Case Review: de Csepel v. Republic of Hungary

May 3, 2019

By Mia Guttmann

Full citation: de Csepel v. Republic of Hungary, 859 F.3d 1094 (D.C. Cir. 2017), cert. denied, (U.S. Jan. 7, 2019) (No.17-1165).

The Second World War ended seventy-four years ago, but the process of art restitution is still ongoing. Survivors and their heirs have long-tried to retrieve works and claim jurisdiction within the United States seeking exceptions to the Foreign Sovereign Immunities Act (‘FSIA’). The legislative interpretations of the act are imperative for families seeking justice, depending on how the courts interpret the language, plaintiffs are subjected to either more or less stringent requirements to enable claims to be brought against foreign sovereigns. This article analyzes the FSIA’s impact on one family’s quest to regain an art collection stolen by the Republic of Hungary.

One of the largest private collections stolen during the Second World War was formed by Baron Mór Lipót Herzog, a Jewish Hungarian art collector.^[i] At its peak, the collection contained approximately 2,500 pieces, including works by artists including El Greco, Renoir, Courbet, and Lucas Cranach the Elder. Today it would be worth approximately $100 million.^[ii] When Herzog died in 1934, his collection was bequeathed to his wife, the Baroness, until her death in 1940. Afterward, the collection was divided between the Herzog’s three children, Erzsébet, who married Alfonz Weiss de Csepel in 1920, István, and András.

Hungary and its Jews

Amidst unfolding family affairs, a larger force would lay claim to the immense collection, as Hungary joined the Axis powers on September 27, 1940. Even before becoming an Axis power, Hungary had restricted its Jewish citizens. In the 1920s, Hungary implemented a Numerus Clausus law, which limited the number of Jews allowed to attend University.^[iii] And anti-Semitic laws continued to be passed in Hungary through the years leading up to the war, culminating with the passage of laws modeled on the now infamous Nuremberg Laws, which were German laws instituted in 1935 to protect the German blood and honor by prohibiting, among other things, marriage between Jews and Non-Jews.^[iv]

Hungary’s involvement in the destruction of its Jewish citizenry during WWII is undeniable.  Of the approximately 825,000 Jews in Hungary in 1941, an estimated 63,000 were killed or died prior to Germany’s invasion in March of 1944.^[v] After the German occupation, the Nazis, with the assistance and participation of the Hungarian government, killed an additional 500,000 Jews.^[vi] Despite Hungary’s short time as an Axis power, less than one-third of Hungarian Jews survived the war.^[vii]

The Theft of the Herzog Collection

In 1943, the Herzogs, with the foresight of the Jews precarious status in Hungary, attempted to protect their collection by hiding the bulk of the art in a cellar of one of the family’s factories in Budafok.^[viii] And in May of 1944, their fears were realized when the decree of 1830/1944, “On the Recording and Safeguarding of Impounded Art Objects of Jews,” was implemented.^[ix] The decree required Jews to register all art objects in their possession. Despite the Herzog’s efforts, the collection was discovered and seized under the decree.^[x] The property was collected by the Commission for Art Objects, headed by Dénes Csánky, who was then the director of Hungary’s Museum of Fine Arts.^[xi]A portion of the works were sent to Germany and the rest were intended to be “safeguarded,” by Hungary’s Museum of Fine Art.^[xii] However, those tasked with safeguarding the Herzog property had not only been complicit in the theft, but had had other plans for the collection. In the pro-Nazi paper, Magyarság, Director Csánky stated that “the Mór Herzog collection contain[ed] 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.” ^[xiii] Although many of the best works were sent to Germany, under the instruction of Adolf Eichmann, the remainder of the collection was given to Hungary’s Museum of Fine Arts. ^[xiv]

By 1943, one of the Herzog children, András, had already been killed, after being deported to a forced labor camp and subsequently died on the Eastern Front.^[xv] With their possessions stripped and in imminent danger, the rest of the Herzog family chose to flee Hungary.^[xvi] When they escaped, the family dispersed, eventually settling in the United States, Switzerland, and Italy.

