Cassirer v. Kingdom of Spain

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Claude Cassirer, Plaintiff-Appellee, v. Kingdom of Spain, a foreign state, Defendant-Appellant, and Thyssen-Bornemisza Collection Foundation, an agency or instrumentality of the Kingdom of Spain, Defendant.

Nos. 06-56325, 06-56406

United States Court of Appeals, Ninth Circuit

Argued Sept. 24, 2007. Submitted Sept. 8, 2009. Filed Sept. 8, 2009.

580 F.3d 1048

Teruya contends that it did not have an improper tax avoidance purpose because it never had any fixed right to cash at the time of these transactions; indeed, the exchanges could only have been completed as § 1031(a) like-kind exchanges. But this argument misses the point. Teruya‘s undisputed intent to complete successfully a like-kind exchange—perhaps germane to whether the transactions were exchanges or sales under § 1031(a)—is irrelevant to whether these transactions were structured to avoid § 1031(f)‘s purposes. Moreover, by focusing only on its own continued investment in like-kind property, Teruya ignores the crucial tax consequences of these exchanges to its related party, Times.¹³

IV

For the aforementioned reasons, we affirm the Tax Court‘s determination that these exchanges were structured to avoid the purposes of § 1031(f), and thus violate § 1031(f)(4).

AFFIRMED.

Claude Cassirer, Plaintiff-Appellee, v. Kingdom of Spain, a foreign state, Defendant-Appellant, and Thyssen-Bornemisza Collection Foundation, an agency or instrumentality of the Kingdom of Spain, Defendant-Appellant.

William M. Barron of Alston & Bird, LLP, New York City, NY; Anthony A. De Corso of Beck, De Corso, Daly, Kreindler & Harris, for defendant-appellant the Kingdom of Spain.

Thaddeus J. Stauber and Walter T. Johnson of Nixon Peabody, LLP, Los Angeles, CA, for defendant-appellant Thyssen-Bornemisza Collection Foundation.

Stuart R. Dunwoody of Davis Wright Tremaine, LLP, Los Angeles, CA, for plaintiff-appellee Claude Cassirer.

Before: THOMAS G. NELSON, SANDRA S. IKUTA, and N. RANDY SMITH, Circuit Judges.

Opinion by Judge N.R. SMITH; Partial concurrence and Partial Dissent by Judge IKUTA.

N.R. SMITH, Circuit Judge:

Claude Cassirer (“Cassirer“) filed this action in federal district court against the Kingdom of Spain (“Spain“) and the Thyssen-Bornemisza Collection Foundation (the “Foundation“)¹ to recover a Camille Pissarro painting now on display at the Foundation‘s museum in Madrid, Spain. Cassirer alleges that the painting was taken from his grandmother in violation of international law in 1939 by an agent of the government of Nazi Germany. On appeal, Appellants challenge the district court‘s denial of their respective motions to dismiss for lack of (1) personal jurisdiction, (2) standing, (3) a justiciable case or controversy, and (4) subject matter jurisdiction based on sovereign immunity.

We dismiss this appeal with regard to Appellants’ challenges to personal jurisdiction, standing, and the existence of a justiciable case or controversy. We lack appellate jurisdiction because there has been no final judgment and these issues are not immediately appealable under the collateral order doctrine.

However, under the collateral order doctrine, we have jurisdiction to consider the issue of sovereign immunity.

Gupta v. Thai Airways Int‘l, Ltd., 487 F.3d 759, 763, 764 n. 6 (9th Cir. 2007). We consider for the first time whether the expropriation exception of the Foreign Sovereign Immunities Act (“FSIA“), 28 U.S.C. § 1605(a)(3), applies when the foreign state (against whom a claim is made) is not the entity that expropriated the property in violation of international law. We hold that it does. We also hold that advertising and promotional activity, purchase and sale of goods and services, and the exchange of artwork with persons and entities, all within the United States, are sufficient to constitute “commercial activity in the United States” under § 1605(a)(3). Finally, based on guidance in our recent decision in

Sarei v. Rio Tinto, PLC, 550 F.3d 822, 832 (9th Cir. 2008) (en banc) (plurality opinion), we remand to the district court to determine, in the first instance, whether the circumstances of this case warrant judicial imposition of an exhaustion requirement.

I. Background.

For the purposes of this appeal, we take the factual allegations in this case as true.² At the heart of the present dispute is the Rue Saint-Honoré, après-midi, effet de pluie (the “Painting“), an oil painting by the French impressionist master Camille Pissarro. The Painting was originally purchased in 1898 by Cassirer‘s great-grandfather, Julius Cassirer, a member of a wealthy Jewish family living in Germany. The Painting remained in the family for the next forty years. First passing upon Julius‘s death to his son, Fritz, and later to Fritz‘s widow, Lilly Cassirer.

In 1939, as persecution of Jews living in Nazi Germany increased, Lilly and her new husband sought official permission to leave Germany and take their possessions, which included the Painting. Before granting permission, the Nazi government appointed Munich art dealer Jakob Scheidwimmer as the official appraiser to evaluate the works of art that Lilly wished to take with her. After his appraisal, Scheidwimmer refused to allow Lilly to take the Painting out of Germany and demanded that she sell it to him for approximately $360. Because she feared she would not be allowed to leave Germany, she relinquished the Painting, knowing that she would never receive the funds she was promised.³

Scheidwimmer traded the Painting to another art dealer who, also persecuted by the Nazis, fled Germany and took the Painting to Holland. After Germany invaded Holland, the Gestapo confiscated the Painting and returned it to Germany, where it was sold at auction to an anonymous purchaser in 1943. The Painting surfaced at a New York gallery in 1952 and was then sold to a private collector in St. Louis. It was sold again in 1976 to an unknown dealer, who subsequently sold it to Baron Hans-Heinrich Thyssen-Bornemisza (the “Baron“), a resident of Switzerland and one of the world‘s foremost private art collectors.

