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DAYTON v. CZECHOSLOVAK SOCIALIST REPUBLIC

December 19, 1986

Paul Dayton, Plaintiff,
v.
The Czechoslovak Socialist Republic, et al., Defendants; Joseph E. Stiassni, et al., Plaintiffs, v. The Czechoslovak Socialist Republic, et al., Defendants


Louis F. Oberdorfer, District Judge.


The opinion of the court was delivered by: OBERDORFER

Louis F. Oberdorfer, District Judge

 I.

 These cases involve claims for compensation arising from the nationalization of the plaintiffs' textile production plants by the government of Czechoslovakia. The plaintiffs are members of a group called the "Benes" claimants. Their property was nationalized on October 25, 1945, by the regime of President Edward Benes who promised them compensation. Czechoslovak Nationalization Decree No. 100/45 Sb. Plaintiff Dayton became a citizen of the United States on July 25, 1946; the predecessors of the Stiassni plaintiffs became citizens on December 14, 1945 and January 21, 1946. On February 28, 1948, the Communists came to power in Czechoslovakia and refused to honor the promise of compensation extended by the Benes government.

 In 1961 and 1962, the plaintiffs sought compensation for their losses under Title IV of the International Claims Settlement Act of 1949, 22 U.S.C. § 1642. That Act authorized the Foreign Claims Settlement Commission of the United States ("the Commission") to compensate U.S. nationals whose Czechoslovakian property was taken by using the proceeds of the sale of certain Czechoslovakian assets seized by the United States. However, the Commission denied the claims of the plaintiffs based on their findings that the plaintiffs had not been U.S. nationals on the date their property was nationalized. *fn1" Following awards to other U.S. citizens, the U.S. government participated in extensive negotiations with the government of Czechoslovakia to obtain additional compensation. A claims agreement for $ 81,500,000 was finally reached between the Czechoslovakian and United States governments in late 1981. This agreement excluded any claimants who had not been United States citizens on the date their property was nationalized. However, Congress expressly altered the agreement to provide that a portion of the settlement should be used to compensate the Benes claimants. See Czechoslovakian Claims Settlement Act of 1981 at § 6, Pub. L. 97-127, Dec. 29, 1981, 95 Stat. 1675, reprinted in 22 U.S.C.A. Ch. 21, Sub. Ch. IV. Pursuant to this congressional directive, the plaintiffs in these cases applied for, and received, some compensation for their losses. *fn2" The current law suits seek to recover the "unpaid balance" of their claims for compensation.

 II.

 III.

 Centrotex argues that while the complaints may have been properly forwarded to the Czechoslovakian government, they still have not been properly served on Centrotex. It is undisputed that Centrotex has received copies of the complaints. *fn3" Nonetheless, Centrotex argues that the provisions of the Foreign Sovereign Immunities Act were not complied with since translated copies of the complaints were not delivered to an agent or officer of Centrotex in the United States or forwarded to Centrotex through the Ministry of Justice of Czechoslovakia. 28 U.S.C. § 1608(b). Centrotex also argues that it recieved the complaints before they were dismissed and that the plaintiffs were obliged to re-serve the complaints after the dismissal was vacated.

 The Centrotex claim that the complaints must be re-served is without merit. However, plaintiffs offer no response to the failure to effect service through the Ministry of Justice. This failure is a basis for dismissal of the complaints. If there were not other dispositive defenses mounted here, the Court would be reluctant to rest a dismissal on such a technicality. But as developed below, there are more satisfying alternate grounds for dismissal.

 IV.

 Claims by United States citizens against instrumentalities of foreign governments are governed by the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. § 1602, which provides that such entities are immune from the jurisdiction of the United States courts unless one of the statutory exceptions applies. Plaintiffs allege that their complaints fall under § 1605(a)(3) which provides for an exception where "rights in property taken in violation of international law are in issue" if that property "is owned or operated by an agency or instrumentality of a foreign state" that is "engaged in commercial activity in the United States."

 Defendant has two arguments why plaintiffs have failed to surmount the FSIA. First, defendant points out that in order to sue a foreign instrumentality under § 1605(a)(3), the plaintiff must allege that the property was taken "in violation of international law." Defendant argues that it is not a violation of "international law" for a state to take the property of one of its own citizens. The Commission has already determined that plaintiffs were Czechoslovakian citizens on October 27, 1945, the date their property was nationalized. See supra at n. 1. Therefore, according to Centrotex, there is no possible violation of "international law." This argument, however, fails to recognize that the nationalization of the plaintiffs' property proceeded in two steps. There was no violation of international law in 1945 when the government nationalized the property of its citizens and promised to compensate them. When the government repudiated this promise in 1948, however, the plaintiffs were American citizens. This repudiation of the promise to compensate may constitute a separate "taking" of the plaintiffs' property which was in violation of "international law." This issue can not be resolved on a motion to dismiss.

 Defendant's second argument under the FSIA is more persuasive. The Act requires that the property at issue be owned by an instrumentality of a foreign state that is engaged in commercial activity in the United States. While defendant Centrotex concedes that it is an instrumentality of a foreign state that engages in commercial activity in the United States, it argues that it does not own the textile plants in question or any textile plants. Rather, an affidavit of Miroslav Otta (attached to the Defendant's Motion to Dismiss) states that Centrotex is engaged solely in the purchase and sale of textiles. According to this affidavit, Centrotex is a joint stock company whose shareholders are the National Commercial Bank, eleven "trusts" made up of individual textile production enterprises, and sixty textile and garment producing enterprises. *fn4" Otta Affidavit at para. 5. Centrotex ...


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