DC Circuit settles scope of the expropriation exception to sovereign immunity under the Foreign Sovereign Immunities Act

In its recent decision in Agudas Chasidei Chabad of United States v. Russian Federation, the US Court of Appeals for the DC Circuit clarified the rules surrounding the “expropriation exception” to sovereign immunity under the Foreign Sovereign Immunities Act (FSIA),[1]  holding that, in order for jurisdiction to lie against a foreign state for a claim involving expropriation of property, the expropriated property must be physically located in the US. As a result of its decision, the Court of Appeals invalidated two judgments against the Russian Federation that had been held by Jewish organization Chabad for more than a decade.[2]

The case involves a long-running dispute brought in 2004 by Chabad against the Russian Federation and several of its agencies to recover unlawfully expropriated religious property.[3]   Chabad argued in the US District Court for the District of Columbia that the court had jurisdiction over the defendants under the "expropriation exception" of the FSIA which allows courts to hear certain claims against foreign states involving “property taken in violation of international law.”[4]

In an earlier appeal, Agudas Chasidei Chabad of U.S. v. Russian Federation (Chabad I), the DC Circuit affirmed the district court’s ruling that it had jurisdiction over two of the defendants, the Russian State Library and the Russian State Military Archive, but did not address whether there was jurisdiction over the Russian Federation itself.[5]   The Russian Federation subsequently withdrew from the litigation on behalf of all defendants. In 2010, after determining that the materials were indeed expropriated, the district court entered a default judgment against the defendants, including the Russian Federation, and ordered them to return the property to Chabad. After the defendants failed to comply, the district court imposed monetary sanctions to coerce compliance.[6]   Those sanctions have now accrued to over $175 million.

Chabad later sought to enforce the growing sanctions judgment against the assets of non-party subsidiaries of Russian agencies, including Tenex-USA (Tenex), a subsidiary of the Russian State Atomic Energy Corporation, and Tenex's parent company, Tenex Joint-Stock Company (Tenex JSC).[7]   The district court held that the FSIA’s expropriation exception had been satisfied, but that the attachment motion must be denied, without prejudice, due to Chabad’s failure to serve the sanctions judgment on the Russian Federation.[8]   Tenex appealed the district court’s determination that it had subject matter jurisdiction under the expropriation exception of the FSIA, arguing that the district court’s denial of the attachment motion should have been with prejudice.

The DC Circuit ultimately agreed with Tenex that Chabad had not satisfied the FSIA's expropriation exception, and that the default and sanctions judgments against the Russian Federation were void.[9]

The Court of Appeals’ analysis began with the language of the FSIA’s expropriation exception, under which US courts have jurisdiction to hear claims “in which rights in property taken in violation of international law are in issue” and there is a commercial activity as defined under the statute. The FSIA sets forth the two scenarios in which commercial activity requirement is satisfied:

• “(2A) That property or any property exchanged for such property is present in the U.S. in connection with a commercial activity carried on in the U.S. by the foreign state," or
• "(2B) 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."[10]

The Court had previously considered the scope of the expropriation exception in Simon v. Republic of Hungary, in which the Court held that clause 2A provided the "only path to jurisdiction over claims against a foreign state itself" with respect to expropriation claims, and, in such cases, "the property that is the subject of the claims (or property exchanged for it) must be 'present in the United States in connection with a commercial activity' that the foreign state 'carrie[s] on” in the United States.'"[11]   It was undisputed among the parties involved in the Chabad case that the expropriated property was not in the US.

Simon was decided after Chabad I, and the Court of Appeals acknowledged that, "at one time, there might have been uncertainty about whether Chabad I or Simon supplied this circuit's law on the proper interpretation of the expropriation exception."[12]   The Court, however, noted that it had previously resolved this uncertainty in favor of Simon in De Csepel v. Republic of Hungary, in which the Court noted that Chabad I did not have precedential effect because the Court had not addressed the Russian Federation's immunity in that decision. Presented now with the opportunity to apply its holding in Simon to the question of Russia’s immunity in the Chabad case, the Court of Appeals held that the Russian Federation must be dismissed from the case because Chabad's expropriation claim against Russia did not concern property in the US.

Although the DC Circuit has now definitively ruled on the scope of the second clause of the expropriation exception to the FSIA and resolved any lingering ambiguity in its own prior cases, the Court's recent opinion has put the DC Circuit's cases in tension with those of the Ninth Circuit. For example, in Altmann v. Republic of Austria, the Ninth Circuit upheld jurisdiction over claims against Austria seeking the return of paintings confiscated by Nazis in violation of international law.[13]   The Ninth Circuit held that the commercial activity requirement under the expropriation exception was satisfied because the Austrian Gallery, the Austrian museum that housed the painting, was “engaged in commercial activity in the United States.”[14]   Under the more restrictive approach taken by the DC Circuit in De Csepel and again in its recent decision in Chabad III, however, the claims brought by the plaintiff against Austria in that case would have been dismissed because the property at issue was not in the US.

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_{[1] 28 U.S.C. § 1602 et seq.
[2] The decision did not disturb Chabad’s judgments against the Russian State Library and Russian State Military Archive.
[3] Agudas Chasidei Chabad of United States v. Russian Fed’n, 110 F.4th 242 (D.C. Cir. 2024) ("Chabad III").
[4] 28 U.S.C. § 1605(a)(3).
[5] Agudas Chasidei Chabad of U.S. v. Russian Fed'n, 528 F.3d 934 (D.C. Cir. 2008) ("Chabad I").
[6] Chabad III, 110 F.4th at 246.
[7] Id. at 247.
[8] Id.
[9] Id. at 250.
[10] 28 U.S.C. § 1605(a)(3).
[11] Chabad III, 110 F.4th at 250 (quoting Simon v. Republic of Hungary, 812 F.3d 127, 146 (D.C. Cir. 2016)).
[12] Chabad III, 110 F.4th at 252.
[13] Altmann v. Republic of Austria, 317 F.3d 954 (9th Cir. 2002).
[14] Id. at 968-69.}