US Supreme Court Rejects Application of Commingling Theory in Holocaust Expropriation Case
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On February 21, 2025, the US Supreme Court issued a unanimous decision in Republic of Hungary v. Simon,1 further narrowing the scope of the Foreign Sovereign Immunities Act's exception to sovereign immunity for expropriation clams, 28 U.S.C. § 1605(a)(3), and requiring plaintiffs to trace directly to the United States either the specific expropriated property itself or "any property exchanged for such property." The Court determined that plaintiffs' commingling theory—that Hungary and its instrumentality sold plaintiffs' property, deposited the proceeds into an account with other government funds, and later used funds from that account for commercial purposes in the United States—could not satisfy § 1605(a)(3)'s commercial nexus requirement. Simon offers helpful guidance and sets limits on the scope of expropriation claims available against foreign sovereigns and their agencies or instrumentalities in US courts.
Legal Background
In 1976, Congress enacted the Foreign Sovereign Immunities Act (FSIA), which codified the restrictive theory of foreign sovereign immunity—the idea that foreign states are generally immune in US courts for their sovereign acts, but can be sued for their commercial, non-sovereign acts in certain circumstances. Under the FSIA, foreign states and their agencies or instrumentalities enjoy presumptive immunity from civil suits in the United States unless an enumerated immunity exception applies.2 One such exception is the "expropriation exception," § 1605(a)(3), under which: "[a] foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case—
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[.]3
Accordingly, the expropriation exception generally allows claims to proceed against a foreign sovereign (as opposed to an agency/instrumentality) when "rights in property taken in violation of international law are in issue" and either the expropriated property itself or any property "exchanged for" such property has a commercial nexus to the United States.4
Relevant Procedural History
In 2010, plaintiffs, Jewish survivors of the Holocaust and their heirs, brought expropriation claims under § 1605(a)(3) against the Republic of Hungary and its national railway (MAV) seeking damages for property seized during WWII. Plaintiffs alleged that Hungary and MAV liquidated their property, commingled the proceeds from the liquidation with other government funds, and then used those funds for commercial activities in the United States. Plaintiffs asserted that § 1605(a)(3)'s commercial nexus requirement was satisfied as to claims against Hungary because the commingled funds, as part of the general revenue of Hungary, were used by Hungary to "issue bonds and purchase military equipment in the United States in the 2000s."5
The US District Court for the District of Columbia held that plaintiffs' commingling theory satisfied § 1605(a)(3)'s commercial nexus requirement, finding that this argument "provided the bridge between the specific named plaintiffs' property and the modern-day presence in the United States of commingled proceeds from liquidations of all victims' property."6 The D.C. Circuit affirmed, reasoning that "[g]iven the fungibility of money, once a foreign sovereign sells stolen property and mixes the proceeds with other funds in its possession, those proceeds ordinarily become untraceable to any specific future property or transaction."7
The Supreme Court's Decision
The Supreme Court vacated the D.C. Circuit's ruling and held that that the alleged commingling of funds alone cannot satisfy the expropriation exception's commercial nexus requirement. In a unanimous opinion written by Justice Sotomayor, the Supreme Court narrowly interpreted § 1605(a)(3)'s commercial nexus element and explained that "[w]hen a foreign sovereign is responsible for the expropriation," the statute requires plaintiffs to directly trace the location of the specific expropriated property (or the location of property exchanged for their specific expropriated property) to the United States.8
Section § 1605(a)(3)'s Plain Text Requires Direct Tracing
The Court held that direct tracing of the expropriated property is required because § 1605(a)(3)'s plain text "treats all 'property' alike, whether that property is tangible (like a piece of art) or fungible (like cash)."9 Accordingly, the "mere fact" that a foreign sovereign liquidates tangible property and "deposits the cash proceeds into a bank account used for commercial activities" "does not relieve plaintiffs from alleging some facts that enable the reasonable tracing of those proceeds to the United States."10 For instance, a plaintiff might show the requisite tracing through "identifying an account within the United States that holds the proceeds from the sale of the seized property" or showing that "soon after commingling funds from the sale of expropriated property," the foreign sovereign "spent all the funds from the commingled account in the United States."11
By contrast, "[a] plaintiff does not make the necessary showing [] by alleging only that the foreign sovereign deposited the proceeds from the sale of expropriated property into an account at some time and eventually used that account for commercial activity in the United States."12 That is because "it will typically be indeterminate whether an expenditure of commingled funds includes any of the proceeds connected to the expropriated property."13
