In re: Republic of Hungary ( 2022 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 7, 2021 Decided March 8, 2022
No. 20-7047
DAVID L. DE CSEPEL, ET AL.,
APPELLEES
v.
REPUBLIC OF HUNGARY, A FOREIGN STATE, ET AL.,
APPELLANTS
Appeal from the United States District Court
for the District of Columbia
(No. 1:10-cv-01261)
No. 20-8001
IN RE: REPUBLIC OF HUNGARY, ET AL.,
PETITIONERS
Petition and Cross-Petition for Permission to Appeal Under
28 U.S.C. § 1292(b) from an Interlocutory Order of the
United States District Court for the District of Columbia
(No. 1:10-cv-01261)
2
Thaddeus J. Stauber argued the cause for appellants. With him
on the briefs was Sarah Erickson André.
Alycia Regan Benenati argued the cause for appellees. With her
on the brief were Sheron Korpus and David E. Mills.
Before: TATEL, PILLARD, and JACKSON*, Circuit Judges.
Opinion for the court filed by Circuit Judge TATEL and
Circuit Judge PILLARD.
TATEL and PILLARD, Circuit Judges: For the third time, we
consider a family’s decades-long effort to recover a valuable
art collection that the World War II-era Hungarian government
and its Nazi collaborators seized during their wholesale plunder
of Jewish property during the Holocaust. On remand from our
second decision, the district court dismissed the family’s
claims against the Republic of Hungary and permitted the suit
to proceed against the remaining defendants, a Hungarian asset
management company, a university, and three art museums.
The remaining defendants appeal the district court’s denial of
sovereign immunity, and the parties also seek our discretionary
review of additional issues. For the reasons explained below,
we exercise that discretion to review several holdings, and
we affirm the district court on those that we review.
I.
We described the background of this case in our earlier
opinions, de Csepel v. Republic of Hungary, 714 F.3d 591,
594–97 (D.C. Cir. 2013) (de Csepel I) and de Csepel v.
Republic of Hungary, 859 F.3d 1094, 1097–99 (D.C. Cir. 2017)
(de Csepel II). For the reader’s convenience, we repeat it
*
Circuit Judge Jackson was a member of the panel at the time the
case was argued but did not participate in this opinion.
3
virtually in full. Baron Mór Lipót Herzog was a “passionate
Jewish art collector in pre-war Hungary” who assembled a
collection of more than two thousand paintings, sculptures, and
other artworks. Am. Compl. ¶ 37. Known as the “Herzog
Collection,” this body of artwork was “one of Europe’s great
private collections of art, and the largest in Hungary,” and
included works by renowned artists such as El Greco,
Velázquez, Renoir, and Monet. Id. Following Herzog’s death
in 1934 and his wife’s shortly thereafter, their daughter
Erzsébet and two sons István and András inherited the
collection. Id. ¶ 38.
Then came World War II, and Hungary joined the Axis
Powers. In March 1944, Adolf Hitler sent German troops into
Hungary, and SS Commander Adolf Eichmann entered the
country along with the occupying forces and established
headquarters at the Majestic Hotel in Budapest. Id. ¶¶ 50, 51
59. During this time, Hungarian Jews were subjected to anti-
Semitic laws restricting their economic and cultural
participation in Hungarian society and deported to German
concentration camps. Id. ¶¶ 43, 46, 51. As an integral part of
its oppression of Hungarian Jews, “[t]he Hungarian
government, including the Hungarian state police, authorized,
fully supported and carried out a program of wholesale plunder
of Jewish property, stripping anyone ‘of Jewish origin’ of their
assets.” Id. ¶ 53. Jews “were required to register all of their
property and valuables” in excess of a certain value, and the
Hungarian government “inventoried the contents of safes and
confiscated cash, jewelry, and other valuables belonging to
Jews.” Id. ¶ 54. “[P]articularly concerned with the retention of
artistic treasures belonging to Jews,” the Hungarian
government established “a so-called Commission for the
Recording and Safeguarding of Impounded Art Objects of Jews
. . . and required Hungarian Jews promptly to register all art
objects in their possession.” Id. ¶ 55. “These art treasures were
4
sequestered and collected centrally by the Commission for Art
Objects,” headed by the director of the Hungarian Museum of
Fine Arts. Id.In response to widespread looting of Jewish property, the
Herzogs “attempted to save their art works from damage and
confiscation by hiding the bulk of [them] in the cellar of one of
the family’s factories at Budafok.” Id. ¶ 57. Despite these
efforts, “the Hungarian government and their Nazi[]
collaborators discovered the hiding place” and confiscated the
artworks. Id. ¶ 58. They were “taken directly to Adolf
Eichmann’s headquarters at the Majestic Hotel in Budapest for
his inspection,” where he “selected many of the best pieces of
the Herzog Collection” for display near Gestapo headquarters
and for eventual transport to Germany. Id. ¶ 59. “The
remainder was handed over by the Hungarian government to
the Museum of Fine Arts for safekeeping.” Id. After seizure of
the collection, a pro-Nazi newspaper ran an article in which the
director of the Hungarian Museum of Fine Arts boasted that the
“‘Herzog collection contains treasures the artistic value of
which exceeds that of any similar collection in the country. . . .
If the state now takes over these treasures, the Museum of Fine
Arts will become a collection ranking just behind Madrid.’” Id.
¶ 58.
“Fearing for their lives, and stripped of their property and
livelihoods, the Herzog family was forced to flee Hungary or
face extermination.” Id. ¶ 62. Erzsébet Herzog (Erzsébet Weiss
de Csepel following her marriage) fled Hungary with her
children, first reaching Portugal and eventually settling in the
United States, where she became a U.S. citizen in 1952. Id.István Herzog was nearly sent to Auschwitz but “escaped after
his former sister-in-law’s husband . . . arranged for him to be
put in a safe house under the protection of the Spanish
Embassy.” Id. ¶ 41. “He died in 1966, leaving his estate to his
5
two sons, Stephan and Péter Herzog, and his second wife,
Mária Bertalanffy.” Id. András Herzog was “sent . . . into
forced labor in 1942 and he died on the Eastern Front in 1943.”
