Looted-Art Heirs May Find A Sympathetic Forum In NY Courts

By: Martin Bienstock

After more than two decades, and three rounds of court proceedings, the heirs to Fritz Grunbaum have finally succeeded in recovering Egon Schiele artworks looted during the Holocaust. Two previous legal proceedings — the first giving rise to an international diplomatic incident, and the second initiating an unusually public dispute between two federal district court judges — failed to provide relief to the heirs. The New York Appellate Division decision last week in Reif v. Nagy,[1] affirming summary judgment for the heirs, finally vindicated their claims in New York court. More importantly, the Reif decision sent an important signal that New York courts would provide a welcoming forum for Holocaust looted-art claims. The decision is especially noteworthy because of the manner in which it rejected the defendant’s claim of laches, just a few weeks after the U.S. Court of Appeals for the Second Circuit had dismissed a Holocaust looted-art claim on those very grounds.

Background to the Grunbaum Cases

The series of three cases involved substantially the same facts. Grunbaum was a Jewish Viennese art collector. He was arrested by the Nazis and interred, and later murdered in a concentration camp. His wife met a similar fate. Documentary evidence showed the Nazis cataloguing Grunbaum’s artwork, including certain unnamed Schiele artworks. A sister-in-law also was interred by the Nazis but survived. The Schiele artworks previously owned by Grunbaum made their way to a Swiss art gallery, which claimed to have received them from the sister-in-law. Almost immediately after the Austrian statute of limitations for claims to ownership of the artworks expired, the gallery revealed its ownership of the paintings and began to sell them. Many years later, the heirs recognized that they were Grunbaum’s true heirs and set about trying to retrieve their paintings.

Grunbaum 1: DA Morgenthau Tries to Claim Paintings

The first New York case involving the artworks pitted Manhattan District Attorney Robert Morgenthau against, among others, the government of Austria. In that case, In re Grand Jury Subpoena Duces Tecum Served on Museum of Modern Art, the Leopold Foundation, a government-sponsored museum which allegedly held numerous paintings of questionable origins, had loaned “Portrait of Wally” and “Dead City II” to the Museum of Modern Art. Morgenthau undertook to investigate whether the artworks had been stolen and ordered MOMA to hold onto the works. The Austrian government protested, to no avail.[2] After lengthy proceedings, the New York Court of Appeals ultimately sided with the Leopold Foundation, finding that New York law protected foreign artwork on exhibit in New York from any form of seizure.[3]

Grunbaum 2: Federal Judges’ Fiery Exchange Over Nazi Duress

The second New York case, Bakalar v. Vavra, included a fiery exchange between two judges in the U.S. District Court for the Southern District of New York. That case involved a dispute between the heirs and a purchaser at auction of Grunbaum’s Schiele artwork “Seated Woman with Bent Left Leg.” The dispute was the subject of two rounds of decisions in federal court. In the first, the trial court applied Swiss law, and found that as a matter of fact there was no evidence that the Nazis had looted the artwork from the murdered Jewish owner in Vienna.[4] The Second Circuit reversed, holding that New York law applied and remanded the case back to the
district court judge for additional findings of fact.[5]

In a concurring opinion, a district court judge sitting by designation wrote to “fill the gap” in the panel opinion, and to describe the record evidence demonstrating that the Nazis had in fact looted the artwork.[6] In plain prose, the concurrence demonstrated that historical and evidentiary facts could not reasonably lead to a conclusion that Grunbaum had somehow managed to get the Schiele artwork out of Austria when he was arrested by the Nazis.[7]

The district court judge was unbowed. He castigated the concurring opinion for expressing dicta unnecessarily and again found that the Nazis had not looted the painting. As the court caustically explained:

In a demonstration of the dangers of dicta, the concurrence spawned substantial additional briefing concerning an argument that, after due consideration, this court finds to be without merit. As Justice [Felix] Frankfurter observed, deliberate dicta should be deliberately avoided. Courts should avoid passing gratuitously on an important issue where due consideration of that issue has been crowded out by complicated and elaborate issues that have to be decided. [8]

Under New York law, the court further held, its finding that the Nazis had not looted the painting was not enough to protect the post-war purchaser; the purchaser had to demonstrate that he held good title, which he could not do, since he could not demonstrate how the painting had made its way out of Germany. On the issue of ownership, the court therefore concluded that the heirs would prevail. The court then proceeded to address the issue of laches. In the court’s view, the case involved the unpleasant circumstance in which some innocent party would lose a valuable claim. Thus, the court explained, both the good-faith purchaser and the heirs had reasonable claims to the artwork, and both were equally blameless. Ultimately, without explaining how these two competing interests should be resolved, the district held in favor of the purchaser, finding that laches barred the heirs’ claims.[9] The Second Circuit affirmed.[10]

Grunbaum 3: The Reif Opinion

Echoes of that case found its way into the most recent case, Reif v. Nagy, decided by New York’s Appellate Division last week. The court addressed the same two legal points that had been at issue in Bakalar: who could claim ownership under New York law and whether laches applied.

First, the court found that under New York law, the heirs had made their case. The court took great care not to reach a conclusive determination as to the owner of the artwork, explaining that it was only “adjudicating the parties’ respective superior ownership and possessory interests. We find that plaintiffs have met their burden of proving superior title to the artworks.”[11]

Second, the court rejected Bakalar’s holding that the heirs were guilty of laches. The court focused on the specifics of the case, and especially on the behavior of the purchaser, who purchased the artworks at a discount, and with knowledge of the outstanding dispute.[12] Reif is thus not entirely inconsistent with Bakalar, since the factual situations in the two cases differed.

