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GARB v. REPUBLIC OF POLAND

June 24, 2002

THEO GARB, ET AL. PLAINTIFFS
V.
REPUBLIC OF POLAND AND MINISTRY OF TREASURY OF POLAND (MINISTERTWO SKARBU PANSTWA), DEFENDANTS.



The opinion of the court was delivered by: Edward R. Korman, United States District Judge

MEMORANDUM & ORDER

The complaint in this case arises out of the near total annihilation of the Jews of Poland by the Nazis during World War II and the subsequent horrendous treatment of the small number who survived. Prior to the War, Poland had the largest Jewish population in all of Europe — more than three million Jews. The overwhelming majority of these Jews died during the War or were murdered by the Nazis and their Polish collaborators. A small number of Polish Jews fled to Palestine. The majority of those who were fortunate to escape the horrors of the Holocaust moved eastward and sought refuge in the Soviet Union. After the War, on July 6, 1945, the Soviet Union and Poland entered into a repatriation agreement whereby 230,000 of these Polish Jews returned to Poland.

Many of the surviving Jews were in "horrible condition[;] . . . they [were] exhausted, starved and half-naked, or in rags . . . [and] sick." (Stein Aff. 6 9.) They arrived to find Poland "in a state of chaos and ruin." (Id. 6 5.) Much of their "property had been adversely possessed for as long as five years by the time of liberation and repatriation." (Pls.' Mem. at 5.) Tensions over that property sparked a renewal of violence against the Jews. During the first two years after the war, more than 1,000 Jews were murdered. (Stein Aff. 6 10.)

Post-War violence against the Jews culminated in a riot which occurred on July 4, 1946 in Kielce, Poland. (Am. Compl. 6 93.) A local boy's accusation of kidnaping by a mentally disabled Jew ignited simmering tensions between Jewish and non-Jewish residents of the town. (Stein Aff. 66 15-16.) A crowd gathered around a building that housed nearly 200 Jews. According to plaintiffs' affidavit, Polish army officers disarmed the Jewish residents of the building and forced them into the hands of the mob, whereupon 41 Jews were killed. (Id. 6 17.) Some historians believe that the riot was planned and implemented by Polish security officials and communist party higher-ups. (Id. 66 22-34.) Although nine individuals alleged to have participated in the Kielce riot were tried and executed, the army officers and security officials allegedly responsible for the riot were arrested, but never tried. (Id. 66 20, 22.)

Violence against Jews did not end after Kielce. Thirty-three other Jews were murdered that month. (Am. Compl. 6 93.) Jewish property was looted. (Id.) The result of this post-war violence was that the vast majority of the few remaining Jews in Poland chose to emigrate by 1946, leaving behind their property and possessions. (Id. 6 95.) Anti-Semitic violence continued in Poland even after this mass immediate post-war emigration. In 1956, there were more than 40 incidents where Jews were beaten or abused. (Stein Aff. 6 39.) Plaintiffs allege that the local authorities did not react appropriately to these incidents and cite statements concerning the anti-Semitism of Communist party officials. (Id.) Plaintiffs also allege that in 1967 some 9,000 Jews were purged from the Communist party, the Foreign Ministry, the armed forces and the defense establishment in response to concerns over the development of a "Fifth Column" anti-Communist movement. (Id. 6 47; Am. Compl. 6 96.)

It is undisputed that, after the post-Kielce emigration, Poland nationalized land in 1946-47. Defendants maintain, however, that these nationalization laws affected all Poles and did not target or discriminate against Polish Jews specifically. (Defs.' Reply Mem. at 2; see Korzycka-Iwanow Aff. 66 9-10 (outlining six nationalization statutes enacted by the then-governing communist regime as a "means of production and central planning and management of the national economy")). According to defendants, laws were enacted relating to the following categories of property: (1) "deserted properties;" (2) "post-German" properties; and (3) "abandoned properties." (Korzycka-Iwanow Aff. 66 4-5.) The laws provided that "deserted property" — real property that was confiscated by the Nazis or that was the subject of forced sales — was to be returned to its owners, or their legal successors, if a claim application was received by December 31, 1948. (Id. 6 5.) Conversely, property characterized as "abandoned" — once belonging to the Third Reich or German citizens — became the property of the Treasury. (Id.) Plaintiffs allege that the true owners of much of this "abandoned property" were Jews and that this category was established to legitimize the taking of that property by defendants. (Am. Compl. 6 102.)