After the War

After Germany surrendered in May 1945, the Allied Forces recovered some artworks belonging to the Herzog collection within Germany and returned the works to their country of origin, Hungary.^{[xvii][xviii]} The Allies intended that Hungary would act as a temporary custodian.^[xix] Hungary reinforced its role as a custodian when it signed the Peace Treaty of 1947. The treaty reiterated the Allies’ sentiment that looted property would remain with Hungary as a trustee, with no transfer of ownership and the property would only remain with Hungary only until the rightful owner could be located.^[xx]

Prior to the end of the war, Hungary was invaded by Soviet troops. And when the war ended, Hungary became part of the Eastern Bloc, which further hindered the Herzog family’s ability to determine what became of their possessions.^[xxi]   Some Herzog heirs had attempted to claim their property after the war, but they faced persecution by Hungarian officials, including false allegations of smuggling. The harassment abated when the heirs agreed to allow the works to remain with Hungary’s museums for “safekeeping.”^[xxii] During that time, many of the Herzog artworks were put on display at the Hungarian National Gallery and the Museum of Fine Arts in Budapest, with plaques that attributed the art to the “Herzog Collection.”^{[xxiii] [xxiv]}  In 1989, when Hungary opened its borders to the West, the Herzog family were able to resume looking for their stolen treasures.

Taking it to Court: Hungary

Erzsébet Weiss de Csepel, Baron Herzog’s daughter and heir, attempted to negotiate with the Hungarian government for the return of her property. By 1992, she successfully  retrieved six paintings and a wood sculpture, although all these works were attributed to lesser-known artists.^[xxv] Martha Nierenberg, Weiss de Csepel’s daughter, acting as a representative to some of the Herzog heirs, initiated legal proceedings in Hungary to retrieve ten paintings. During the 2005 proceeding in the Metropolitan Court of Budapest, the court determined that the family had a valid claim to some of the artworks.^[xxvi] However, in 2008, the Metropolitan Appellate Court reversed the lower court’s decision. The court cited two reasons for reversal: (1) the court claimed that the Herzogs had been compensated for their stolen artworks in an executive agreement brokered between the United States and Hungary in 1973; and (2) the court determined that Hungary and its institutions had acquired possession of the art through adverse possession, a legal means of obtaining ownership by possessing the property of another for an extended period of time.^[xxvii]

Hungary’s Restitution Claims

Hypocritically, while Hungary held the stolen Herzog collection in its museums, it still expected other countries to honor Hungary’s World War Two-era restitution claims. In 1998, the Hungarian government brought an action against the Montreal Museum of Fine Arts for its possession of The Wedding Feast at Cana by Giorgio Vasari, an artwork stolen from the Budapest Museum of Fine Arts. The Montreal Museum claimed that it had purchased the work in good faith in 1963. Before the purchase, the Montreal Museum attempted to research the artwork’s provenance, but at the time of purchase, information on works stolen from Hungary was scarce due the impediment of the Cold War.^[xxviii] In an attempt to resolve the dispute amicably, the Montreal Museum proposed to co-own the painting, but Hungary refused.^[xxix] Meanwhile, Hungary refused to loan works to Canada. To resolve the conflict, in 1999, the federal government of Canada purchased the painting and gave it to the Hungarian Prime Minister Viktor Orban.^[xxx] In a similar vain, the Sarospatak books, which were looted from Hungary by either the Soviets or the Germans, were found in Russia and restituted to Hungary.^[xxxi]

The return of Hungary’s property has been the result of the international community’s attempts to rectify the mistakes of the Second World War. Numerous conferences addressing issues of art restitution have enabled Hungary to benefit. Hungary itself has sent delegates to participate in these international conferences and has committed itself to restituting stolen works. At the Washington Conference on Holocaust-Era Assets, in 1998, the Hungarian delegation stated:

The Hungarian Government is fully committed to the restitution or compensation of Holocaust victims concerning cultural assets. For managing this complex task – which includes scholarly research, political decision-making, bill drafting, and negotiations … [and] contacts with Holocaust survivors, etc. — a state commissioner will be designated.^[xxxii]

Despite these public statements, in 2018, Stuart E. Eizenstat, advisor to the State Department, which sponsored the Washington Conference, admonished Hungary for its lack of commitment to the Washington Principles. ^[xxxiii]

Taking it to Court: Washington D.C.

