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David L. De Csepel, et al v. Republic of Hungary

September 1, 2011

DAVID L. DE CSEPEL, ET AL., PLAINTIFFS,
v.
REPUBLIC OF HUNGARY, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Ellen Segal Huvelle United States District Judge

MEMORANDUM OPINION

Plaintiffs David L. de Csepel, Angela Maria Herzog, and Julia Alice Herzog are descendants of Baron Mor Lipot Herzog, a Jewish Hungarian collector of art who amassed a collection of more than two thousand paintings, sculptures, and other artwork prior to his death in 1934. Plaintiffs allege that artwork comprising the Herzog Collection was seized by Hungary and Nazi Germany as part of a campaign of genocide against Hungarian Jews during World War II, and that at least forty works of art from the Herzog Collection are currently in the wrongful possession of Museum of Fine Arts (Szempműveszeti Muzeum) in Budapest, the Hungarian National Gallery, and the Museum of Applied Arts in Budapest (together, the "Museums"), as well as the Budapest University of Technology and Economics (the "University"), each of which is an agency or instrumentality of the Republic of Hungary (collectively, "defendants").

Plaintiffs have brought this action alleging that defendants breached certain bailment agreements entered into after World War II when they refused to return pieces of the Herzog Collection upon demand in 2008. Plaintiffs seek the return of these portions of the Herzog Collection, an accounting of all works of the Herzog Collection currently in defendants' possession, declaratory relief, and restitution based on unjust enrichment. Defendants have moved to dismiss pursuant to Rule 12(b)(1) for lack of jurisdiction under the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. §§ 1602 et seq., under the doctrine of forum non conveniens, and based on the 1973 Agreement between Hungary and the United States ("1973 Agreement"). In addition, defendants have moved to dismiss pursuant to Rule 12(b)(6) on the grounds that plaintiffs' claims are barred by the applicable statute of limitations, the act of state doctrine, the political question doctrine, and the doctrine of international comity. For the following reasons, defendants' motion is granted in part and denied in part.

BACKGROUND

The following facts are drawn from the allegations in the Complaint, which the Court accepts as true for purposes of evaluating a motion to dismiss, as well as the affidavits and other evidence presented by the parties on the issue of jurisdiction. Phillips v. Fulwood, 616 F.3d 577, 581 (D.C. Cir. 2010) (citing Erickson v. Pardus, 551 U.S. 89, 94 (2007)); Settles v. U.S. Parole Comm'n, 429 F.3d 1098, 1107 (D.C. Cir. 2005) (court may consider facts beyond the complaint when ruling on a Rule 12(b)(1) motion).*fn1

I. THE HERZOG COLLECTION

Baron Mor Lipot Herzog, a well-known Jewish Hungarian art collector, amassed a collection of more than two thousand paintings, sculptures and other artworks (the "Herzog Collection"). (Compl. ¶¶ 1, 38.) After Baron Herzog's death in 1934, and the death of his wife in 1940, the Herzog Collection was divided among their three children-Erzsebet (Elizabeth) Weiss de Csepel, Istvan (Stephen) Herzog and Andras (Andrew) Herzog. (Compl. ¶ 39.)

The artworks comprising the Herzog Collection were among the valuable art and other objects looted and seized by Hungary, an ally of Nazi Germany during World War II. (Compl. ¶ 1.) Defendants are currently in possession of at least forty works of art from the Herzog Collection. (Compl. ¶ 2; Opp. at 45.)

II. THE PARTIES

Plaintiff David L. de Csepel is a United States citizen who resides in Los Angeles, California. (Compl. ¶ 6.) He is the grandson of the late Elizabeth Weiss de Csepel, who became a U.S. citizen in 1952 and died in the United States in 1992. (Compl. ¶¶ 6, 63, 78.) Plaintiff de Csepel represents all of the heirs of Elizabeth Weiss de Csepel in this action, as well as the heirs of her brother, Istv n Herzog, who died in Hungary in 1966. (Compl. ¶¶ 40, 42.)