In 1988, Spain paid the Baron $50 million to lease his collection for ten years. Five years into the lease, Spain paid the Foundation approximately $327 million to purchase the Baron‘s entire collection, including the Painting. Under the terms of the purchase, Spain provided the Foundation a palace in Madrid, free of charge, for use as the Thyssen-Bornemisza Museum (the “Museum“). In addition, the purchase agreement requires that the collection be exhibited at the Museum in Spain and sets limits regarding loans to other art institutions. If the collection is not used in accordance with the purchase agreement or if the Foundation ceases to exist, Spain will become the owner of the collection.⁴

In 2000, Claude Cassirer, the grandson and heir of Lilly Cassirer, discovered that the Painting was on display in Madrid at the Museum. He petitioned Spain‘s Minister for Education, Culture and Sports (who was also chair of the Foundation‘s Board), requesting the return of the Painting. His request was denied. In July 2003, five United States Congressmen wrote to the Minister, again requesting that Appellants return the Painting to Cassirer. The request was again denied. Cassirer never attempted to obtain the Painting through judicial proceedings in Spain.

On May 10, 2005, Cassirer filed suit against the Foundation and Spain in the Central District of California. On February 28, 2006, the Foundation filed a motion to dismiss, contending that the district court lacked subject matter and personal jurisdiction and that venue did not lie in the Central District of California. While the Foundation‘s motion was pending, Cassirer moved the court for leave to conduct jurisdictional discovery.

On April 5, 2006, the district court reviewed, as a question of law, whether the expropriation exception to sovereign immunity in § 1605(a)(3) of the FSIA applied to a sovereign entity that was not alleged to have taken property in violation of international law. After receiving further briefing from the parties, the district court ruled that § 1605(a)(3) requires only that property was seized in violation of international law, not that the foreign sovereign itself violated international law. The district court also granted sixty days to conduct discovery for the purpose of determining whether the Foundation conducted “commercial activity in the United States within the meaning of the FSIA.”

On June 9, 2006, Spain filed its own motion to dismiss, contending lack of subject matter jurisdiction due to sovereign immunity and various other grounds. On August 30, 2006, after hearing argument, the district court issued a Memorandum and Order denying both the motions to dismiss. The district court held that 1) Cassirer presented a case or controversy against both the Foundation and Spain; 2) Cassirer was not required to exhaust judicial remedies; 3) § 1605(a)(3) of the FSIA applies to the Foundation and Spain, despite Cassirer‘s admission that neither took the Painting in violation of international law (affirming its earlier decision on this point); 4) the Foundation and Spain engage in commercial activity in the United States within the meaning of § 1605(a)(3), such that they are not entitled to sovereign immunity; 5) under the language of the FSIA, personal jurisdiction exists over the Foundation and Spain by virtue of the fact that subject matter jurisdiction existed; and 6) venue is proper in the Central District of California. See

Cassirer v. Kingdom of Spain, 461 F.Supp.2d 1157 (C.D.Cal.2006).

The Appellants brought this timely interlocutory appeal. Cassirer subsequently filed a Motion to Dismiss, contending that this court lacks appellate jurisdiction over any issues other than whether the Appellants are entitled to sovereign immunity.

II. Jurisdiction.

We first address the issue of appellate jurisdiction raised by Cassirer. We have jurisdiction to review “final decisions” of the district court. 28 U.S.C. § 1291. “Final decisions end the litigation on the merits and leave nothing for the court to do but execute the judgment.”

Am. States Ins. Co. v. Dastar Corp., 318 F.3d 881, 884 (9th Cir.2003) (internal quotations and alterations omitted). Typically, a district court‘s denial of a motion to dismiss is not final for purposes of 28 U.S.C. § 1291. See

Marx v. Government of Guam, 866 F.2d 294, 296 (9th Cir.1989). Under the “collateral order doctrine,” we may nonetheless review that “small category of decisions” that are “conclusive [because they] resolve important questions separate from the merits, and that are effectively unreviewable on appeal from the final judgment in the underlying action.”

Swint v. Chambers County Comm‘n, 514 U.S. 35, 42 (1995) (citation omitted).

“[T]he denial of a claim of lack of [personal] jurisdiction is not an immediately appealable collateral order.”

Van Cauwenberghe v. Biard, 486 U.S. 517, 526-27 (1988);

Batzel v. Smith, 333 F.3d 1018, 1023 (9th Cir.2003) (orders denying motions to dismiss for lack of personal jurisdiction are not final and are not appealable under the collateral order doctrine). Therefore, we do not have jurisdiction to review the district court‘s denial of Appellants’ motions to dismiss for lack of personal jurisdiction, and we dismiss this appeal with regard to that issue.

Likewise, we dismiss the appeal with regard to the issues of standing and Article III case or controversy. The district court‘s order denying Appellants’ motion to dismiss on these issues is fully reviewable on appeal from a final judgment. Therefore, we hold that such a denial is not immediately appealable as a collateral order.⁶ See

Swint, 514 U.S. at 42 (to be immediately appealable under collateral order doctrine, decision must be effectively unreviewable on appeal from the final judgment in the underlying action).⁷

We have jurisdiction to review the district court‘s order as it pertains to sovereign immunity. “[A]n order denying immunity under the FSIA is appealable under the collateral order doctrine,” because sovereign immunity is immunity from suit, which is effectively lost if a case is erroneously permitted to go to trial.