When the Herzog litigation in Hungary failed, David de Csepel, an American heir of Baron Herzog’s daughter, along with two other family members who reside in Rome, brought an action in the United States District Court for the District of Columbia against the Republic of Hungary, the Hungarian National Gallery, the Museum of Fine Arts, the Museum of Applied Arts, and the Budapest University of Technology and Economics.^[xxxiv] The complaint filed in 2010 has resulted in back-and-forth litigation that continues to this day and has mainly focused on whether or not the United States has jurisdiction to hear the case.^[xxxv]

In 2013 and 2016, the District Court examined the Hungarian court’s two key defenses for retaining its possession of the artworks. First, with respect to the 1973 Agreement, the District Court determined the agreement did not bar the Herzog lawsuit because the agreement referred to property taken from United States citizens.^[xxxvi]The agreement was a final settlement for property stolen during the Second World War, and therefore, Hungary argued the Herzog heirs were precluded from seeking reparations in the United States.^[xxxvii] Hungary contended that since Erzsébet Weiss de Csepel was a United States citizen when the agreement went into effect she was preempted from bringing a claim. However, the District Court disagreed, finding that the agreement only settled the claims of people who were United States citizens at the time of the injury.^[xxxviii] Since Erzsébet and her siblings were all Hungarian citizens during the Second World War, they were not precluded from litigating in the United States.^[xxxix]

Next, the court addressed the Republic of Hungary’s second argument which was that it had obtained ownership of the works through adverse possession. However, the U.S. Court of Appeals for the D.C. Circuit easily dismissed this argument, holding that Hungary could not obtain ownership through its violation of international law in preparation of genocide.^[xl] Although  both of Hungary’s defenses failed, the D.C. Court of Appeals in 2016 held that Hungary did not have sufficient commercial activity within the United States under the exception to the FSIA to establish valid jurisdiction.^[xli]

Interpreting the Expropriation Exception of the FSIA

The latest decision in the Herzog case was the denial of certiorari by the U.S. Supreme Court in January 2019.^[xlii] The Herzogs wanted the Supreme Court to revisit the FSIA’s commercial nexus requirement.^[xliii] Under the expropriation exception under §1605 (a)(3) of the FSIA, to qualify for the exception, two requirements must be satisfied. The first is that the property must have been “taken in violation of international law.”^[xliv] The second, the commercial nexus requirement, has sparked a minor dispute within the D.C. Circuit.^[xlv] The statute reads as follows:

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. ^[xlvi]

The ambiguity arises from the statute’s “or” provision. The statute either states that to establish jurisdiction over a foreign state the property must be “present in the United States” or “such property is owned or operated by an agency…of the foreign state and that agency…[that] is engaged in a commercial activity in the United States.”^[xlvii] Alternatively, the use of “or” may indicate that there are two separate commercial nexus requirements, one more stringent requirement for the foreign state, requiring the property itself be within commerce in the United States. While the other requirement is to establish jurisdiction over the state’s instrumentalities and agencies. In order to satisfy the commercial nexus the defendant must only be engaged in United State’s commerce. ^[xlviii]

In 2017, the D.C. District Court in Philipp v. Federal Republic of Germany held that the nexus requirement could be satisfied by either commercial requirement.^[xlix] However, the court noted that this issue could be readdressed at a later junction in the litigation.^[l] That junction was soon approached when the case reached the D.C. Circuit Court on appeal. The court reversed the lower decision, holding that the statute articulates a separate commercial nexus for the foreign state and the instrumentality.^[li] In Philip, the plaintiffs were able to sustain their claim against the instrumentalities but could not establish the commercial nexus to sustain an exception to Germany’s immunity.