Id. ¶ 40. His daughters, Julia Alice Herzog and Angela Maria
Herzog, fled to Argentina and eventually settled in Italy. Id.
¶¶ 40, 63.
Following the end of World War II, the Herzog family
began a seven-decade effort to reclaim the art collection,
including through the Hungarian courts. de Csepel II, 859 F.3d
at 1098. When those efforts proved unsuccessful, three heirs to
the collection — Erzsébet’s son David L. de Csepel, along with
András’s daughters Julia Alice and Angela Maria Herzog
(collectively, “the family”) — filed suit in U.S. district court.
The family brought the suit against the Republic of Hungary,
three art museums — the Budapest Museum of Fine Arts, the
Hungarian National Gallery, and the Budapest Museum of
Applied Arts — and the Budapest University of Technology
and Economics. Compl. ¶¶ 9–13. The family alleges that
Defendants’ possession or re-possession of at least forty pieces
of the Herzog Collection following World War II “constituted
one or more express or implied bailment contracts” and that
Defendants’ failure to return the artworks upon demand
breached the bailment contracts and constituted conversion and
unjust enrichment. Am. Compl. ¶¶ 16, 99–123, 139–142. The
family seeks imposition of a constructive trust, an accounting,
and a declaration of its ownership of the Herzog Collection, all
aimed at either recovering the artwork or obtaining over $100
million in compensation. Id. ¶¶ 124–38 & pt. V.
This dispute first arrived in our court in 2013, and the
question before us then was whether the suit was barred by the
Foreign Sovereign Immunities Act (“FSIA”). de Csepel I, 714
F.3d at 597. “That Act authorizes federal jurisdiction over civil
actions against foreign states, as relevant here, only in certain
6
cases involving expropriated property or commercial activity,
and only to the extent such jurisdiction is not inconsistent with
certain international agreements.” de Csepel II, 859 F.3d at
1099 (citing 28 U.S.C. §§ 1604–05). We rejected Defendants’
assertion of sovereign immunity, concluding on the pleadings
that the family’s claims satisfied the FSIA’s commercial
activity exception and that jurisdiction was not inconsistent
with agreements between the United States and Hungary. de
Csepel I, 714 F.3d at 597–603.
This dispute returned to our court after the district court,
following the close of discovery, concluded that, as the
evidentiary record had developed, the commercial activity
exception did not apply but the action could nonetheless
proceed under the FSIA’s expropriation exception. de Csepel
II, 859 F.3d at 1099. We affirmed the district court’s
conclusion that the expropriation exception applied to “twenty-
five or so artworks taken by Hungary during the Holocaust and
never returned.” Id. at 1103. But we remanded for the district
court to consider whether the expropriation exception applies
to nineteen artworks that were temporarily returned to
members of the Herzog family. Id. at 1103–04. We instructed
the district court to (1) dismiss the Republic of Hungary
because it enjoys immunity under the FSIA and (2) “grant the
Herzog family leave to amend their complaint in light of the
Holocaust Expropriated Art Recovery Act” of 2016 (“HEAR
Act”). Id. at 1107, 1110.
Back in the district court, the family filed an amended
complaint that referenced the HEAR Act and added a new
defendant, Hungarian National Asset Management Inc.
(“MNV”), which exercises ownership rights over and manages
certain Hungarian assets. Am. Compl. ¶¶ 3, 14, 87–98. The
district court dismissed the Republic of Hungary in accordance
with our directive, and rejected Defendants’ arguments that
7
MNV is not a proper party to this suit and that this action may
not proceed against the remaining defendants in Hungary’s
absence. de Csepel v. Republic of Hungary, No. 10-cv-01261,
2020 WL 2343405, at *5–6, 10, 17, 33 (D.D.C. May 11, 2020)
(Remand II). The court retained jurisdiction over five of the
nineteen artworks that were temporarily returned to the Herzog
family, holding that the FSIA’s expropriation exception
applied to these pieces. Id. at *19, 35.
Defendants now appeal, seeking dismissal of the family’s
suit in its entirety. They argue that MNV is shielded by
Hungary’s sovereign immunity, that the district court violated
this court’s mandate in de Csepel II by allowing amendment of
the complaint to add Defendant MNV, that Federal Rule of
Civil Procedure 19 bars this action from continuing against the
remaining defendants, that the principle of prudential
exhaustion requires dismissal of this action, and that the district
court lacks jurisdiction regarding the five artworks that were
temporarily returned to the family. The family defends the
district court’s decision but asks that, should we review
whether the court properly exercised jurisdiction over the five
artworks, we also consider whether the district court erred in
dismissing claims to twelve of the other fourteen artworks for
lack of jurisdiction.
We have appellate jurisdiction to consider whether MNV
is immune from suit under the FSIA. de Csepel II, 859 F.3d at
1099 (“It is . . . well settled that denial of a motion to dismiss
on the ground of sovereign immunity is ‘final’ by application
of the collateral order doctrine and ‘therefore subject to
interlocutory review.’” (citation omitted)). Because the district
court certified its order for immediate appellate review, we also
have discretion to consider Defendants’ remaining arguments,
and we explain below the extent to which we exercise that
discretion and our corresponding dispositions. See 28 U.S.C.
8
1292(b) (permitting an appellate court to, “in its discretion,”
consider an interlocutory appeal where the district judge
certifies that the “order involves a controlling question of law
as to which there is substantial ground for difference of opinion
and that an immediate appeal from the order may materially
advance the ultimate termination of the litigation”); Walsh v.
Ford Motor Co., 807 F.2d 1000, 1002 n.2 (D.C. Cir. 1986)
(holding that, where a district court certifies an issue for appeal,
the court of appeals “must decide all questions of law necessary
to the proper disposition of [the] appeal”).
II.
The family’s amended complaint added MNV, a state-
owned company that exercises Hungary’s ownership rights
over certain governmental assets, including the artworks at
issue in this case. Am. Compl. ¶¶ 14, 36. Defendants argue that
MNV is entitled to sovereign immunity and that the district
court violated this court’s mandate in de Csepel II by
permitting the family to add MNV to its amended complaint.
