Volume 43 | Number 3

Adding Tools to the Arsenal: Options for Restitution from the Intermediary Seller and Recovery for Good-Faith Possessors of Nazi-Looted Art

by Kiesha Minyard

Summary

Introduction

Background

Litigation Successes by Good-Faith Possessors as Against Intermediary Sellers
1. Menzel v. List: A Promising Start
2. Rosenberg v. Seattle Art Museum: An Interesting Twist
3. Springfield Library and Museum Association, Inc. v. Knoedler Archivum, Inc.: The Latest Development
Additional Approaches and Remedies Available to Good-Faith Purchasers Outside of the Courtroom
Avoidance of Litigation

Fighting Back

Proposed Alternative Solutions

Third-Party Participation in Settlement Agreements

Recent Developments in Insurance
Conclusion

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I. Introduction

“The resolution of these problems is made the more difficult in view of the fact that one of two innocent parties must bear the loss.”¹

How is it that an innocent party can be punished? This is just the question presented in the adversarial system when courts are forced to choose between the victim of Nazi art theft and the current good-faith possessor of the artwork. The original owner of the disputed artwork in these situations was often either the victim of outright looting by the Nazis during World War II or an unwilling participant in a coerced sale. On the other hand, the current good-faith owner innocently purchased the artwork or received it through donation without knowledge of the work’s sordid past. It is between these two parties that a court must choose.

When making the understandable decision to return the painting to the original owner, the court is assigning a huge financial loss to the good-faith possessor. However, because there are various options for recourse against the intermediary who sold the artwork to the innocent purchaser, all is not always lost. For example, there have been several notable courtroom victories for good-faith possessors.² Yet progress has been slow in this area. In addition to utilizing litigation, good-faith possessors have attempted to avoid financial losses by fashioning unique settlement arrangements, as well as by employing title insurance. Although initial relief has been sporadic, the increasing number of claims by original owners will likely encourage the use and development of alternative solutions to alleviate financial punishment of good-faith possessors of Nazi-looted art.³

This article surveys the options available to good-faith possessors both in and out of the world of litigation. While some routes described do not provide for a complete recovery from the intermediary or other parties, all of the alternatives present some recourse for placing the possessor in a better position after the return of artwork to the original owner. The litigation strategies discussed are becoming more common, and will undoubtedly be further developed as claims by original owners and their heirs increase. However, the non-litigation alternatives—given the high cost and risks associated with litigation—will likely become popular options for current possessors as well. In addition, there is growing societal pressure for the current possessor to return the artwork with less resistance.⁴ Hence, the current possessor is more likely to seek compensation from the intermediary party, instead of battling the original owner.

Part II of this article offers a brief summary of the background behind Nazi-looted art and the developments in the art world that have occurred since that time. Part III discusses the progression of litigation methods over the past several decades, beginning with the seminal Nazi-looted art case, Menzel v. List.⁵ Part IV reviews various non-litigation tactics and remedies currently available to good-faith possessors. Some of these alternative strategies have already been tested by previous parties, while others have yet to be fully explored.
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II. Background

Widespread and systematic looting of valuable works of art by the Nazis was a sad by-product of World War II. The calculated discovery and removal of “degenerate” artwork⁶ from the Nazi occupied territories was conducted on a supremely grand scale. Some commentators have calculated that throughout the Nazis’ terrifying reign, they pillaged nearly one-third of the art held in private hands at the time.⁷ Other evidence indicates that the value of the looted artwork during World War II was greater than the total value of all artwork present in the United States in 1945.⁸

Many of these valuable pieces of looted art remain “lost” and have been scattered across the globe. Fortunately, as a result of several factors, provenance research⁹ is increasingly a less cumbersome process. In the 1990s, certain relevant documents maintained by the German government were declassified. Because the Nazis kept meticulous records of much of their plundering, these documents have greatly assisted those searching for their treasured paintings and antiquities.¹⁰ However, these records have mainly been useful for locating higher quality works. Those pieces not of museum caliber were not recorded with such precision and detail and are more difficult to track down.¹¹

