Overview
First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement. This month, we provide an overview of the Supreme Court's much anticipated decision in Hungary v. Simon and the recently enacted UK Arbitration Act.
A Narrow(er) Decision in Hungary v. Simon
Litigation against foreign sovereigns remains a hot topic at the US Supreme Court in recent years, with several cases involving foreign sovereigns pending and/or recently decided. As we have written previously, one of the key cases we have been monitoring is Hungary v. Simon. This month’s update will focus on what (and was not) decided in the Simon case. Next month, we will provide a larger roundup of recent Supreme Court decisions involving foreign sovereigns and where Simon fits into that context, including an argument held yesterday in CC/Devas v. Antrix. This Ninth Circuit case found that foreign states are afforded due process protections under the US Constitution, but at argument the Court expressed skepticism of the Ninth Circuit's decision and was encouraged by the United States to reverse that decision, as the position of the US was that foreign states should not be considered persons for constitutional purposes.
In Simon, the plaintiffs — survivors of the Holocaust and their heirs — are suing the state of Hungary and one of its agencies for damages related to property that was stolen from them by the state. While the Foreign Sovereign Immunities Act (FSIA) generally prohibits lawsuits against foreign sovereigns, it contains several exceptions, including an exception for claims involving the expropriation of property. As relevant here, the "expropriation exception" permits claims where confiscated property or any property "exchanged for it" is owned or operated by an agency or "instrumentality" of the foreign country that engages in commercial activity in the United States.[1]
The plaintiffs in Simon alleged that Hungary sold the property, deposited the proceeds of the unlawful taking into a bank account, and later used those funds for commercial activity in the United States, including using funds from its treasury to issue bonds in the United States and to purchase military equipment in the United States. The central question for the Supreme Court was whether plaintiffs needed to actually "trace" the funds used in commercial activity back to the proceeds of the original taking or whether it was enough to simply allege that the proceeds of the taking were placed in the bank, commingled with other funds, and some portion of those funds were used for commercial activity.
Writing for a unanimous court, Justice Sotomayor found that the commingling theory was not sufficiently "plausible" to allege the applicability of the expropriation exception. Thus, Hungary's motion to dismiss should have been granted. The court reasoned that to sustain their allegations, the plaintiffs must show a "tracing of some sort that explains the property's lineage and how it found itself in the United States (or in the possession of a foreign sovereign agency that does commercial activity here)." Op.[2] at 10. In support of its conclusion, the court observed that "[w]hen the property at issue is tangible expropriated property itself [e.g., a piece of art], a plaintiff must allege some facts that give rise to a plausible inference that the property is in the United States . . ." Id. The court reasoned that the rule should be no different as it relates to fungible property like the cash. Thus, it is not sufficient for a plaintiff to assert that “a foreign sovereign exchange[d] expropriated property for money . . . [and] not identify the specific funds for which their property was exchanged" because permitting as much would do away with the tracing requirement implicit in the phrase "exchanged for" within §1605(a)(3). Id. at 11-12.
The court went on to say that plaintiffs can meet this standard by, for example, "identifying an account within the United States that holds the proceeds from the sale of seized property" or "soon after commingling funds from the sale of expropriated property, spent all the funds from the commingled account in the United States as part of its commercial activity here." Id. at 12. However, in this case, the commingling theory was too remote to be plausible. As the court held:
A plaintiff does not make the necessary showing, however, by alleging only that the foreign sovereign deposited the proceeds from the sale of expropriated property into an account at some time and eventually used that account for commercial activity in the United States. That is because an allegation of commingling alone does not give rise to a plausible inference that the specific property "exchanged for" the expropriated property, i.e., the cash proceeds from the sale, is "present in the United States."
Id. at 13.
The case was remanded to the District Court, which had denied Hungary’s motion to dismiss (which decision was affirmed by the Court of Appeals), for further proceedings. There, the case could be dismissed, or plaintiffs may be able to convince the District Court to allow them to take jurisdictional discovery.
With this decision, it will be more difficult for plaintiffs to make a claim under the "expropriation" decision.
Another notable aspect of the opinion is what remains unresolved. As we previously reported, the case presented a question about a purported split between the Second and the DC Circuits concerning the correct pleading standard for pleading an FSIA exception. With the Supreme Court not addressing this question head-on, we expect FSIA litigants will parse this opinion closely, searching for signals of the split—to the extent there is one—the court might come out on. We will discuss this and several other interesting developments from the court in next month’s update.
A New UK Arbitration Act
The long-awaited Arbitration Act 2025 completed its UK legislative approval and received Royal Assent on February 24, 2025. The Act incorporates key developments in the UK arbitration regime, including in respect of governing law, arbitrator disclosure duties, new arbitrator summary dismissal powers, and the English Court's powers to make orders against third parties in support of arbitration proceedings. Whilst not yet in force, the provisions of the Act are to be implemented through upcoming regulations (secondary legislation).
We will discuss in more detail the developments brought about by the Act, as well as their anticipated impact on UK arbitration proceedings, in future updates.
If you'd like to keep abreast of other legal developments occurring in real time, see an update here that introduces the Seventh Edition of the Arbitration Rules of the Singapore International Arbitration Centre (SIAC Rules 2025), and another recent alert that summarizes the new trade and tariffs policies set in place by the Trump administration.
[1] 28 U.S.C. § 1605(a)(3).
[2] Op. refers to the opinion of the Court in Hungary v. Simon, No. 23-867 (Feb. 21, 2025).
