Volume 43 | Number 1 Fall 2007
Adding Tools to the Arsenal: Options for Restitution from the Intermediary Seller and Recovery for Good-Faith Possessors of Nazi-Looted Art
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III. Litigation Successes by Good-Faith Possessors as Against Intermediary Sellers
Possessors who return artwork to original owners continue the legal battle against intermediaries with a growing risk: restitutions to original owners are increasingly common and financial losses suffered by good-faith possessors are increasingly larger.37 As the cases discussed below depict, several important legal principles have proven successful for good-faith possessors. While provenance disputes remain highly fact specific, some of them may translate into victories for innocent possessors of artwork looted by the Nazis.
A. Menzel v. List: A Promising Start
The recognition that a good-faith possessor has a cognizable recourse against the seller of the artwork can be traced back to the original Nazi-art-theft case, Menzel v. List.38 The painting at the center of the dispute, Le Paysan a L’echelle by Marc Chagall,39 was left in the Menzels’ Brussels apartment in 1941 when Mr. and Mrs. Menzel fled to the United States to avoid the Nazi onslaught.40 At the end of World War II, they returned to search for their possessions only to discover that the painting was missing. In its place was a receipt left by the German authorities.41 The Menzels began the search for the painting, and Mrs. Menzel continued these efforts after Mr. Menzel’s death in 1960.42 She was able to locate their stolen painting in 1962, less than two decades after the war.43 This discovery took place much more quickly than most.44 A picture of the painting had been published in an art book, identifying Albert A. List, a well-known art collector and a member of the New York bar, as the owner.45 Upon discovering its location, Mrs. Menzel demanded the painting back from Mr. List. He refused and litigation ensued.46
The ownership path of the painting was revealed throughout the course of the litigation. Unsurprisingly, there was a gap between the years of 1941 and 1955.47 Having been removed from the Menzels’ apartment by the German authorities in 1941, the painting resurfaced at the Galerie Art Moderne in Paris in 1955.48 That same year, Klaus G. Perls and Amelia B. Perls, owners of a New York art gallery, purchased it from the Parisian art gallery for the equivalent of US$2,800.49 Just a few months later, Perls Galleries resold the painting to Mr. List for US$4,000.50 Perls Galleries specifically warranted to Mr. List that title to the painting was legitimate and that the gallery had authority to sell.51 These assertions were later found to be baseless. In fact, Perls Galleries had never inquired into the origin of the painting or into the validity of the title when purchasing it from the Galerie Art Moderne.52 Perls Galleries relied on the widespread practice of the art world at the time that valid title and authenticity were presumed when dealing with reputable art galleries.53 According to this custom of the trade, no inquiry was necessary;54 to make such an inquiry would be an insult to the seller.55
Upon Mr. List’s refusal to return the painting, Mrs. Menzel filed suit alleging that the painting was “‘wrongfully and illegally looted and stolen from her former residence by the Nazi Goering-Rosenberg Group’ and ‘at no time ha[d] any compensation been paid for same by the German or Belgian governments or received by plaintiff from any other source.’”56
In his defense, Mr. List raised the possibility that the painting in his possession was not the same Marc Chagall painting stolen from the Menzels’ apartment in Brussels.57 The jury, however, determined that the painting was the same and found for Mrs. Menzel.58 Mr. List was ordered to return the painting or, in the alternative, pay Mrs. Menzel its value. Pursuant to expert testimony, the value of the painting at the time of the judgment was US$22,500.59
During the course of litigation, Mr. List filed a third-party complaint against the Perlses for breach of warranty, citing Perls Galleries’ warranty and representation of good title at the time of purchase.60 The Perlses agreed that Mr. List was a good-faith purchaser and that they had warranted good title to the painting.61 Nevertheless they attempted to shield themselves from liability by arguing that the statute of limitations had run.62 This argument, however, was eventually rejected by the court.63 Mr. and Mrs. Perls claimed alternatively to be bona fide purchasers of the painting based on having purchased it from a reputable gallery.64 The court found that “it [was] of no moment that Perls Galleries may have been a bona fide purchaser of the painting, in good faith and for value and without knowledge of the saga of the Menzels. No less is expected of an art gallery of distinction.”65 Perls Galleries, the court determined, still could not obtain good title as against the true owner.66 In so holding, the court cited a U.S. Military Government Law enacted for the U.S. zone of occupation in Germany which provided that good-faith purchasers could not defeat restitution of Nazi confiscations.67 The jury found that Mr. List was entitled to recover the entire US$22,500 owed to Mrs. Menzel from Perls Galleries, in addition to the litigation costs incurred by Mr. List in the action.68
This signaled a significant victory for Mr. List and other similarly situated good-faith possessors. Even though Mr. List returned the original painting to Mrs. Menzel, he was able to recoup the full value of the painting from the gallery that sold it to him.69 Thus, this judgment opened the door for future courts to protect good-faith owners of Nazi-looted art from a complete financial loss. Here, the good-faith possessor was made entirely whole.
