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Philipp v. Federal Republic of Germany

United States District Court, District of Columbia

March 31, 2017

ALAN PHILIPP, et al., Plaintiffs,



         This case centers around the June 14, 1935, sale of a collection of medieval relics known as the “Welfenschatz” by a consortium of three art dealer firms in Frankfurt (“Consortium”) to the State of Prussia through the Dresdner Bank. Plaintiffs Alan Philipp, Gerald G. Stiebel, and Jed R. Leiber, legal successors of the estates of members of the Consortium, filed suit against Defendants the Federal Republic of Germany (“Germany”) and Stiftung Preussischer Kulturbesitz (“SPK”), an instrumentality of Germany, alleging that the SPK is in wrongful possession of the Welfenschatz because the 1935 sale was coerced as part of the Nazi persecution of the Jewish sellers. Presently before the Court is Defendants' [18] Motion to Dismiss the First Amended Complaint and Incorporated Memorandum of Law, requesting that the Court dismiss all of Plaintiffs' claims on the grounds that: (1) Defendants are entitled to sovereign immunity; (2) the claims are preempted and non-justiciable because they conflict with U.S. foreign policy; and/or (3) the doctrine of forum non conveniens favors dismissal.[1]

         Upon consideration of the pleadings, [2] the relevant legal authorities, and the record as a whole, the Court GRANTS IN PART and DENIES IN PART Defendants' [18] Motion to Dismiss the First Amended Complaint for the reasons described herein. Specifically, the Court GRANTS as conceded Defendants' request that the Court dismiss the following five non-property based claims because Defendants are entitled to sovereign immunity on each claim: fraud in the inducement (Count V); breach of fiduciary duty (Count VI); breach of the covenant of good faith and fair dealing (Count VII); civil conspiracy (Count VIII); and tortious interference (Count X). The Court DENIES Defendants' request for dismissal on the remaining five claims: declaratory relief (Count I); replevin (Count II); conversion (Count III); unjust enrichment (Count IV); and bailment (Count IX).

         I. BACKGROUND

         In or around 1929, the Consortium was formed by three art dealer firms owned by German Jews in Frankfurt. The three firms, J.&S. Goldschmidt, I. Rosenbaum, and Z.M. Hackenbroch, were owned by Plaintiffs' ancestors and/or predecessors-in-interest.[3] Compl. ¶ 34. The Consortium acquired the Welfenschatz on October 5, 1929, pursuant to a written agreement with the Duke of Brunswick-Lüneberg. Id. ¶ 35. The Welfenschatz is comprised of 82 medieval reliquary and devotional objects, dating primarily from the 11th to 15th century, that were originally housed in the Braunschweiger Dom (Brunswick Cathedral) in Germany. Id. ¶¶ 30, 41. The Consortium eventually brought the Welfenschatz to the United States to offer it for sale to museums and, by 1931, sold 40 of the 82 pieces to museums and individuals in Europe and the United States, including the Cleveland Museum of Art. Id. ¶ 41. Plaintiffs' claims center around the remaining 42 objects that were acquired by the State of Prussia pursuant to a contract with the Consortium on June 14, 1935, which was facilitated through the Dresdner Bank.[4] Id. ¶ 151. Defendant SPK, an instrumentality of Germany, was created for the purpose of succeeding all of Prussia's rights in cultural property and currently is in possession of the Welfenschatz. Id. ¶ 184. The Welfenschatz currently is located at the SPK-administered Museum of Decorative Arts (“Kunstgewerbemuseum”) in Berlin.[5] Id. ¶ 26(iv).

