The fascinating story of Germany’s sales of bonds in the 1920s, the subsequent Russian confiscation, and Germany’s post-WWII efforts to stabilize the market for such bonds, is the subject, not of any summer-time suspense novels, but of two recent decisions by the Second and Eleventh Circuits. Mortimer Off Shore Services, Ltd. v. Federal Republic of Germany, Nos. 08-1783-cv, 08-2358-cv (2d Cir. 7/26/10); and World Holdings v. The Federal Republic of Germany, No. 09-14359 (11th Cir. 8/9/10). Each addresses Germany’s attempt to invoke sovereign immunity to avoid being sued in the U.S. by plaintiffs alleging they are owed payments on these old and hoary instruments.
In both cases, the Courts of Appeal reject Germany’s claim for sovereign immunity treatment, relying on the commercial-activity exception to 28 U.S.C. § 1604 found in § 1605. Germany’s argument was not that its activity was not commercial in nature. Rather, it argued that a 1953 Treaty, adopted long before the Foreign Sovereign Immunities Act was enacted in the U.S. in 1976, contained a provision held that no bond was “enforceable unless and until it shall be validated” in procedures established in Germany but not utilized by the plaintiffs in these cases. The plaintiffs in both cases had not complied with the allegedly requisite process, claiming it was not necessary for them to state a claim for payment. The Circuits found that there was no “express conflict” between the 1953 Treaty, which speaks of enforceability, and the FSIA, which involves being amenable to suit. As a result, the FSIA’s commercial-activity exception trumped the Treaty.