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Fischer v. Magyar Allamvasutak Zrt.

United States Court of Appeals, Seventh Circuit

January 23, 2015

PAUL CHAIM SHLOMO FISCHER, et al., Plaintiffs-Appellants,
v.
MAGYAR ÁLLAMVASUTAK ZRT., Defendant-Appellee. MICHAEL J. ALBERT, et al., Plaintiffs-Appellants,
v.
MAGYAR NEMZETI BANK and ERSTE GROUP BANK, Defendants-Appellees

Argued: September 30, 2014

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Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. Nos. 1:10-cv-00868, 1:10-cv-01884--Samuel Der-Yeghiayan, Judge.

For Victims of The Hungarian Holocaust, Plaintiff - Appellant (13-3073): Jeffrey A. Leon, Attorney, Quantum Legal LLC, Highland Park, IL; Robert James Pavich, Attorney, Pavich Law Group P.C., Chicago, IL; Kenneth F. McCallion, Attorney, Mccallion & Associates, New York, NY.

For Magyar Allamvasutak Zrt. (Hungarian State Railways Co., Ltd.), Defendant - Appellee (13-3073): Konrad L. Cailteux, Attorney, Weil, Gotshal & Manges Llp, New York, NY; James W. McConkey, Attorney, Miller Canfield Paddock & Stone, Chicago, IL.

For Michael J. Albert, Judith v. Aronson, Stephen I. Bass, Katalin Braun, ISTRAN P. SOMOGYI, individually and on behalf of all others similarly situated, Plaintiffs - Appellants (14-1319): John Pavich, Attorney, Pavich Law Group P.C., Chicago, IL; Robert James Pavich, Attorney, Pavich Law Group P.C., Chicago, IL; Jeffrey A. Leon, Attorney, Quantum Legal LLC, Highland Park, IL.

For Magyar Nemzeti Bank, Defendant - Appellee (14-1319): Anthony L. Paccione, Attorney, Katten Muchin Rosenman Llp, Chicago, IL.

For Erste Group Bank, Defendant - Appellee (14-1319): Alan Kanzer, Attorney, Amber Wessels-Yen, Alston & Bird Llp, New York, NY; Steven L. Baron, Attorney, Mandell Menkes, LLC, Chicago, IL.

Before KANNE, WILLIAMS, and HAMILTON, Circuit Judges.

OPINION

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Hamilton, Circuit Judge.

These appeals arise from suits brought by Holocaust survivors and the heirs of other Holocaust victims against the Hungarian national railway, the Hungarian national bank, and several private banks for the roles they or their predecessors played in carrying out genocide against Hungarian Jews during World War II. These claims for takings of property arise from events in Hungary 70 years ago. They are asserted against both foreign sovereign entities and private banks with relatively few ties to the United States. The cases bring to the United States courts aspects of the horrific crimes of the Holocaust, but the cases have also posed difficult questions about whether they might be heard in a United States court.

In the earlier 2012 appeals in these cases, we held that the national railway and national bank--both instrumentalities of the Hungarian government--could be sued on these claims in a United States federal court, but only if the plaintiffs could demonstrate on remand that they had exhausted any available Hungarian remedies or had a legally compelling reason for their failure to do so. Abelesz v. Magyar Nemzeti Bank, 692 F.3d 661 (7th Cir. 2012). In addition, while we mandated dismissal of claims against two private banks for lack of personal jurisdiction, Abelesz v. OTP Bank, 692 F.3d 638 (7th Cir. 2012), we denied interlocutory requests by Erste Group Bank AG (" Erste Bank" ), a private Austrian bank that had acquired a Hungarian bank that plaintiffs alleged had participated in the Holocaust, to review the denial of its motion to dismiss on several grounds. Abelesz v. Erste Group Bank AG, 695 F.3d 655 (7th Cir. 2012).

On remand, the national bank, national railway, and Erste Bank all continued to seek dismissal. As to the national bank and railway, the district court held that the plaintiffs had not exhausted Hungarian remedies and had not provided a legally compelling reason for not doing so. For that reason, the district court concluded that it could no longer entertain plaintiffs' international law claims and dismissed the claims against the national defendants.

Following that dismissal, the district court also dismissed Erste Bank from the suit on forum non conveniens grounds. Although the district court had previously denied Erste Bank's motion to dismiss based on forum non conveniens, it took a fresh look at the issue once the national defendants were not subject to suit in the United States. The court concluded that dismissal on these grounds was appropriate. Plaintiffs have appealed.