On July 16, 1960, an Agreement was signed by Poland whereby it agreed to pay $40 million over a period of twenty years in full settlement of claims by United States nationals arising from the nationalization of property, the appropriation or loss of the use of property by the Polish government, and debts owed by nationalized enterprises or upon property which has been nationalized. See generally Agreement with the Government of the Polish People's Republic Regarding the Claims of Nationals of the United States, July 16, 1960, 11 U.S.T. & O.I.A., T.I.A.S. No. 4545 (1960) ("1960 Treaty"). Claims for war damage and property taken by governments other than Poland were not covered under the agreement. (Id.) The Agreement was also restricted to persons who were United States citizens on the date the property was taken by the Polish government. (Id.)

Plaintiffs allege that officials of the Polish army and security services incited, participated in, and purposely failed to prevent the Kielce riot and the subsequent anti-Jewish violence — actions "motivated not simply by abstract anti-Semitism, but by a specific desire to prevent Polish Jews from reclaiming their property" after World War II. (Pls.' Mem. at 7.) Plaintiffs also cite a book alleging that the American government had some "official and semi-official indications provided by the Warsaw government that it is encouraging the migration of the Jews of [a major] part of its Jewish population." (Stein Aff. 6 12, citing George Lenczowski, The Middle East in World Affairs 330 (1980)). According to plaintiffs, "[a]t all times relevant to the events described herein, ministers, officers, and directors of Poland and [the Ministry of the Treasury] knew, or were in the possession of such information that they should have known, that they were part of an unlawful scheme that (i) resulted in depriving the Jewish Holocaust victims and their heirs of their Properties, and (ii) provided Poland and [the Ministry] with enormous profits from the use and enjoyment of such Properties." (Am. Compl. 6 108.)

Plaintiffs and class members are "Jewish persons and entities (and their heirs and successors) who owned real property and improvements thereon in Poland during the period September 1, 1939 to May 30, 1945." (Am. Compl. 66 2, 68.) Plaintiffs allege five claims. First, plaintiffs contend that defendants violated customary international law by creating, participating in, and/or failing to prevent the permanent dispossession of Polish Jews' property in the aftermath of the Holocaust and that defendants then profited commercially from their management of the properties. (Am. Compl. 66 111-15.) Second, plaintiffs also accuse defendants of wrongfully converting plaintiffs' and other class members' properties for their own use and benefit. (Am. Compl. 66 116-18.) Third, plaintiffs seek an order declaring defendants to be constructive trustees of the property seized and requiring them to turn over the income and profits of that property to plaintiffs and other class members. (Id. 66 119-21.) Fourth, plaintiffs demand an accounting of the amount and disposition of the property seized and of the profits derived therefrom. (Id. 66 122-24.) Fifth, the sub-class of plaintiffs whose property is currently held by a defendant, or any other Polish governmental body, seeks restitution. (Id. 66 125-28.)

DISCUSSION

A. Introduction

The Republic of Poland and its Ministry of the Treasury move pursuant to Federal Rule of Civil Procedure 12(b) to dismiss this action on the ground, inter alia, of lack of subject matter jurisdiction under the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. § 1330, 1602-1611 (2001), which "provides the sole basis for obtaining jurisdiction over a foreign state in federal court." Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 439 (1989). The Act is composed of both jurisdictional provisions, 28 U.S.C. § 1330, and immunity provisions, 28 U.S.C. § 1602-1611. Section 1330(a) grants the district courts "original jurisdiction without regard to amount in controversy of any nonjury civil action against a foreign state . . . as to any claim for relief in personam with respect to which the foreign state is not entitled to immunity either under sections 1605-1607 of this title or under any applicable international agreement." § 1330(a). Conversely, § 1604 entitles foreign states to immunity from the jurisdiction of federal and state courts "except as provided in sections 1605 to 1607 of this chapter" and "[s]ubject to existing international agreements to which the United States is a party at the time of enactment of this Act." § 1604.