In addition, the development of comprehensive searchable databases of stolen and missing works of art has begun to play an increasing role in provenance research. The Art Loss Register, in particular, has become prominent for such purposes.¹² Italy and France have also developed their own databases to assemble reports of stolen art.¹³ Notably, selected museums have begun to post descriptions of individual works of art and articulate gaps in provenance.¹⁴ Finally, and perhaps most importantly, two authors and experts in the history of World War II art theft, Lynn Nicholas¹⁵ and Hector Feliciano,¹⁶ have each provided detailed compilations of their research regarding Nazi art theft. Both books provide in-depth accounts of the history behind the looting, as well as insight into the paths of specific works of art. Additional support for original owners has developed with the advent of “bounty hunters”—lawyers who have come to specialize in the recovery of war loot.¹⁷ Generally, these lawyers provide their services on a contingency fee basis, even financing provenance research and court costs for a percentage of the proceeds of a winning judgment.¹⁸ All of these factors have contributed to an increase in the claims of original owners and their heirs.

This increase in claims, combined with their rising success, is a source of concern for art possessors.¹⁹ Museums, in particular, have been criticized for their lack of diligence in provenance research, with some commentators calling on American museums “to become allies in the investigation of art thefts and to do the right thing.”²⁰ Beginning with the guidelines for dealing with Holocaust-era art adopted by the Association of Art Museum Directors in 1998 and reaffirmed in 1999,²¹ museums have attempted to balance “doing the right thing” against appropriately guarding their public trust.²² While returning stolen works to their rightful owners is morally desirable, museums are also obliged to the public to ensure that any deacquisition of artwork is done lawfully and only with proper provenance research.²³ Moreover, all types of good-faith possessors, including museums, have struggled with the financial loss that accompanies the sacrifice of artwork. Nevertheless, since 1998 about 2,000 Nazi-looted works of art around the world have been returned; many have come from museums and public galleries.²⁴

In addition to financial losses that can be incurred by returning artwork, the increasing efforts of art galleries and museums to research provenance are not without a price; piecing together provenance can be challenging, time-consuming, and expensive.²⁵ Parties with pertinent information may be unwilling to open their records or may have gone out of business.²⁶ Despite these obstacles, the Cleveland Museum of Art, through its own provenance research, was able to identify approximately 373 paintings and eighty-six sculptures with gaps in provenance during the Holocaust period.²⁷ Notably, this particular museum is relatively small.²⁸ Such a comprehensive undertaking by a larger museum would be a much more complicated (and expensive) endeavor if undertaken without any significant public funding.²⁹

Despite the large number of artwork homecomings worldwide, the actual number of claims made against U.S. art museums has been relatively small, and the majority of those have proven to be without merit.³⁰ It is not surprising, therefore, that to date only twenty-two Nazi-looted works of art have been restituted by U.S. museums.³¹

Yet given the significance of their potential financial losses due to such claims, museums and other good-faith possessors have sought various remedies to diminish their risk. As one option for recourse, the good-faith possessor can attempt to seek damages from the intermediary seller. One major roadblock to this approach is that some of these purchases were completed decades ago, and the seller’s art gallery or business is no longer in operation. This was just the case in a chain of sales that followed a Matisse painting in the Rosenberg case, as described by Michael Bazyler:

Fortunately, for the [Seattle Art Museum], Knoedler & Co., the New York dealer, was still in existence and eventually settled by offering the museum any painting in its collection as damages. Knoedler, however, could not in turn sue the Gallerie Drouant-David, the French gallery from which it bought the painting. Not only would Knoedler have to pursue the gallery in French courts (itself a dubious proposition, since the French gallery could successfully assert the good-faith purchaser and/or statute of limitations defenses under French law), but the gallery long ago went out of business.³²

The present article reviews some of the notable claims by good-faith possessors that have managed to overcome this obstacle, specifically focusing on legal developments that have occurred in the United States. Legal developments in the United States are particularly relevant because many of the claims by original owners against the good-faith possessors are filed there. Original owners have certain advantages in the United States that would not be available to them elsewhere. For example, current possessors who have purchased or received artwork in good faith have no legal claim to the pieces under U.S. law as against the true owners.³³ This is not true of some civil law countries, such as Switzerland, where a good-faith purchaser may acquire good title under certain circumstances. ³⁴ Also, many European fora subscribe to much stricter statutes of limitation rules. ³⁵ This is particularly true in comparison to the application of the claimant-friendly “demand and refusal rule” to the statute of limitations for good-faith possessors in the state of New York. ³⁶
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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.
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IV. Additional Approaches and Remedies Available to Good-Faith Purchasers Outside of the Courtroom

