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HAVEN v. RZECZPOSPOLITA POLSKA

United States District Court, Northern District of Illinois, Eastern Division


October 13, 1999

EDWARD HAVEN, ETC., ET AL., PLAINTIFFS,
v.
RZECZPOSPOLITA POLSKA (REPUBLIC OF POLAND), ET AL., DEFENDANTS.

The opinion of the court was delivered by: Shadur, Senior District Judge.

  MEMORANDUM OPINION AND ORDER

Four name plaintiffs — Edward Haven as representative of the Estate of Maksymilian Rechtszafen, Evelyn Ruebner as representative of the Estate of Herbert Prerauer, Allen Welbel and Mark Krug — have brought this putative class action against Rzeczpospolita Polska ("Poland") and Skarb Panstwa, Rzeczpospolita Polska (the State Treasury of Poland, referred to here simply as "Treasury"), charging (1) their wrongful seizure and expropriation of real property owned by plaintiffs or their predecessors and by other Jewish property owners during and shortly after World War II and (2) their interference with and prevention of the performance of insurance contracts between plaintiffs and other class-member property owners on the one hand and insurers Warta S.A. ("Warta") and Powszechny Zaklad Ubezpieczen S.A. ("PZU") on the other. Plaintiffs have also sued Warta and PZU for breach of those property and life insurance contracts.

From the time of their first appearances in this court, all defendants have moved for dismissal for, among other things, a claimed lack of federal subject matter jurisdiction due to foreign sovereign immunity. Because the very nature of a jurisdictional challenge calls for no more than a surface examination (without substantive evaluation) of the abhorrent conduct alleged in the First Amended Class Action Complaint ("Complaint"), this opinion will sketch out those allegations and then turn to the relevant legal analysis. And because that analysis discloses that this court does indeed lack subject matter jurisdiction under the Foreign Sovereign Immunities Act ("Act," 28 U.S.C. § 1330, 1602-1611),*fn1 this action must be and is dismissed.*fn2

Background

Everyone agrees that the four defendants are "foreign states" or "agencies or instrumentalities of foreign states" under the Act: Poland and its Treasury (collectively "Governmental Defendants") as a tautological matter, Warta and PZU (collectively "Insurance Company Defendants") because they were owned and operated by the Polish government during all relevant times. As for plaintiffs, who are alleged to be citizens of the United States and residing here as of the date of the Complaint, nothing in their papers specifies when each plaintiff became a United States national. From the nature of plaintiffs' claim, though, each of them (or his or her predecessor in interest) was a Polish national at the time that the property at issue was expropriated and the applicable policy or policies was or were allegedly breached. That being so, plaintiffs would not be "nationals of the United States" within the coverage of the Agreement Between the United States and Poland Regarding Settlement of Claims of United States Nationals (the "Treaty," 11 U.S.T. 1953).

In that respect, it is true that "nationals of the United States" is not a term expressly defined in the Treaty, nor is there caselaw on the subject. But the Annex to the Treaty provides that "claims of nationals of the United States are rights and interests in and with respect to property nationalized, appropriated or otherwise taken by Poland which, from the date of such nationalization, appropriation or other taking to the date of entry into force of this Agreement, have been continuously owned . . . directly by natural persons who were nationals of the United States." That use of the past tense plainly requires a claimant to establish United States citizenship at or before the time of the alleged taking, as well as continuous ownership of the subject property from the time of the taking until the Treaty's effective date of July 16, 1960. Here plaintiffs have offered no showing to trigger application of the Treaty under those criteria.

To turn now to the background of foreign sovereign immunity in this country, before 1952 all foreign sovereigns were entitled to assert absolute immunity from suit in United States courts (see Verlinden B.V v. Central Bank of Nigeria, 461 U.S. 480, 486, 103 S.Ct. 1962, 76 L.Ed.2d 81 (1983)). Then the 1952 issuance of the Tate Letter*fn3 by the State Department announced an executive policy that would restrict immunity to suits involving the public acts of a foreign sovereign, while eliminating such immunity for commercial acts (see, e.g., Jackson v. People's Republic of China, 794 F.2d 1490, 1493 (11th Cir. 1986)). Nearly a quarter century later (in 1976) Congress entered the picture with the Act, which both (1) codified and clarified that restrictive theory of sovereign immunity and (2) granted subject matter jurisdiction and personal jurisdiction to United States courts over lawsuits and states, respectively, that fall within certain exceptions to sovereign immunity.