The FSIA provides that a foreign state, including any
political subdivision, agency, or instrumentality thereof, “shall
be immune from the jurisdiction of the courts of the United
States” subject to certain exceptions. 28 U.S.C. § 1604; see id.§ 1603(a). Under the expropriation exception, a foreign
sovereign loses its immunity if “‘rights in property taken in
violation of international law are in issue,’” and “there is an
adequate commercial nexus between the United States and the
defendants.” de Csepel II, 859 F.3d at 1101 (quoting 28 U.S.C.
§ 1605(a)(3)). The commercial-activity nexus requirement is
met if (1) the property in issue “is present in the United States
in connection with a commercial activity carried on in the
United States by the foreign state” or (2) that property “is
owned or operated by an agency or instrumentality of the
9
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 we explained in de Csepel II, “[a] foreign
state loses its immunity if the claim against it satisfies the
exception by way of the first clause of the commercial-activity
nexus requirement; by contrast, an agency or instrumentality
loses its immunity if the claim against it satisfies the exception
by way of the second clause.” de Csepel II, 859 F.3d at 1107
(emphasis added); Simon v. Republic of Hungary, 812 F.3d
127, 146 (D.C. Cir. 2016) (holding that the first clause applies
to claims against the foreign state itself, whereas the second
clause applies to claims against an agency or instrumentality of
the foreign state).
The Herzog Collection is located outside the United States,
so the family’s claims fall within the expropriation exception
only if the Collection is owned or operated by an “agency or
instrumentality” of Hungary. See de Csepel II, 859 F.3d at 1107
(describing the application of the expropriation exception to an
“agency or instrumentality” versus the “foreign state” itself).
Defendants do not contest that they are “engaged in a
commercial activity in the United States.” See de Csepel II, 859
F.3d at 1104. Thus, whether the family may invoke this
exception to establish federal jurisdiction over MNV turns on
whether MNV is an agency or instrumentality of Hungary or,
rather, the foreign state itself. The family argues that MNV is
an agency or instrumentality of Hungary, as evidenced by
MNV’s commercial functions analogous to those performed by
private entities. Defendants argue that MNV is “a ‘Political
Organ’ of the Hungarian State” and, as such, constitutes the
foreign state itself. Appellants’ Br. 18.
Because the family asserts jurisdiction under the FSIA and
Defendants assert the jurisdictional defense of immunity,
Defendants bear the burden of proving that the family’s
10
allegations do not bring this case within a statutory exception
to immunity. Belize Social Development Ltd. v. Government of
Belize, 794 F.3d 99, 102 (D.C. Cir. 2015). And because
Defendants “challenge[] the factual basis of the court’s
jurisdiction, . . . the court must go beyond the pleadings and
resolve any disputed issues of fact the resolution of which is
necessary to a ruling upon the motion to dismiss.” Phoenix
Consulting Inc. v. Republic on Angola, 216 F.3d 36, 40 (D.C.
Cir. 2000). Our review is de novo. de Csepel II, 859 F.3d at
1099.
To determine whether MNV is an agency or
instrumentality of Hungary or, rather, Hungary itself, we
consider whether its “core functions . . . are governmental or
commercial.” Transaero, Inc. v. La Fuerza Aerea Boliviana,
30 F.3d 148, 153 (D.C. Cir. 1994). If MNV’s core functions
are “commercial, the entity is an agency or instrumentality;” if
MNV’s core functions are “governmental, it is considered the
foreign state itself.” Roeder v. Islamic Republic of Iran, 333
F.3d 228, 234 (D.C. Cir. 2003).
Applying this “core functions” test, we have held that
Bolivia’s Air Force and Iran’s Ministry of Foreign Affairs are
the foreign states themselves rather than agencies or
instrumentalities. Transaero, 30 F.3d at 153 (Bolivia’s Air
Force); Roeder, 333 F.3d at 234 (Iran’s Ministry of Foreign
Affairs). As we have explained, “[t]he conduct of foreign
affairs is an important and indispensable governmental
function,” Roeder, 333 F.3d at 234–35 (internal quotation
marks omitted), and “[t]he powers to declare and wage war are
among the necessary concomitants of sovereignty,” Transaero,
30 F.3d at 153 (internal quotation marks omitted). Such
entities, therefore, “clearly” fall on the “governmental side.”
Roeder, 333 F.3d at 234.
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Although our court has not previously held an entity to be
an agency or instrumentality under the core functions test, our
colleagues on the district court have held that a South Korean
cultural foundation and a Russian library and military archive
are state agencies or instrumentalities. See Smith v. Overseas
Korean Cultural Heritage Foundation, 279 F. Supp. 3d 293,
297 (D.D.C. 2018); Agudas Chasidei Chabad of United States
v. Russian Federation, 729 F. Supp. 2d 141, 147 (D.D.C.
2010). As the district court has explained, the tasks performed
by these entities — the construction and operation of a museum
and the reproduction and sale of books and manuscripts — are
commercial actions in which private parties regularly engage.
Smith, 279 F. Supp. 3d at 297 (“building and operating a
museum . . . is commercial in nature”); Agudas, 729 F. Supp.
2d at 148 (reproducing, selling, and distributing books and
manuscripts are “commercial activit[ies]”).
Whether MNV’s core functions are governmental or
commercial is less clear. Under Hungarian law, MNV exercises
the “ownership rights and obligations belonging to the State
over state assets entrusted to it.” Hungarian Act CVI of 2007
on State Assets (“State Property Act”) § 3(1), Joint Appendix
(J.A.) 2975. It “prepare[s] and/or execute[s] the decisions of
Parliament, the Government and the minister relating to state
assets,” “keep[s] records on state assets,” “inspect[s] the
operations involving state assets of the persons, organisations
or other users that are in a contractual relationship with
[MNV],” and “oversee[s] the fulfilment of obligations set out
in the sales contracts.” State Property Act § 17(1), J.A. 2977.
Unlike entities that conduct foreign affairs or military
operations, MNV performs property management functions
that private entities also perform. See Republic of Argentina v.