"Under the [FSIA], a foreign state is presumptively immune from the jurisdiction of the United States courts; unless a specified exception applies, a federal court lacks subject-matter jurisdiction over a claim against a foreign state." Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993). Once the plaintiff has produced evidence showing that one of the Act's specified exceptions applies, the burden shifts to the foreign state to establish that it is immune from the jurisdiction of the United States courts. Cargill Int'l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir. 1993). In the instant case, plaintiffs rely on two of the exceptions to immunity specified in the FSIA: the commercial activity exception, § 1605(a)(2), and the takings exception, § 1605(a)(3).

The commercial activity exception, § 1605(a)(2), provides, in pertinent part, for the exercise of jurisdiction over a cause of action against a foreign state based "upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States." § 1605(a)(2). The commercial activity exception codifies the law with respect to claims against a foreign state that was in effect since 1952. The premise underlying this exception has been articulated by the Supreme Court as follows:

Participation by foreign sovereigns in the international commercial market has increased substantially in recent years. The potential injury to private businessmen — and ultimately to international trade itself — from a system in which some of the participants in the international market are not subject to the rule of law has therefore increased correspondingly. As noted above, courts of other countries have also recently adopted the restrictive theory of sovereign immunity. Of equal importance is the fact that subjecting foreign governments to the rule of law in their commercial dealings presents a smaller risk of affronting their sovereignty than would an attempt to pass on the legality of their governmental acts. In their commercial capacities, foreign governments do not exercise powers peculiar to sovereigns. Instead, they exercise only those powers that can also be exercised by private citizens. Subjecting them in connection with such acts to the same rules of law that apply to private citizens is unlikely to touch very sharply on "national nerves."

Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 703-04 (1976) (internal citation and footnote omitted).

The takings exception, § 1605(a)(3), provides, in pertinent part, for the exercise of jurisdiction over causes of action if "rights in property taken in violation of international law are in issue" and "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." § 1605(a)(3). Prior to the enactment of the FSIA in 1976, foreign states enjoyed absolute immunity from suit in the United States for causes of action based on the taking of property. See Victory Transp. Inc. v. Comisaria General de Abastecimientos y Transportes, 336 F.2d 354, 360 (2d Cir. 1964). Section 1605(a)(3) maintains the rule of absolute immunity for the foreign state itself (except where the expropriated property is present in the United States), but effects a change in the law by subjecting "an agency or instrumentality" of a foreign state (which includes an organ of the foreign state) to suit in the United States for causes of action that otherwise meet the statutory criteria. The takings exception requires not only that the property be owned or operated by an agency or instrumentality of the foreign state, but also that the agency or instrumentality be engaged in commercial activity in the United States. The takings exception thus attempts to strike a balance between two seemingly contradictory policies — maintaining immunity for foreign states which expropriate property in violation of international law, while denying immunity to certain constituent parts of the foreign states.

The foregoing discussion requires the consideration of a threshold question presented by this case, namely, the retroactivity of the exceptions to the FSIA upon which plaintiffs rely. The operative events leading to the expropriation of plaintiffs' property occurred prior to 1952, when the defendants enjoyed immunity from suit for their commercial activities and for the expropriation of property, the latter exception continuing until the enactment of the FSIA in 1976. Because the Court of Appeals for the Second Circuit has held that the exceptions to the FSIA that changed prior law cannot be applied retroactively, Carl Marks & Co. v. Union of Soviet Socialist Republics, 841 F.2d 26, 27 (2d Cir. 1988), it is necessary to discuss the law prior to the enactment of the FSIA and the law regarding the retroactivity of the exceptions upon which plaintiffs rely. I then discuss those exceptions in addressing plaintiffs' claims that the operative act of expropriation occurred in 1957 and that, consequently, the commercial activity exception provides a basis for their cause of action.