         Plaintiffs' position is that the 1935 sale between the Consortium and the State of Prussia, a political subdivision of the German Weimar Republic and later the Third Reich, was coerced as part of the Nazi persecution of the Jewish sellers of the Welfenschatz and, as such, the Court shall briefly summarize the allegations in the complaint that Plaintiffs rely on in support of this position. Id. ¶ 22. Specifically, Plaintiffs allege the 1935 transaction was spearheaded by Nazi-leaders Hermann Goering and Adolf Hitler, who were involved in explicit correspondence to “save the Welfenschatz” for the German Reich. Id. ¶¶ 2, 9. Further, the 1935 sale resulted in a payment of 4.25 million RM, which Plaintiffs assert demonstrates the lack of an arms'-length transaction because it was barely 35% of the market value of the Welfenschatz. Id. ¶¶ 4, 12. Further, the money exchanged was never fully accessible to the Consortium because it was split and partly paid into a blocked account, and was subject to “flight taxes” that Jews had to pay in order to escape. Id. ¶¶ 4, 12. Moreover, in November of 1935, Goering presented the Welfenschatz as a personal “surprise gift” to Hitler during a ceremony. Id. ¶¶ 13, 179.

         Plaintiffs contend that during the time that the Consortium possessed the Welfenschatz, there were concerted efforts by Germany's Reichsregierung (Reich Government), the Prussian State Government and several other entities and museum officials to regain possession of the Welfenschatz starting in 1930. See generally Id. ¶¶ 37-40. After the Nazi rise to power in Germany, see generally Id. ¶¶ 44-65, Plaintiffs point to more statements regarding an interest in Germany regaining possession of the Welfenschatz. Specifically, Plaintiffs point to a letter written by the new Mayor of Frankfurt Friedrich Krebs to Hitler requesting that Hitler “create the legal and financial preconditions for the return of the [Welfenschatz].” Id. ¶ 69 (quoting Compl., Ex. 2). Plaintiffs also reference a letter from 1933 written by a Frankfurt museum director to the President of the German Association for the Preservation and Promotion of Research indicating that one member of the Consortium indicated the owners were “very willing . . . to enter into negotiations with the Reich, ” id. ¶ 77, and minutes from a 1934 meeting among several museum directors and a board member of the Dresdner Bank when the purchase of the Welfenschatz was again discussed, id. ¶ 79.

         Dresdner Bank, which was majority-owned by the German state at the time of the Nazi rise to power, served as the intermediary facilitating the 1935 transaction between the Consortium and Prussia. Id. ¶¶ 88-89. Plaintiffs cite to an investigative report from a German weekly news magazine noting that it “shows the [Dresdner] bank took part early on in Third Reich's policy of confiscating Jewish property and wealth.” Id. ¶ 90; see also Id. ¶ 132. Plaintiffs detail the history of the discussions between the Dresdner Bank and the Consortium regarding the sale price of the Welfenschatz, noting that in January 1934, the Consortium was unwilling to sell the objects for below 6.5 million RM or 6 million RM in “extreme circumstances, ” id. ¶ 92, while the Dresdner Bank indicated the sale price could not exceed 3.5 million RM, id. ¶ 93. Plaintiffs also point to a record from May 1934 indicating that the Consortium advised the Dresdner Bank that it had an offer of 7 million RM, probably from a Berlin private banker. Id. ¶ 94. Further, Plaintiffs point to a draft letter written to Hitler by the Secretary of the Prussian State Ministry and provided to the Deputy Minister of the Ministry of Science in July 1934 regarding acquisition of the Welfenschatz through Prussian treasury bonds in order to “bring the historically, artistically and national-politically valuable [Welfenschatz] to the Reich in addition to many other valuable cultural treasures, ” and specifically referencing the role of Prussian Prime Minister Goering. Id. ¶¶ 103, 111 (quoting Compl., Ex. 3). In February 1935, the Dresdner Bank Director noted that the Prussian Finance Minister asked him to handle the Welfenschatz matter. Id. ¶ 133.

         In April 1935, an owner of a Berlin art dealership who served as the messenger between the Bank and the Consortium, notified the Bank's Director that he had been “intensely preoccupied with the matter” for a year and a half and reported that the problem with acquiring the Welfenschatz was that the members of the Consortium were confident in the asking price. Id. ¶¶ 83, 137. Later that month, the Dresdner Bank Director authorized a bid of 3.7 million on behalf of its client. Id. ¶ 140. At some point, the Consortium sent word that it was willing to sell the Welfenschatz for 5 million RM. Id. ¶ 139. Plaintiffs also point to a new museum that intended to acquire the Welfenschatz and allege that “[t]he ‘authoritative entities' were . . . invited to review the plans at [the prospective buyer museum] to ensure that there was no ‘conflict, ” which resulted in the elimination of an independent interested purchaser. Id. ¶ 143.