Aside from the pursuit of justice and damages in the courtroom, there are various other methods that good-faith possessors have employed to ameliorate their position after returning looted artwork. Approaches range from avoidance of conflict by an upfront return of the artwork to the protection by newly developed title insurance. The tactics discussed below produce different results, each with its own advantages and disadvantages. Most importantly, they represent various alternatives to the sometimes unsuccessful and costly adversarial system. These alternatives are likely to become more prevalent as Nazi art litigation progresses.

A. Avoidance of Litigation

Some good-faith possessors have chosen to avoid the adversarial system entirely by returning the disputed work of art to the original owner. “Since the Holocaust restitution campaign began in the mid-1990s, more than two thousand artworks have been returned to their rightful owners around the world without litigation.”¹⁵⁹ In 2000, the North Carolina Museum of Art surprised the art world with the relatively effortless return of a valuable painting.¹⁶⁰ Occurring on the heels of the protracted litigation battle involving SAM, the Rosenberg heirs, and the Knoedler gallery, the North Carolina Museum of Art’s approach was particularly unexpected. When confronted by the heirs of the original owner, it voluntarily returned the painting Madonna and Child in a Landscape by Lucas Cranach the Elder, a German Renaissance artist.¹⁶¹ At the time of the return, the value of the painting was estimated to be between US$500,000 to more than $1 million.¹⁶² The museum did not act imprudently in returning the painting; it first conducted proper research into the heirs’ claim. The museum independently investigated the provenance of the painting and contacted the Holocaust Claims Processing Office (“HCPO”) of the New York State Department of Banking to verify the heirs’ claim.¹⁶³ Once sufficient evidence to support that claim had been compiled, the museum promptly offered to return the painting to the rightful owners.

Because a Deputy Director of the HCPO negotiated the voluntary return of the artwork in this case the heirs had no need even to retain counsel.¹⁶⁴ The heirs were so impressed with the museum’s response that they chose to sell the painting back to the museum at a substantially reduced price.¹⁶⁵ The state of North Carolina was equally impressed and awarded the Deputy Director of the HCPO a special state medal never before awarded to a non-North Carolina resident.¹⁶⁶ This non-confrontational approach demonstrates that cooperation by museums in the more recent Holocaust-related cases increases the likelihood that the museum will ultimately retain the work of art.¹⁶⁷

Surprisingly, voluntary return of artwork to the claimants may not always be a popular decision. Art experts heavily criticized the Bruecke Museum in Berlin when it chose to return a painting by Ernst Ludwig Kirchner valued between US$18 and US$25 million.¹⁶⁸ The critics contended that the Nazis did not coerce the painting’s original owners to sell, but rather that the owners sold the painting because of financial difficulties during the Depression.¹⁶⁹

While the upfront return of a disputed artwork may not always be prudent, or even popular, it will at least avoid protracted courtroom battles. The difficulty lies in weighing the costs of litigation against the immediate loss of the painting. This is an extremely fact-specific approach not suited to all situations. Nevertheless, returning disputed artwork is a serious option for good-faith possessors to consider when making a cost-benefit analysis of the alternatives.

B. Fighting Back

Although relinquishing a costly work of art to an original owner or his heirs is a sacrifice good-faith possessors are sometimes required to make, some innocent parties refuse to be made victims by unsubstantiated claims to their artwork. For example, the auction house Christie’s is considering filing suit against the last minute claimant of a Picasso painting.¹⁷⁰ Picasso’s Portrait de Angel de Soto was being offered for auction by its owner, composer Andrew Lloyd Webber, in November 2006.¹⁷¹ Just three days before the scheduled auction, Julius Schoeps filed an “ambush lawsuit” claiming to be an heir of original owner, Paul von Mendelssohn-Bartholdy.¹⁷² Although a U.S. district judge dismissed the case on a jurisdictional technicality, Christie’s pulled the painting from the highly publicized auction, citing a “cloud of doubt” placed on it by the lawsuit.¹⁷³ Should the lawsuit proceed, Christie’s would seek “damages for harm caused to this picture, the charity that rightfully owns it and Christie’s.”¹⁷⁴ Christie’s asserts that Mr. Schoeps, adding insult to injury, failed even to articulate the connection between himself and the original owner.¹⁷⁵ Christie’s has previously been a supporter of looted art restitution efforts.¹⁷⁶ However, Christie’s stance on this claim exemplifies the position other good-faith possessors might take against alleged original owner claimants seeking to take advantage of the current pro-restitution climate.

