The U.S. Court of Appeals for the D.C. Circuit recently dismissed a long-running dispute against Russia concerning the library of the Lubavitcher Rebbe (the Library), a collection of books and papers once held by the then-Rebbe of the Chabad Lubavitch movement. Agudas Chasidei Chabad of United States v. Russian Fed’n, 110 F.4th 242 (D.C. Cir. 2024) (Chabad 2024). Brought under what is known as the expropriation exception, 28 U.S.C. § 1605(a)(3), of the Foreign Sovereign Immunities Act (the FSIA), the case has involved Russia’s withdrawal from the case and default, sanctions of $50,000 per day for non-compliance and a judgment of more than $175 million, a retaliatory embargo on cultural property exchange that continues to this day, and multiple appeals.
In the most recent decision, the court of appeals held that the second element of the expropriation exception (what is known as the commercial nexus requirement) was not met and therefore deprived the court of any jurisdiction. Specifically, the D.C. Circuit held that if the defendant is the foreign state, the expropriation exception may only be invoked if the property is physically present in the United States (which the Rebbe’s library is not). The Supreme Court has declined to review two relatively recent cases that reached the same conclusion, it will bear watching of the plaintiffs seek further review now given a circuit split with the 9th Circuit on the issue.
The decision is, for now, another blow to claims seeking the return of cultural property held by foreign governments and institutions. After nearly a decade in which it was accepted in multiple circuit courts that any commercial activity by an instrumentality of a foreign state would be sufficient to hale the foreign state itself into court where the claims concerned rights in property taken in violation of international law, the ground has shifted. The D.C. Circuit is de facto the national standard on sovereign immunity, since most such claims are brought there (venue is always proper). The decision is at odds with the text of the FSIA and joins a recent trend of cases excusing sovereign defendants for expropriation. The Supreme Court (unlikely) or Congress should reverse course.
It must also be said that the fact that it is Russia that is the beneficiary of this reasoning is all the more galling. After losing the initial rounds of jurisdictional arguments over a decade ago, Russia announced an embargo on the loan of any cultural property into the United States—even property immune from seizure under federal law (Russia apparently cannot conceive of an independent judiciary that respects the rule of law). That embargo, that cultural property hostage-taking, is now in its thirteenth year. This is to say nothing, of course, of Russia’s crimes against cultural property since invading Crimea in 2014 and Ukraine in 2022, crimes which themselves pale in comparison to the suffering of the Ukrainians. Bizarrely enough, the D.C. Circuit went out of its way to absolve Russia of bad faith tactics, going so far as to recite a “hypothetical” example of gamesmanship which, far from the contrast the court suggests, is in fact exactly what Russia did.
The Case
In 2005, Chabad sued the defendants in Washington, DC seeking the return of the collection of books and other objects of interest to the Chabad-Lubavitch movement and teachings (the Library). By the early twentieth century, the Library included thousands of religious books, manuscripts and other documents. One portion of the Library was seized in 1917 by the emerging Bolshevik government from a warehouse in which the Fifth Rebbe had placed it for safekeeping in the face of the advancing German army during the First World War as the Tsarist regime collapsed. The Russian State Library (where those objects ended up after the dust settled) rejected the Fifth, and then the Sixth Rebbe’s pleas for their return in the 1920s. Over the next twenty years, the Sixth Rebbe moved from Russian/Soviet territory to Latvia to Poland, from which he fled upon the invasion by Germany in 1939. The remaining portions of the Library still in his possession were left behind, collected by the German army, and ultimately captured by the Soviet Union at the end of the war. That portion is currently held by the Russian State Military Archive. The Sixth Rebbe survived the war and settled in the United States, where he and his followers have been attempting to retrieve the Library ever since. They, and the then-Seventh Rebbe (who died in 1994 without an official successor) achieved initial success in 1991-92 as the Soviet Union collapsed, but political forces in the nascent Russian Federation apparently thwarted their early judicial victories.
To sue a foreign sovereign defendant, the claims must satisfy one of the exceptions to sovereign immunity set forth in the FSIA. The Chabad plaintiffs invoked the expropriation exception, which abrogates sovereign immunity for claims “in which rights in property taken in violation of international law are in issue” and there is a commercial activity sufficient to meet the statute’s standards. The D.C. Circuit held in 2010 that the Library was taken in violation of international law (particularly with respect to the initial victory in Russian court in 1991 that was overruled by executive action). Rather than defend the case back in the trial court, however, the Russian defendants filed a “Statement with Respect to Further Participation.” Default judgment followed. In January 2013, the court (over the objections of the United States) fined the Russian Federation, the Russian Ministry of Culture and Mass Communications, the Russian State Library, and the Russian State Military Archive $50,000 per day for their failure to comply with the original judgment. That was reduced to an accumulating judgment, which has accrued to more than $175 million. The plaintiffs sought to attach property to satisfy the judgment, property they contended was owned by entities controlled by the Russian Federation. The appeal ensued.
The Commercial Nexus Test
The expropriation exception requires a commercial nexus, and it sets forth two scenarios that each satisfy that mandate. There is a commercial nexus when the foreign state uses the subject property (or property exchanged for it) in the United States in connection with a commercial activity. There is also a commercial nexus when a state’s agency or instrumentality owns or operates the property (or property exchanged for it) and that agency or instrumentality is engaged in a commercial activity in the United States (not necessarily involving the subject property). The question arises, then, what if the property is not physically present, an agency or instrumentality is engaged in commercial activity, and the plaintiff seeks to sue the state itself?
