Hungarian Entities Face Trimmed Holocaust Case

CHICAGO (CN) - The 7th Circuit dealt a mixed bag to Hungarian banks and railways facing multibillion claims from Holocaust survivors and their heirs.

Though the slaughter of Hungarian Jews did not take place until 1944, by then the country had adopted a series of laws earlier to limit Jewish economic influence. Jews were required to turn over property to government officials, and a special account was created to centralize and pool funds from frozen Jewish bank accounts.

Hungarian banks - both private and public - allegedly froze Jewish assets to prevent their escape from the country. Those who survived death camps returned to discover that their homes had been sold and safety deposit boxes looted.

A group of Holocaust survivors and their heirs filed several massive lawsuits under the Foreign Sovereign Immunities Act (FSIA) and the Alien Tort Statute alleging genocide, aiding and abetting genocide, bailment, conversion, constructive trust, and accounting.

The plaintiffs sought to certify a class and hold the banks and railroad liable for more than $75 billion in damages, equivalent to 40 percent of Hungary's 2011 gross domestic product.

Rulings by U.S. District Court Judge Samuel Der-Yeghiayan brought nine appeals before the 7th Circuit, which consolidated the cases in three separate opinions Wednesday. The rulings strike down claims against privately owned Hungarian banks but leave room for the heirs to pursue the national entities. Judge David Hamilton authored all three opinions.

Consolidating Abelesz et al. v. Magyar Nemzeti Bank and Fischer et al. v. Magyar Államvasutak, the court first addressed claims against the national bank and railroad, which Der-Yeghiayan had allowed to proceed despite claims of sovereign immunity.

Though all parties agreed the national bank and national railway qualify as instrumentalities of a foreign sovereign under FSIA, the plaintiffs argued for application of the expropriation exception, which allows suits to recover property taken in violation of international law.

Because genocide is a violation of international law, the court determined that the alleged actions of the banks and railways clearly qualify for the exception.

"Expropriating property from the targets of genocide has the ghoulishly efficient result of both paying for the costs associated with a systematic attempt to murder an entire people and leaving destitute any who manage to survive," Hamilton wrote.

"The freezing of bank accounts, the straw-man control of corporations, the looting of safe deposit boxes and suitcases brought by Jews to the train stations, and even charging third-class train fares to victims being sent to death camps - should be viewed, at least on the pleadings, as an integral part of the genocidal plan to depopulate Hungary of its Jews," he added.

But customary international law requires the plaintiffs to exhaust their domestic remedies or demonstrate convincingly that such remedies are a sham or inadequate before filing suit in a foreign court, the court determined.

"We should consider how the United States would react if a foreign court ordered the U.S. Treasury or the Federal Reserve Bank to pay a group of plaintiffs 40 percent of U.S. annual gross domestic product, which would be roughly $6 trillion," Hamilton wrote. "And consider further the reaction if such an order were based on events that happened generations ago in the United States itself, without any effort to secure just compensation through U.S. courts. If U.S. courts are ready to exercise jurisdiction to right wrongs all over the world, including those of past generations, we should not complain if other countries' courts decide to do the same."

Under this reasoning, the court ordered the plaintiffs to first pursue remedies through the Hungarian court system or demonstrate on remand why such remedies are unavailable.

Continuing the case in the United States may now prove difficult for the plaintiffs because "proving inadequacy of domestic Hungarian remedies need not be perfectly congruent with those available in the United States to be deemed adequate," the 76-page decision states.

The plaintiffs must also begin discovery to demonstrate whether the national railway is engaged in sufficient commercial activity in the U.S. to establish jurisdiction.

In its second opinion, Abelesz et al. v. OPT Bank, the court rejected claims against privately owned OTP Bank and MKB Bank, which Der-Yeghiayan had earlier refused to dismiss.

"This case demonstrates some of the limits in trying to use civil courts on another continent to obtain legal relief for those crimes, now more than 60 years old," Hamilton wrote, before reversing Der-Yeghiayan's ruling and tossing the claims.

"Under the District Court's reasoning, virtually any large bank located anywhere in the world could be sued in any U.S. court on any claim arising anywhere in the world," he added. "That would be an extraordinary and unwarranted expansion of the U.S. courts' general jurisdiction that would raise serious international law questions about the reach of U.S. law."

Though both banks have U.S.-based account holders - OPT has 4,884 accounts worth over $93 million with U.S. mailing addresses and MKB has 1,500 accounts worth $147 million - the court said their business ties were not "continuous and systematic" enough to render them "essentially at home" in the court's jurisdiction.

"These contacts do not provide a reason for OTP or MKB to expect that they might be sued in any U.S. court for any claim arising anywhere in the world," the 42-page decision states. "The OTP accounts owned by ... persons with U.S. mailing addresses account for 0.17 percent of OTP's total accounts. The MKB accounts [for U.S. clients] account for 0.4 percent of MKB's total accounts."

Finally, in Abelesz et al. v. Erste Group Bank AG, the court refused to dismiss claims against the privately owned Austrian bank.

Unlike MKB and OTP, Erste cannot demonstrate a clear right to immediate review, the court found. The bank cannot dodge liability by pointing to a pledge from the U.S. government to help achieve "legal peace" for Nazi-era suits, arising from its participation in an $8 billion Austrian General Settlement Fund for Holocaust victims.

The ruling leaves Erste with only a chance to appeal after a final decision in the case, increasing the stakes of the litigation and pressure to settle.

The plaintiffs were represented by Anthony D'Amato of the Northwestern University School of Law, Richard Weisberg of the Cardozo Law School, Jeffrey Leon of Complex Litigation Group and the Pavich Law Group.

The 7th Circuit reformed all three case captions, which had previously referred to the plaintiffs as "Holocaust Victims of Bank Theft," to comply with a Federal Procedure rule against captions that presume claim merits.

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