This Court's August 24, 1999 memorandam opinion and order ("Opinion") held generally, for the reasons most recently expressed by the Court of Appeals for the District of Columbia, that the Act conferred subject matter jurisdiction over claims arising before 1952. But the Opinion deferred decision as to the applicability of any of the exceptions to sovereign immunity set out in the Act. This opinion now addresses those exceptions.

Lack of Subject Matter Jurisdiction

Foreign countries enjoy a presumption of immunity in United States courts (see, e.g., 28 U.S.C. § 1330 (a) and (b) Moran v. Kingdom of Saudi Arabia, 27 F.3d 169, 172 (5th Cir. 1994)). It is also clear that the Act's exceptions provide the exclusive set of circumstances in which a foreign state will be denied such immunity.*fn4 And although the party seeking immunity retains the burden of persuasion throughout, once a defendant is shown to be a "foreign state" under the Act the burden of production shifts to plaintiff to prove that one of the Act's exceptions to immunity applies (see, e.g., Byrd v. Corporacion Forestal y Industrial de Olancho S.A., 182 F.3d 380, 388 (5th Cir. 1999); Frolova v. Union of Soviet Socialist Republics, 761 F.2d 370, 372 (7th Cir. 1985) (per curiam)).

Here plaintiffs do not challenge defendants' "foreign state or instrumentality" status under the Act, so the burden of production rests on plaintiffs to demonstrate that defendants' claims fall within one of the immunity exceptions. In an effort to meet that burden, plaintiffs contend that subject matter jurisdiction exists pursuant to four of the Act's provisions: (1) the "subject to" exception for international agreements under Section 1604; (2) the waiver exception under Section 1605(a)(1); (3) the commercial activity exception under clause three of Section 1605(a)(2); and (4) the international law violation exception under clause two of Section 1605(a)(3). Those contentions are dealt with in turn.

Section 1604: The Treaty

In an effort to advance economic relations between the two countries, the United States entered into the Treaty with Poland effective July 16, 1960 (11 U.S.T. 53). Poland there agreed to pay $40 million to the United States "in full settlement and discharge of all claims of nationals of the United States . . . against the Government of Poland on account of the nationalization and other taking by Poland of property and of rights and interests in and with respect to property, which occurred on or before the entry into force of this Agreement" (id. Art. I.A, emphasis added).

Both plaintiffs and defendants seek to invoke Section 1604 of the Act in an effort to benefit from application of the Treaty. That statutory provision prescribes the limit on a foreign state's immunity emphasized in the following quotation:

  Subject to existing international agreements to which
  the United States is a party at the time of enactment
  of this Act a foreign state shall be immune from the
  jurisdiction of the courts of the United States and of
  the States except as provided in sections 1605 to 1607
  of this chapter.

Because the Treaty became effective 16 years before the Act's passage, the statute must yield to any conflicting provisions or effects of the Treaty. For their part, plaintiffs claim that the Treaty created an additional "exception" to foreign sovereign immunity because it constituted Poland's waiver of immunity as to all expropriation and related claims. To the contrary, defendants say that all expropriation and related claims of United States nationals were effectively settled by the Treaty. As the following discussion reflects, both sides' contentions miss the mark by a wide margin.

Plaintiffs' Mem. 3 asserts that Poland's entry into the Treaty somehow "waived its immunity and the immunity of defendants PZU and Warta" as to any plaintiff whose claims were not settled by the Treaty — that is, as to any claimant who either was not a United States national by the time of the taking or who did not own property in Poland continuously from the time of the taking until 1960 (Treaty Annex A). Defendants' July 23, 1999 Mem. 23 takes the reverse side of that argument, contending that the Treaty represents a "final settlement by Poland for [all] nationalized property."*fn5 Thus defendants urge that the Treaty bars all such claims by any United States national, no matter when the person obtained citizenship in this country.