Plaintiffs Angela Maria Herzog and Julia Alice Herzog are Italian citizens who reside in Rome, Italy, and are the daughters of the late Andras Herzog. (Compl. ¶¶ 7-8.) Plaintiffs Angela Herzog and Julia Herzog represent the heirs of Andras Herzog in this action and, together with Plaintiff de Csepel, they also represent the heirs of their uncle, Istvan Herzog.

Defendant Republic of Hungary is a foreign state as defined in 28 U.S.C. § 1603(a). (Compl. ¶ 9.) Defendants Museum of Fine Arts, Hungarian National Gallery, Museum of Applied Arts and Budapest University of Technology and Economics are all agencies or instrumentalities of Hungary, as defined in 28 U.S.C. § 1603(b). (Compl. ¶¶ 11-14.)

III. HUNGARY ALLIES WITH NAZI GERMANY AND BEGINS A CAMPAIGN OF GENOCIDE AGAINST HUNGARIAN JEWS On November 20, 1940, Hungary agreed to the Tripartite Pact signed by Germany, Italy, and Japan on September 27, 1940, and thereby joined the Axis Powers. (Compl. ¶ 46.)

During World War II, Hungary enacted various laws, modeled on Germany's Nuremberg laws, eliminating or severely restricting the public, economic and social rights of Jews. Among other things, these new laws defined "Jew" in racial terms, prohibited sexual relations or marriage between Jews and non-Jews, and excluded Jews from full participation in various professions. (Compl. ¶¶ 44-45, 47; Opp. Lattmann Decl.) ¶¶ 6-16.)

During 1941 and 1942, thousands of Jews were deported by the Hungarian government to territories under German control, where they were brutally mistreated and massacred. (Compl. ¶ 49.) The Hungarian military and gendarme units also murdered hundreds of Jews and forced Jewish men into forced labor without providing them with adequate shelter, food, or medical care. (Compl. ¶¶ 49-50.) By March 1944, at least 27,000 Hungarian Jewish forced laborers- including Andr s Herzog, the father of Plaintiffs Julia Herzog and Angela Herzog-had perished under these brutal conditions. (Compl. ¶ 50.)

In March 1944, Adolf Hitler sent German troops into Hungary to ensure Hungary's loyalty and to assist the Hungarian government in resisting the advancing Russian army. (Compl. ¶ 51.) Between May and July 1944, Hungarian authorities, working in collaboration with SS commander Adolf Eichmann, deported over 430,000 Jews-more than fifty percent of the entire pre-war Hungarian Jewish population. (Compl. ¶ 52.) By the time the Russians had overrun Hungary in early 1945, more than 500,000 of Hungary's pre-War population of 825,000 Jews were dead. (Id.)

IV. THE LOOTING OF THE HERZOG COLLECTION

During the Holocaust, Hungarian Jews-including the Herzogs-were required to register their art treasures. (Compl. ¶¶ 56-57.) While the Herzog family attempted to protect their art by hiding the bulk of it in the cellar of one of the family's factories at Budafok, the Hungarian government and their Nazi collaborators discovered the hiding place, and the chests containing the art were opened in the presence of Denes Csanky, the director of the Museum of Fine Arts. (Compl. ¶¶ 58-59.) The art was taken to Adolf Eichmann's headquarters at the Majestic Hotel in Budapest for his inspection. (Compl. ¶ 60.) Eichmann selected many of the best pieces to display as trophies and then shipped them off to greater Germany. (Id.) The remainder of the collection was taken over by the Museum of Fine Arts. (Id.) Other pieces from the Herzog Collection were seized by the Hungarian government from homes, safe deposit vaults, and other Herzog properties. (Compl. ¶ 61.)

