## Facts

- Baron Mór Lipót Herzog assembled a major art collection in Budapest; after his death, ownership passed to his children.
- During World War II, Hungarian authorities and Nazi collaborators seized the collection; some works were transferred abroad and others placed in Hungarian state institutions.
- After the war, some works were returned, while many remained in the custody of Hungarian museums and other state entities.
- In 1950, Herzog’s daughter (then living in the United States) deposited certain paintings with a Hungarian museum under a written bailment agreement; plaintiffs also alleged additional express or implied bailments for other works.
- Plaintiffs alleged that Hungary later halted returns and repudiated bailment obligations, continuing to possess the artworks and refusing to return them to the heirs.
- Over decades, heirs repeatedly demanded return and pursued proceedings in Hungary with limited success; by 1998, at least some heirs were U.S. citizens.
- The heirs sued Hungary and related institutions in U.S. federal court, asserting claims centered on breach/repudiation of bailments and related common-law theories.

## Issues

1. Whether the alleged bailment relationships and Hungary’s refusal to return the artworks constitute “commercial activity” under the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. § 1605(a)(2).
2. Whether the action is “based upon” post-war commercial conduct (bailment formation/repudiation and non-return) rather than wartime sovereign expropriation.
3. Whether the alleged breach and repudiation of bailment obligations caused a “direct effect in the United States” sufficient to satisfy § 1605(a)(2) after development of a discovery record.
4. Whether defendants rebutted plaintiffs’ prima facie showing that the FSIA commercial-activity exception applies.

## Decision

- The court denied defendants’ renewed Rule 12(b)(1) motion to dismiss for lack of subject-matter jurisdiction.
- The court held the suit was “based upon” alleged post-war bailment obligations and their repudiation, not solely on the initial wartime takings.
- The court found bailments and their breach are commercial acts of the type private parties perform.
- The court concluded Hungary’s alleged repudiation and refusal to return the artworks caused a direct effect in the United States because the alleged obligations ran to heirs in the United States and nonperformance immediately affected their property interests.
- The court determined the post-discovery record did not defeat jurisdiction and that defendants failed to negate application of the commercial-activity exception at this stage.

## Legal Principles

- Under the FSIA, foreign states are presumptively immune unless a statutory exception applies; courts must determine jurisdiction before reaching the merits.
- For § 1605(a)(2), the “based upon” inquiry focuses on the gravamen of the complaint—the particular conduct that forms the foundation of liability—not the full historical narrative.
- Conduct is “commercial” under the FSIA when it is the kind of activity private parties can undertake; contract-like bailment arrangements and their breach qualify as commercial activity.
- The “direct effect” requirement is met when nonperformance of a commercial obligation has an immediate consequence in the United States, including where performance is tied to U.S.-based claimants or where U.S. residents are deprived of the benefit of the alleged bargain.
- Once plaintiffs make a prima facie showing that an FSIA exception applies, the foreign state bears the burden to show the exception does not apply; inconclusive rebuttal evidence does not restore immunity.

## Conclusion

The court held that alleged post-war bailment agreements and Hungary’s later repudiation and non-return of artworks constituted commercial activity with a direct effect in the United States, bringing the suit within the FSIA commercial-activity exception and allowing the case to proceed.


De Csepel v. Republic of Hungary, 169 F. Supp. 3d 143 (D.D.C. 2016)