The Impact of Reif

On its face, the decision in Reif broke no new legal ground. The decision applied settled principles of New York law in the areas of conversion and laches to the facts of the case. Had the court stopped there, the decision would have been entirely unremarkable.

But in a remarkable conclusion to the opinion, the court took notice of the HEAR Act, in which Congress expressed its intention to restore looted art to the victim’s heirs by extending the statute of limitations for Holocaust-looted art claims.[13] As a technical matter, the HEAR Act was irrelevant to the Reif court’s decision, since it addressed statute of limitations issues, not the state-law property claims and equitable principles at issue in Reif. Nevertheless, the Reif court wrote at length to describe how the HEAR Act and public policy played an important role in influencing the court:

We are informed by the intent and provisions of the HEAR Act which highlights the context in which plaintiffs, who lost their rightful property during World War II, bear the burden of proving superior title to specific property in an action under the traditional principles of New York law. We also note that New York has a strong public policy to ensure that the state does not become a haven for trafficking in stolen cultural property, or permitting thieves to obtain and pass along legal title. It is important to note that we are not making a declaration as a matter of law that plaintiffs established the estate’s absolute title to the artworks. Rather, we are adjudicating the parties’ respective superior ownership and possessory interests.[14]

That is, in the face of uncertainty, the Appellate Division felt duty-bound, as a matter of public policy, to award the artwork to the Holocaust victim’s heirs even though it could not say for certain that they held title.

Reif’s rejection of the laches defense was especially noteworthy because just a few weeks ago, the Second Circuit upheld a laches defense to a Holocaust-looted-art claim in Zuckerman v. Metropolitan Museum of Art.[15] Zuckerman involved an owner who sold a Picasso to finance his family’s escape from the Nazis in 1938. The owner and his heirs pursued numerous other paintings before then pursuing their claim for the Picasso, which had been with the Met for more than 50 years. In Zuckerman, the Second Circuit upheld dismissal of the claim based on laches, even without a factual record and even though the district court had decided the case on other grounds.

Zuckerman and Reif are not necessarily in conflict. Laches is a fact-based defense, and the balance of equities differed significantly in Reif (which had rather blameless heirs and a suspect purchaser) and Zuckerman (with less blameless heirs and a more innocent purchaser). It is harder to reconcile the decisions in Reif and Bakalar, which involved the same heirs (albeit with purchasers whose factual circumstances differed). Indeed, Westlaw now contains a yellow-flag treatment of Bakalar as having been superseded by statute, as stated in Reif.

Yet, even if it is possible to reconcile the law as applied in Reif with Zuckerman and Bakalar, the tone and attitude of the case are not the same. The conclusion in Reif sends a powerful signal to trial courts in New York and elsewhere that, while there may be exceptional circumstances, on the whole, the heirs to Holocaust-victims are to be given the benefit of doubt when circumstances make it difficult to prove their claims. The court in Bakalar had taken the side of the post-war purchasers; Reif now says that in the scale of justice, the side of the victims’ heirs are to be more heavily weighted.

This is as it should be. While good-faith purchasers of art with an unknown or doubtful provenance in the post-war years might reasonably have believed that they had obtained legal title, it is unlikely they were unaware of the doubtful moral title to which they acceded. Decisions such as the one in Reif not only force an accounting for these purchases, they announce to the art world in general that trafficking in looted artworks carries significant
financial risks. In this sense, Reif represents a major shift in the law of Holocaust-looted art.

Ultimately, the tiny drops of recompense to heirs of the victims, in payment for the oceans of blood that had been spilled, seems a fitting outcome to the brutalities inflicted more than 75 years ago.

Martin Bienstock is a managing partner at Bienstock PLLC.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general informational purposes and is not intended to be and should not be taken as legal advice.

[1] No. 161799/15, 2019 WL 2931960.

[2] https://www.nytimes.com/1998/01/09/nyregion/international-diplomacy-enters-adispute-over-2-paintings.html?searchResultPosition=12

[3] In re Grand Jury Subpoena Duces Tecum Served on Museum of Modern Art, 93 N.Y.2d 729, 735, 719 N.E.2d 897, 900 (1999).

[4] Bakalar v. Vavra, No. 05CIV.3037(WHP), 2008 WL 4067335, at *1 (S.D.N.Y. Sept. 2, 2008).

[5] Bakalar v. Vavra , 619 F.3d 136 (2d Cir. 2010).

[6] Bakalar v. Vavra, 619 F.3d at 148.

[7] Id.

[8] Bakalar v. Vavra , 819 F. Supp. 2d 293, 299 (S.D.N.Y. 2011) (citations and quotations omitted).

[9] Id., 819 F. Supp. 2d 293, 303 (S.D.N.Y. 2011).

[10] Bakalar v. Vavra , 500 F. App’x 6 (2d Cir. 2012).

[11] Reif v. Nagy , No. 161799/15, 2019 WL 2931960, at *15 (N.Y. App. Div. July 9, 2019).

[12] Reif v. Nagy, No. 161799/15, 2019 WL 2931960, at *15 (N.Y. App. Div. July 9, 2019).

[13] Id. at *16.

[14] Reif v. Nagy, at *16.

[15] Zuckerman v. Metro. Museum of Art , No. 18-634, 2019 WL 2607155 (2d Cir. June 26, 2019)

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