Weltover Inc., 504 U.S. 607, 614 (1992) (“[T]he foreign
sovereign’s actions are commercial within the meaning of the
FSIA” when they “are the type of actions by which a private
12
party engages in trade and traffic or commerce.” (internal
quotation marks omitted)). By contrast, a sovereign cannot
function without property, and ownership of certain types of
property, like public lands, is uniquely governmental. See id.(A foreign government’s activities are “sovereign” rather than
“commercial” when they are activities that “cannot be
exercised by a private party.” (internal quotation marks
omitted)). Given the myriad types of property that can be held
privately or as state assets, we cannot conclude that the
function of holding and managing property, in and of itself, is
“so closely bound up with the structure of the state that [it] must
in all cases be considered” a governmental rather than
commercial function. Transaero, 30 F.3d at 153. Instead,
whether the management of state property is governmental or
commercial depends on the type of property at issue.
MNV manages state-owned companies, “movable
propert[y],” and real property. Declaration of Dr. Bernadette
Somody 5–6, de Csepel v. Hungary, No. 10-cv-01261 (D.D.C.
Mar. 23, 2018), ECF No. 153-1, J.A. 3234–35. It exercises
ownership rights over about 450 companies, including “a major
Hungarian energy group,” “the largest gambling service
provider in Hungary,” and a “waste management” holding
company. Id. MNV also manages almost 100,000 state-owned
movable properties, including “road vehicles,” “musical
instruments,” and “works of art.” Id. at 6, J.A. 3235. As for its
management of real property, MNV’s “main duty . . . is to
provide real estate for the performance of state functions and
for meeting public demand.” Id. There is nothing inherently
sovereign about managing energy, gambling, or waste. Nor are
the acts of maintaining and lending road vehicles, musical
instruments, or art pieces governmental in nature, even when
these items belong to a sovereign. Indeed, our own district
court has held that the act of lending art pieces is commercial,
noting that “[l]oans between and among museums (both public
13
and private) occur around the world regularly.” Malewicz v.
City of Amsterdam, 362 F. Supp. 2d 298, 314 (D.D.C. 2005).
Finally, although providing real estate for state functions
appears governmental, providing real estate to “meet[] public
demand” is a function routinely performed by private real
estate developers. MNV’s core functions, then, are
predominantly commercial rather than governmental. See
Transaero, 30 F.3d at 151 (The question is “whether the core
functions of the foreign entity are predominantly governmental
or commercial.”).
Defendants point out that Hungary’s State Property Act
provides that “‘[t]he tasks conferred upon MNV . . . [are]
government functions.’” Appellants’ Br. 19 (quoting State
Property Act § 17(2), J.A. 2977). Although “MNV may engage
in certain activities that might be considered ‘commercial’ in
nature,” Defendants argue, MNV does so “‘within the
framework of government functions,’” as specified by the State
Property Act. Id. at 19–20 (quoting State Property Act
§ 17(1)(h), J.A. 2977). But if simply labeling MNV’s activities
as “governmental” were sufficient under the core functions
test, the test would be highly manipulable; any foreign
sovereign wishing to insulate an agency or instrumentality
from suit could simply declare that the entity’s functions are
“government functions.”
Defendants analogize MNV to the Polish Ministry of
Treasury, which the Second Circuit held in Garb v. Republic of
Poland constituted the Polish state itself rather than an agency
or instrumentality of Poland. 440 F.3d 579, 598 (2d Cir. 2006).
Defendants’ comparison is unpersuasive. Garb held that the
Ministry of Treasury’s “core function — to hold and administer
the property of the Polish state — [was] indisputably
governmental.” Id. at 594. Beyond this statement, Garb neither
indicated what types of property the Ministry managed nor
14
explained why the Ministry’s management of property was
governmental in nature. As noted above, holding and
administering property is not per se governmental due to the
myriad property types that private and public entities alike can
hold and manage. Without any indication of the type of
property that the Polish Ministry administered, we cannot
determine whether that entity is comparable to MNV.
Because MNV’s management of companies, movable
property, and real property is overwhelmingly commercial in
nature, we conclude that MNV is an agency or instrumentality
of Hungary rather than the foreign state itself. As such, MNV
falls within the FSIA’s expropriation exception.
Having concluded that the district court properly exercised
jurisdiction over MNV, we turn to Defendants’ argument that,
by permitting the family to add MNV to its amended
complaint, the district court violated our directive in de Csepel
II to “grant the Herzog family leave to amend their complaint
in light of the Holocaust Expropriated Art Recovery Act.” de
Csepel II, 859 F.3d at 1110. Under the law-of-the-case
doctrine, courts may not revisit issues already decided
“‘explicitly or by necessary implication’” in the same case.
Independent Petroleum Association of America v. Babbitt, 235
F.3d 588, 597 (D.C. Cir. 2001) (quoting LaShawn A. v. Barry,
87 F.3d 1389, 1394 (D.C. Cir. 1996) (en banc)). But, as the
district court observed, the issue whether the family could add
MNV to the amended complaint was not before us in de Csepel
II, nor was it decided by necessary implication. Remand II,
2020 WL 2343405, at *6. Our decision to allow the family to
amend its complaint in one respect did not preclude the family
from amending it in other respects. Cf. United States v.
Kennedy, 682 F.3d 244, 253–54 (3d Cir. 2012) (holding that
where the court of appeals “qualif[ied its] mandate with the
term ‘only,’” the district court “ventured beyond the scope of
15
[the] mandate” by considering extraneous issues).
Accordingly, the family’s addition of MNV in its amended
complaint did not contravene this court’s mandate in de Csepel
II. As the district court concluded, MNV is a proper party to
this suit.
III.
Defendants also challenge the district court’s denial of
their Rule 12(b)(7) motion to dismiss for failure to join an
indispensable party. See Remand II, 2020 WL 2343405, at
*12–17 (citing FED. R. CIV. P. 19(a)–(b)). The district court
held that even assuming Hungary was a “required” party, it is
not indispensable because this suit may proceed “in equity and
good conscience” without it. Id. “We review the district court’s
application of Rule 19(b)’s equity and good conscience test for
abuse of discretion, but questions of law that inform a district
court’s Rule 19 determination are reviewed de novo.” Nanko
Shipping, USA v. Alcoa, Inc., 850 F.3d 461, 465 (D.C. Cir.