C. Proposed Alternative Solutions

Several commentators have offered alternative solutions to alleviate the difficulties of good-faith possessors. One suggestion, originating from litigants themselves, is to collect a common pool of money to compensate those good-faith possessors who relinquish their rights to the artwork.¹⁷⁷ Potentially, this same pool of funds could also provide payments to the original owners or their heirs who do not retrieve the artwork from the current possessor.¹⁷⁸ This concept is modeled after an approach used by Swiss banks in other World War II restitution matters.¹⁷⁹ While appearing to provide an agreeable compromise, funding is an obvious obstacle. The likely beneficiaries of such a fund—museums, galleries, and art dealers—have not been receptive to this concept, instead promoting a “fend for yourself” system.¹⁸⁰ Thus, those most likely to be affected seem to have rejected a collective effort that could avoid substantial individual financial losses.

Mediation remains another important alternative¹⁸¹ as its flexibility could allow for compromise that would not place the entire financial burden on one party.¹⁸² It has been suggested that “[m]ediation seeks to resolve disputes, not according to the legal analysis and redress of past conduct, but according to the identification of common ground, the development of future relationships and the attainment of future goals.”¹⁸³ This approach might be appropriate for addressing claims not only between original owners and current possessors, but also between current possessors and intermediary sellers.

While the lack of an international enforcement regime for mediation settlements is potentially a substantial hindrance to this alternative,¹⁸⁴ the amount of negative publicity a party would likely receive for failure to fulfill a mediated agreement could be a motivating factor. In addition, an agreed-upon settlement in such disputes presumably would be smaller than the judgments potentially obtained through litigation. Thus, it is likely to a party’s financial advantage to negotiate a comfortable agreement and support it through completion.

D. Third-Party Participation in Settlement Agreements

The intermediary seller’s role in complicated disputes between innocent parties can take various forms. The good-faith possessor is not always able to pursue a claim against the intermediary seller, but that does not indicate that the seller is able to avoid accountability altogether. In a highly publicized dispute, Thomas Bennigson, the grandson of the original owner of Picasso’s painting Femme en Blanc, made a claim against its current owner, the art collector Marilynn Alsdorf.¹⁸⁵ After several rounds of litigation involving jurisdictional disputes and an alleged violation of the National Stolen Property Act by Ms. Alsdorf, the parties reached a settlement.¹⁸⁶ The painting was valued at between US$8 and US$10 million.¹⁸⁷ Ms. Alsdorf, citing her age and desire to resolve her affairs, agreed to pay Mr. Bennigson US$6.5 million, representing 65% to 80% of the painting’s value.¹⁸⁸

The art dealer from whom Ms. Alsdorf bought the Picasso painting also reached an agreement with the original owner’s heir.¹⁸⁹ The dealer Stephen Hahn agreed to pay Mr. Bennigson the profit he received on the original sale of the work to Ms. Alsdorf in 1975.¹⁹⁰ Specific details of the agreement, including the sum paid, were kept confidential.¹⁹¹ However, the amount paid by Mr. Hahn seemed to account for the decrease in Ms. Alsdorf’s settlement. Mr. Hahn likely felt compelled to settle after a California court permitted the plaintiff’s plea for a constructive trust against Mr. Hahn that would have prevented him from being unjustly enriched from the wrongful sale of another’s property.¹⁹²

This split settlement arrangement was not unique. In 2001, the Princeton University Art Museum was successful in sharing the burden of restitution to the original owner with the dealer who sold the painting.¹⁹³ The burden may not always rest on the good-faith possessor’s shoulders alone, but it may be necessary to pressure intermediary sellers with the threat of litigation in order to involve them in the negotiation process.

