Court Opinion

ID: 2709021
Source: CourtListenerOpinion
Date Created: 2014-08-05 15:09:43.199073+00
Date Added: 2024-06-11T13:24:46.917993
License: Public Domain

In the

         United States Court of Appeals
                       For the Seventh Circuit
                            ____________________  

No.  12-­‐‑3269  
ELFRIEDE  KORBER  and  CHRISTOPHER  MARK,  
                                        Plaintiffs-­‐‑Appellants,  
                                           v.  

BUNDESREPUBLIK  DEUTSCHLAND,  et  al.,  
                                                           Defendants-­‐‑Appellees.  
                            ____________________  

              Appeal  from  the  United  States  District  Court  for  the  
                Northern  District  of  Illinois,  Eastern  Division.  
                 No.  08  C  6254  —  Edmond  E.  Chang,  Judge.  
                            ____________________  

        ARGUED  JANUARY  6,  2014  —  DECIDED  JANUARY  9,  2014  
                     ____________________  

        Before  EASTERBROOK,  WILLIAMS,  and  TINDER,  Circuit  Judg-­‐‑
es.  
     EASTERBROOK,   Circuit   Judge.   After   Germany   surrendered  
in  May  1945,  holders  of  bonds  issued  by  public  and  private  
entities   in   that   nation   demanded   repayment.   Germany   had  
suspended  payment  on  many  foreign-­‐‑held  bonds  during  the  
1930s,  but  some  pre-­‐‑war  bonds  were  not  due  until  the  1950s  
or   1960s.   A   multinational   agreement   among   21   creditor   na-­‐‑
tions   and   the   Federal   Republic   of   Germany—which   at   the  
No.  12-­‐‑3269                                                             2  

time  meant  the  Länder  that  had  been  occupied  by  the  United  
States,  United  Kingdom,  and  France—specified  that  Germa-­‐‑
ny  would  pay  valid  debts  outstanding  on  May  8,  1945.  This  
pact,   called   the   London   Debt   Agreement,   gives   priority   to  
creditors   who   accept   diminished   payoffs.   The   Soviet   Union  
and  the  German  Democratic  Republic  (the  Länder  constitut-­‐‑
ing  East  Germany)  did  not  participate.  
    Contemporaneously  with  negotiation  of  the  London  Debt  
Agreement,  West  Germany  enacted  a  Validation  Law  requir-­‐‑
ing   holders   of   foreign   debt   instruments   to   submit   them   to  
panels  that  would  determine  whether  the  claims  were  genu-­‐‑
ine.   Some   bonds   had   been   bought   back   in   the   markets   but  
stolen   toward   the   end   of   the   war;   West   Germany   sought   to  
ensure   that   these   retired   debt   instruments   were   not   paid   a  
second   time   and   that   no   counterfeit   instruments   would   be  
paid.  
    In   April   1953   the   United   States   and   West   Germany  
agreed  by  treaty  that  foreign  debts  contracted  before  the  end  
of  World  War  II  would  be  paid  only  if  found  by  a  validation  
panel  to  be  legitimate.  4  U.S.T.  885  (1953).  The  parties  agree  
that   this   treaty   applies   to   Germany   as   reconstituted   by   the  
merger  of  East  and  West  Germany  in  1990.  Holders  had  five  
years  to  submit  their  documents  for  validation  by  a  panel  in  
New  York  City.  Any  later  claim  for  validation  goes  to  an  Ex-­‐‑
amining   Agency   in   Germany.   The   claimant   must   show   a  
good   reason   for   the   delay   and   establish   the   instruments’  
provenance.   Decisions   adverse   to   claimants   are   subject   to  
judicial   review   in   German   courts.   Article   II   of   the   Treaty  
adds  that  no  instrument  within  the  scope  of  the  Treaty  and  
Validation  Law  may  be  enforced  unless  it  has  first  been  vali-­‐‑
dated  by  a  panel  in  New  York  or  Germany.  
3                                                                   No.  12-­‐‑3269  