2017) (cleaned up).
We conclude that Hungary qualifies as a required party,
but we also affirm the district court’s well-reasoned
determination that this action may proceed among the existing
parties “in equity and good conscience.” FED. R. CIV. P. 19(b).
Hungary’s interests are so aligned with those of the remaining
defendants that their participation in the litigation protects
Hungary against potential prejudice from the suit proceeding
in its absence. Rule 19 thus does not require that the case be
dismissed.
As noted above, we have discretion to review issues
beyond the denial of MNV’s claim of immunity. We exercise
that discretion to consider the district court’s Rule 19
determination that this case may proceed in Hungary’s
absence. This issue involves a controlling question of law
16
because it would require reversal if decided incorrectly. There
are no decisions directly on point in our circuit and, because
the issue is potentially dispositive of the case, resolving it now
could avoid unnecessary burdens of further litigation.
Rule 19 analysis has two steps. We first determine whether
an absent party is “required,” FED R. CIV. P. 19(a), and, if so,
we ask “whether, in equity and good conscience, the action
should proceed among the existing parties or should be
dismissed.” FED R. CIV. P. 19(b).
A party is “required” under Rule 19(a)(1) if it meets either
of two conditions:
(A) in that person’s absence, the court cannot accord
complete relief among existing parties; or
(B) that person claims an interest relating to the subject
of the action and is so situated that disposing of the
action in the person’s absence may:
(i) as a practical matter impair or impede the
person’s ability to protect the interest; or
(ii) leave an existing party subject to a
substantial risk of incurring double, multiple, or
otherwise inconsistent obligations because of
the interest.
FED. R. CIV. P. 19(a)(1).
Hungary’s interest in the action fits Rule 19(a)(1)(B)’s
general description, as well as the particular risk identified in
subclause (B)(i). First, Hungary “claims an interest relating to
the subject of the action” because it asserts ownership rights
over the disputed artworks and seeks to avoid liability on the
17
family’s claims that Hungary unlawfully took them. See FED.
R. CIV. P. 19(a)(1)(B); Appellants’ Br. 34–41. Those interests
raise the question whether Hungary is so situated that
proceeding in its absence might lead to one of the problems
identified in subclause (B)(i) or (ii). Defendants invoke
subclause (B)(i), asserting this litigation might “as a practical
matter impair or impede [Hungary’s] ability to protect the
interest[s]” it claims. FED. R. CIV. P. 19(a)(1)(B)(i). Whether
Hungary has an interest that might be impaired sounds like but
is importantly distinct from a second inquiry, described below,
as to whether the remaining parties are positioned to protect
Hungary’s interests. Rule 19(a) calls for identification of
potential prejudice, whereas Rule 19(b) requires weighing of
the risk of prejudice with other factors to make an equitable
determination whether the case must be dismissed.
We conclude that deciding the tort-based conversion
claims in Hungary’s absence could impair its ability to protect
its asserted interests in the artworks. Generally, under Rule 19
“it is not necessary for all joint tortfeasors to be named as
defendants in a single lawsuit.” Temple v. Synthes Corp., 498
U.S. 5, 7 (1990) (per curiam). But Hungary claims a proprietary
interest in the same artworks that the family seeks to recover.
Because Hungary and the family stake out “opposing,
irreconcilable claims to the same” property, resolving this
litigation in Hungary’s absence undoubtedly could impede
Hungary’s ability to protect its interest in such property. See
Wach v. Byrne, Goldenberg & Hamilton, PLLC, 910 F. Supp.
2d 162, 169 (D.D.C. 2012) (“[T]he Court easily finds [the
absent party] to be a ‘required’ party . . . because Plaintiff and
[the absent party] lay opposing, irreconcilable claims to the
same portion of the limited settlement proceeds.”); see also
Brown v. Christman, 126 F.2d 625, 631 n.23 (D.C. Cir. 1942)
(“Generally, where the action involves a determination of
18
conflicting interests of beneficiaries in a trust fund, the
beneficiaries are held to be necessary parties.”).
The contract-based bailment claims have similar potential
to affect Hungary’s interests. The parties contest whether the
family’s bailments were with Hungary or with representatives
of the Hungarian museums. In either event, Hungary claims
ownership of the same artworks that the family seeks to
recover. As an absent party, Hungary cannot itself make
arguments or present evidence in defense of its ownership
claim. Impaired in its ability to protect interests it asserts here,
it qualifies as a “required” party for purposes of Rule 19(a).
That raises the question whether the action may “in equity
and good conscience” proceed in Hungary’s absence. FED. R.
CIV. P. 19(b). We answer that question based on Rule 19(b)’s
four factors:
(1) the extent to which a judgment rendered in the
person’s absence might prejudice that person or the
existing parties;
(2) the extent to which any prejudice could be lessened
or avoided by:
(A) protective provisions in the judgment;
(B) shaping the relief; or
(C) other measures;
(3) whether a judgment rendered in the person’s
absence would be adequate; and
(4) whether the plaintiff would have an adequate
remedy if the action were dismissed for nonjoinder.
19
FED. R. CIV. P. 19(b). Application of these factors confirms that
Hungary is not an indispensable party, so the suit may in equity
and good conscience proceed in its absence.
Whether proceeding in Hungary’s absence might
prejudice Hungary’s interests is the core of the parties’ Rule 19
dispute. The first Rule 19(b) factor asks whether a party might
suffer prejudice not simply from an adverse result, but
specifically from the decision being “rendered in [its]
absence.” The presence of remaining defendants with interests
virtually identical to Hungary’s obviates any such risk here.
Courts recognize that “prejudice to absent parties approaches
the vanishing point” when “the absent and remaining parties’
interests are aligned in all respects,” American Trucking Ass’n,
Inc. v. New York State Thruway Authority, 795 F.3d 351, 360
(2d Cir. 2015) (internal quotation marks omitted), including in
cases in which the absent party is an immune sovereign, see
Gensetix, Inc. v. Board of Regents of University of Texas
System, 966 F.3d 1316, 1326 (Fed. Cir. 2020); Alto v. Black,
738 F.3d 1111, 1127 (9th Cir. 2013). The logic is
straightforward: If a party remaining in the case is both capable
of and interested in representing the interests of the absent
party, the party’s exit or exclusion from the suit exposes it to
no additional risk of an adverse decision.