There was a brief setback to Mr. List’s victory, however, when the appellate court held that he was not entitled to recover the full value of the painting at the time of the judgment.70 Instead of awarding Mr. List the US$22,500 in damages awarded by the jury, the appellate court found that he was only entitled to the amount paid for the painting (US$4,000) together with interest calculated from the date of the purchase: October 14, 1955.71 The reduction of the award was based on the theory that Mr. List had lost US$4,000 at the time of purchase.72 In the opinion of the appellate court, it was as though the purchase had never occurred.
Fortunately for Mr. List, the New York Court of Appeals reversed the appellate court’s ruling and reinstated the judgment to the full value of the painting at the time of judgment—US$22,500.73 The Court of Appeals found that the cases relied upon by the appellate court did not support the theory that the measure of damages should be the original purchase price plus interest.74 It held that Mr. List could only be returned to the position he would have been in had Perls Galleries had not breached the warranty by awarding the full value of the painting at the time of judgment, not at the time of the sale.75 To award Mr. List only the original purchase price would have impliedly denied that he had suffered any subsequent damage as a result of the sale.76 The Court rejected Perls Galleries’ argument that such a judgment exposed an innocent seller to “potentially ruinous liability” when the value of the artwork had significantly appreciated.77 The seller could easily have protected himself against this risk by inquiring into the validity of title at the time of acquisition and by ensuring that good title would be passed at future sales.78 Alternatively, the court suggested sellers could sell artwork subject to any lawful claims unknown to them at the time of the sale, thus removing themselves from the chain of liability.79 The New York Court of Appeals also found that the interest awarded to Mr. List should only be calculated from the time the judgment was entered, instead of the date of purchase from Perls Galleries.80 Mr. List’s claim against Perls Galleries was not valid until that time.81
Mr. List was thus fully compensated for the loss of the Chagall painting and made whole by the judgment. This holding—full compensation for the return of the painting—appeared to be a very promising beginning for good-faith possessors. However, the trend did not remain so favorable. Even taking into consideration how few Nazi art restitution cases have been litigated,82 successful claims against third-party defendant sellers have been extremely rare. The Holocaust restitution movement that began in 199883 has not made a significant impact in the United States. The legal prospects for good-faith possessors have dimmed after a seemingly promising start.
B. Rosenberg v. Seattle Art Museum: An Interesting Twist
As only the second “modern-day” Nazi-looted art case to reach litigation,84 Rosenberg v. Seattle Art Museum was closely monitored. Yet again, the question was who in the painting’s “postwar chain of possession will suffer the loss.”85 The litigation eventually resulted in a satisfying mini-victory for the Seattle Art Museum (SAM) over the intermediary seller, Knoedler-Modarco, Inc. The disputed painting in this case, L’Odalisque by Henri Matisse, followed a path similar to that of the Menzel Chagall painting. L’Odalisque disappeared from Paul Rosenberg’s collection in France at some point during World War II.86 The painting eventually found its way to a New York art gallery, Knoedler-Modarco, Inc.87 In September of 1954, Virginia Bloedel and her husband, Prentice Bloedel, were shopping in New York when they happened upon L’Odalisque at the Knoedler gallery.88 Not entirely certain of their desire to purchase the painting, the Bloedels had it shipped to their Washington home several weeks later to allow them to evaluate it pursuant to a consignment agreement.89 In November 1954 the Bloedels bought the painting for US$19,000.90 One month later, Mrs. Bloedel requested reassurance from the gallery of the painting’s history.91 In a letter dated December 21, 1954, an employee of the gallery responded with information on the artist’s ownership and exhibitions of the painting in 1937 and 1938.92
Several decades later, the Bloedels made a bequest of L’Odalisque to SAM in their wills.93 The museum took possession of the painting in 1991 after Virginia Bloedel’s death and was granted full ownership in 1996 upon Prentice Bloedel’s death.94 Just one year later, the Rosenberg heirs, with the assistance of Hector Feliciano’s research in The Lost Museum, were able to locate the long lost Matisse painting.95 The Rosenberg heirs contacted SAM in August 1997 as a precursor to their claim.96 In response to the heirs’ assertion of ownership, the museum methodically conducted its own research of the painting’s provenance, even commissioning a provenance report from the Holocaust Art Restitution Project, a nonprofit organization that researches the provenance of artwork looted during World War II.97 This process took more than a year to complete.98 The museum was heavily criticized for its initial refusal to return the painting.99 However, the fact that the loss of L’Odalisque was significant to its already small modern art collection was likely a major consideration.100