     Plaintiffs   filed   this   suit   in   2008   under   the   international  
diversity  jurisdiction,  28  U.S.C.  §1332(a)(2),  seeking  to  recov-­‐‑
er  on  bearer  bonds  that  Germany  had  issued  or  guaranteed  
before  World  War  II  began.  One  holder  has  never  submitted  
the  bonds  to  a  validation  panel.  The  other  submitted  them  to  
a   panel   in   Germany,   which   found   them   ineligible,   and   did  
not  seek  judicial  review  of  that  decision.  
      In   response   to   defendants’   request   for   the   suit’s   dismis-­‐‑
sal,  both  plaintiffs  contend  that  the  Treaty  is  invalid  because  
it   takes   their   property   without   just   compensation.   The   dis-­‐‑
trict   court   held   that   the   Treaty   is   binding   and   that   the   suit,  
which  seeks  to  collect  on  un-­‐‑validated  instruments,  must  be  
dismissed.   The   court   added   that   the   suit   is   barred   by   the  
statute   of   limitations,   which   the   judge   deemed   to   be   a   ten-­‐‑
year   period   drawn   from   Illinois   law.   (Illinois   is   the   state   in  
which   the   district   court   sits.)   The   court’s   opinions   cover  
some  other  issues,  such  as  whether  payment  of  the  bonds  is  
a   commercial   activity   for   the   purpose   of   the   Foreign   Sover-­‐‑
eign  Immunities  Act,  28  U.S.C.  §§  1602–11,  and  whether  par-­‐‑
ticular  defendants  were  served  with  process,  but  those  ques-­‐‑
tions   have   dropped   out.   Appellees’   brief   does   not   contend  
that  the  defendants  are  immune  under  the  FSIA  or  that  ser-­‐‑
vice  on  any  defendant  was  improper.  
    Despite   the   passage   of   time   since   the   1953   Treaty   speci-­‐‑
fied  how  bonds  could  be  enforced,  recent  years  have  seen  an  
uptick   in   claims   seeking   to   recover   in   federal   courts.   Some  
holders   have   argued   that   their   claims   did   not   accrue   until  
2010,   when   Germany   made   the   final   payments   on   bonds  
processed  under  the  Agreement.  These  suits  have  been  uni-­‐‑
formly  unsuccessful.  See  Fulwood  v.  Germany,  734  F.3d  72  (1st  
Cir.  2013);  World  Holdings,  LLC  v.  Germany,  701  F.3d  641  (11th  
No.  12-­‐‑3269                                                                    4  

Cir.   2012);   Mortimer   Off   Shore   Services,   Ltd.   v.   Germany,   615  
F.3d  97  (2d  Cir.  2010).  The  first,  second,  and  eleventh  circuits  
have   held   that   bondholders   lose   either   because   of   the   Trea-­‐‑
ty’s   language   or   because   the   claims   are   time-­‐‑barred.   Our  
plaintiffs  have  raised  constitutional  arguments  in  an  effort  to  
circumvent  the  obstacles  created  by  the  Treaty  and  the  other  
circuits’  decisions.  The  attempt  to  get  around  this  sixty-­‐‑year-­‐‑
old  treaty  is  unavailing.  
    The   Constitution’s   fifth   amendment   does   not   forbid   the  
taking  of  private  property.  Instead  it  requires  just  compensa-­‐‑
tion   for   taken   property.   The   Tucker   Act,   28   U.S.C.  
§1491(a)(1),  authorizes  the  Court  of  Federal  Claims  to  award  
whatever  compensation  the  Constitution  requires.  It  follows  
that  the  1953  Treaty  cannot  be  unconstitutional  as  a  prohib-­‐‑
ited  taking.  A  person  who  thinks  that  the  1953  Treaty  takes  
private   property   should   use   the   Tucker   Act   remedy.   See,  
e.g.,   Preseault   v.   ICC,   494   U.S.   1,   12–16   (1990);   Ruckelshaus   v.  
Monsanto   Co.,   467   U.S.   986,   1017–19   (1984);   Regional   Rail   Re-­‐‑
organization  Act  Cases,  419  U.S.  102,  126–36  (1974).  
    It   is   tempting   to   end   the   opinion   here,   but   in   Dames   &  
Moore   v.   Regan,   453   U.S.   654   (1981),   the   Supreme   Court,  
while   observing   that   claimants   could   resort   to   the   Tucker  
Act,   id.   at   688–90,   also   stated   that   there   is   no   constitutional  
obstacle   to   an   international   property   settlement.   The   agree-­‐‑
ment  contested  in  Dames  &  Moore,  among  the  United  States,  
Iran,  and  Algeria,  resolved  the  dispute  that  began  when  dip-­‐‑
lomats   and   their   families   were   taken   hostage   at   the   United  
States   Embassy   in   Tehran.   The   agreement   established   the  
Iran–United  States  Claims  Tribunal  in  The  Hague.  All  claims  
(including   contract   claims   that   predated   Iran’s   1979   revolu-­‐‑
tion)  must  be  submitted  to  the  Tribunal,  whose  dispositions  
5                                                                 No.  12-­‐‑3269  