Gupta, 487 F.3d at 763, 764 n. 6.

III. Sovereign Immunity Under the FSIA.

The primary issue before us is whether Appellants are entitled to sovereign immunity under the FSIA, such that the district court lacks subject matter jurisdiction. The existence of subject matter jurisdiction under the FSIA is a question of law reviewed de novo.

Adler v. Fed. Republic of Nigeria, 107 F.3d 720, 723 (9th Cir.1997). A district court‘s factual findings on jurisdictional issues are reviewed for clear error. Id.

A. The FSIA Provides Limited Exceptions to Sovereign Immunity.

The district court has original jurisdiction of any non-jury civil action against a foreign state, including its agencies and instrumentalities.⁸ See 28 U.S.C. § 1330(a). Under the FSIA, however, foreign states are immune from the jurisdiction of United States courts, subject only to the specific exceptions in §§ 1605, 1607, and specified existing international agreements. See id. at § 1604.⁹ Thus, the sole basis for obtaining jurisdiction over a foreign state in federal court is the existence of an exception to the FSIA.

Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 439 (1989). The FSIA exceptions include “waiver of immunity, § 1605(a)(1), commercial activities occurring in the United States or causing a direct effect in this country, § 1605(a)(2), property expropriated in violation of international law, § 1605(a)(3), inherited, gift, or immovable property located in the United States, § 1605(a)(4), non-commercial torts occurring in the United States, § 1605(a)(5), and maritime liens, § 1605(b).” Id.

B. The Expropriation Exception.

Cassirer contends that neither the Foundation nor Spain is entitled to sovereign immunity due to the “expropriation exception” of § 1605(a)(3).¹⁰ Section 1605(a)(3) provides that a “foreign state shall not be immune . . . in any case . . . in which rights in property taken in violation of international law are in issue. . . .” The issue regarding the applicability of this exception arises because the statute uses the passive voice and does not expressly require that the foreign state (against whom the claim is made) be the entity that took the property in violation of international law. Appellants invite us to read such a requirement into the statute. The parties agree that Germany, and not Spain, allegedly took the Painting in violation of international law. Therefore, under the construction urged by Appellants, the expropriation exception could not apply. We disagree.

We find § 1605(a)(3) to be unambiguous. Where “the intent of Congress is clear and unambiguously expressed by the statutory language,” that is normally the end of the statutory analysis.

Zuni Pub. Sch. Dist. No. 89 v. Dep‘t of Educ., 550 U.S. 81, 93 (2007). We hold that the plain language of § 1605(a)(3) does not require that the foreign state (against whom the claim is made) be the entity who expropriated the property in violation of international law.

Our holding is consistent with the legislative history.¹¹ In reviewing Congress‘s intent in enacting the FSIA, we consider § 1602, which sets forth Congress‘s findings and purpose. This section expresses Congress‘s understanding that foreign states are not immune from suit “insofar as their commercial activities are concerned.”¹² In explaining § 1602, the House Report states that Congress is adopting the restrictive theory of sover-eign immunity, that is, “[T]he sovereign immunity of foreign states should be ‘restricted’ to cases involving acts of a foreign state which are sovereign or governmental in nature, as opposed to acts which are either commercial in nature or those which private persons normally perform.” H.R.Rep. No. 94-1487, at 14 (1976), reprinted in 1976 U.S.C.C.A.N. 6604, 6613.

Consistent with the restrictive theory of sovereign immunity described in § 1602 and the House Report, the exceptions in § 1605(a) apply to situations in which foreign states act more like private persons or are engaged in commercial activities. The plain language of § 1605(a)(3) is entirely consistent with Congress‘s intent, because § 1605(a)(3) gives a court jurisdiction over a foreign state in cases involving stolen property only if the foreign state (or its agency) is engaged in a commercial activity in the United States.

Citing

In re Republic of Philippines, 309 F.3d 1143 (9th Cir.2002), Appellants argue that § 1605(a)(3) applies only when the foreign state against whom the claim is leveled actually took property in violation of international law. Republic of Philippines required us to interpret the exception in § 1605(a)(4), which provides that a foreign state loses its immunity in any case “in which rights in property in the United States acquired by succession or gift or rights in immovable property situated in the United States are in issue.” We construed the statute as applying only to rights in property in the United States acquired by succession or gift by the foreign state. In reaching this conclusion, we relied on language in the House Report which stated:

There is general agreement that a foreign state may not claim immunity when the suit against it relates to rights in property, real or personal, obtained by gift or inherited by the foreign state and situated or administered in the country where the suit is brought . . . The reason is that, in claiming rights in a decedent‘s estate or obtained by gift, the foreign state claims the same right which is enjoyed by private persons.

Republic of Philippines, 309 F.3d at 1151 (quoting H.R.Rep. No. 94-1487) (emphasis added). In other words, to effectuate Congress‘s intent to grant courts jurisdiction over foreign states only when they act more like private persons, we read “by the foreign state” into § 1605(a)(4). Under this reading, courts gain jurisdiction over a foreign state only if the state acted like a private person and by claiming rights in a decedent‘s estate or obtaining a gift. Contrary to Appellant‘s argument, our interpretation of § 1605(a)(4) in Republic of Philippines is entirely consistent with a plain language reading of § 1605(a)(3). It is not necessary to read “by the foreign state” into § 1605(a)(3) to achieve consistency with the restrictive theory of sovereign immunity. The plain language of § 1605(a)(3) already grants courts jurisdiction over foreign states only if they act like a private person by engaging in commercial activities. Republic of Philippines therefore provides no justification to depart from the plain language of § 1605(a)(3).