Now, in the de Csepel case, the Supreme Court refused to address this question, instead, holding that the court of appeals’ decision was correct in that book sales and other commercial activities of a country’s agents are only enough to create a nexus for the instrumentalities but not the foreign state itself.^[lii] In order for the exception from immunity to apply to the state, the FSIA demands a closer and more stringent nexus.^[liii] While this may be politically savvy, it leaves many restitution cases without a means of pursuing justice in the United States. Jurisdiction in the United States is imperative in cases involving countries that refuse to honor their commitments to art restitution because this may be the only means for heirs to receive an impartial adjudication. 

Still, not all hope is lost, although the de Csepel case will not move forward in the US District Court against the Republic of Hungary, it will continue with the Hungarian National Gallery, the Museum of Fine Arts, the Museum of Applied Arts, and the Budapest University of Technology and Economics.^[liv] The lawyers for de Csepel are also amending a complaint from 2017 against the corporate entity, Magyar Nemzeti Vagyonkezelő Zrt, which has ownership rights to the artworks owned by Hungary, and perhaps more importantly, is not subject to immunity under the FSIA.^[lv]

Repercussions in Finding an Exception to Foreign Immunity

Although Hungary’s instrumentalities are subject to the de Csepel lawsuit, other FSIA cases that have proceeded in the United States against a sovereign state’s wishes have ended with foreign nations refusing to participate or abide by US court rulings. Hungary has fought and succeeded in remaining beyond the de Csepel’s reach, but what will become of a verdict rendered against its instrumentalities. For insight into the problems facing the Herzog heirs we can look to the case of Agudas Chasidei Chabad v. Russian Federation, et al. In that case, Chabad, a Jewish religious organization, attempted to reclaim looted religious texts and manuscripts from Russian agencies and instrumentalities.^[lvi] Much like the Herzogs, Chabad originally pursued justice in the country itself, beginning litigation in the Soviet Union during the early 1990s.^[lvii] The Soviet Tribunals ordered the religious texts to be returned to Chabad, however, when the Soviet Union was dissolved, the Russian Federation repealed the decision.^[lviii]

When pursuits in Russia failed, Chabad pursued action in the United States. The U.S. Court of the District of Central California determined that the United States had nexus under the FSIA because agencies and instrumentalities, in this case, the Archives and Library, required the less stringent connection of commercial activities within the United States. However, this finding of jurisdiction was not recognized by Russia or its agencies and resulted in its refusal to participate in the litigation.^[lix] The court continued the trial ex parte, meaning the trial continues and a ruling can be rendered despite the defendant’s refusal to partake.^[lx]Subsequently, the court ruled in favor of Chabad and demanded the return of the collection. Nevertheless, the Russian agencies refused to comply.^[lxi] Fearing that its noncompliance with the verdict would result in an attachment to Russian property within the United States, the Russian government placed a moratorium on Russian art being loaned to the United States.^[lxii] Meanwhile, the court determined that each day that the Russian agencies remained in contempt of court they would accrue a fine of $50,000.^[lxiii] As of September 2015, the amount unpaid was at $43,700,000.^[lxiv] In 2017, Russia considered ending the moratorium claiming the passage of the Foreign Cultural Exchange Jurisdictional Immunity Clarification Act provided sufficient protection to Russian art loaned to the United States. The law provides property taken in violation of international law immunity from jurisdiction within US courts while the property is on loan in the United States.^[lxv] While the law has squashed the moratorium, it also provides protection for governments seeking to skirt their responsibilities and presents an additional obstacle for families from utilizing the FSIA expropriation exception.

The Chabad case elaborates the problem in holding instrumentalities under United States’ jurisdiction while exempting their Sovereigns. Although the de Csepel’s still have Hungary’s instrumentalities to hold accountable, Hungary remains an important consideration if and when a decision is rendered, as Hungary will hold a vital role in the compliance with any decision determined by the US courts.