         On May 4, 1935, the Consortium offered the Welfenschatz for a sale price of 4.35 million RM to the Dresdner Bank, id. ¶ 146, and, after receiving a response from the Dresdner Bank, submitted its final offer on May 17, 1935, id. ¶ 148. The contract was executed on June 14, 1935, selling the Welfenschatz for the price of 4.25 million RM. Id. ¶ 151. On July 18, 1935, the Welfenschatz was packed for shipping from Amsterdam, where it was housed, for delivery to Berlin, and the Dresdner Bank made the requisite payment on the following day. Id. ¶¶ 157-58. The payments were split, with 778, 125 RM paid into a blocked account with Dresdner Bank, and 3, 371, 875 RM, paid to three different bank accounts in Germany. Id. ¶¶ 159-60. Plaintiffs agreed to accept art objects in Berlin museums to satisfy some of the purchase price. Id. ¶ 159. However, the objects were not selected by art dealers, as the parties had agreed to, but rather by museum officials. Id. The Consortium also was required to pay a 100, 000 RM commission to the Berlin art dealer who served as the messenger between the Bank and the Consortium. Id. The Consortium used the proceeds from the sale to pay back investors who financed the 1929 purchase of the Welfenschatz. Id. ¶ 161.

         Plaintiffs raised their claims related to the Welfenschatz before the German Advisory Commission for the Return of Cultural Property Seized as a Result of Nazi Persecution, Especially Jewish Property (“Advisory Commission”) which was established by Germany in 2003 to address Nazi-looted art claims in accordance with the Washington Conference on Holocaust Era-Assets' Principles on Nazi-Confiscated Art. Id. ¶¶ 15, 196-98, 205. After hearing testimony from five experts presented by Plaintiffs, the Advisory Commission issued a non-binding recommendation that the 1935 sale at issue was not a coerced transaction and, as such, the Advisory Commission did not recommend the return of the Welfenschatz to Plaintiffs. Id. ¶¶ 224, 227-28.

         Plaintiffs now bring the following ten claims related to the 1935 sale of Welfenschatz, which Plaintiffs' assert was made under duress, against Germany and the SPK: declaratory relief (Count I); replevin (Count II); conversion (Count III); unjust enrichment (Count IV); fraud in the inducement (Count V); breach of fiduciary duty (Count VI); breach of the covenant of good faith and fair dealing (Count VII); civil conspiracy (Count VIII); bailment (Count IX); and tortious interference (Count X). Defendants seek dismissal of each of the claims on the grounds that: (1) Defendants are entitled to sovereign immunity on each Plaintiffs' claims; (2) Plaintiffs' claims are preempted and non-justiciable because they conflict with U.S. foreign policy; and (3) the doctrine of forum non conveniens requires that Plaintiffs' claims be resolved in Germany, rather than in this Court.


         A court must dismiss a case when it lacks subject matter jurisdiction pursuant to Rule 12(b)(1). In so doing, the Court may “consider the complaint supplemented by undisputed facts evidenced in the record, or the complaint supplemented by undisputed facts plus the court's resolution of disputed facts.” Coal. for Underground Expansion v. Mineta, 333 F.3d 193, 198 (D.C. Cir. 2003) (citations omitted). “At the motion to dismiss stage, counseled complaints, as well as pro se complaints, are to be construed with sufficient liberality to afford all possible inferences favorable to the pleader on allegations of fact.” Settles v. U.S. Parole Comm'n, 429 F.3d 1098, 1106 (D.C. Cir. 2005). In spite of the favorable inferences that a plaintiff receives on a motion to dismiss, it remains the plaintiff's burden to prove subject matter jurisdiction by a preponderance of the evidence. Am. Farm Bureau v. Envtl. Prot. Agency, 121 F.Supp.2d 84, 90 (D.D.C. 2000). Furthermore, a court need not accept inferences drawn by the plaintiff if those inferences are not supported by the facts alleged in the complaint. Odhiambo v. Republic of Kenya, 930 F.Supp.2d 17, 22-23 (D.D.C. 2013), aff'd 764 F.3d 31 (D.C. Cir. 2014) (citing Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002)).