Because nothing in the plain language of the FSIA or the legislative history requires us to read additional language into the statute, we hold that the expropriation exception to sovereign immunity found in § 1605(a)(3) does not require that the foreign state against whom the claim is made be the foreign state that took property in violation of international law.

C. Commercial Activity in the United States.

For the expropriation exception to apply, the FSIA also requires “that property or any property exchanged for such prop-erty 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.” 28 U.S.C. § 1605(a)(3). The Foundation admits that it is an “agency or instrumentality” of Spain and that it owns the Painting. We agree with the district court that the Foundation has engaged in sufficient commercial activity in the United States to satisfy § 1605(a)(3).

As defined in the FSIA, “commercial activity”

means either a regular course of commercial conduct or a particular commercial transaction or act. The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.

28 U.S.C. § 1603(d). “The central question is whether the activity is of a kind in which a private party might engage.”

Siderman de Blake v. Republic of Argentina, 965 F.2d 699, 708 (9th Cir.1992) (internal quotation marks omitted).

In Siderman, we concluded that Argentina conducted commercial activity in the United States, because (1) it advertised an expropriated hotel in the United States; (2) it solicited guests through its United States agent (Argentina‘s national airline); (3) numerous Americans stayed at the hotel; and (4) the hotel accepted all major American credit cards. Id. at 712-13.

Likewise, in Altmann, we concluded that authoring, promoting, and distributing books and other publications in the United States to exploit expropriated paintings were “sufficient to constitute ‘commercial activity’ for the purpose of satisfying the FSIA.”

Altmann, 317 F.3d at 959.

In this case, after allowing limited jurisdictional discovery, the district court found that the Foundation engaged in commercial transactions in the United States, including transacting business as a purchaser and a seller of goods and services and as an advertiser in distributing marketing and other commercial promotional materials.

Cassirer v. Kingdom of Spain, 461 F.Supp.2d 1157, 1173-75 (C.D.Cal.2006). For example, the Foundation made numerous purchases of books, posters, postcards, and related materials from United States businesses in New York, California, and Washington, D.C. The Foundation also purchased books about Nazi expropriation of great works of art¹³ and a book presumably about the works of Pissarro. Id. at 1173. The Foundation sold posters and books to United States residents and businesses, and licensed the reproduction of images to various United States businesses. Id. The Foundation also admitted that it worked with U.S. entities to secure goods to be sold in the Museum gift shop, including paying U.S. citizens to write for its exhibit catalogs. Id. Further, it admitted that it has shipped gift shop items to purchasers in the United States. Id. Notably, the Foundation sold a poster of the Painting at issue in this case to individuals in both California and North Carolina. The California purchaser resides in the Central District of California and used her American Express credit card to consummate the transaction. Id.

The Foundation also solicited, recruited, and commissioned writers and speakers from the United States to provide services at the Museum. Id. The Foundation facilitated the production of a film on the Foundation collection, featuring the Painting, which it knew would be presented in-flight on Iberia Airlines flights to and from the United States. Id. at 1174.

The Foundation placed advertisements in magazines that are distributed in the United States and sent press releases, brochures, and general information to TourEspaña and the Spanish National Tourist Offices in the United States. For example, the Foundation advertised in news publications such as Newsweek, Time Magazine, and the New Yorker. Id. It also distributes its Museum bulletin, “Perspectives,” to individuals in the United States, including two in the Central District of California. Id.

The Foundation also contracted with museums in the United States to loan its artwork to the U.S. institutions or to borrow artwork for display in the Foundation Museum in Spain. Id. at 1174-75.

The record supports the district court‘s factual findings, which are not clearly erroneous. Cassirer has produced numerous examples of the Foundation‘s commercial activity in the United States that are “of a kind in which a private party might engage.”

Siderman, 965 F.2d at 708 (internal quotation marks omitted). Much of that activity was connected with the Painting. Thus, Cassirer has adequately demonstrated that the Foundation has engaged in sufficient commercial activity in the United States to satisfy § 1605(a)(3).

IV. Exhaustion of Remedies.

Cassirer unsuccessfully petitioned the Foundation for return of the Painting, but Cassirer has not alleged that he made recourse to the Spanish or German judiciaries to settle his claim to the Painting.¹⁴ Thus, Spain argues that § 1605(a)(3) cannot apply, because Cassirer has not exhausted judicial remedies in the foreign forum. The district court held that the plain language of § 1605(a)(3) of the FSIA contains no “exhaustion-of-foreign-remedies requirement” and therefore the court refused to impose such a requirement on Cassirer.

Cassirer, 461 F.Supp.2d at 1164. Whether the FSIA, specifically § 1605(a)(3), requires exhaustion is a matter of statutory interpretation and an issue of first impression.

“Of paramount importance to any exhaustion inquiry is congressional intent.”

McCarthy v. Madigan, 503 U.S. 140, 144 (1992) (citing

Patsy v. Board of Regents, 457 U.S. 496, 501 (1982) (internal quotation marks omitted)), superceded by statute as stated in

Booth v. Churner, 532 U.S. 731, 732 (2001).¹⁵ “Where Congress specifically mandates, exhaustion is required.” Id. (citing

Coit Independence Joint Venture v. FSLIC, 489 U.S. 561, 579 (1989);

Patsy, 457 U.S. at 502 n. 4). “But where Congress has not clearly required exhaustion, sound judicial discretion governs.”