V. THE HERZOG FAMILY ESCAPES FROM HUNGARY

In May 1944, Elizabeth and her children, together with other members of the Herzog and Weiss de Csepel families, fled to Portugal. Elizabeth immigrated to the United States in 1946, and became a U.S. citizen on June 23, 1952. (Compl. ¶ 63.) Plaintiffs Angela and Julia Herzog-the daughters of Andr s Herzog-escaped to Argentina and eventually settled in Italy. (Compl. ¶ 64.) Istvan Herzog and some members of his family remained in Hungary, while others escaped and settled in Switzerland. (Compl. ¶ 64.)

VI. THE 1947 PEACE TREATY

After World War II, Hungary and the Allies entered into a Peace Treaty in 1947. (See Opp. Benenati Decl. Ex. A.) Article 27 of the Peace Treaty provided:

Hungary undertakes that in all cases where the property, legal rights or interests in Hungary of persons under Hungarian jurisdiction have, since September 1, 1939, been the subject of measures of sequestration, confiscation or control on account of the racial origin or religion of such persons, the said property, legal rights and interests shall be restored together with their accessories or, if restoration is impossible, that fair compensation shall be made therefor[e]. (Id. art. 27(1).)

VII. THE POST-WAR FATE OF THE HERZOG COLLECTION

Plaintiffs assert that while the Hungarian government purported to "return" a handful of items from the Herzog Collection to the Herzog Heirs in the years immediately following the war, those "returns" were largely on paper or short-lived, and the vast majority of the Herzog Collection remained in the possession of Hungary, the Museums and the University. (Compl. ¶¶ 70-71.)

Even as to those pieces of the Herzog Collection that were physically returned to the Herzog Heirs, Hungarian government officials allegedly harassed and threatened the Heirs to whom they were returned, including the lodging of false smuggling allegations, until they agreed to re-deposit the works with the museums according to new bailment agreements so that they could be displayed and exhibited by defendants. (Compl. ¶¶ 72-73.) In 1948, the Museum of Fine Arts exhibited certain pieces of the Herzog Collection with labels expressly acknowledging that they were "on deposit." (Compl. ¶ 73.)

VIII. THE UNITED STATES FOREIGN CLAIMS SETTLEMENT PROCESS-THE FIRST HUNGARIAN CLAIMS PROGRAM In 1947, a leftist bloc gained control of the Hungarian government, eventually leading to

the creation of the Hungarian People's Republic in 1949. (Country Profile: Hungary, U.S. Dep't of State (May 19, 2011), http://www.state.gov/r/pa/ei/bgn/26566.htm.) All private industrial firms with more than ten employees were nationalized. (Id.) During the Communist era, Hungary did not recognize individual property rights. (Compl. ¶ 93.)

Consequently, relations between the United States and Hungary soon deteriorated. In 1951, the United States ordered the closure of all Hungarian consulates in the United States. (See Opp. Benenati Decl. Ex. R.) Pursuant to the Trading with the Enemy Act, the United States already held certain Hungarian assets blocked by Executive Order 8389, 3 C.F.R. 645 (1938-1943). (Id.) In 1955, the United States decided to use those blocked assets to compensate United States claimants and amended the International Claims Settlement Act of 1949 to authorize the Foreign Claims Settlement Commission (the "Commission") to consider claims by United States nationals against Bulgaria, Hungary, Italy, Romania and the former Soviet Union (the "First Hungarian Claims Program"). See Act of August 9, 1955, Pub. L. No. 84-285, 1955 U.S.C.C.A.N. (69 Stat. 570) 2745, 2748 (the "1955 Claims Amendment"). (See also Opp. Benenati Decl. Ex. R at 537.)

The 1955 Claims Amendment authorized the Commission to adjudicate claims of United States nationals against Hungary for Hungary's failure:

(1) to restore or pay compensation for property of United States nationals as required by Articles 26 and 27 of the Treaty of Peace;

(2) to pay effective compensation for the nationalization, compulsory liquidation or other taking, prior to August 9, 1955, of property of United States nationals; and

(3) to meet obligations expressed in currency of the United States arising out of contractual or other rights acquired by United States nationals prior to September 1, 1939, and which became payable prior to September 15, 1947. (Opp. Benenati Decl. Ex. R at 537.)