Conclusion 

Although foreign sovereigns remain difficult to pursue in the United States, their agencies and instrumentalities remain within reach.^[lxvi] The Herzog heirs will continue to pursue Hungary’s three agents in District Court but as state-funded entities, it is unclear how Hungary will react if a decision is ruled against its museums and gallery. Will it be a repeat of Russia’s reaction to the Chabad decision? Or will Hungary seize the opportunity to make amends? If anything, the Herzog saga highlights Hungary’s consistent lack of commitment to rectify the past in accordance with its own assurances.

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^[i] Complaint at 16, de Csepel v. Republic of Hungary, 1:10-cv-01261 (D.D.C. July 27, 2010).

^[ii] Id. at 2.

^[iii] Jackie Mansky, Why it Matters that Hungary’s Prime Minister Denounced his Country’s Role in the Holocaust, Smithsonian.com (July 21, 2017), https://www.smithsonianmag.com/history/holocaust-and-hungary-prime-minister-180964139/.

^[iv] Hungary Before the German Occupation, U.S. Holocaust Memorial Museum, https://encyclopedia.ushmm.org/content/en/article/hungary-before-the-german-occupation.

^[v] Hungary After the German Occupation, U.S. Holocaust Memorial Museum, https://encyclopedia.ushmm.org/content/en/article/hungary-after-the-german-occupation.

^[vi] Id.

^[vii] Id.

^[viii]  Id.

^[ix] de Csepel, 1:10-cv-01261, at 20.

^[x]  Id.

^[xi]  Id. at 21.

^[xii] Id. at 21, 23.

^[xiii] Id.

^[xiv] Id. at 22.

^[xv] Id. at 19.

^[xvi]  Id. at 22.

^[xvii] Id. at 23.

^[xviii] Other works from the Herzog collection were seized by the Soviet army in Germany, those artworks were never recovered.

^[xix] Id.

^[xx] Id.

^[xxi] Id. at 25.

^[xxii] Id. at 24.

^[xxiii] Id.

^[xxiv] The defendants are represented by Irene Tatevosyan, Jessica Walker, Sarah Erickson Andre, Thaddeus Stauber, and Michael Omar Azat of Nixon Peabody LLP  Los Angeles, CA, Emily C. Harlan, Greyson Yeargin, Nixon Peabody, L.L.P., Washington, DC.

^[xxv] Id.

^[xxvi] Hungarian Metropolitan Court, 4.P.20.389/2003/35 (Nov. 16, 2005).

^[xxvii] Hungarian Metropolitan Court of Appeals, 5.Pf.20.499/2006/33 (Jan. 10, 2008).

^[xxviii] Wayne Sandholtz, Prohibiting Plunder: How Norms Change 233 (Oxford Univ. Press 2007).

^[xxix] Id.

^[xxx] Elizabeth Holtzman counsel, Background Memorandum on US Holocaust Survivor’s Battle in Hungary to Recover Nazi-Looted Art for Her Family (June 20, 2007), http://www.commartrecovery.org/docs/hungarybackgroundmemo.pdf.

^[xxxi] Jennifer Otterson, Art Restitution in Hungary: A Comparative Case Study of the Sarospatak Books and the Herzog Collection, Columbia University (2011), http://www.columbia.edu/cu/ece/research/intermarium/vol14/Otterson.pdf.

^[xxxii] Hungary, “Delegation Statement,” in Proceedings of the Washington Conference on Holocaust-Era Assets Delegation Statements Chapter 3, ed. J.D. Bindenagel (Washington D.C.: U.S. Department of State, 1999).

^[xxxiii] William D. Cohan, Five Countries Slow to Address Nazi-Looted Art, U.S. Expert Says, New York Times (Nov. 26, 2018). https://www.nytimes.com/2018/11/26/arts/design/five-countries-slow-to-address-nazi-looted-art-us-expert-says.html

^[xxxiv] de Csepel v. Republic of Hungary, 1:10-cv-01261 (D.D.C. July 27, 2010).

^[xxxv]  Counsel for the plaintiff included Michael Shuster, Sheron Korpus, Alycia Benenati, and Dorit Ungar of KASOWITZ BENSON TORRES & FRIEDMAN LLP.