Hungary’s interests are closely aligned with those of the
remaining defendants in this litigation, particularly MNV. The
allegations and the course of the litigation thus far show that at
every stage of the case, and even in related litigation twenty
years ago, MNV has made controlling decisions for all
defendants, including Hungary. See Remand II, 2020 WL
2343405, at *15; Am. Compl. ¶ 36, J.A. 499–500; Deposition
of Dr. Zoltán Molnar 27–28, 45–46, de Csepel v. Hungary, No.
10-cv-01261 (D.D.C. Mar. 23, 2018), ECF No. 153-24, J.A.
3529–32. Hungary’s State Property Act appears to require that
20
MNV represent Hungary in civil actions involving state
property. State Property Act § 17(1)(e); Declaration of Zoltán
Novák 51, de Csepel v. Hungary, No. 10-cv-01261 (D.D.C.
Mar. 23, 2018), ECF No. 148-29, J.A. 2977. MNV is thus
“fully able” to “step into [Hungary’s] shoes and protect
[Hungary’s] interests.” Gensetix, 966 F.3d at 1326. MNV is
both “capable of and willing to make [all of Hungary’s]
arguments.” Alto, 738 F.3d at 1127 (internal quotation marks
omitted).
Defendants assert that Hungary’s interests are distinct
insofar as Hungary purports to own the disputed artworks that
MNV, the museums, and the university merely possess on its
behalf. Appellants’ Br. 48; Reply Br. 17. But Defendants have
not identified how that distinction could impair Hungary’s
interests. At bottom, both Hungary and the remaining
defendants seek the same result: to retain the artwork and avoid
any monetary, equitable, or declaratory relief. Defendants thus
have “the incentive to make every argument on the merits that
the absent [Hungary] would or could make.” Two Shields v.
Wilkinson, 790 F.3d 791, 799 (8th Cir. 2015) (internal
quotation marks omitted).
Defendants nonetheless argue that dismissal is compelled
here by Republic of Philippines v. Pimentel, 553 U.S. 851(2008). That case was an interpleader action by Merrill Lynch
in the face of dueling claims to a brokerage account former
President of the Republic of the Philippines Ferdinand Marcos
had created with the firm. Id. at 857–59. Human rights victims
sought to enforce a $2 billion default judgment against the
account, whereas the Philippine government asserted a
competing claim that the account comprised Marcos’ unlawful
gains from abuse of office that were properly forfeited to the
government ab initio. Id. The sovereign was a “required” party
under Rule 19(a), id. at 863, so the analysis focused on whether
21
under Rule 19(b) the case could proceed “in equity and good
conscience” without it, id. at 864. The Court recognized the
importance of a sovereign’s “[c]omity and dignity interests”
under international law, especially in suits arising “from events
of historical and political significance” for the sovereign. Id. at
866. “[W]here sovereign immunity is asserted, and the claims
of the sovereign are not frivolous,” the Court declared,
“dismissal of the action must be ordered where there is a
potential for injury to the interests of the absent sovereign.” Id.
at 867. That declaration, Defendants assert, spells the end of
this case.
Pimentel cannot bear the weight Defendants place on it.
Pimentel itself reaffirmed that, in assessing the potential for
injury, the equitable character of Rule 19(b)’s non-exhaustive
list of factors “indicates that the determination whether to
proceed will turn upon factors that are case specific.” 553 U.S.
at 863–64. Defendants contend that “[b]ecause Hungary (1) is
an immune sovereign, (2) has a significant interest in its
cultural patrimony, and (3) is a required party, the action must
be dismissed.” Appellants’ Br. at 45 (emphasis in original). But
if the Philippine government’s sovereign interest in the
disputed issues were alone dispositive in Pimentel, as
Defendants assert, the Court would have ended the inquiry
there. Instead, it proceeded to weigh each of the Rule 19(b)
equitable factors. Id. at 865–72.
Importantly, the Court in Pimentel examined what, if
anything, might protect the Philippines’ interests were the case
to proceed in its absence. The key Rule 19(b) factors for that
purpose were the first two — potential prejudice, and measures
to mitigate it. As to the potential prejudice from proceeding in
the Philippines’ absence, the Supreme Court noted that the
court of appeals had effectively brushed off any sovereign
interest in claims it thought were likely time barred. The
22
Supreme Court deemed that approach impermissible as a
matter of law:
[I]t was improper to issue a definitive holding
regarding a nonfrivolous, substantive claim
made by an absent, required entity that was
entitled by its sovereign status to immunity
from suit. That privilege is much diminished if
an important and consequential ruling affecting
the sovereign’s substantial interest is
determined, or at least assumed, by a federal
court in the sovereign’s absence and over its
objection.
Id. 868–69. On the second factor — the availability of
measures to lessen or avoid the prejudice — the Court
determined that there was “no substantial argument” in favor
of allowing the “action to proceed,” and noted that “[n]o
alternative remedies or forms of relief have been proposed to
us or appear to be available.” Id. at 870.
Critically, in Pimentel no party with interests aligned with
the Philippine government’s remained in the case to guard
against prejudice in its absence. The interests of the remaining
defendants — principally the company former President
Marcos had created to hold the embezzled funds at issue —
were contrary to those of the Philippine government. And even
interpleader plaintiff Merrill Lynch had refused an express
governmental request to place the money in escrow — a step
that might have mitigated the risk the government faced. Id. at
858–59.
The parties’ configuration in this case is very different, and
the Rule 19(b) inquiry here comes out the other way.
Hungary’s interests are so aligned with those of the remaining
defendants that the latter will vigorously protect Hungary’s
23
interests by pressing their own. The district court
acknowledged Hungary’s sovereign interests. It spelled out
why those interests were not at greater risk in Hungary’s
absence. And it identified how relief could be tailored if needed
to further reduce any potential prejudice. Remand II, 2020 WL
2343405, at *14–17. That is the kind of “case specific” analysis
identifying “substantial argument[s]” for allowing the “action
to proceed” that Pimentel requires. 553 U.S. at 863, 870.
