Supreme Court Limits Suits Against Foreign States Under FSIA Expropriation Exception

One generally cannot sue a foreign state in a U.S. court because the Foreign Sovereign Immunities Act (FSIA) presumptively shields foreign states from suit. But the FSIA also sets out narrow exceptions to that presumptive foreign sovereign immunity, including the so-called “expropriation exception,” which applies to certain suits involving property taken by a state in violation of international law. If plaintiffs seek to invoke the expropriation exception, however, they must demonstrate a “commercial nexus”: for claims against the foreign state, that the expropriated property itself, “or any property exchanged for such property,” be present in the United States; or for claims against an agency or instrumentality of a foreign state, that the property be owned by an agency or instrumentality of a foreign state that is engaged in commercial activity in the United States. Satisfying the commercial nexus requirement can be relatively straightforward when the property at issue is tangible and it is thus easy to determine where it is present and who owns it. But in cases of fungible property like money, the commercial nexus can be much more challenging to satisfy, especially when the relevant property has been liquidated and the monetary proceeds commingled with other money owned by the foreign sovereign.

On February 21, 2025, the U.S. Supreme Court ruled in Republic of Hungary v. Simon that plaintiffs cannot satisfy the commercial nexus requirement merely by alleging that the proceeds of property taken in violation of international law have been commingled with money used by a sovereign in the United States. Going forward, plaintiffs will need to demonstrate a more concrete connection between property in the United States and allegedly expropriated property in order to bring a claim against a foreign sovereign under the FSIA’s expropriation exception.

Background

As part of the Holocaust, Hungary’s national railway, the Magyar Államvasutak Zrt. (MÁV), confiscated the possessions of Hungarian Jews before transporting them to Nazi death camps. The Hungarian government also declared that almost all valuable objects owned by Jews were part of Hungary’s national wealth. In 2010, plaintiffs — Jewish survivors of the Hungarian Holocaust and their heirs — sued the Republic of Hungary and MÁV over this confiscated property in the U.S. District Court for the District of Columbia.

Plaintiffs sought to pierce Hungary and MÁV’s presumptive immunity under the FSIA by invoking the expropriation exception. Under the expropriation exception, a plaintiff can sue a foreign sovereign if two requirements are satisfied. First, the lawsuit must concern “rights in property taken in violation of international law.” Second, that expropriated property, “or any property exchanged for such property” (e.g., cash from a sale), must be “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.” The second requirement is often called the “commercial nexus” requirement.

Plaintiffs argued their case satisfied the commercial nexus requirement. Specifically, plaintiffs alleged that, after the expropriations in the 1940s, Hungary and MÁV had sold the confiscated property, deposited the sale proceeds into general accounts containing funds from other sources (one account being the entire Hungarian treasury), and then used funds from those commingled accounts for commercial activities in the United States, such as selling government bonds (Hungary) and train tickets (MÁV). Since money is fungible, plaintiffs argued, all money in an account containing at least some funds attributable to expropriated property should be considered “property exchanged for such [expropriated] property.”

Both the district court and the court of appeals agreed with plaintiffs, and the Supreme Court then granted review.

Ruling

On appeal, the Supreme Court vacated the decision of the court of appeals and held that plaintiffs’ “commingling theory” was, standing alone, insufficient to satisfy the commercial nexus requirement of the expropriation exception.

The Court reasoned that the plain text of the FSIA’s expropriation exception does not treat fungible property like money any differently than tangible property. The specific language used in that exception — “property exchanged for such [expropriated] property” — has long been read to require plaintiffs to plead some facts that enabled reasonable tracing of the exchanged property back to the originally expropriated property. Commingling theories leave a gap in that tracing analysis because, by definition, the act of commingling itself makes property that was “exchanged” for expropriated property indistinguishable from property that was not exchanged.

The Court also emphasized the FSIA’s general purpose of affording broad immunity to foreign sovereigns, and that exceptions within the act were never meant to radically depart from the general principle that sovereigns should be answerable only for their commercial actions, not for their public ones. Finally, noting views expressed by the U.S. government during oral argument, the Court expressed concern that a broad interpretation of the expropriation exception could harm the United States’ international relations by inviting reciprocal actions against the United States in foreign courts. The Court said: “This Court ‘interpret[s] the FSIA as we do other statutes affecting international relations: to avoid, where possible, “producing friction in our relations with [other] nations and leading some to reciprocate by granting their courts permission to embroil the United States in expensive and difficult litigation.”’” 