B. The Law Prior to the FSIA

Prior to 1952, foreign states enjoyed virtually absolute immunity from the jurisdiction of United States courts. See Verlinden B.V. v. Cent. Bank of Nigeria, 461 U.S. 480, 486 (1983). The doctrine of absolute immunity originated in an era of personal sovereignty, when the assertion of jurisdiction by one sovereign over another was thought to constitute an affront to the latter's dignity and independence. As stated by Chief Justice Marshall:

One sovereign being in no respect amenable to another; and being bound by obligations of the highest character not to degrade the dignity of his nation, by placing himself or its sovereign rights within the jurisdiction of another, can be supposed to enter a foreign territory only under an express license, or in the confidence that the immunities belonging to his independent sovereign station, though not expressly stipulated, are reserved by implication, and will be extended to him.

The "implied license" theory of immunity subsequently came to be regarded as supporting the extension of immunity to foreign sovereigns even in connection with their commercial activities in the United States. See Berizzi Bros. Co. v. The Pesaro, 271 U.S. 562, 574 (1926). The Pesaro was an in rem proceeding against a merchant vessel owned and operated by the Italian government "in the service and interest of the whole Italian nation." Id. at 570. In response to an inquiry from the district court, the State Department took the position that "`government-owned merchant vessels . . . should not be regarded as entitled to the immunities accorded public vessels of war.'" The Pesaro, D.C., 277 F. 473, 479 n. 3 (S.D.N.Y. 1921) (quoting statement of Solicitor of the State Department), vacated by consent of parties.

The Supreme Court failed even to acknowledge the State Department's position, however, basing its decision instead on the "implied license" theory of immunity developed by Chief Justice Marshall in The Schooner Exchange. The Pesaro, 271 U.S. at 571-73. The Court concluded that jurisdiction was lacking over a vessel "held and used by a government . . . for the purpose of advancing the trade of its people or providing revenue for its treasury." Id. at 574.

After The Pesaro, and with the passing of the era of personal sovereignty, the Supreme Court began to view the doctrine of immunity as a matter of judicial deference to the executive branch of government. See Victory Transp. Inc. v. Comisaria General de Abastecimientos y Transportes, 336 F.2d 354, 357 (2d Cir. 1964). This shift in the basis of the doctrine first became apparent in The Navemar, 303 U.S. 68 (1938), an in rem proceeding against a merchant vessel owned by the Spanish government. Id. at 70. The issue in the case was whether the district court was bound to accept as conclusive the "suggestion" of the Spanish ambassador that the vessel was in the Spanish government's possession and control, and therefore entitled to immunity under The Pesaro. Id. Noting that the State Department had declined to recognize the Spanish government's claim of possession and control of the vessel, id. at 71, the Court stated in dictum that, "[i]f the claim is recognized and allowed by the Executive Branch of the government, it is then the duty of the courts to release the vessel upon the appropriate suggestion by the Attorney General of the United States." Id. at 74. Absent recognition of the claim by the State Department, the district court was not bound to accept as conclusive the Spanish ambassador's suggestion, and the issue of the Spanish government's possession and control of the vessel was an "appropriate subject[] for judicial inquiry upon proof of the matters alleged." Id. at 75.

Upon recognition and allowance of the claim by the State Department and certification of its action presented to the court by the Attorney General, it is the court's duty to surrender the vessel and remit the libelant to the relief obtainable through diplomatic negotiations. [Citing The Navemar and The Schooner Exchange.] This practice is founded upon the policy, recognized both by the Department of State and the courts, that our national interest will be better served in such cases if the wrongs to suitors, involving our relations with a friendly foreign power, are righted through diplomatic negotiations rather than by the compulsions of judicial proceedings.