Defendants garner no better support from Kickapoo Tribe
of Indians of Kickapoo Reservation in Kansas v. Babbitt, 43
F.3d 1491 (D.C. Cir. 1995). There, as in Pimentel but unlike
here, the interests of the remaining defendants were misaligned
with those of the absent sovereign. The Kickapoo Tribe sued
the U.S. Secretary of Interior for failing to timely approve a
compact it had negotiated with the Governor. Id. at 1493–94.
At the Secretary’s urging, we dismissed that suit under Rule 19
as unable to proceed in Kansas’s absence.
Just as we acknowledge that Hungary has an interest here,
in Kickapoo we started from the premise that “the State of
Kansas has an interest in the validity of a compact to which it
is a party, and this interest would be directly affected by the
relief that the Tribe seeks.” Id. at 1495. The problem in
Kickapoo was that the district court “assumed” that in Kansas’s
absence the Governor, who remained a party, “ha[d] the best
interests of the State in mind,” so adequately represented
Kansas’ interests. Id. at 1497. The reality was that the Governor
had legally defined interests that diverged from the State’s.
Indeed, the Kansas Supreme Court had squarely ruled that,
although the Governor could negotiate with the Kickapoo
Tribe, he lacked authority to finalize binding compacts on
Kansas’s behalf. Id. at 1494, 1499. We accordingly held that
the district court’s Rule 19(b) analysis, based as it was on
“assuming that the Governor could adequately represent the
24
interests of the State in entering the compact[,] was contrary to
the controlling state law.” Id. at 1498. The mistaken
assumption that required reversal in Kickapoo is absent here,
where Hungarian law confirms that the interests of the
government and the remaining defendants are indeed closely
aligned.
Finally, Defendants argue that the suit must be dismissed
because damages awarded against them would as a practical
matter ultimately be paid by Hungary. Even if that prediction
is correct, Defendants’ theory runs aground on two shoals.
First, Defendants are not themselves entitled to sovereign
immunity. As discussed above, they fulfill commercial
functions. Cf. Transaero, 30 F.3d at 153 (explaining that
entities with commercial core functions are considered
agencies or instrumentalities rather than foreign states
themselves); Roeder, 333 F.3d at 234 (same). Hungarian law
treats them as legal entities separate from the Hungarian
government, able to sue and be sued on the same terms as
private entities. Somody Decl. at 2, J.A. 3231. As the district
court observed, MNV is “not so integral to Hungary’s political
structure that it should be considered Hungary’s political
subdivision.” Remand II, 2020 WL 2343405, at *16 (internal
quotation marks omitted), J.A. 4071. Rather, all of the
remaining defendants, as agencies or instrumentalities of
Hungary, have more limited immunity than the sovereign state
itself.
Second, and relatedly, Defendants’ effort to assimilate
themselves to Hungary based on their assertion that the
government pays their bills contravenes the FSIA. As
described above, the expropriation exception has two clauses,
separately identifying the circumstances under which a foreign
sovereign may be sued and those that would allow suit against
25
a foreign sovereign’s agencies or instrumentalities. 28 U.S.C.
1605(a)(3). The district court explained how that statutory
distinction matters here: “If an agency or instrumentality with
some budgetary ties to the sovereign could never be sued unless
the sovereign itself were also a party, it would be pointless for
the FSIA to treat immunity for agencies and instrumentalities
differently than for foreign states.” Remand II, 2020 WL
2343405, at *17. A “typical government instrumentality” sued
under the second clause may, for example, require
“appropriations to provide capital or to cover losses,” First
National City Bank v. Banco Para El Comercio Exterior de
Cuba, 462 U.S. 611, 624 (1983); see also, e.g., Smith, 279 F.
Supp. 3d at 296–98; Agudas, 729 F. Supp. 2d at 146–48, but
that prospect does not serve to collapse the distinction the
statute reflects.
Contrary to Defendants’ assertions, see Appellants’ Br. 51,
the Supreme Court’s decision in Mine Safety Appliances Co. v.
Forrestal, 326 U.S. 371 (1945), respects that distinction. The
defendant Secretary of the Navy in that case was the head of a
political subdivision of the government — not an agency or
instrumentality — so the Court considered a suit against him
for payments withheld from the plaintiff, a repeat government
contractor, as effectively a suit against the sovereign. The
Secretary withheld the disputed payments to recoup unlawfully
excessive profits the contractor-plaintiff had received on prior
contracts. The plaintiff challenged that withholding as “a tort
by the Secretary, acting as an individual and not as an officer
of the government, consisting of a trespass against [the
plaintiff’s] property.” Id. at 373. The Court recognized that a
trespass suit against a government official in his individual
capacity might not be barred, but that no such case was before
it. Rather, the “sole purpose” of the claim against Secretary
Forrestal was to force payment “of money lawfully in the
26
United States Treasury to satisfy the government’s and not the
Secretary’s debt.” Id.This case, by contrast, presents the very category of suit
that Mine Safety would permit. For the reasons explained
above, each of the defendants is an agency or instrumentality,
not entitled as was the Secretary of the Navy in Mine Safety to
partake of the sovereign’s immunity. And here, unlike in Mine
Safety, the allegations that MNV, the museums, and the
university are unlawfully withholding the family’s artworks do
in fact “make out a threatened trespass against [the family’s]
property” by MNV, the museums, and the university. Id. at
374.
In sum, Hungary’s absence from this litigation does not
give rise to Rule 19(b) prejudice. Hungary is not likely to suffer
because its interests are in complete alignment with those of
the remaining defendants. Hungary’s sovereign interests must
be “accord[ed] proper weight.” Pimentel, 553 U.S. at 869. But
in this case, those interests are not placed at risk due to
Hungary’s absence. We therefore conclude that this first Rule
19(b) factor cuts in favor of allowing the suit to proceed.
The other Rule 19(b) factors similarly weigh in favor of
the suit proceeding. The second factor directs courts to consider
ways in which relief might be fashioned to reduce any potential
prejudice to the absent or remaining parties. FED. R. CIV. P.
