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Korber v. Bundesrepublik Deutschland

United States Court of Appeals, Seventh Circuit

January 9, 2014

Elfriede KORBER and Christopher Mark, Plaintiffs-Appellants,
BUNDESREPUBLIK DEUTSCHLAND, et al., Defendants-Appellees.

Argued Jan. 6, 2014.

Page 1010

Hassan Ali Abbas, Attorney, for Plaintiffs-Appellants.

Jeffrey Harris, Attorney, Rubin, Winston, Dierks, Harris & Cooke, L.L.P., Washington, DC, Sander Bak, Attorney, Milbank, Tweed, Hadley & McCloy, New York, NY, Nathan P. Eimer, Attorney, Eimer Stahl LLP, Christian T. Kemnitz, Attorney, Katten Muchin Rosenman LLP, Kenneth F. Berg, Attorney, Ulmer & Berne, Geoffrey M. Atkins, Attorney, Randall W. Bodner, Attorney, Ropes & Gray, Boston, MA, Barry Levenstam, Attorney, Jenner & Block LLP, Todd C. Jacobs, Attorney, Grippo & Elden LLC, Chicago, IL, for Defendants-Appellees.

Before EASTERBROOK, WILLIAMS, and TINDER, Circuit Judges.

EASTERBROOK, Circuit Judge.

After Germany surrendered in May 1945, holders of bonds issued by public and private entities in that nation demanded repayment. Germany had suspended payment on many foreign-held bonds during the 1930s, but some pre-war bonds were not due until the 1950s or 1960s. A multinational agreement among 21 creditor nations and the Federal Republic of Germany— which at the time meant the Länder that had been occupied by the United States, United Kingdom, and France— specified that Germany would pay valid debts outstanding on May 8, 1945. This pact, called the London Debt Agreement, gives priority to creditors who accept diminished payoffs. The Soviet Union and the German Democratic Republic (the Länder constituting East Germany) did not participate.

Contemporaneously with negotiation of the London Debt Agreement, West Germany enacted a Validation Law requiring holders of foreign debt instruments to submit them to panels that would determine whether the claims were genuine. Some bonds had been bought back in the markets but stolen toward the end of the war; West Germany sought to ensure that these retired debt instruments were not paid a second time and that no counterfeit instruments would be paid.

In April 1953 the United States and West Germany agreed by treaty that foreign debts contracted before the end of World War II would be paid only if found by a validation panel to be legitimate. 4 U.S.T. 885 (1953). The parties agree that this treaty applies to Germany as reconstituted by the merger of East and West Germany in 1990. Holders had five years to submit their documents for validation by a panel in New York City. Any later claim for validation goes to an Examining Agency in Germany. The claimant must show a good reason for the delay and establish the instruments' provenance. Decisions adverse to claimants are subject to judicial review in German courts. Article II of the Treaty adds that no instrument within the scope of the Treaty and

Page 1011

Validation Law may be enforced unless it has first been validated by a panel in New York or Germany.

Plaintiffs filed this suit in 2008 under the international diversity jurisdiction, 28 U.S.C. § 1332(a)(2), seeking to recover on bearer bonds that Germany had issued or guaranteed before World War II began. One holder has never submitted the bonds to a validation panel. The other submitted them to a panel in Germany, which found them ineligible, and did not seek judicial review of that decision.

In response to defendants' request for the suit's dismissal, both plaintiffs contend that the Treaty is invalid because it takes their property without just compensation. The district court held that the Treaty is binding and that the suit, which seeks to collect on un-validated instruments, must be dismissed. The court added that the suit is barred by the statute of limitations, which the judge deemed to be a ten-year period drawn from Illinois law. (Illinois is the state in which the district court sits.) The court's opinions cover some other issues, such as whether payment of the bonds is a commercial activity for the purpose of the Foreign Sovereign Immunities Act, 28 U.S.C. §§ 1602-11, and whether particular defendants were served with process, but those questions have dropped out. Appellees' brief does not contend that the defendants are immune under the FSIA or that service on any defendant was improper.

Despite the passage of time since the 1953 Treaty specified how bonds could be enforced, recent years have seen an uptick in claims seeking to recover in federal courts. Some holders have argued that their claims did not accrue until 2010, when Germany made the final payments on bonds processed under the Agreement. These suits have been uniformly unsuccessful. See Fulwood v. Germany, 734 F.3d 72 (1st Cir.2013); World Holdings, LLC v. Germany, 701 F.3d 641 (11th Cir.2012); Mortimer Off Shore Services, Ltd. v. Germany, 615 F.3d 97 (2d Cir.2010). The first, second, and eleventh circuits have held that bondholders lose either because of the Treaty's language or because the claims are time-barred. Our plaintiffs have raised constitutional arguments in an effort to circumvent the obstacles created by the Treaty and the other circuits' decisions. The attempt to get around this sixty-year-old treaty is unavailing.

The Constitution's fifth amendment does not forbid the taking of private property. Instead it requires just compensation for taken property. The Tucker Act, 28 U.S.C. § 1491(a)(1), authorizes the Court of Federal Claims to award whatever compensation the Constitution requires. It follows that the 1953 Treaty cannot be unconstitutional as a prohibited taking. A person who thinks that the 1953 Treaty takes private property should use the Tucker Act remedy. See, e.g., Preseault v. ICC, 494 U.S. 1, 12-16, 110 S.Ct. 914, 108 L.Ed.2d 1 (1990); Ruckelshaus v. Monsanto Co., 467 U.S. ...

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