         A. Sovereign Immunity

         Under the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. §§ 1602-1611, “a foreign state is presumptively immune from the jurisdiction of United States courts, ” and “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); see also 28 U.S.C. §§ 1604-1605. The FSIA defines the term “foreign state” to include a state's political subdivisions, agencies, and instrumentalities. 28 U.S.C. § 1603(a). The FSIA provides “the sole basis for obtaining jurisdiction over a foreign state in the courts of this country.” Nelson, 507 U.S. at 355 (quoting Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 443 (1989) (internal quotation marks omitted)). Because “subject matter jurisdiction in any such action depends on the existence of one of the specified exceptions . . . [a]t the threshold of every action in a district court against a foreign state . . . the court must satisfy itself that one of the exceptions applies.” Verlinden B.V. v. Cent. Bank of Nigeria, 461 U.S. 480, 493-94 (1983). “In other words, U.S. courts have no power to hear a case brought against a foreign sovereign unless one of the exceptions applies.” Diag Human S.E. v. Czech Republic-Ministry of Health, 64 F.Supp.3d 22, 30 (D.D.C. 2014), rev'd on other grounds 824 F.3d 131 (D.C. Cir. 2016). Plaintiffs assert that this Court has subject matter jurisdiction over each of their claims against Germany and its instrumentality, the SPK, under FSIA's expropriation exception, 28 U.S.C. § 1605(a)(3).

         The FSIA's expropriation exception to foreign sovereign immunity allows a party to proceed with a claim:

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). As such, in order to satisfy the expropriation exception, a claim must satisfy three requirements: “(i) the claim must be one in which ‘rights in property' are ‘in issue'; (ii) the property in question must have been ‘taken in violation of international law'; and (iii) one of two commercial-activity nexuses with the United States must be satisfied.” Simon v. Republic of Hung., 812 F.3d 127, 140 (D.C. Cir. 2016).

         The U.S. Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) has clarified that for the purposes of the analysis under this exception, the district court must examine the relationship between the jurisdictional question and the merits determination. See Id. at 140-41. Specifically, the D.C. Circuit recognized situations in which a plaintiff raises a basic expropriation claim, arguing that his or her property has been taken without just compensation in violation of international law. Id. In such instances, the merits of the claim directly mirror the jurisdictional standard, i.e., a determination as to whether the property was taken in violation of international law. Id. When there is a complete overlap between the inquiries, “the plaintiff need only show that its claim is ‘non-frivolous' at the jurisdictional stage, and then must definitively prove its claim in order to prevail at the merits stage.” Id. at 141. However, in other situations, a plaintiff may seek recovery based on “garden-variety common-law causes of action such as conversion, unjust enrichment, and restitution, ” and plead a violation of international laws to give rise to jurisdiction but not to establish liability on the merits. Id. In those situations, the court requires more than a mere non-frivolous argument to satisfy the jurisdictional standard. Id.

         The parties dispute which standard the Court should apply in this case. Plaintiffs assert that they need only advance a non-frivolous argument because the alleged coerced sale of the Welfenschatz is a taking in violation of international law. Defendants argue that Plaintiffs raise common-law causes of action in which there is not a complete overlap between the jurisdictional issue and the merits of the claims. The Court agrees with Defendants that the merits of Plaintiffs' common law claims do not mirror the jurisdictional standard because in order for this Court to have jurisdiction, Plaintiffs must demonstrate that the takings were in violation of international law, a showing that is not required in order to succeed on the merits of their claims. See de Csepel v. Republic of Hung. (de Csepel III), 169 F.Supp.3d 143, 157 (D.D.C. 2016) (finding that the plaintiffs' claims did not directly mirror the expropriation jurisdictional standard because plaintiffs relied on a violation of international law exclusively for jurisdictional purposes and not to establish liability on the merits). As such, the Court shall require that Plaintiffs advance more than a mere non-frivolous argument with respect to Plaintiffs' assertion that a taking in violation of international law is at issue.