19(b)(2). As the Supreme Court recognized in Pimentel,
“alternative forms of relief, including the granting of money
damages rather than specific performance [and] the use of
declaratory judgment,” may mitigate prejudice to absent
parties, including sovereigns. 553 U.S. at 870. Such mitigation
is available here. The district court observed that “limiting
plaintiffs’ remedies to damages” as necessary could “further
reduce[] any prejudice or risk of inconsistent obligations.”
27
Remand II, 2020 WL 2343405, at *15. We do not prematurely
pass on the necessity of any remedial limitation, but merely
note that Defendants give no reason to doubt the district court’s
remedial flexibility.
On the third factor, we conclude that the court could enter
“adequate” relief in Hungary’s absence. FED. R. CIV. P.
19(b)(3). Here, adequacy refers not “to satisfaction of [the
family’s] claims,” but “to the ‘public stake in settling disputes
by wholes, whenever possible.’” Pimentel, 553 U.S. at 870(quoting Provident Tradesmens Bank & Trust Co. v. Patterson,
390 U.S. 102, 111 (1968)). As explained above, various stages
of this litigation have focused on distinct jurisdictional
questions relating to the various artworks, but the suit as a
whole seeks full resolution of the family’s claims to the
relevant artworks. Proceeding with the suit thus promotes “‘the
efficient administration of justice and the avoidance of multiple
litigation’” in United States courts. Pimentel, 553 U.S. at 870(quoting Illinois Brick Co. v. Illinois, 431 U.S. 720, 738
(1977)).
Lastly, we consider whether the family would have any
opportunity to receive the relief it seeks if this suit were
dismissed. FED. R. CIV. P. 19(b)(4). If it could not pursue its
claims in a United States court, the family would be remitted
to the administrative and judicial processes available in
Hungary. We agree with the district court that those efforts
likely “would be futile.” Remand II, 2020 WL 2343405, at *15.
Administrative compensation was not available in Hungary
when the family brought this suit, and the Hungarian court that
adjudicated the claims of another family member, Martha
Nierenberg, “determined that returning the paintings to
Nierenberg was made impossible by customs laws protecting
cultural patrimony.” de Csepel v. Republic of Hungary, 169 F.
Supp. 3d 143, 170 n.15 (D.D.C. 2016).
28
We therefore affirm the district court’s denial of the Rule
12(b)(7) motion to dismiss for failure to join a necessary party.
IV.
Defendants further seek our review of the district court’s
denial of the Rule 12(b)(6) motion to dismiss for failure to
exhaust potential remedies in Hungary, arguing that principles
of international comity require prudential exhaustion. In Simon
and Philipp, we held that cases against foreign states under the
FSIA are not subject to a prudential exhaustion requirement.
Simon v. Republic of Hungary, 911 F.3d 1172, 1180–82 (D.C.
Cir. 2018); Philipp v. Federal Republic of Germany, 894 F.3d
406, 416 (D.C. Cir. 2018). The district court thus correctly
determined that, at the time of its decision, “[b]inding Circuit
precedent foreclose[d] defendants’ argument that prudential
exhaustion bar[red] plaintiffs’ claims.” Remand II, 2020 WL
2343405, at *33 (first citing Simon, 911 F.3d at 1181; and then
citing Philipp, 894 F.3d at 415). The Supreme Court has since
vacated both of those decisions on other grounds. Federal
Republic of Germany v. Philipp, 141 S. Ct. 703 (2021);
Republic of Hungary v. Simon, 141 S. Ct. 691 (2021) (per
curiam). As a formal matter, that vacatur reopens the issue in
this circuit. Because requiring exhaustion would result in the
dismissal of the suit, we deem it appropriate to address this
issue now. See 28 U.S.C. § 1292(b).
We reaffirm our holdings and rationales in Simon and
Philipp that the FSIA does not require prudential exhaustion in
suits against foreign states. The FSIA “replac[ed] the old
executive-driven, factor-intensive, loosely common-law-based
immunity regime” with a “‘comprehensive set of legal
standards governing claims of immunity in every civil action
against a foreign state.’” Republic of Argentina v. NML
Capital, Ltd., 573 U.S. 134, 141 (2014) (quoting Verlinden
29
B.V. v. Central Bank of Nigeria, 461 U.S. 480, 488 (1983)).
“Thus, any sort of immunity defense made by a foreign
sovereign in an American court must stand on the Act’s text.
Or it must fall.” Id. at 141–42. In particular, “[w]hen Congress
wanted to require the pursuit of foreign remedies as a predicate
to FSIA jurisdiction, it said so explicitly.” Simon, 911 F.3d at
1181; accord Philipp, 894 F.3d at 415. The terrorism
exception, for example, requires a claimant to first “afford[] the
foreign state a reasonable opportunity to arbitrate the claim.”
28 U.S.C. § 1605A(a)(2)(A)(iii); see also id. § 1350 note § 2(b)
(Under the Torture Victim Protection Act, “[a] court shall
decline to hear a claim under this section if the claimant has not
exhausted adequate and available remedies in the place in
which the conduct giving rise to the claim occurred.”). The
FSIA expropriation exception contains no such exhaustion
requirement. See id. § 1605(a)(3). It is not our place to add one.
We therefore affirm the district court’s denial of the motion to
dismiss based on prudential exhaustion.
V.
Both the Defendants and the family also ask us to review
now the district court’s determinations asserting or declining
jurisdiction over specific artworks. We need not review those
fact-bound determinations on this interlocutory appeal. None
“involves a controlling question of law as to which there
is substantial ground for difference of opinion” such that
immediate appellate review will “materially advance the
ultimate termination of the litigation.” 28 U.S.C. § 1292(b).
VI.
For the foregoing reasons, we grant the petition for
permission to appeal as to the district court’s determinations
that the suit may proceed under Rule 19, that the family may
30
amend its complaint to add MNV as a defendant, and that
prudential exhaustion is not required; we deny the petition and
conditional cross-petition for permission to appeal as to the
district court’s determinations of jurisdiction over individual
artworks. We affirm the district court on each of the issues
appealed.
So ordered.