McCarthy, 503 U.S. at 144 (citing

McGee v. United States, 402 U.S. 479, 483 n. 6 (1971)). To discern the intent of Congress, “[w]e look first to the plain language of the statute, construing the provisions of the entire law, including its object and policy.”

United States v. $493,850.00 in U.S. Currency, 518 F.3d 1159, 1167 (9th Cir.2008) (quoting

Carson Harbor Vill., Ltd. v. Unocal Corp., 270 F.3d 863, 877 (9th Cir.2001)).

As the district court noted, the FSIA is silent as to any exhaustion requirement. The legislative history is also devoid of any enlightening reference to exhaustion.¹⁶ Accordingly, we hold that Congress has not clearly required exhaustion for claims brought under the FSIA. This, however, does not end our analysis.

To determine whether an action brought against a foreign state (invoking an exception to the FSIA) requires exhaustion, it is important to put into context what the FSIA is and what it is not. The FSIA is not a source of substantive law and does not create any causes of actions. Rather, it is a jurisdictional statute incorporating international law principles to guide U.S. courts in determining when a foreign state is or is not entitled to sovereign immunity. See § 1602. In other words, claims brought in U.S. courts, against foreign states, for violations of international law depend on the applicability of an exception to the FSIA for jurisdiction. Such claims, however, depend on the law of nations to define the substantive rights embodied in any cause of action. The Supreme Court has similarly recognized the Alien Tort Statute (ATS), 28 U.S.C. § 1350, to be a jurisdictional statute that creates no new causes of action and relies on the common law and the present-day law of nations to define substantive rights. See

Sosa v. Alvarez-Machain, 542 U.S. 692, 724 (2004) (“[T]he ATS is a jurisdictional statute creating no new causes of action” . . .).¹⁷

The doctrine of exhaustion of domestic remedies is a “well-established rule of customary international law.” See

Sarei, 550 F.3d at 829 (quoting Interhandel Case (Switz. v. U.S.), 1959 I.C.J. 6, 26 (Mar. 29)). This rule generally provides that a state is not required to consider a claim, made by a person against a foreign state, and alleging a violation of international law “until that person has exhausted domestic remedies, unless such remedies are clearly sham or inadequate, or their application is unreasonably prolonged.” See

Sarei, 550 F.3d at 829 (citing Restatement (Third) of Foreign Relations Law § 713 cmt. f & § 703 cmt. d). Because United States courts import well-settled principles of international law to define substantive rights in cases brought under the FSIA, there are logical arguments suggesting that courts should also import the well-settled limitations to such causes of action, including the doctrine of exhaustion of remedies. Cf.

Sarei, 550 F.3d at 833-35 (Bea, J., concurring) (discussing exhaustion in the context of the ATS);

Sarei, 487 F.3d at 1231-45 (Bybee, J., dissenting) (same). Nonetheless, where Congress has not clearly required exhaustion, we have not (and likely cannot) impose exhaustion as an absolute jurisdictional requirement. See

Sarei, 550 F.3d at 824 (“[W]e decline to impose an absolute requirement of exhaustion in ATS cases.“). See also

Sampson v. Federal Republic of Germany, 250 F.3d 1145, 1153-54 (7th Cir.2001) (“[A]lthough international law is ‘part of our law,’ it does not follow that federal statutes must be read to reflect the norms of international law.“) (citation omitted).

The jurisdiction of federal courts derives from and is circumscribed exclusively by Article III of the United States Constitution and by federal statutes enacted by Congress. See

Karcher v. May, 484 U.S. 72, 77 (1987) (“The power of federal courts to hear and decide cases is defined by Article III of the Constitution and by the federal statutes enacted thereunder.“);

Sheldon v. Sill, 49 U.S. (8 How.) 441, 448-49 (1850) (“Congress, having the power to establish the courts, must define their respective jurisdictions. . . . Courts created by statute can have no jurisdiction but such as the statute confers.“). In the domestic context, we have acknowledged that statutory exhaustion requirements are jurisdictional in nature. See

Sarei, 550 F.3d at 828 & n. 6 (gathering cases).¹⁸ Where Congress requires exhaustion, a failure to exhaust available remedies typically deprives the federal court of jurisdiction. Such is not necessarily the case, however, when international norms, and not Congress, purport to circumscribe jurisdiction by requiring exhaustion of remedies. International law may define the substantive rights of parties in actions permitted by the FSIA, but it cannot compel or restrict Article III jurisdiction. Cf.

Sampson, 250 F.3d at 1152 (“[I]nternational law itself does not mandate Article III jurisdiction over foreign sovereigns.“). Absent clear Congressional intent, we cannot incorporate exhaustion as an absolute requirement merely because international law would require it. An absolute exhaustion requirement amounts to an absolute limitation on the jurisdiction of federal courts. To impose such a requirement would, in essence, usurp the Constitutional power vested in Congress and cede foreign lawmakers and jurists with power to limit the jurisdiction of United States federal courts.

Neither Congress nor this court have imposed an absolute exhaustion of remedies requirement in cases brought against foreign states under an exception to the FSIA. Yet, where principles of international comity and rules of customary international law require exhaustion, we exercise sound judicial discretion and consider exhaustion on a prudential, case-by-case basis. See

Sarei, 550 F.3d at 828. In Sarei, we held that domestic prudential standards and core principles of international law require a district court to consider exhaustion in appropriate cases. Id. at 824 (citing

Sosa, 542 U.S. at 733 n. 21).¹⁹ Under our prudential approach, when a defendant affirmatively pleads failure to exhaust remedies, the district court must, as a discretionary matter, determine in the first instance whether to impose such a requirement on a plaintiff. Id. at 832.