E. Recent Developments in Insurance

An interesting development in the insurance world last year brings a surge of hope for good-faith possessors of Nazi-looted artwork. U.S.-based Aris Title Insurance Co. spent over seven years developing an insurance product to address provenance issues of works confiscated from individuals during World War II.¹⁹⁴ Started in 2006, the company offers a premium and indefinite term insurance policy that functions similarly to real estate title insurance.¹⁹⁵ Aris advertises “Art Title Protection Insurance” as “the first transfer of art provenance or legal ownership risk for art.”¹⁹⁶ Art Title Protection Insurance is designed to fill a gap in the art insurance market. Returning artwork to an original owner without pursuing all possible legal remedies, despite fulfilling the current possessor’s possible moral stance on the issue, often “falls outside the cold parameters of an insurance policy.”¹⁹⁷ Voluntary returns, and at times other types of restitution, may not be covered by traditional art insurance.

Under Aris’s newly developed policy, the amount of the one-time premium is calculated according to the value of the artwork, as well as the artwork’s specific provenance risk profile.¹⁹⁸ For example, a painting valued at US$1 million that has gaps in its provenance during World War II would be assessed at a rate of 5%, or in this case, $50,000.¹⁹⁹ This amount would only be paid once, and the policy would last for the duration of the policyholder’s ownership. The policy limit is $5 million, but additional coverage may be available.²⁰⁰ As another limitation, Aris’s policies cover only visual art and sculpture, not cultural artifacts or antiquities.²⁰¹

One of the company’s founders asserted that this insurance could have prevented Picasso’s Portrait of Angel Fernandez de Soto from being withdrawn from the Christie’s auction at the last minute.²⁰² According to Lawrence Shindell, the company’s Chief Executive Officer, “if title insurance had been in place, we’d have been able to address the title issue, eliminate it or insure over it, so the transaction could proceed.”²⁰³

Title insurance is not a new idea. Hiscox, a Lloyd’s of London syndicate, has offered title insurance for the past twenty years.²⁰⁴ In contrast to Aris’s title insurance, Hiscox’s policies are significantly more expensive and require an annual renewal and premium payment.²⁰⁵ For example, a US$10 million policy on a Monet painting with a questionable history may cost up to $250,000 per year.²⁰⁶ Such a costly premium can be prohibitive for certain good-faith possessors, particularly museums.²⁰⁷ Most importantly, Hiscox will not insure works with questionable provenance between 1933 and 1945.²⁰⁸ Thus, those concerned with the provenance gap created by Nazi theft are left with only the option provided by Aris.

The increasing likelihood that a costly painting would be ordered relinquished to an original owner, leaving the good-faith possessor with few options, stimulated the development of title insurance. It remains to be seen whether these insurance policies will prove to be a popular option for those looking for financial protection from original owner claims. To date, Aris has sold only a handful of policies.²⁰⁹ As of 2000, not a single museum had purchased defective title policies from Hiscox.²¹⁰ Regardless of its unpredictable success rate, title insurance is yet another option that was not previously available and appears to be a viable tool for good-faith possessors.

Adding to the complex world of Nazi-art-theft litigation, insurers likely would be more inclined than an average good-faith possessor to litigate against claims to the insured painting in order to avoid or diminish liability. It is also likely that the insurer would pursue subrogation of any rights to the painting in the case of payments to the insured. These dynamics could increase the overall amount of litigation, while reducing the likelihood of frivolous claims. Only time will tell.
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V. Conclusion

There have been promising, albeit few, advances in litigation favoring good-faith possessors over intermediary sellers. But as claims by original owners and their heirs increase, these initial developments in favor of good-faith possessors will be built upon. Presently, at least fourteen major museums in the U.S. are contesting war-related art claims in court or through negotiations.²¹¹

With the emergence of title insurance and other protective non-litigation remedies, there is a growing collection of tools at the disposal of good-faith possessors. With these improvements, it is possible that we may again reach the apex of protection attained in Menzel v. List—if not through adjudication, then through a combination of the various devices at the innocent parties’ disposal.

Footnotes

For complete footnote citations, download the PDF.

Texas International Law Journal