Federal Court Dismisses Claims Against Ethiopia

Last week the D.C. federal district court dismissed a class action lawsuit against Ethiopia. In the case of Nemariam v. Ethiopia, __ F.Supp.2d __ (D.D.C. Nov. 8, 2005), available here, Ethiopia allegedly expropriated bank accounts of Eritreans living in Ethiopia. Specifically, the allegation is that Ethiopia and its agents engaged in a systematic effort to seize the property of the Eritrean deportees, including seizing or freezing the deportees’ bank accounts and foreclosing on their properties and businesses.

On remand from the D.C. Circuit, the district court held that Ethiopia enjoyed sovereign immunity under the FSIA, and that the expropriation exception, (28 U.S.C. 1605(a)(3)), did not apply. The most important aspect of the case is the holding that the claimants’ expropriated bank accounts were not in fact currently “owned” by the government.

“Contrary to the plaintiffs’ argument, however, the plaintiffs’ property is not owned or operated by … the Ethiopian government….the plaintiffs’ property is a contract right as a depositor, not the actual funds that were originally deposited into the accounts. The funds, once deposited, become the funds of the bank, subject to the account holder’s contract rights…. [T]his distinction … is critical. So, rather than having property rights in the deposited funds, the plaintiffs’ property rights are actually the contractual rights they possess to have those funds returned to them. Accordingly, to establish that … the Ethiopian government own or operate the plaintiffs’ property, the plaintiffs must establish that … Ethiopia ha[s] assumed control over these contract rights and used them for their own benefit. But they have failed to make such a showing. The plaintiffs’ position is predicated on a belief that when funds were deposited into their accounts, they still have property rights in those funds. However, as already discussed, the property rights the plaintiffs possess is the contract right to the repayment of those funds…. Thus, any investment or use of the funds by … the Ethiopian government has not offended the plaintiffs’ property rights since those funds, until they are repaid, are owned by the bank, not the plaintiffs. Thus, because the plaintiffs’ argument is based on a false proposition, the argument fails as a result of its flawed foundation. “

This conclusion appears to be a real stretch. It essentially suggests that claimants do not “own” the money in their bank accounts, only the contractual right to access the funds in those accounts. And since the government did not assume control of those contract rights, it did not take the money in those accounts and does not own them.

This appears to be an overly formalistic approach to expropriation of bank assets. If the government imposes complete limitations on access to the funds in their accounts, it would seem that the claimants no longer effectively control those accounts and that those assets are currently owned and controlled by the Ethiopian government. To conclude otherwise would encourage governments to write laws denying account holders’ ownership of bank accounts, take confiscatory action just short of full ownership, and thereby achieve a taking without compensation.

As it stands, the suggestion of the D.C. district court is that the Eritrean claimants never owned the money in their bank accounts, only the contractual right to them, and therefore no expropriation of those funds could have occurred.

Funny, all this time I thought I actually owned the money in my bank and retirement accounts.