Although Sarei addressed exhaustion in the context of the ATS, where Congress has not clearly adopted or rejected exhaustion as a jurisdictional prerequisite, our formulation of prudential exhaustion applies equally to cases brought against foreign states (and their instrumentalities) under the FSIA.²⁰ In this case, Appellants have asserted that Cassirer failed to exhaust available remedies in Spain or Germany. Although the district court correctly concluded that the FSIA does not require exhaustion of remedies, the court erred by failing to conduct a prudential exhaustion analysis.²¹

On remand, the district court should be guided by the principles we outlined in Sarei. Summarizing the Sarei framework generally, we first note that the district court need only consider exhaustion to the extent the defendant has affirmatively pleaded Cassirer‘s failure to exhaust local remedies. See

Sarei, 550 F.3d at 832 (“The defendant bears the burden to plead and justify an exhaustion requirement, including the availability of local remedies.“) (citation omitted). Second, the court must consider whether Congress has clearly required exhaustion for the specific claims asserted in the complaint. If, as in this case, Congress has not imposed or rejected such a requirement, the court must then determine whether the applicable substantive law would require exhaustion.²² Third, the court must consider whether the defendant has met its burden to show the availability of local remedies and that such remedies have not been exhausted. Id. The plaintiff may rebut a showing of unexhausted remedies abroad by demonstrating the futility of exhaustion (“by showing that the local remedies were ineffective, unobtainable, unduly prolonged, inadequate, or obviously futile.“). Id. (citations omitted). Finally, the court may, in its sound discretion, impose or waive exhaustion after assessing the availability, effectiveness, and possible futility of any unexhausted remedies in light of various prudential factors, including but not limited to: (1) the need to safeguard and respect the principles of international comity and sovereignty, (2) the existence or lack of a significant United States “nexus,”²³ (3) the nature of the allegations and the gravity of the potential violations of international law, and (4) whether the allegations implicate matters of “universal concern” for which a state has jurisdiction to adjudicate the claims without regard to territoriality or the nationality of the parties. See id. at 830-31.

V. Conclusion.

We dismiss this appeal with regard to the issues of personal jurisdiction, standing, and Article III case or controversy. We affirm the district court with regard to its statutory interpretation of 28 U.S.C. § 1605(a)(3). We likewise affirm the district court‘s conclusion that the Foundation engaged in sufficient commercial activity within the United States to satisfy the requirements of § 1605(a)(3). We reverse the district court, however, with regard to exhaustion of remedies and we remand for the limited purpose to determine in the first instance whether to impose an exhaustion requirement on Cassirer.

AFFIRMED in part, REVERSED in part, and REMANDED.

Each party shall bear its own cost.

N. RANDY SMITH

UNITED STATES CIRCUIT JUDGE

Notes

1

When referred to collectively, Spain and the Foundation are referred to as “Appellants.”

2

In reviewing the district court‘s denial of a motion to dismiss, we accept all well-pleaded factual allegations in the complaint as true,

Altmann v. Republic of Austria, 317 F.3d 954, 962 (9th Cir. 2002) (citing

Zimmerman v. City of Oakland, 255 F.3d 734, 737 (9th Cir. 2001)), amended by

327 F.3d 1246 (9th Cir. 2003), aff‘d by

541 U.S. 677 (2004), and determine whether the factual content “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged,”

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

3

Lilly‘s sister, who remained in Germany, was later imprisoned in the Theresienstadt extermination camp, where she was subsequently killed. Lilly died in 1962, never having recovered the Painting or learned of its whereabouts.

4

Under Spanish law, at least two-thirds of the Foundation‘s Board of Directors must be representatives of Spain, who are nominated and removed freely by the Spanish government through royal decree. Currently, Spain‘s Minister of Culture, Secretary of State for Culture, Secretary of State for Budget and Expenses, and Undersecretary of Culture all sit as ex officio members of the Foundation‘s Board.

6

See also, e.g.,

Moniz v. City of Ft. Lauderdale, 145 F.3d 1278, 1281 n. 3 (11th Cir.1998) (question of standing is not a final decision under the collateral order doctrine);

Triad Assocs., Inc. v. Robinson, 10 F.3d 492, 496-97 n. 2 (7th Cir.1993) (denial of a motion to dismiss for lack of standing does not qualify as a final judgment and is not immediately appealable);

Crymes v. DeKalb County, Ga., 923 F.2d 1482, 1484 (11th Cir.1991) (observing that denial of motion to dismiss on ripeness grounds is not immediately appealable);

Shanks v. City of Dallas, 752 F.2d 1092, 1099 n. 9 (5th Cir.1985) (case or controversy considerations are not appealable under the collateral order exception because they obviously “involve considerations that are enmeshed in the legal issues surrounding [the merits of the] cause of action“).

7

In Swint, the Supreme Court left open the possibility that we might exercise pendent appellate jurisdiction when we properly have jurisdiction over one ruling and “related rulings that are not themselves independently appealable” are “inextricably intertwined,” or when review of the related ruling is “necessary to ensure meaningful review of the [issue over which the court has jurisdiction],”

Swint, 514 U.S. at 50-51, and we have done so under some circumstances. See

Idaho Watersheds Project v. Hahn, 307 F.3d 815, 824 (9th Cir.2002);

Hook v. Ariz. Dep‘t of Corr., 107 F.3d 1397, 1401-02 (9th Cir.1997). We decline to do so here, however. Whether Appellants are “persons” within the meaning of the Due Process Clause for purposes of personal jurisdiction is not inextricably intertwined with our determination of sovereign immunity. Likewise, whether the case involves a case or controversy against Spain does not relate to or necessarily involve our consideration of sovereign immunity. Further, because we can resolve the sovereign immunity issue without reaching the merits of Appellants’ challenge to Article III case or controversy and standing, we do not exercise pendent appellate jurisdiction under Swint. Accordingly, we dismiss this appeal as to these issues.