As of the effective date of the 1955 Claims Amendment, Elizabeth Weiss de Csepel- who had become a United States citizen on June 23, 1952-was the only United States citizen with an ownership interest in any portion of the Herzog Collection. (Compl. ¶ 63.)

After fleeing Hungary, the Herzog Heirs assert they were unable to get accurate information as to what had become of their property. (Compl. ¶ 75.) Elizabeth Weiss de Csepel believed at the time that certain artworks from the Herzog Collection that belonged to her had likely been nationalized by Hungary in 1954 as a result of Hungarian Museum Decree No. 13 of 1954 (the "1954 Museum Decree") (B nki Decl., Ex. C).

Section 9(1) of the 1954 Museum Decree provided, in relevant part, that:

At the entering into force of the Legislative Decree hereunder, those museum pieces in the safekeeping of the museum whose owner is unknown, or has left the country without permission, shall be placed into State ownership, pursuant to the Legislative Decree hereunder. (Mot. Banki Decl. Ex. C, p. 2 § 9(1); Opp. Lattmann Decl. ¶¶ 31-32.)

Because she and her family had fled Hungary during the Holocaust, Elizabeth Weiss de Csepel believed that Hungary would treat her as someone who "has left the country without permission" and apply the 1954 Museum Decree to her art, and she submitted an affidavit to the Commission to that effect. (Opp. at 12.) She filed a claim with the Commission for compensation for twelve pieces of the Herzog Collection which she knew to be in the possession of Defendant Museum of Fine Arts, seven of which she claimed to own outright and five of which she claimed to own jointly with her brothers, who were not United States citizens. (Id.) Her claim also included real property, which she correctly believed had been nationalized pursuant to other decrees not relevant here. (Id.) Hungary was not involved in any way in the Commission process and had no input in the decisions made or the awards rendered by the Commission. (Id.)

On April 13, 1959, the Commission awarded $210,000 to Elizabeth Weiss de Csepel for both the real estate and the artworks. The Commission's Proposed, Final, and Amended Final decisions expressly reserved Elizabeth's rights against the Hungarian government to recover the balance of her claim. (See Mot. Ramirez Decl., Exs. A, C, & D.)

IX. THE 1973 AGREEMENT

In 1965, the United States began negotiations with Hungary in order to obtain compensation for the balance of the claims that had resulted in partial awards through the First Hungarian Claims Program. (See Opp. Benenati Decl. Ex. R at 539.) At the meeting between United States and Hungarian officials on June 17, 1966, George Spangler, the United States chief negotiator, raised the issue of certain "nationalized" art collections belonging to former Hungarian citizens who had become naturalized citizens of the United States after the seizure of the artworks. Karolyi Reti, Hungary's chief negotiator, responded that "[a]rt collections had never been nationalized in Hungary." (See Opp. Benenati Decl. Ex. E at 237.) Reti also stated that the United States had no standing to press claims on behalf of claimants who were not United States nationals at the time their paintings came into the custody of the Museum of Fine Arts, and the United States negotiators agreed. (Id. at 238.)

On March 6, 1973, the United States and Hungary entered into an executive agreement. See Agreement Between the Government of the United States of America and the Government of the Hungarian People's Republic Regarding the Settlement of Claims, March 6, 1973, 24 U.S.T. 522 (the "1973 Agreement"). The 1973 Agreement provided that, in exchange for the lump sum payment of $18,900,000 by Hungary, there would be a "full and final settlement and . . . discharge of all claims of the Government and nationals of the United States against the Government and nationals of the Hungarian People's Republic which are described in this Agreement." Id., art. 1, § 1. The 1973 Agreement addressed four categories of claims:

(1) property, rights and interests affected by Hungarian measures of nationalization, compulsory liquidation, expropriation or other taking on or before the date of this Agreement, excepting real property owned by the Government of the United States;

(2) obligations expressed in currency of the United States arising out of contractual or other rights acquired by nationals of the United States prior to September 1, 1939, and ...


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