We affirm all the dismissals. First, as we held in 2012, international law does not require exhaustion of domestic remedies before plaintiffs can say that international law was violated. But principles of international comity make clear that these plaintiffs must attempt to exhaust domestic remedies before foreign courts can provide remedies for those violations. These plaintiffs have not exhausted available Hungarian remedies, and the district court did not abuse its discretion when it found that plaintiffs should not be excused from doing so. In addition, because the national bank was properly dismissed from the case against the banks, the district court properly granted Erste Bank's motion to reconsider dismissal for forum non conveniens. Nevertheless, while the doors of United States courts are closed to these claims for now, they are not locked forever. All dismissals are without prejudice. If plaintiffs find that future attempts to pursue remedies in Hungary are frustrated unreasonably or arbitrarily, a United States court could once again hear these claims.

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I. Factual and Procedural Background

A. Overview of Claims

We summarize briefly the more detailed account of the facts from our 2012 Abelesz opinions. Plaintiffs' complaints describe the seizure, transport, and murder of hundreds of thousands of Hungarian Jews during the Holocaust, particularly during 1944 and 1945. The Foreign Sovereign Immunities Act bars jurisdiction in United States federal courts against foreign sovereigns for claims for death or personal injury or damage to or loss of property that does not occur in the United States. See Abelesz v. Magyar Nemzeti Bank, 692 F.3d at 677, citing 28 U.S.C. § 1605(a)(5). Nevertheless, the FSIA permits jurisdiction over foreign sovereigns for claims for takings of property in violation of international law. 28 U.S.C. § 1605(a)(3). As a result, plaintiffs' claims focus on the role that the Hungarian national railway and Hungarian banks played in expropriating money and other property from Jews. Plaintiffs allege that these expropriations were essential to finance the continued German war effort and even the Hungarian genocide itself. See Abelesz, 692 F.3d at 675.

Plaintiffs brought two separate suits: one against a group of Hungarian banks (along with an Austrian bank) and another against the Hungarian national railway. Against the banks, plaintiffs allege seven causes of action: genocide, aiding and abetting genocide, bailment, conversion, unjust enrichment, constructive trust, and accounting. Plaintiffs allege nine causes of action against the national railway: takings in violation of international law, aiding and abetting genocide, complicity in genocide, violations of customary international law, unlawful conversion, unjust enrichment, fraudulent misrepresentations, accounting, and declaratory relief pursuant to 28 U.S.C. § 2201.

Plaintiffs seek to hold the national and private banks jointly and severally responsible for damages of approximately $75 billion. They seek damages of approximately $1.25 billion from the national railway. Plaintiffs rely on several bases of jurisdiction, including the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. § 1330(a), the Alien Tort Statute, 28 U.S.C. § 1350, diversity jurisdiction under the Class Action Fairness Act (CAFA), 28 U.S.C. § 1332(d), and federal question jurisdiction, 28 U.S.C. § 1331.

B. The Prior Appeals

In 2012 we considered several appeals and mandamus petitions seeking review of the district court's denial of defendants' motions to dismiss on multiple grounds. In Abelesz v. Magyar Nemzeti Bank, 692 F.3d 661 (7th Cir. 2012), we considered whether and under what circumstances the district court could exercise subject matter jurisdiction over the two instrumentalities of Hungary--the national bank and national railway. We held that the district court could exercise jurisdiction under the expropriation exception to the FSIA, but only if plaintiffs could demonstrate on remand that they either exhausted available Hungarian remedies or could show a legally compelling reason for not doing so. Id. at 684. Because exhaustion is also at the center of these appeals, we repeat our earlier conclusions.

The national bank and national railway of Hungary are instrumentalities of a foreign sovereign under the FSIA. See 28 U.S.C. § 1603(b). Accordingly, the FSIA is the exclusive basis for exercising jurisdiction over those entities in United States courts. Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434-36, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989). Under the FSIA, foreign sovereigns and their instrumentalities are immune from

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suit in United States courts unless a specific statutory exception applies. 28 U.S.C. § 1604.

Plaintiffs argued that two FSIA exceptions might allow jurisdiction over the national bank: the waiver exception in § 1605(a)(1) and the expropriation exception in § 1605(a)(3). We rejected the waiver exception. While the Hungarian constitution recognized international law norms, it did not go so far as to waive sovereign immunity for those claims. Abelesz, 692 F.3d at 670-71.

The expropriation exception presented a closer and more complex question. We explained that the expropriation exception defeats sovereign immunity only where " (1) rights in property are in issue; (2) the property was taken; (3) the taking was in violation of international law; and (4) at least one of the two nexus requirements is satisfied." Id. at 671, citing Zappia Middle East Constr. Co. v. Emirate of Abu Dhabi, 215 F.3d 247, 251 (2d Cir. 2000). We held that " plaintiffs have sufficiently alleged that rights in property are at issue, that their property was taken, and that the national bank meets the nexus requirement." Id. at 695. It was less clear that the national railway met either of the nexus requirements; accordingly, we remanded for jurisdictional discovery on whether the railway meets the nexus requirements. Id.