In fact the impact of the Treaty is much less extensive — though in different ways — than either party would have it. To abrogate sovereign immunity, an international agreement must expressly state its intention to do so (Amerada Hess, 488 U.S. at 442, 109 S.Ct. 683; Frolova, 761 F.2d at 378 and cases cited there). Hence the scope of the waiver of Polish sovereign immunity contemplated by the Treaty must be coextensive with the class of claims that were settled by the Treaty.

As stated earlier, Poland and the United States engaged in a quid pro quo exchange: Poland's payment of $40 million in return for settlement of the wrongful expropriation (and other related) claims of persons who were United States nationals at the time of the taking and who also owned property in Poland continuously from the time of the taking until 1960. Because plaintiffs and their predecessors were not within that category, plaintiffs' claims were not settled by the Treaty, and by the same token Poland has not, by ratifying the Treaty, waived its immunity as to plaintiffs' claims. None of the authorities cited by either party suggests a waiver of immunity or a settlement of claims by the Treaty beyond the Treaty's clearly stated scope.*fn6 In sum, the Treaty is simply not relevant to this action.

Section 1605(a)(1): Waiver

Plaintiffs also contend that defendants have either expressly or impliedly waived their immunity pursuant to Section 1605(a)(1). That provision negates foreign state immunity in any case:

  in which the foreign state has waived its immunity
  either explicitly or by implication,

  notwithstanding any withdrawal of the waiver which the
  foreign state may purport to effect except in
  accordance with the terms of the waiver.

As with waiver defenses generally, what is required in this area is an intentional and knowing relinquishment of the legal right not to be forced to defend on foreign ground (see, e.g., Princz v. Federal Republic of Germany, 26 F.3d 1166, 1174 (D.C.Cir. 1994), requiring proof of a subjective intent to waive immunity; Castro v. Saudi Arabia, 510 F. Supp. 309, 312 (W.D.Tex. 1980)). Courts have found such a relinquishment in situations where a defendant either itself or through its authorized agent*fn7 expressly waived immunity,*fn8 or failed to assert the defense of immunity in an answer or other responsive pleading,*fn9 or consented to arbitration in a United States forum,*fn10 or consented to the application of United States law,*fn11 or itself brought suit in or used United States courts*fn12 (see generally H.R.Rep. No. 94-1487, at 18 (1976), reprinted in 1976 U.S.C.C.A.N. 6604, 6617).

In this instance there has been no express waiver of immunity by any defendant, either by the Treaty or otherwise. As for the Treaty, the earlier discussion has shown its plain inapplicability to the claims asserted here. And as for any other claimed basis for a finding of

waiver, plaintiffs first offer the disingenuous added argument that their attorney's telephone conversations with two consular employees (both Polish attorneys), during which those employees did not assert Poland's sovereign immunity, constituted an implied waiver of such immunity. But there is nothing to suggest that such officials had either the actual or the apparent authority to waive immunity on behalf of either the Governmental Defendants or the Insurance Company Defendants, nor can such a waiver be reasonably inferred from their orally having raised questions other than sovereign immunity. And similarly, the letter sent ex parte to this Court by the Polish Consul in Chicago before defendants' appearance in this action*fn13 letter that stated (erroneously) an error in plaintiffs' foreign service of process — cannot by any stretch of the term be deemed a "known relinquishment" of foreign sovereign immunity.

None of those actions, either individually or in combination, rises to the level of emphatic consent to the jurisdiction of the United States required by Section 1605(a)(1). As stated in Drexel Buruham Lambert Group Inc. v. Committee of Receivers, 12 F.3d 317, 326 (2d Cir. 1993) (citation omitted), after citing various Courts of Appeals decisions to the same effect, including Frolova from this Circuit:

  [W]e must bear in mind that "the implied waiver
  provision of Section

  1605(a)(1) must be construed narrowly," and that any
  waiver must accordingly be "unmistakable" and
  "unambiguous."