         Bearing this in mind, the Court now turns to the issue of whether the FSIA's expropriation exception gives rise to subject matter jurisdiction in this Court over Plaintiffs' ten claims.[6] The Court shall address each of the requirements of the expropriation exception in turn.

         1. Rights in Property

         Defendants argue that the Court should dismiss the following five claims because they do not directly implicate property interests or rights to possession of property: fraud in the inducement (Count V); breach of fiduciary duty (Count VI); breach of the covenant of good faith and fair dealing (Count VII); civil conspiracy (Count VIII); and tortious interference (Count X). Instead, Defendants assert these five claims to “seek damages for allegedly wrongful conduct and are not property claims concerning the rightful ownership or possession of the Welfenschatz.” Defs.' Mot. at 12. Indeed, this Court is required to “make FSIA immunity determinations on a claim-by-claim basis.” Simon, 812 F.3d at 141. In order to meet the requirements of the expropriation exception, each claim must “‘directly implicat[e] property interests or rights to possession, ' . . ., thus satisfying the ‘rights in property . . . in issue' requirement of § 1605(a)(3).” Id. at 142.

         Despite Defendants setting forth this argument in a separate subsection of their motion, see Defs.' Mot. at 11-12, Plaintiffs did not directly respond to this argument in their opposition, see generally Pls.' Opp'n at 22-39. Defendants in a separate section of their reply brief request that the Court find Plaintiffs conceded this argument by failing to respond in their opposition. Defs.' Reply at 4-5. Plaintiffs have not sought leave to file a surreply or otherwise respond to this argument. Here, Plaintiffs have only alleged that this Court has jurisdiction over the five claims at issue based on the FSIA's expropriation exception. As such, the Court shall treat Defendants' argument as conceded and dismiss these five claims on the basis that this Court lacks subject matter jurisdiction over these claims. See Hopkins v. Women's Div., Gen. Bd. of Glob. Ministries, 238 F.Supp.2d 174, 178 (D.D.C. 2002) (citing FDIC v. Bender, 127 F.3d 58, 67-68 (D.C. Cir. 1997) (“It is well understood in this Circuit that when a plaintiff files an opposition to a motion to dismiss addressing only certain arguments raised by the defendant, a court may treat those arguments that the plaintiff failed to address as conceded.”); Achagzai v. Broad. Bd. of Governors, 109 F.Supp.3d 67, 70 n.2 (D.D.C. 2015) (points not disputed in opposition to motion to dismiss conceded) (citing Hopkins, 238 F.Supp.2d at 178); Youming Jin v. Ministry of State Sec., 335 F.Supp.2d 72, 82 n.7 (D.D.C. 2004) (applying this principle to arguments regarding the grounds for jurisdiction).

         2. Taking in Violation of International Law

         Defendants next contend that Plaintiffs failed to sufficiently plead that the Welfenschatz was taken in violation of international law. Here, Plaintiffs allege that the 1935 sale was made under duress as part of the Nazi's systematic organized plunder of Jewish property in furtherance of the genocide of the Jewish people during that time. For the reasons described herein, the Court finds that Plaintiffs sufficiently pled the taking of the Welfenschatz was part of the genocide of the Jewish people during the Holocaust and, accordingly, violated international law.

         The D.C. Circuit has recognized that takings may fall within the expropriation exception when “the takings of property described in the complaint bear a sufficient connection to genocide that they amount to takings ‘in violation of international law.'” Simon, 812 F.3d at 142. In such situations, the expropriations themselves constitute genocide and genocide itself is a clear violation of international law. Id. As the D.C. Circuit recognized, the generally accepted definition of genocide for the purposes of customary international law is as follows:

[A]ny of the following acts committed with intent to destroy, in whole or in part, a national, ethnical, racial or religious group, as such:
(a) Killing members of the group;
(b) Causing serious bodily or mental harm to members of the group; [or]
(c) Deliberately inflicting on the group conditions of life calculated to bring about its physical destruction in whole or in part . . .