The painting was eventually returned to the Rosenbergs, but not before SAM filed suit against the Knoedler gallery as a third-party defendant.101 SAM’s director stated that its pursuit of accountability from Knoedler was in accordance with the museum’s duty to the public and its donors.102 The museum asserted claims of fraud and negligent misrepresentation against Knoedler, arising out of a letter by the Knoedler employee to Virginia Bloedel, assuring her of the provenance of the painting.103 In addition, SAM claimed breach of implied warranties and implied equitable indemnity.104 Following the lead set by Menzel v. List, the damages alleged were the full fair market value of the painting, approximately US$2 million.105 However, unlike in the Menzel litigation, the central issue in this case was not the amount of the damages, but whether the museum had standing to bring these claims at all, since the Bloedels, not SAM, had purchased the painting from the gallery. Knoedler contended that SAM presented no evidence that it had been directly defrauded by the gallery.106 Knoedler had never communicated with the museum concerning the title of the painting.107 The museum was not even an interested party at the time of the sale to the Bloedels. Was SAM entitled to recover for the alleged fraud that Knoedler had committed against someone else?108
SAM argued that the Bloedels had intended to assign all property rights, including standing for this claim, to the museum and that “this intent may be expressed after the Bloedels’ death by way of an agreement between their heirs.”109 The District Court promptly dismissed this theory because the claim arose after the administration of the Bloedels’ estate—such a posthumous agreement was deemed a “collusive modification of a trust or will” that could not be used after the disposition of the estate property had been determined.110 Accordingly, the District Court granted summary judgment for Knoedler.111 At this point, the museum had not only lost the painting, but had suffered substantial litigation costs as well.112
Pressing forward, SAM refined its approach on its motion for reconsideration. Still, three of its four arguments were not fruitful. The District Court did not agree with the museum that the language used in the will and trust instrument was sufficient to assign the fraud claim to the museum.113 The instrument stated that Prentice Bloedel gave “all of [his] interest in” L’Odalisque to SAM.114 This language, according to the museum, included “all their rights in and arising from the painting.”115 The court noted that the museum did not cite any legal authority for this conclusion, and relevant Washington law appeared to support the exact opposite.116 SAM was correct in stating that the claims arising from the painting certainly were distributed to “someone.”117 However, this someone was not the museum; it was the Bloedels’ heirs. 118
The argument that finally persuaded the court was that the museum had actually obtained an assignment of the claim directly from the Bloedels’ heirs.119 According to the court, “this agreement to assign the fraud claim effectively accomplishes what the heirs’ prior agreement could not.”120 Nevertheless, the court chastised SAM for waiting to resort to this tactic until after the litigation process was well underway, as this unusual maneuver was certain to lead to additional costly litigation.121 Because of this poor timing, SAM was held responsible for Knoedler’s litigation costs and fees associated with the motion for reconsideration.122
After this protracted dispute and a procedural victory for SAM in March of 2000, SAM and Knoedler negotiated a settlement agreement. Knoedler allowed the museum to select works of art from its holdings or obtain their equivalent cash value.123 Knoedler not only agreed to forgo the award of legal fees from SAM ordered by the district judge, but it also reimbursed the museum for its legal fees and costs incurred in the litigation.124 In turn, SAM duly agreed to withdraw its claims against Knoedler.125
SAM’s ability to recover in this situation was certainly unique. While the museum was the present good-faith possessor of the artwork, it was not the good-faith purchaser from the gallery. But ultimately, the existence of an intermediary between the gallery and SAM was not an obstacle to the museum’s recovery once the claim had been assigned by the heirs.
This outcome represents a significant step forward for the protection of the financial interests of good-faith possessors, particularly those of museums, which are often the recipients of donations rather than the original purchaser. Perhaps because of the unique fact pattern behind this claim, a similar remedy has not been used in litigation since Rosenberg. Nevertheless, it remains a very powerful tool for innocent parties in the face of a financial loss, and it may be particularly comforting to museums, which are often in the position of having no direct relationship with the donor’s seller. In light of SAM’s successful use of this maneuver, museums should consider requiring donations to be accompanied by boilerplate assignment clauses to avoid the circuitous litigation path traveled by SAM.