Those authorities teach that courts should be particularly wary of stretching the doctrine of implied consent too far. Carried beyond its intended scope, the implied consent exception to sovereign immunity could subvert the need to establish minimum contacts with a forum.*fn14 Any such extension would impermissibly put foreign states in a position far worse than that of any private person in the United States courts (see, e.g., Chicago Bridge & Iron Co. to Islamic Republic of Iran, 506 F. Supp. 981, 987 (N.D.Ill. 1980)).

Section 1605(a)(2): Commercial Activity

Next plaintiffs urge that defendants' actions fall within the commercial activity exception, more specifically the third clause of Section 1605(a)(2)(emphasis added):

    (a) A foreign state shall not be immune from the
  jurisdiction of courts of the United States or of the
  States in any case —

      (2) in which the action is based upon a commercial
    activity carried on in the United States by the
    foreign state; or upon an act performed in the
    United States in connection with a commercial
    activity of the foreign state elsewhere; or upon an
    act outside the territory of the United States in
    connection with a commercial activity of the foreign
    state elsewhere and that act causes a direct effect
    in the United States.*fn15

But the analysis that follows shows that plaintiffs have double difficulty as to the Governmental Defendants: They fail to satisfy both the "commercial activity" and "direct effect" requirements. And as to the Insurance Company Defendants plaintiffs fail (at least) to satisfy the "direct effect" test.

(1) Commercial Activity

As used in Section 1605(a)(2), "commercial activity" is meant to distinguish activity in what our society would view as governmental, public or sovereign enterprises (such as running police departments or parks) from acts of foreign states t)r their agencies or instrumentalities acting in what we would deem a commercial capacity (such as operating hotels or cruise ships). It is obvious that governmental expropriation of private property under governmental authority — whether legitimate or illegitimate — is the classic type of activity coining under the first rubric and not the second. Whatever else may be said of the Governmental Defendants' alleged conduct, it is not "commercial activity" (see Magnus Electronics, Inc. v. Royal Bank of Canada, 620 F. Supp. 387, 389-90 (N.D.Ill. 1985) and cases cited there). As to the Insurance Company Defendants, of course, the writing of insurance coverage is just as typically an example of private commercial activity, thus forcing consideration of the "direct effect" aspect of the statutory exception.

(2) Direct Effect*fn16

In the portion of their contentions that merits the most careful consideration, plaintiffs seek to read the Act's direct effect requirement as though the economic impact on a United States party, caused by a foreign government's or its instrumentality's actions on its own soil, were itself enough to subject the foreign sovereign or instrumentality to suit here. That possible reading is scarcely one that would do violence to the English language: Damage to the pocketbook can certainly be viewed as a direct effect sustained by the victim of that damage.

But on examination such a statutory construction would prove too much: It would essentially eliminate sovereign immunity as such, for all a United States plaintiff would then have to show would be any economic damage caused by the alleged wrongful conduct of the foreign government or instrumentality in its own territory. As this Court said in Magnus Electronics, 620 F. Supp. at 390 (citation and footnote omitted):

  Due process constraints preclude such a broad sweep
  against private litigants, and it would be anomalous
  indeed if a foreign nation could be haled into court
  here on so slender a connection when a non-sovereign
  could not.