Id. at 588-89. In Hoffman, by contrast, the State Department took no position with respect to the asserted immunity of a merchant vessel owned by the Mexican government but not in its possession or control. 324 U.S. at 31-32. The Court held that, even "[i]n the absence of recognition of the claimed immunity by the political branch of the government," the district court was bound to decide whether immunity existed "in conformity to the principles accepted by the department of the government charged with the conduct of our foreign relations." Id. at 34-35. Stated otherwise, "[i]t is . . . not for the courts to deny an immunity which our government has seen fit to allow, or to allow an immunity on new grounds which the government has not seen fit to recognize." Id. at 35. As the State Department had declined to recognize the immunity claim both in the case at bar and in The Navemar, which was factually similar, the Court concluded that the Mexican vessel was subject to the jurisdiction of the district court. Id. at 37-38.

Despite this shift in the basis of the doctrine of sovereign immunity, foreign states continued to enjoy virtually absolute immunity from suit in the United States prior to 1952, even in connection with their commercial activities. See Verlinden, 461 U.S. at 486 ("Until 1952, the State Department ordinarily requested immunity in all actions against friendly foreign sovereigns."). Indeed, where a foreign state was named as a defendant in an in personam action, it was invariably held to be immune from the jurisdiction of the district court, whether or not the State Department had made a suggestion of immunity. See Puente v. Spanish Nat'l State, 116 F.2d 43, 45 (2d Cir. 1940) (Spanish government held immune upon suggestion of Spanish ambassador); Sullivan v. State of Sao Paulo, 122 F.2d 355, 358-59 (2d Cir. 1941) (citing Puente and holding that constituent states of Brazil were immune upon suggestion of Brazilian ambassador); Piascik v. British Ministry of War Transport, 54 F. Supp. 487, 487-88 (S.D.N.Y. 1943) (citing Ex Parte Republic of Peru and holding that British Ministry of War Transport was immune upon suggestion of Secretary of State).

The commercial activity of a foreign state fell into the category of "private" acts for which immunity was denied under the restrictive theory, while expropriation fell into the category of "public" acts for which immunity was recognized. Victory Transp., 336 F.2d at 360. In Victory Transport, the Comisaria General, a branch of the Spanish Ministry of Commerce, argued, inter alia, that its purchase of wheat pursuant to the Surplus Agricultural Commodities Agreement to help feed the people of Spain constituted a public act for which it was entitled to immunity. Id. at 361. The Comisaria General had made a request to the State Department for a suggestion of immunity, to which the State Department had failed to reply. Id. at 358-59. The Second Circuit denied the Comisaria General's immunity claim, observing that only certain categories of acts, including "legislative acts, such as nationalization," qualified as the "strictly political or public acts" for which immunity was always recognized under the restrictive theory, even if, in any particular instance, the State Department failed to make a suggestion of immunity to the court. See also Am. Hawaiian Ventures, Inc. v. M.V.J. Latuharhary, 257 F. Supp. 622, 626-27 (D.N.J. 1966) (Indonesian government immune from suit for alleged expropriation of plaintiff's property).

The immunity recognized by the courts prior to the enactment of the FSIA extended to the political subdivisions of a foreign state, including its departments and ministries, and, often, to other entities that performed governmental functions. See, e.g., Oliver Am. Trading Co. v. Gov't of the United States of Mexico, 5 F.2d 659, 661 (2d Cir. 1924) (Mexican National Railways held immune). As explained by the Second Circuit in Oliver:

While the action is nominally against both the government of Mexico and the National Railways in Mexico, it is in reality a suit only against the Mexican government. For it appears that the National Railways of Mexico is "merely a name" for a system of railroads in the possession of the Mexican government, and has been controlled and operated by Mexico since 1914 for national purposes, just as it operates the Post Office, the Customs Service, or any other branch of the national government.

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