That left the most important and complex problem: whether plaintiffs alleged expropriations that could have violated international law. Abelesz, 692 F.3d at 673. We rejected defendants' federal preemption argument, id. at 677-78, and made clear that because plaintiffs based their claims upon violations of customary international law, they had actionable rights, id. at 685-86. At the same time, because " a sovereign could expropriate the property of its own nationals within its own territory without violating international law," id. at 674, the national bank and railway argued that the alleged expropriations taking place during the Holocaust did not violate international law and would not be justiciable under the FSIA. We recognized that courts should tread carefully in this field of property expropriation: " Actions that might appear to one regime or nation as unfair expropriations might seem to another to be a just remedy for decades or more of exploitation of the poor and downtrodden." Id. at 675. Nevertheless, we held that the domestic takings rule did not apply where the expropriations funded the transport and murder of a country's nationals in a campaign of genocide, which also sought to leave any survivors of that genocide impoverished. Id.

The national bank and railway defendants also argued that either the FSIA itself or international law norms required exhaustion of domestic remedies before plaintiffs could assert a violation in a United States court. Id. at 678. We rejected the statutory exhaustion argument, finding that nothing in the language of the FSIA expropriation exception suggests that plaintiffs must exhaust domestic remedies before resorting to United States courts. Id., citing § 1605(a)(3). In so doing, we joined the Ninth and D.C. Circuits. See id., citing Cassirer v. Kingdom of Spain, 616 F.3d 1019, 1034-37 (9th Cir. 2010), and Agudas Chasidei Chabad of U.S. v. Russian Fed'n, 528 F.3d 934, 948-49, 381 U.S.App.D.C. 316 (D.C. Cir. 2008).

Even though § 1605(a)(3) itself does not require exhaustion, we went on to conclude that the provision's reliance on international law norms made clear that plaintiffs would need to exhaust domestic remedies before they could assert a violation of customary international law in a United States court. This exhaustion principle, based on comity, is a well-established rule of customary international law.

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The Supreme Court has suggested that customary international law may require exhaustion. See Abelesz, 692 F.3d at 679, citing Sosa v. Alvarez-Machain, 542 U.S. 692, 733 n.21, 124 S.Ct. 2739, 159 L.Ed.2d 718 (2004). This rule has also been invoked in other foreign and domestic situations, including by the United States government itself when defending against takings claims. Id. at 679-80 (collecting cases). At bottom, international law favors giving a state accused of taking property in violation of international law an opportunity to " redress it by its own means, within the framework of its own legal system" before the same alleged taking may be aired in foreign courts. Id. at 680.

For these reasons, we required plaintiffs " either to pursue and exhaust domestic remedies in Hungary or to show convincingly that such remedies are clearly a sham or inadequate or that their application is unreasonably prolonged." Id. at 681, citing Restatement (Third) of the Foreign Relations Law of the United States § 713 cmt. f. Keeping in mind that hearing these claims in a United States court " without even giving Hungarian courts an opportunity to address them" would be an " extraordinary step," we addressed and found unpersuasive some reasons offered by plaintiffs that the domestic exhaustion rule should not bar their claims. Id. at 684. And although we held that " plaintiffs [had] not presented a legally compelling reason for why the domestic exhaustion rule does not apply to their claims," we found it prudent to remand the cases and to direct the district court to do " a more detailed examination of this pivotal exhaustion issue." Id.

In particular, we directed the defendants to specify the Hungarian remedies that might be available to individuals in plaintiffs' position. Id. We said that plaintiffs would then have three options on remand:

(1) They can voluntarily dismiss their claims against the national bank and national railway without prejudice and pursue their claims in Hungary using the remedies identified by defendants, with a possibility that they might refile their case in a U.S. court if and when they exhaust their remedies in Hungary. (2) They can ask the district court to stay their cases against the national bank and national railway while they pursue the Hungarian remedies identified by defendants. (3) They can ask the district court for an opportunity to develop further their arguments regarding the actual adequacy and availability of those remedies and the applicability of the domestic exhaustion rule.

Id.

In the separate but related appeals by the private banks, we issued a writ of mandamus directing the district court to dismiss the claims against two banks for lack of personal jurisdiction. Abelesz v. OTP Bank, 692 F.3d 638. At the same time, we concluded that Erste Bank--a private Austrian bank over which personal jurisdiction was not disputed--could not immediately appeal the district court's denial of its motion to dismiss on other grounds and was not entitled to a writ of mandamus because it had not " demonstrated a clear and indisputable right to ...


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