It is scarcely surprising, then, that several Courts of Appeals' opinions have held or indicated that financial injury suffered in the United States is insufficient of itself to meet the direct effect requirement (see the Seventh Circuit's Rush-Presbyterian-St. Luke's Med. Ctr v. Hellenic Republic, 877 F.2d 574, 581-82 & n. 9 (7th Cir. 1989) and such opinions elsewhere as United World Trade, Inc. v. Mangyshlakueft Oil Prod. Ass'n, 33 F.3d 1232, 1237-38 (10th Cir. 1994) and Foremost-McKesson, Inc. v. Islamic Republic of Iran, 905 F.2d 438, 450 (D.C.Cir. 1990)). In that respect the situation here is conceptually comparable to that in Zedan v. Kingdom of Saudi Arabia, 849 F.2d 1511 (D.C.Cir. 1988), where an American citizen had moved to Saudi Arabia to work on a roadway, and at some point during the job an agency of the Saudi Arabian government took over the project and guaranteed payment of plaintiffs contract salary. When the roadway was completed plaintiff returned home to the United States, believing that his remaining pay would be forwarded to him there. It never was. Zedan, id. at 1515 found no direct effect in the United States:

  Appellant's injury, while financial rather than
  personal, was definitely suffered in Saudi Arabia, for
  it was there that the Ministry of Communications
  breached its contract with him. While it is true that
  the breach continued after appellant left Saudi
  Arabia, the breach's effect in the United States
  cannot be said to be direct, for this effect is due to
  an intervening event — appellant's return here.
  See Upton v. Empire of Iran, 459 F. Supp. 264, 266
  (D.D.C. 1978)("The common sense interpretation of a
  `direct effect' is one which has no intervening
  element, but, rather, flows in a straight line without
  deviation or interruption."), aff'd mem., 607 F.2d 494
  (D.C.Cir. 1979).

By like reasoning, plaintiffs' or their predecessors' injuries were suffered in Poland, where their properties were taken and where their insurance contracts were breached. Even though the nonrestitution of the properties and the nonpayment of insurance continued after plaintiffs (or their predecessors in interest) had moved to the United States, under the cases that did not amount to a direct effect in the United States. If anything, plaintiffs may be viewed as having an even lesser claim to such a direct effect than Zedan did, because they (unlike Zedan) were not United States citizens at the time of the original injury. And even closer to borne than Zedan, see the discussion in Princz, 26 F.3d at 1172-73 (adhering to Zedan and to other cases elsewhere standing for the same principle).

None of the cases cited at Plaintiffs' Mem. 21-22 for findings of a direct effect in the United States is analogous to plaintiffs' situation. Each of those scenarios involved a business transaction that initially transpired between a foreign sovereign or instrumentality and a business located in the United States, with either the original contract having called for payment to be made in the United States or the foreign sovereign having sought out the American business. By contrast, here the property involved was located in Poland and the insurance contracts were formed in Poland with Polish citizens. In those circumstances, plaintiffs present desire to be restored or repaid in the United States is irrelevant to the determination of the direct effect of defendants' actions.

That conclusion really flows a fortiori from a case such as Princz, where an American citizen sought money damages for injuries he had suffered and slave labor he had performed while a prisoner in a Nazi concentration camp. Princz, id. at 1172 found that Germany's current use of the United States mail, wire and banking systems to administer pension and other reparation programs for victims of the Third Reich did not give rise to the acquired direct effect in the United States:

  [S]uch activities, conducted years after the alleged
  "commercial activity" giving rise to this suit, can
  not be considered an "immediate consequence" of the
  enslavement of Mr. Princz and others. Again, there are
  too many intervening elements between the asserted
  cause and effect.

This case lacks even that attenuated (and itself inadequate) nexus, for Poland has not launched any such United-States-based activities to right the wrongs identified in the Complaint.

Hence even if the Governmental Defendants' expropriations of plaintiffs' properties had constituted "commercial activities" within the meaning of Section 1605(a)(2), neither those activities nor the Insurance Company Defendants' failure to fulfill the insurance contracts (contracts that were themselves such "commercial activities") had a "direct effect" in the United States in the statutory sense. No defendant's actions thus fail within the commercial activity exception to sovereign immunity. Section 1605(a)(3): International Law Violation

Finally, plaintiffs seek to ground their last predicate for subject matter jurisdiction in Section 1605(a)(3):

    (a) A foreign state shall not be imnmune from the
  jurisdiction of courts of the United States or of the
  States in any case —

      (3) 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.

But the required phrase-by-phrase and clause-by-clause parsing of that provision clearly demonstrates its inapplicability here.