Yet museums in situations similar to that of SAM have not always chosen to seek assignment of the claim. In August 2004, the Virginia Museum of Fine Arts deaccessioned a small oil painting by Corneille de Lyon to the sole heir of the original owner.126 The painting had been donated to the museum in 1950,127 but the museum did not pursue any possible claims as against the donor’s seller. The museum followed the same policy of non-action again in September 2005 when it chose to return a stolen painting to the Polish Embassy on behalf of the representative of the original owner’s heirs.128 It had independently discovered the provenance gap when conducting research on its collection.129 As in Rosenberg, the painting had been donated.130 But the museum did not pursue any claims as against the intermediary seller.
Similarly, the Kimbell Art Museum in Fort Worth was the beneficiary of a donation that was recently returned to the original owner’s heirs.131 The Kimbell Art Museum also did not pursue any claims against the selling gallery.132 In all three instances described, the intermediary seller was Newhouse Galleries in New York.133
C. Springfield Library and Museum Association, Inc. v. Knoedler Archivum, Inc.: The Latest Development
The latest progression in the world of claims by good-faith possessors against intermediary sellers is a small victory, but it provides another legal argument for the indirect victims of Nazi looting. The Springfield Library and Museum Association purchased Jacopo da Ponte’s Spring Sowing from the Knoedler Archivum in 1955.134 In 1966, the museum was contacted by the Italian government, which claimed that this painting had previously belonged to the Uffizi, a Florentine museum.135 According to the Italian government, the painting had been hanging in the Italian Embassy in Poland and was lost during World War II.136 The government asked the museum to return the painting voluntarily in order to avoid legal action.137
The museum turned to Knoedler for direction, asking for records of the painting’s provenance and verification of the Italian government’s claim.138 Knoedler’s librarian wrote back confirming that, based on photographs provided by the Uffizi, this was the same painting.139 However, the librarian also questioned some of the previous locations of the painting mentioned by the Italian government.140 In an additional letter, Knoedler’s librarian expressed the belief that the Italian government had not presented sufficiently convincing evidence in support of its claim, stating, “[a]lthough I have a sneaking suspicion that you and I feel that we are dealing with one and the same picture, I for one am not ready to give up the ghost.”141 Thus, the museum’s director attempted to obtain more evidence from the Italian government, but to no avail.142 Eventually, the Italian government stopped responding to these requests.143
After thirty-four years of silence, the Italian government contacted the museum in October of 2000 and again requested the return of the painting.144 Perhaps because of the increased publicity regarding Nazi-art-theft, the museum complied.145 It then proceeded to file suit against Knoedler, demanding compensation for the loss of the painting.146 The museum’s complaint was that it had not received what it contractually bargained for—good title: Knoedler had breached the contractual warranty.147
Knoedler relied on the statute of limitations as its central defense.148 The court rejected the museum’s argument that the statute of limitations had been tolled after the purchase date in 1955 because the discovery rule does not apply to breach of warranty cases.149 It similarly rejected the museum’s contention that the doctrine of fraudulent concealment should toll the statute of limitations, since the evidence did not establish fraudulent concealment.150
However, the museum did persuade the Court that Knoedler should be equitably estopped from asserting the statute of limitations defense, at least for purposes of the motion for judgment on the pleadings.151 In Massachusetts, where this complaint was filed, a limitations defense may be equitably estopped when the defendant “made representations [which it] knew or should have known would induce the plaintiff to put off bringing suit and . . . the plaintiff did in fact delay in reliance on the representations.”152 Knoedler had encouraged the museum to make further inquiries of the Italian government in 1966.153 The Knoedler librarian with whom the museum director corresponded had cast doubt on the validity of the Italian government’s claim and had encouraged the museum to continue disputing the claim.154 Knoedler had even represented in the bill of sale that the painting had been “in the possession of a Swiss family for a very long time.”155 According to the court, it was not unreasonable that the museum relied on the advice and statements made by Knoedler because it was a reputable art gallery and an experienced art dealer.156
While observing that this was a unique application of estoppel, the court dismissed Knoedler’s motion for judgment on the pleadings.157 It declined to state whether the museum would be able to sufficiently prove equitable estoppel facts to ultimately make this claim successful, simply acknowledging that raising the equitable estoppel issue was adequate to defeat a motion for judgment on the pleadings.158
Presumably, the parties reached a settlement, since no further litigation followed. This procedural mini-victory for an innocent party serves as a continuing reminder to litigants that good-faith possessors are not powerless in the courtroom. The litigation tactics here described may continue to augment each other and create a full range of legal claims and defenses for those parties who might otherwise be left empty-handed.