This question arose in the lower courts leading up to the Altmann decision in the Supreme Court, a decision that did not address the commercial nexus test. In Altmann, the 9th Circuit held that the lawsuit against Austria could proceed because the Belvedere (the museum holding the painting) met the lower commercial activity requirement, sort of like tagging a parent company with jurisdiction by virtue of its subsidiary activity. See Altmann v. Republic of Austria, 317 F.3d 954, 969 (9th Cir. 2002). The 9th Circuit has consistently upheld this view. See Cassirer v. Kingdom of Spain, 616 F.3d 1019, 1038 (9th Cir. 2010), cert. denied June 27, 2011 (“Congress meant for jurisdiction to exist over claims against a foreign state whenever property that its instrumentality ends up claiming to own had been taken in violation of international law, so long as the instrumentality engages in a commercial activity in the United States.”); see also Sukyas v. Romania, 765 Fed. App’x 179, 180 (9th Cir. 2019) (in a case against Romania and RADEF România Film, the commercial activities of RADEF România Film brought the “claims within the second commercial-activity nexus clause,” and costs were taxed against both defendants).
Ironically, an earlier appeal in the Chabad case reached the same conclusion. Agudas Chasidei Chabad v. Russian Fed’n, 528 F.3d 934 (D.C. Cir. 2008) (Chabad I). In Chabad I, the D.C. Circuit analyzed principally the second scenario of the commercial nexus test as applied to instrumentalities of the Russian Federation, rejected Russia’s argument for a more demanding test for instrumentalities, and then also “reverse[d]” the district court’s “finding of Russia's immunity” in a case (like this) where the property had never crossed the borders of the foreign state but the instrumentalities in possession of it are engaged in commercial activity here in the United States. Id. at 947-48, 955.
In 2017, however, the D.C. Circuit reversed course in one of the appeals in the claims by the Herzog collection heirs against Hungary and its museums. See de Csepel v. Republic of Hung., 859 F.3d 1094, 1105 (D.C. Cir. 2017), cert. denied, 139 S. Ct. 784 (2019). In de Csepel, the D.C. Circuit dismissed the state of Hungary itself, concluding that the earlier decision in Chabad was not actually the holding of the case, and that Simon v. Republic of Hungary applied. See Simon v. Republic of Hungary, 812 F.3d 127, 146 (D.C. Cir. 2016), rev’d in part on other grounds sub nom. F.R.G. v. Philipp, 141 S.Ct. 703 (2021) (reversed as to the scope of the takings clause). See also Schubarth v. Fed. Republic of Germany, 891 F.3d 392, 399– 401 (D.C. Cir. 2018). Circuit Judge Randolph dissented from the interpretation of the commercial nexus test in de Csepel, writing:
Although § 1605(a)(3) provides that a foreign state shall not be immune from suit, the majority crosses out the ‘not’ and holds that the foreign state shall be immune from suit when its agencies or instrumentalities owning or operating the expropriated property engage in commercial activity in the United States.
de Csepel, 859 F.3d at 1111. The de Csepel plaintiffs petitioned the D.C. Circuit for hearing, which was denied. De Csepel v. Republic of Hung., No. 16-7042, 2017 U.S. App. LEXIS 19382 (D.C. Cir. Oct. 4, 2017). Now-Justice Brett Kavanaugh and Judge Griffith filed notices that they would have granted rehearing en banc. Id. The Philipp plaintiffs also conditionally cross-petitioned the Supreme Court for certiorari on the commercial next question (the property at issue (the so-called Welfenschatz) was in defendant Federal Republic of Germany, but the instrumentality Stiftung Preussischer Kulturbesitz satisfied the lower threshold of commercial activity), which was likewise denied. Philipp v. Fed. Republic of Germany, No. 19-520, 141 S.Ct. 188 (Jul. 2, 2020).
Against all this, the D.C. Circuit in Chabad 2024 hewed closely to Simon, de Csepel, and Philipp:
De Csepel’s authoritative reading of Chabad I is now itself binding circuit law, which the district court (and our court) must follow unless we reconsider the issue en banc. Lest any doubt remain about the law in this circuit, we reiterate once again: there is no jurisdiction over a claim against a foreign state under the FSIA’s expropriation exception unless the expropriated property is located in the United States.
Chabad 2024, 110 F.4th at 252. That is not terribly surprising, if disappointing. The worst was yet to come:
Finally, there is no indication of gamesmanship []. It would be a different case if, for instance, the Russian Federation had appeared and contested jurisdiction, determined that its arguments were unlikely to succeed, withdrawn and defaulted, and then strategically reappeared in an attempt to challenge jurisdiction a second time. Or one could imagine a scenario in which a foreign state relied on its agencies or instrumentalities for the specific purpose of raising or re-raising jurisdictional arguments that otherwise would be precluded.
Id. at 255 (emphasis added).
This statement is extraordinary. That gamesmanship--contesting jurisdiction, losing, then disappearing for a decade until its assets were at risk of of attachment--is exactly what Russian did in this very case. Not only that, Russia’s wider response was conclusive evidence of gamesmanship: the cultural property embargo that continues to this day.
The Chabad plaintiffs can petition the D.C. Circuit en banc to reverse Simon and de Csepel, or they can petition the Supreme Court as the Philipp and de Csepel parties tried.