It may be assumed for this purpose (without necessarily deciding) that the "rights in property" of plaintiffs and their predecessors were "taken in violation of international law" and "are in issue" here. Although the Complaint is not predicated on any Polish governmentally-perpetrated genocide that numbered any of the name plaintiffs' antecedents among its victims, plaintiffs do allege the existence of Polish pogroms (both during and after the German-perpetrated Holocaust) that carried out the Polish government's antisemitic policies and that played an integral part in the inability of the plaintiff class members to have obtained any recompense — either in kind or money — for the totally illegal expropriation of Jewish-owned property in Poland.*fn17 It is unnecessary to recite the appalling details that may be found in histories of the period or in the Complaint (or, with many more individualized accounts, in the similar complaint now pending in the United States District Court for the Southern District of New York, Garb v. Republic of Poland, No. CV 99-3487) to see the presence of what have become known as "crimes against humanity" in the modern evolution of international law. And if indeed the Governmental Defendants and the Insurance Company Defendants were implicated in — or were even the beneficiaries of — those crimes, common humanity would also appear to cause them to make reparations in the same way that reparations, at long last, have come or have begun to come from the German government, from German banks and from Swiss banks.

But this Court's authority does not extend to serving as the enforcing agent for matters of conscience, or of justice in the abstract. Just this last Term a Supreme Court majority held that the equitable powers of federal courts are limited to the scope of equity jurisdiction exercised by England's High Court of Chancery at the time of adoption of the Constitution and the enactment of the Judiciary Act of 1789 (Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., ___ U.S. ___, 119 S.Ct. 1961, 1968, 144 L.Ed.2d 319 (1999)) — and history teaches that was an era of complete immunity of foreign sovereigns from suit in this country's courts (Verlinden B.V., 461 U.S. at 486, 103 S.Ct. 1962).

Hence no federal court is vested with a roving commission to force any foreign government to do equity. If any such government fails or refuses to act in its governmental capacity as conscience would command, no federal court is empowered to force it to do so except as Congress has specified. Nor can this Court's decision be driven by the assertions in plaintiffs' Surreply to Defendants' Motions To Dismiss that plaintiffs cannot obtain justice (or even a fair trial) in the Polish courts. Instead this Court remains bound by the jurisdictional limitations imposed by Congress, and this opinion returns to that task.

As for the first alternative contained in Section 1605(a)(3), it is necessary to remember that the "rights in property" that are "in issue" here are (1) Polish real estate and (2) proceeds of insurance that should have been paid for the expropriation of that real estate. But neither "that property" nor "any property exchanged for such property" is alleged to be "present in the United States" — certainly a truism as to the real estate itself, and an unsupported and unsupportable notion as to the insurance proceeds.

Nor is the second alternative in the same subsection available to save plaintiffs' claims for federal court resolution. For that purpose plaintiffs do in part satisfy the first clause of that alternative: As to the insurance proceeds but not as to the real estate itself, "that property or any property exchanged for such property," on the allegations of the Complaint, "is owned or operated by an agency or instrumentality of the foreign state" — here the Insurance Company Defendants. But nothing has been proffered to suggest that either Warta or PZU "is engaged in a commercial activity in the United States" (see Vencedora Oceanica Nanigacion, S.A. v. Compagnie Nationale Algerienne De Navigation, 730 F.2d 195, 204 (5th Cir. 1984)(per curiam)).*fn18 Once again, the only connection this case has to the United States is the plaintiffs' after-the-fact decision to move to the United States and acquire citizenship here.

In short, this last possible string to the bow of subject matter jurisdiction is broken as well. Plaintiffs have not met their burden of production on the Section 1605(a)(3) exception either.

Conclusion

Because defendants' charged actions do not come within any of the exceptions to sovereign immunity specified in the Act, this Court lacks subject matter jurisdiction over this action. Accordingly the motions to dismiss filed by all defendants — one by Poland, Treasury and PZU collectively and the other by Warta alone — are granted. This action is dismissed.*fn19


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