Grossman LLP | Controversy Over Jewish Archives Continues, As Court Enters $43.7 Million Interim Judgment Against Russia
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  • Controversy Over Jewish Archives Continues, As Court Enters $43.7 Million Interim Judgment Against Russia
    Back in 2013, this blog discussed the ongoing litigation—and resulting international controversy—over a famous collection of religious books and manuscripts related to the heritage of Chabad-Lubovitch, a Hasidic Jewish organization founded in Russia and now based in New York.  The Russian government, who has control of the collection, has refused to participate in the litigation.  This month, the matter took on new weight as a federal court granted the Chabad-Lubovitch claimants’ request for an interim judgment against the Russian government—to the tune of over $40 million.

    The case centers on a library of texts once owned by the religious leaders of Chabad-Lubovitch in Russia in the early twentieth century.  One group of records was seized during the Russian Revolution, while another subset was taken by Nazi forces during World War II and then seized by the Soviet Army.  Since then, the collection has been in the hands of the Soviet government, and later the Russian government.

    For decades, representatives of Chabad have sought the return of the collection to its leaders (who since World War II have been based in New York). Proceedings in the U.S.S.R. in the early 1990s came close to victory for Chabad, but the near-resolution of the dispute was set aside after the collapse of the Soviet Union.  Litigation in American courts began in 2004, when Chabad filed a lawsuit against several Russian governmental entities under the Foreign Sovereign Immunities Act (FSIA).  See D.D.C. Docket No. 05-1548.  The FSIA bars U.S. courts from asserting jurisdiction over foreign states in most cases, but Chabad’s suit went forward under an exception whereby a foreign state is not immune from suit in a case “in which rights in property taken in violation of international law are in issue,” where such property is claimed by a foreign instrumentality engaged in commercial activity within the United States.  The Court of Appeals for the D.C. Circuit agreed that the suit could proceed.  Agudas Chasidei Chabad of U.S. v. Russian Federation, 528 F.3d 934 (D.C. Cir. 2008).  In 2009, the Russian defendants withdrew from further participation in the lawsuit, arguing that an American court lacked authority to adjudicate the Russian government’s rights in the matter.

    In 2010, following Russia’s withdrawal, Judge Royce Lamberth of the U.S. District Court for the District of Columbia entered a default judgment in favor of Chabad, and ordered the records returned to either the American Embassy in Moscow or to Chabad.  Agudas Chasidei Chabad of U.S. v. Russian Fed’n, 729 F. Supp. 2d 141, 148 (D.D.C. 2010).  Russia refused to comply, and further protested the decision by halting all exchanges of Russia-owned art and artifacts to American museums and institutions, citing its concern that such objects might be seized, attached, or otherwise held hostage in America due to the Chabad case.

    In January 2013—against the urging of the U.S. government, which said it was trying to broker a diplomatic solution—Judge Lamberth issued civil contempt sanctions against the Russian defendants.  The sanctions were to accrue at a rate of $50,000 for every day the defendants failed to return the collections.  The Russian government expressed outrage and reiterated its position that the U.S. court lacked authority to impose such sanctions.

    Since then, Russia has neither returned the collection nor paid any of the court-imposed fines.  In June 2013, the Russian government transferred some of the collection to a new Jewish museum in Moscow.  At the time, Russian president Vladimir Putin expressed his expectation that the collection’s partial move to the Jewish Museum and Tolerance Center should put an end to the Chabad controversy.  His hopes proved misplaced.  In early 2014, Chabad moved for an “interim judgment” in the amount of $14,750,000, reflecting the contempt sanctions accrued over the previous year.  The motion emphasized Russia’s continued intransigence, including a September 2013 statement by a Russian presidential envoy who declared that there could be “no talk at all” unless Chabad withdrew its lawsuit.  Chabad argued that an interim monetary judgment would serve as a “clear sign” to Russia about the significance of the litigation and the consequences of disregarding the court’s orders, and would also allow Chabad to take steps toward “attachment and liquidation” of Russian property to satisfy the judgment.