8

Section 1603(a) defines “foreign state” to include “a political subdivision of a foreign state or an agency or instrumentality of a foreign state . . .”

9

Section 1604 provides: “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.” 28 U.S.C. § 1604.

10

Section 1605(a)(3) provides: “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.” 28 U.S.C. § 1605(a)(3).

11

Under appropriate circumstances, we may consider legislative history even when the plain language is clear. We do this, however, only where the legislative history “clearly indicates that Congress meant something other than what it said.”

Carson Harbor Vill., Ltd. v. Unocal Corp., 270 F.3d 863, 877 (9th Cir.2001) (emphasis added).

12

In its statement of “Findings and declaration of purpose,” 28 U.S.C. § 1602 provides: The Congress finds that the determination by United States courts of the claims of foreign states to immunity from the jurisdiction of such courts would serve the interests of justice and would protect the rights of both foreign states and litigants in United States courts. Under international law, states are not immune from the jurisdiction of foreign courts insofar as their commercial activities are concerned, and their commercial property may be levied upon for the satisfaction of judgments rendered against them in connection with their commercial activities. Claims of foreign states to immunity should henceforth be decided by courts of the United States and of the States in conformity with the principles set forth in this chapter.

13

The Conference Committee Report to § 1031(f) suggests several kinds of transactions between related parties that “generally” will not have unwarranted tax avoidance as a principal purpose, such as exchanges that do not involve basis shifting. See 101 H.R. Conf. Rep. No. 386, at 614. Teruya has not argued that its exchanges fall within these exceptions. The district court noted, “As particularly ironic examples, the Foundation purchased through Amazon.com The Lost Museum: The Nazi Conspiracy to Steal the World‘s Greatest Works of Art, . . . and from the American Association of Museums in Washington, DC purchased a volume on Museum Policy and Procedure for Nazi Era Issues.”

Cassirer, 461 F.Supp.2d at 1173 (internal citations omitted).

14

The record does not indicate what, if any, judicial actions have been brought in Germany. We note that there is some indication in publicly available material that, in 1958, the West German government may have acknowledged Lilly Cassirer to be the legal owner of the Painting, conceding that she retained the full rights of ownership. See Emma Daly, American Says Painting in Spain is Holocaust Loot, N.Y. Times, Feb. 10, 2003, at E1.

15

Although these decisions generally involve the exhaustion of administrative remedies, we have previously approached exhaustion of claims invoking international law in a manner consistent with our application of exhaustion in other domestic contexts. See

Sarei, 550 F.3d at 831-32 (“[E]xhaustion under the [Alien Torts Statute] should be approached consistently with exhaustion principles in other domestic contexts.“).

16

Cassirer‘s argument that Congress‘s prior inclusion of an arbitration requirement in § 1605(a)(7)(B)(i) evidences an intent to exclude an exhaustion requirement from § 1605(a)(3) is not persuasive. A mandatory arbitration requirement, although similar, is not the same as an exhaustion-of-local-remedies requirement. The phrase “local remedies” has been “interpreted broadly, [to include] the whole system of legal protection, as provided by municipal law, not only the courts and tribunals but also the use of procedural facilities which municipal law makes available to litigants.” Restatement (Third) of Foreign Relations Law § 713, Reporters’ Note 5 (citing Ambatielos Case (Greece v. United Kingdom), 1951, 12 R. Int‘l Arb. Awards 91, 120, 122) (internal quotation marks omitted). Therefore, one might fulfil an arbitration requirement without exhausting local remedies. Further, § 1605(a)(7)(B)(i) was enacted approximately twenty years after § 1605(a)(3). Thus, the exclusio unius doctrine does not apply. See

Cipollone v. Liggett Group, Inc., 505 U.S. 504, 520 (1992) (noting that “the views of a subsequent Congress form a hazardous basis for inferring the intent of an earlier one“) (internal quotation marks omitted). For this reason, we disagree with the D.C. Circuit‘s suggestion that the inclusion of § 1605(a)(7)(B)(i) “strengthens the inference that its omission from a closely related section must have been intentional.”

Agudas Chasidei Chabad v. Russian Fed‘n, 528 F.3d 934, 948 (D.C.Cir.2008) (suggesting, but not deciding, that § 1605(a)(3) does not impose an exhaustion requirement). Congress has since repealed the arbitration requirement of § 1605(a)(7). See National Defense Authorization Act for Fiscal Year 2008, Pub.L. No. 110-181, div. A, § 1083(b)(1)(A)(iii), 122 Stat. 3, 341 (2008) (repealing 28 U.S.C. § 1605(a)(7)).

17

The ATS provides that “[t]he district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.” 28 U.S.C. § 1350.