are  final.  Litigation  of  claims  outside  the  Tribunal  is  forbid-­‐‑
den.   The   Court   observed   that   settlements   of   private   claims  
are  a  traditional,  and  valid,  part  of  peacemaking,  see  453  U.S.  
at  679–80,  and  added  that  the  United  States’  power  to  strike  
such  bargains  with  other  nations  may  be  exercised  by  execu-­‐‑
tive  agreement  as  well  as  by  treaty.  
   Iran’s   refusal   to   pay   claims   made   by   foreign   nationals  
was   not   a   taking   by   the   United   States;   this   nation   does   not  
guarantee   other   nations’   sovereign   debt.   Likewise   Germa-­‐‑
ny’s  refusal  to  pay  claims  based  on  bonds  it  issued  or  guar-­‐‑
anteed   before   the   end   of   World   War   II   cannot   be   thought   a  
taking   by   the   United   States   of   America.   That   the   United  
States   and   Germany   agreed   in   1953   to   a   process   that   will  
lead   to   payment   of   some   but   not   all   claims   is   an   ordinary  
part  of  peacemaking  and  not  an  affront  to  the  Constitution.  
      Diplomacy  requires  compromise.  Many  governments  are  
reluctant   to   pay   debts   incurred   by   predecessors   that   have  
been  overthrown  in  revolution  (e.g.,  Iran)  or  lost  a  war  (e.g.,  
the  Nazi  regime  in  Germany).  Indeed,  the  United  States  itself  
did   not   ensure   payment   of   debts   incurred   within   its   own  
borders   by   the   states   that   attempted   to   secede   in   1861.   The  
history  summarized  in  Dames  &  Moore  shows  that  diplomat-­‐‑
ic   dispositions   of   private   financial   claims   against   other   sov-­‐‑
ereigns,   designed   to   facilitate   the   establishment   of   peaceful  
relations   among   nations,   have   occurred   throughout   Ameri-­‐‑
can  history.  We  cannot  see  any  basis  for  a  constitutional  dis-­‐‑
tinction  between  the  diplomatic  resolution  of  private  claims  
against  Iran  and  those  against  Germany.  
     Plaintiffs   maintain   that   Germany   has   not   carried   out   all  
its  obligations  under  the  1953  Treaty.  That  contention  should  
be  made  to  the  Department  of  State  rather  than  to  a  district  
No.  12-­‐‑3269                                                                       6  

judge.   The   1953   Treaty   is   not   self-­‐‑executing;   the   United  
States  and  West  Germany  made  promises  to  each  other,  not  
directly  to  private  citizens.  Decisions  such  as  Medellín  v.  Tex-­‐‑
as,   552   U.S.   491   (2008),   show   that   private   parties   can   be   the  
intended   beneficiaries   of   treaties   without   having   a   right   to  
enforce  them  in  court.  Plaintiffs  do  not  point  to  any  language  
in   the   1953   Treaty   conferring   enforcement   rights   on   private  
parties;  to  the  contrary,  the  Treaty  forbids  private  suits  based  
on   non-­‐‑validated   claims.   It   is   far   from   clear   to   us   that   Ger-­‐‑
many  has  fallen  short  of  its  commitments;  Examining  Agen-­‐‑
cies  still  exist  in  Germany,  and  judicial  review  of  adverse  de-­‐‑
cisions   is   available.   But   because   this   treaty   is   not   self-­‐‑
executing,   diplomatic   rather   than   judicial   channels   are   the  
appropriate  ones  for  consideration  of  plaintiffs’  grievances.  
    According  to  plaintiffs,  a  judicial  order  requiring  Germa-­‐‑
ny  to  improve  its  validation  process  may  issue  under  the  Al-­‐‑
ien   Tort   Statute,   28   U.S.C.   §1350,   even   if   not   directly   under  
the   1953   Treaty.   That   contention   did   not   survive   Kiobel   v.  
Royal  Dutch  Petroleum  Co.,  133  S.  Ct.  1659  (2013),  which  holds  
that   §1350   cannot   be   used   to   contest   the   acts   of   foreign   na-­‐‑
tions  taken  within  their  own  borders.  How  Germany  admin-­‐‑
isters   the   validation   process   is   for   diplomats   or   German  
courts  to  consider.  
    Because   plaintiffs   lack   validated   claims,   their   suits   must  
be  dismissed.  Lest  silence  invite  suits  on  claims  validated  in  
coming  years,  we  add  that  we  agree  with  World  Holdings,  701  
F.3d  at  653–54,  and  the  district  court  that  the  statute  of  limi-­‐‑
tations  independently  bars  a  judicial  role  in  collection.  Hold-­‐‑
ers  could  have  submitted  their  bonds  for  validation  decades  
ago,   whether   or   not   they   accepted   the   speed-­‐‑for-­‐‑amount  
tradeoff   under   the   London   Debt   Agreement;   those   who   de-­‐‑
7                                                               No.  12-­‐‑3269  

layed   have   only   themselves   to   blame.   Plaintiffs   tell   us   that  
international   law   lacks   a   statute   of   limitations   for   the   en-­‐‑
forcement   of   sovereign   debt—which   is   true   but   irrelevant.  
These   bonds   were   issued   under   German   law,   and   perhaps  
under  U.S.  law  or  other  nations’  law  too  (they  were  designed  
for   sale   to   non-­‐‑German   investors,   and   some   of   the   instru-­‐‑
ments   covered   by   the   1953   Treaty   were   traded   on   U.S.   ex-­‐‑
changes).   The   applicable   periods   of   limitations   are   those  
provided   by   Germany,   by   jurisdictions   in   which   the   bonds  
were   sold,   and   by   agreement   of   the   parties   reflected   in   the  
instruments  themselves.  Litigation  in  the  2010s  is  far  too  late  
under  any  of  those  sources  of  law.  
                                                                   AFFIRMED