^[xxxvi] de Csepel v. Republic of Hungary, 714 F.3d 591 (D.C. Cir. 2013). De Csepel v. Republic of Hung., 714 F.3d 591(U.S. App. D.C. 2013).

^[xxxvii]  Id. at 602

^[xxxviii]  Id.

^[xxxix] Id.

^[xl] de Csepel v. Republic of Hungary, 808 F.Supp.2d 113 (D.D.C. 2011).

^[xli] de Csepel v. Republic of Hungary, 169 F.Supp.3d 143 (D.D.C.  2016).

^[xlii] de Csepel v. Republic of Hungary, SCOTUS Blog (Jan.7, 2019), https://www.scotusblog.com/case-files/cases/de-csepel-v-republic-of-hungary/ .

^[xliii] 28 U.S.C. §1605(a)(3) (2012).   

^[xliv] §1605 (a)(3) of the FSIA

^[xlv] Gerald Shalam, A New Forum: The Guelph Treasure Decision and its Impact on Jurisdiction of U.S. Courts over Restitution Claims for Nazi-Looted Art, NYU Journal of Intellectual Property & Entertainment Law (Jan. 2, 2019), https://blog.jipel.law.nyu.edu/2019/01/a-new-forum-the-guelph-treasure-decision-and-its-impact-on-jurisdiction-of-u-s-courts-over-restitution-claims-for-nazi-looted-art/

^[xlvi]  28 U.S.C. §1605(a)(3) (2012).   

^[xlvii] 28 U.S.C. §1605(a)(3) (2012).   

^[xlviii] Shalam, supra.

^[xlix] Philipp v. Fed. Republic of Germany, 248 F. Supp. 3d 59, 19 (D.D.C. 2017).

^[l] Id.

^[li] Philipp v. Fed. Republic of Germany, 894 F.3d 406, 414 (D.C. Cir. 2018).

^[lii] Brief for the United States as Amicus Curiae at 8, de Csepel v. Republic of Hungary, 139 U.S. 784 (2019) (No.17-1165).

^[liii] Id. at 10.

^[liv] Catherine Hickley, Heirs of Baron Herzog Continue Battle for Nazi-Loots Art Collection Despite US Supreme Court Dismissal, The Art Newspaper (Feb. 7, 2019) https://www.theartnewspaper.com/news/fight-goes-on-for-baron-herzog-s-nazi-looted-art-collection.

^[lv] Id.

^[lvi] Agudas Chasidei Chabad of U.S. v. Russian Fed’n, 528 F.3d 934, 942 n.4 (D.C. Cir. 2008).

^[lvii] Irina Tarsis and Elizabeth Varner, Reviewing the Agudas Chasidei Chabad v. Russian Federation, et al. Dispute, American Society of International Law (Mar. 19, 2014),  https://www.asil.org/insights/volume/18/issue/8/reviewing-agudas-chasidei-chabad-v-russian-federation-et-al-dispute#_edn11.

^[lviii] Agudas Chasidei Chabad v. Russian Fed’n, 466 F. Supp. 2d 6, 13 (D.D.C. 2006).

^[lix] Agudas Chasidei Chabad of US v. Russian Fed’n, 729 F. Supp. 2d 141, 143 (D.D.C. 2010).

^[lx] Id. at 144.

^[lxi] Agudas Chasidei Chabad of US v. Russian Fed’n, 915 F. Supp. 2d 148, 149 (D.D.C. Jan. 16, 2013).

^[lxii] Tarsis, supra.

^[lxiii] Nicholas O’Donnel, Russian Art Loans Embargo was Never about US Immunity Law, The Art Newspaper (Feb. 1, 2017) https://www.theartnewspaper.com/comment/russian-art-loans-embargo-was-never-about-us-immunity-law.

^[lxiv] O’Donnel, supra.

^[lxv] Id.

^[lxvi] Hickley, supra.

About the Author: Mia Guttmann is a Spring 2019 legal intern at the Center for Art Law, and a J.D. candidate, 2020, at Benjamin N. Cardozo School of Law. In 2015, she received her master’s in art history from the University of Toronto.