Id. at 143 (quoting Convention on the Prevention and Punishment of the Crime of Genocide (Genocide Convention), art. 2, Dec. 9, 1948, 78 U.N.T.S. 277 (emphasis added)).

         In Simon v. Republic of Hungary, the D.C. Circuit considered claims arising out of actions carried out against Hungary's Jewish population starting in 1941 with a systematic campaign of discrimination culminating in the implementation of policies calling for the total destruction of that population by Hungary's fanatically anti-Semitic Prime Minister Döme Sztójay between 1944 and 1945. Id. at 133. As the D.C. Circuit noted, the complaint in that case detailed the persecution, property confiscation and ghettoization, and transport and murder in death camps of the Hungarian Jewish population during this time period. Id. at 133-34. The claims brought by Jewish survivors of the Hungarian Holocaust against the Republic of Hungary, a state-owned Hungarian railway, and an Austrian rail-freight company alleged that Hungary collaborated with the Nazis to exterminate Hungarian Jews and expropriate their property and that the railway defendants played an integral role in these efforts by transporting Hungarian Jews to death camps and confiscating their property. Id.

         The D.C. Circuit applied the allegations in that case to the definition of genocide set forth above and found that the complaint sufficiently alleged takings of property intended to “[d]eliberately inflict[ ] on the group conditions of life calculated to bring about its physical destruction in whole or in part to bring about its physical destruction.” Id. at 143 (quoting Genocide Convention, art. 2(c)). Specifically, the D.C. Circuit explained:

The Holocaust's pattern of expropriation and ghettoization entailed more than just moving Hungarian Jews to inferior, concentrated living quarters, or seizing their property to finance Hungary's war effort. Those sorts of actions would not alone amount to genocide because of the absence of an intent to destroy a people. The systematic, “wholesale plunder of Jewish property” at issue here, however, aimed to deprive Hungarian Jews of the resources needed to survive as a people. Expropriations undertaken for the purpose of bringing about a protected group's physical destruction qualify as genocide.

Id. (internal citation omitted). The D.C. Circuit found the allegations in the complaint to be sufficient under the FSIA's expropriation exception because “the complaint describe[d] takings of property that are themselves genocide within the legal definition of the term” and, as such, takings in violation of international law. Id. at 144.

         The Court finds that, like in Simon, the taking of the Welfenschatz as alleged in the complaint bears a sufficient connection to genocide such that the alleged coerced sale may amount to a taking in violation of international law. Plaintiffs sufficiently pled that they were targeted because they were Jewish sellers in possession of property that was of particular interest to the Nazi regime. The complaint further includes sufficient allegations that the taking of this property was in furtherance of the genocide of the Jewish people during the Holocaust. Indeed, in addition to the allegations highlighted in the background section of this opinion surrounding the 1935 transaction, Plaintiffs describe the hostile environment for Jews in Germany following Adolf Hitler's ascension to power in 1933. Compl. ¶¶ 44-65. Plaintiffs allege that members of the Consortium were particularly vulnerable to persecution because of their ownership of the Welfenschatz and because of their prominence and success. Id. ¶ 67. Specifically, Plaintiffs assert that the Geheime Staatspolizei (“the Gestapo”) opened files on members of the Consortium, id., and that the members of the Consortium were subject to direct threats of violence for being Jewish and for trying to sell the Welfenschatz, id. ¶ 10. With this context in mind, the Court finds that Plaintiffs have sufficiently alleged a taking in violation of international law to satisfy the FSIA's expropriation exception.

         In the interest of completeness, the Court shall address Defendants' arguments that the facts at issue in this case are distinguishable from those in Simon. First, Defendants point to the subject of the alleged taking. Here, Defendants assert that the Consortium's 1929 purchase of the Welfenschatz was a business investment because the Consortium planned to flip it for a profit and, as such, the Welfenschatz was not “property indispensable for individual survival.” Defs.' Mot. at 22. Second, Defendants point to the nature of the transaction. Defendants assert that ...

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