18

See, e.g.,

Coit Independence Joint Venture v. FSLIC, 489 U.S. 561, 579 (1989) (establishing that “exhaustion of administrative remedies is required where Congress imposes an exhaustion requirement by statute“);

Weinberger v. Salfi, 422 U.S. 749, 764-67 (1975) (holding 42 U.S.C. § 405(h) of the Social Security Act contains a jurisdictional exhaustion requirement);

Barron v. Ashcroft, 358 F.3d 674, 677 (9th Cir.2004) (holding that exhaustion of administrative remedies under 8 U.S.C. § 1252(d)(1) is a jurisdictional requirement, and failure to exhaust deprives the court of subject-matter jurisdiction);

Platte River Whooping Crane Critical Habitat Maint. Trust v. FERC, 876 F.2d 109, 112-13 (D.C.Cir.1989) (interpreting Federal Power Act statute, 16 U.S.C. § 825l(b), to provide a jurisdictional exhaustion requirement);

Dhangu v. INS, 812 F.2d 455, 460 (9th Cir.1987) (stating that exhaustion of administrative remedies with the BIA is a jurisdictional requirement);

Lindsey v. U.S., 448 F.Supp.2d 37, 51 (D.D.C.2006) (interpreting provision of the Internal Revenue Code, 26 U.S.C. § 7422(a), as imposing a jurisdictional exhaustion requirement).

19

Justice Breyer, joined by Justice Souter, indicated, in dicta, that they would likely read § 1605(a)(3) to require exhaustion. Concurring in

Republic of Austria v. Altmann, Justice Breyer wrote “a plaintiff may have to show an absence of remedies in the foreign country sufficient to compensate for any taking. . . . A plaintiff who chooses to litigate in this country in disregard of the postdeprivation remedies in the expropriating state may have trouble showing a tak[ing] in violation of international law.”

Republic of Austria v. Altmann, 541 U.S. 677, 714 (2004) (Breyer, J., concurring) (internal quotation marks omitted).

20

We respectfully disagree with the concurring-and-dissenting opinion‘s conclusion that Sarei is not on point. As in Sarei, the substantive claims here are based on alleged violations of international law. Both the ATS (at issue in Sarei) and the FSIA are jurisdictional statutes, and Congress has not expressly required or rejected exhaustion in either. With regard to principles of prudential exhaustion, the only meaningful difference between the international tort claims in Sarei and the claims made in the present case (and the only reason the FSIA is at issue) is that the defendant here is a sovereign foreign state. That is, if the defendant here were a private party, there could be little doubt that Sarei would apply. That the defendant is a foreign state does not undermine the applicability of Sarei. Rather, that fact and the principles of international comity weigh strongly in favor of the district court‘s consideration of exhaustion of local remedies on a prudential basis.

21

Contrary to the concurring-and-dissenting opinion‘s assertion, we are not writing an absolute exhaustion requirement into the FSIA. Nor are we absolutely precluding an exhaustion requirement where one might ordinarily be required by the applicable international law and justified under the circumstances. We do not hold that the district court must impose an exhaustion requirement in this case. Rather, we direct the district court (in the absence of clear Congressional intent otherwise) to examine the record before it, the applicable substantive law, and various equitable factors and then to carefully weigh whether to require exhaustion of local remedies on the claims before it. Where Congress has neither clearly imposed or rejected exhaustion as a prerequisite to exercising jurisdiction against a foreign state, the district court has discretion to consider exhaustion on a prudential basis. See

Sarei, 550 F.3d at 828.

22

Although exhaustion is, generally, a well-established rule of international law, it may not be firmly established in all areas of international law. See

Sarei, 550 F.3d at 844 (Reinhardt, J., dissenting) (discussing exhaustion in the context of international human rights).

23

The concurring-and-dissenting opinion would limit the reach of Sarei by suggesting that prudential exhaustion applies only in cases where there is a weak nexus with the United States. Therefore, the concurring-and-dissenting opinion suggests that, if an FSIA exception to sovereign immunity applies, then prudential exhaustion should not be considered because the claim necessarily has a strong nexus with the United States. We respectfully disagree. First, we do not read Sarei to hold that exhaustion may only be considered where there is a weak nexus to the United States. As we explained in Sarei, “The lack of a significant U.S. ‘nexus’ is an important consideration in evaluating whether plaintiffs should be required to exhaust their local remedies in accordance with the principle of international comity.”

Sarei, 550 F.3d at 831 (emphasis added). That is, courts should “carefully consider the question of exhaustion,” particularly where the nexus is weak and where the claims “do not involve matters of ‘universal concern.‘” See id. Second, some of the exceptions to sovereign immunity under the FSIA require little (if any) nexus with the United States. See, e.g., § 1605(a)(1) (exception to sovereign immunity where there is an explicit or implicit waiver of immunity by the foreign state); § 1605(a)(6) (exception to sovereign immunity for actions to enforce an agreement made by the foreign state with or for the benefit of a private party to submit to arbitration); § 1605(b) (exception to sovereign immunity for a suit in admiralty brought to enforce a maritime lien against a vessel or cargo of the foreign state which maritime lien is based upon a commercial activity of the foreign state). But see, e.g., §§ 1605(a)(2)-(5) (generally requiring that the foreign state have engaged in some commercial activity within or having direct impact in the United States). Thus, we cannot say that a claim‘s nexus with the United States is necessarily strong any time an exception to sovereign immunity applies. In some cases, a relatively isolated or weak nexus may be sufficient to subject a foreign state to jurisdiction. Yet a weak nexus may also weigh in favor of requiring exhaustion of local remedies in the appropriate case.

Case Details

Case Name: Cassirer v. Kingdom of Spain

Court Name: Court of Appeals for the Ninth Circuit

Date Published: Sep 8, 2009

Citation: 580 F.3d 1048

Docket Number: 06-56325, 06-56406

Court Abbreviation: 9th Cir.