    In a “Statement of Interest” filed with the court, the United States government argued against such an interim judgment, warning that the request would be counterproductive to the goal of resolving the dispute; that an interim judgment would be inconsistent with FSIA and an unwarranted exercise of the court’s authority; and that Chabad’s contemplated enforcement of a monetary judgment against Russia “would cause significant harm to the foreign policy interests of the United States.”  The United States also asked that, should Chabad’s motion be granted, the U.S. government should receive advance notice of any planned “enforcement” steps against Russian assets, so as to give the U.S. a chance to consider “steps it might need to take to protect its interests.”

    In the meantime, Russia has sought to turn the tables by instituting related litigation on its own soil; it filed suit in a Russian court against the United States and the Library of Congress, seeking the return of seven books from the very same collection; the works were loaned to the Library of Congress in 1994 and subsequently returned to Chabad.  This summer, a Russian court ordered their return and imposed a $50,000 per day fine for failure to comply.

    The latest chapter in the saga came earlier this month, when Judge Lamberth granted Chabad’s motion and ordered entry of an interim judgment of $43.7 million against Russia.  The amount represents the approximately two and a half years of contempt fines that have accrued since the default judgment.  The order also provides that, as fines continue to rack up going forward, additional judgments will be entered (to the tune of $4.5 million quarterly) without any further action required by Chabad.  The court acknowledged the federal government’s concerns regarding attachment and execution on assets, but said that such issues are “premature until such time as plaintiff has identified property to attach and execute”; on this point, the judge drew a distinction between FSIA law regarding jurisdictional immunity and law regarding immunity from attachment.  The court also noted that any attachment would require Chabad to provide Russia with statutorily-required notice and an opportunity to respond, although it did say that given the fact that the Russian defendant entities have long known about the possibility, “it is likely that plaintiff will be able to pursue attachment and execution.”  In the court’s view, “Defendants have given clear indication that that do not intend to comply with this court’s orders.  The time has come to give plaintiff some of the tools to which it is entitled under law.”

    The court also rejected claims by the State Department that the suit would damage U.S.-Russia relations generally, opining that there was “simply no evidence on the record that this case has any impact on relations between the United States and Russia outside of this case.”  The court further refused to allow Russia’s retaliatory litigation against the Library of Congress to “be the basis for shirking its responsibility to make rulings consistent with law.”  However, in a nod to the foreign relations dynamics of the case, the court did order that Chabad must provide notice to the U.S. Department of Justice when they file any “discovery, registration of judgment, restraint, attachment, and/or writ of execution” in connection with the judgment at issue, to ensure that the federal government has an opportunity to “state its interests” prior to any award.

    To that end, Chabad has actually already served a subpoena against a bank (Sberbank CIB USA, Inc.) regarding accounts potentially held there by Russian governmental entities; presumably this is an initial step in seeking information about assets that could be pursued for attachment.  The bank is opposing the subpoena, and Judge Lamberth has again sought input from the federal government on the matter.  See S.D.N.Y. Docket No. 15-mc-184, later transferred to D.D.C. Docket No. 15-mc-1153.

    Any plaintiff faces challenges in seeking to use U.S. courts to pursue recovery of art and antiquities located in other countries.  And any plaintiff who has achieved an actual judgment can face challenges in seeking to enforce that judgment, especially against a foreign defendant.  But these difficulties take on a whole new dynamic when the opposing party and custodian of the disputed works is an actual foreign government.  The FSIA has been an important factor for some (beginning with the landmark “Woman In Gold” case against Austria); but here, the defendant Russian entities are flatly refusing to participate in the litigation.  The U.S. government, for its part, has urged judicial restraint in hopes of a diplomatic solution, but the court is clearly skeptical that such efforts will be effective.  The court’s decision to enter the interim judgment now paves the way for Chabad to begin seeking property that may be available for attachment; the court said the attachment issues are not yet ripe, but this next phase of the case may involve, among other things, questions about what property is available for attachment under the FSIA.   Meanwhile, Russia’s ban on the exchange of Russian artworks and antiquities with American institutions remains in place, to the detriment of the art community and the public here.  The standoff continues for now, as the stakes and fines continue to rise.