The Court noted that Simon "does not today purport to identify all circumstances in which commingling allegations may be part of broader allegations that collectively satisfy § 1605(a)(3)'s commercial nexus."14 The Court also left for another day consideration of whether common-law tracing principles and rules from other contexts could inform the § 1605(a)(3) commercial nexus inquiry. The Court instructed, however, that "[c]ourts should not import reflexively those principles and rules into" the FSIA context "given the baseline presumption of foreign sovereign immunity."15
The Court Looks to the FSIA's Structure, History, and Purpose
In reading the exception narrowly, the Court underscored the FSIA's "'baseline presumption of immunity from suit,'"16 and reasoned that adopting plaintiffs' broad reading of § 1605(a)(3) would "undermine" Congress's intent "by expanding greatly the circumstances in which foreign sovereigns can be brought into United States courts for their public acts" of expropriation.17 In addition, the Court pointed to pre-FSIA jurisprudence involving expropriation claims, noting that a 1964 case involving the tracing of proceeds from the expropriated property to a bank account in the United States informed Congress's intent in drafting the FSIA.18
The Court also reasoned that plaintiffs' broad interpretation of § 1605(a)(3) could undermine the United States' "reciprocal self-interest in receiving sovereign immunity in foreign courts."19 In this context, the Court noted the settled principle of interpreting the FSIA "to avoid, where possible, producing friction in our relations with other nations and leading some to reciprocate by granting their courts permission to embroil the United States in expensive and difficult litigation."20 The Court also rejected plaintiffs' argument that § 1605(a)(3) will become a "nullity" if a commingling theory alone cannot satisfy the commercial nexus requirement.21 The Court explained that plaintiffs' "policy concerns, moreover, cannot surmount the plain language of the statute" and reiterated that "[a]llowing plaintiffs to forgo altogether [§ 1605(a)(3)'s] tracing requirements by pleading a commingling theory could allow vastly more suits to proceed" under the expropriation exception, "even though the expropriated property would have an attenuated nexus to the United States."22
Take-Aways and What's Next
Although the Court did not announce a categorical bar on relying on commingling allegations, Simon presents a narrow interpretation of § 1605(a)(3)'s commercial nexus requirement and establishes a more demanding threshold for plaintiffs seeking to bring expropriation claims against foreign sovereigns and their agencies and instrumentalities in US courts. That said, the Court also left open several important issues that lower courts will need to grapple with in future FSIA cases involving the expropriation exception, including whether tracing principles from non-FSIA contexts (such as the common law) could inform the § 1605(a)(3) commercial nexus inquiry.
The Court also declined to resolve two additional issues presented:
- Whether the Court's prior decision in Bolivarian Republic of Venezuela v. Helmerich & Payne International Drilling Co.,23 "displaced the typical plausibility pleading standard" in the FSIA context "with a heightened standard for factual allegations."24 Because the Simon plaintiffs' commingling allegation did not satisfy the lower of these two standards, the Court assumed without deciding that the plausibility standard applied.25
- Who bears the burden of persuasion "to prove (or disprove) the expropriated property has a commercial nexus with the United States."26 The Court noted that this issue only arises "after a plaintiff has pleaded adequately that § 1605(a)(3)'s commercial nexus is satisfied," which plaintiffs failed to do here.27
Those issues likely will find their way to the Supreme Court in other FSIA cases in the future.
Maya Kliger (White & Case, Associate, Washington, DC) contributed to the development of this publication.
1 604 U.S. ___ (2025).
2 28 U.S.C. §§ 1604, 1605.
3 28 U.S.C. § 1605(a)(3).
4 See also de Csepel v. Republic of Hungary, 859 F.3d 1094, 1105-08 (D.C. Cir. 2017) (upholding Hungary's immunity because the disputed property was "not 'present in the United States'" (quoting 28 U.S.C. § 1605(a)(3))).
5 Simon, slip op. at 8. As to claims against MAV, plaintiffs alleged that MAV "still owns" the commingled funds and "also engages in commercial activity in the United States, including by maintaining an agency here that sells tickets, books reservations, and conducts similar business." Id. at 7, 8.
6 Simon v. Republic of Hungary, 579 F.Supp.3d 91, 122, n.22 (D.D.C. 2021); Simon, slip op. at 8.
7 Simon v. Republic of Hungary, 77 F.4th 1077, 1118 (D.C. Cir. 2023).
8 Simon, slip op. 20. The Court also recognized that plaintiffs could bring suit under § 1605(a)(3) if they could trace the specific expropriated property, or property exchanged for that specific property, "to the possession of a foreign agency or instrumentality engaged in US commercial activity." Simon, slip op. 10, 17.
9 Simon, slip op. at 12.
10 Simon, slip op. at 12.
11 Simon, slip op. at 12.
12 Simon, slip op. at 13.
13 Simon, slip op. at 13.
14 Simon, slip op. at 14.
15 Simon, slip op. at 14-15.
16 Simon, slip op. at 15 (quoting Federal Republic of Germany v. Philipp, 592 U.S. 169, 176 (2021)).
17 Simon, slip op. at 15.
18 Simon, slip op. at 16 (discussing Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964)).
19 Simon, slip op. at 16 (internal quotation marks and citation omitted).
20 Simon, slip op. at 16 (internal quotation marks and citation omitted).
21 Simon, slip op. at 21-22.
22 Simon, slip op. at 22 (internal quotation marks and citation omitted).
23 581 U.S. 170 (2017).
24 Simon, slip op. at 9 n.1.
25 Simon, slip op. at 9-10 n.1.
26 Simon, slip op. at 10 n.1.
27 Simon, slip op. at 10 n.1.
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