As a result of this ruling, plaintiffs wishing to invoke the expropriation exception in a lawsuit concerning expropriated property whose sale proceeds have been commingled in a general account must concretely trace any funds in or spent from the foreign state’s general account back to the originally expropriated property. Plaintiffs must show, in other words, that money coming out of a commingled account is the same money that went in as a result of the expropriation.

Notably, the Supreme Court did not hold that a commingling theory could never satisfy the expropriation exception if it were presented alongside other facts. Indeed, the Court specifically suggested that some plaintiffs might satisfy the expropriation exception even after funds are commingled. For example, if a foreign sovereign, soon after commingling funds from the sale of expropriated property, completely emptied the commingled account in the United States in connection with a commercial activity here, that might satisfy the commercial nexus requirement of the expropriation exception. The Court said the same could be true even if the foreign sovereign did not fully exhaust the commingled account so long as it spent from the account a sum that exceeded the amount unattributable to the expropriated property. In both of these hypotheticals, a court can be 100% certain that, if plaintiffs’ allegations are true, at least some of the money spent in connection with commercial endeavors in the United States came from the sale of expropriated property.

Less clear is how courts should assess the strength of a plaintiff’s tracing analysis in other circumstances. Some scholars and parties have suggested that courts should use common-law tracing rules and principles from other areas like trust law to help determine whether funds from a commingled account are “property exchanged for” expropriated property. The Supreme Court refused to opine on that, but it cautioned, “Courts should not import reflexively those principles and rules into this context, however, given the baseline presumption of foreign sovereign immunity.”

The Court also left unsettled the role of the passage of time in these kinds of cases. Certainly, this was an extreme case: Property was confiscated, liquidated, and commingled in the 1940s, and plaintiffs identified spending in the 2000s to try to satisfy the commercial nexus requirement. The Court said temporal proximity “may also be a relevant consideration” in assessing whether a plaintiff has satisfied the exception’s commercial nexus requirement, but the Court did not specify how much of a consideration it could or should be.

Finally, the Court also declined to answer other questions that had been presented to it. Specifically, Hungary and MÁV had asked the Court to consider whether the Supreme Court’s earlier decision in Bolivarian Republic of Venezuela v. Helmerich & Payne Int’l Drilling Co., 58 U.S. 170 (2017), replaced the plausibility pleading standard for claims brought under the FSIA with a heightened pleading standard. Hungary and MÁV (and the U.S. government) also asked the Court to clarify the framework for the burden of production or persuasion in FSIA cases. Because the Court determined that the commingling theory would not meet even a plausibility pleading standard, it was not necessary to resolve either question. These issues — which are recurring questions in cases under the FSIA — will need to await a future case for their resolution.

This is the second time the Supreme Court has rejected the claim of the plaintiffs in the Simon case. In 2021, the Court held that the expropriation exception applies only to a sovereign government’s expropriation of property of foreign nationals, and not property taken from the state’s own nationals. The plaintiffs in Simon amended their complaint to allege that most of the plaintiffs were Czech, not Hungarian, nationals.

Implications

The most immediate takeaway from this decision is that it will be more difficult — but not necessarily impossible — for plaintiffs to sue foreign sovereigns over property that has been allegedly expropriated and liquidated. Once funds from that liquidation are commingled with funds from other sources, plaintiffs will have to demonstrate that any money coming out of those commingled funds is the same money that was “exchanged for” expropriated property.

Foreign sovereigns may also be pleased about how the Supreme Court will read FSIA exceptions going forward. Throughout the opinion, the Court emphasized that there is a baseline presumption of foreign sovereign immunity and expressed hesitancy toward exceptions that implicate foreign sovereign’s public acts instead of their purely commercial ones. The Court is also openly concerned that permitting too many suits against foreign sovereigns could have damaging international repercussions for the United States.

Even so, Republic of Hungary v. Simon leaves much unresolved, and we will accordingly continue to follow how the courts interpret remaining questions about the FSIA’s operation and scope.

© Arnold & Porter Kaye Scholer LLP 2025 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.