party engages in trade and traffic or commerce.” Weltover, 504 U.S. at 614; see also LaLoup v. United States, 29 F. Supp. 3d 530, 551-552 (E.D. Pa. 2014) (finding allegations that a foreign sovereign maintained consulates, promoted business interests, and sponsored tourism insufficient to constitute commercial activity under the FSIA). Accordingly, the Court finds that the AC does not allege plausibly that the New York Properties are present in the United States “in connection with a commercial activity” carried on by Germany, and the Court lacks subject matter jurisdiction under the FSIA's takings exception.

In light of the Court's conclusion that it lacks subject matter jurisdiction pursuant to the FSIA commercial activity and takings exceptions, the Court declines to address Germany's remaining arguments in favor of dismissal.