23 March 2018
In recent months, the United States federal courts have grappled with a spate of cases addressing the restitution of Nazi-looted art. Arguably the best-known of these cases, United States of America v. Portrait of Wally, involving a painting by Egon Schiele, was settled in July 2010 by way of an amended Stipulation and Order filed in a New York federal district court. The terms of settlement provided for the release by the Bondi Jaray Estate of its claim to the painting in favour of the Leopold Museum in Vienna.
In return, the Museum was required to pay the Bondi Jaray Estate US$19m for title to, and possession of, the painting. In addition, the Museum is required to display signage wherever the painting is exhibited setting forth the painting’s history – including its litigation, which dates from
The well-publicised – and justly celebrated – settlement of Portrait of Wally is one example of the recent cases which serve boldface notice that the United States government does not condone the trafficking within its borders of art looted by the Nazis. Another such case, Bakalar v Vavra1, which is ongoing, has, in its choice of law determination, effectively changed the legal landscape in the Second Circuit to favour aggrieved original owners of Nazi-looted art and such owners’ heirs.
Bakalar also involves a Schiele: an erotic picture of a headless woman brushed on paper with opaque paint, Seated Woman with Bent Left Leg (Torso) (the ‘Watercolour’). In this suit, it is alleged that Fritz Grünbaum, a satirical cabaret artist who fl ed Berlin for Austria in the hope of escaping Nazi reprisals, owned a collection of 449 artworks, including 81 works by Egon Schiele, which he kept in his apartment in Vienna. In 1938, days after the Anschluss, Grünbaum was arrested and imprisoned by the Nazis in Dachau. That same year, while in Dachau, he was made to sign a power of attorney authorising his wife Elisabeth to represent him in all his affairs, including listing and fi ling with the government a statement of his assets and property, as was required by the Reich of all Jews living within its borders.
The Nazis then used the information to impose confiscatory taxes and penalties on Grünbaum and compelled Elisabeth to dispose of Grünbaum’s assets to pay the imposed taxes and penalties.
In 1941, Grünbaum died in Dachau. In 1942, Elisabeth Grünbaum was arrested by the Nazis and died shortly thereafter in a concentration camp in Minsk.
In 1956, the Watercolour was purchased along with 45 other works by Schiele from Grünbaum’s collection by Galerie Gutekunst, an art gallery in Switzerland. The seller of these works was apparently Elisabeth Grünbaum’s sister. In September of 1956, the Watercolour was bought
by the Galerie St. Etienne and was shipped to it in New York. In November of 1963, the Galerie St. Etienne sold it for US$4,300 to David Bakalar, a good-faith buyer and resident of Massachusetts.
In the ensuing years, the market for Schiele has become stronger than ever and Bakalar subsequently consigned the Watercolour for sale at auction through Sotheby’s London, where, in February 2005, the Watercolour sold for approximately US$726,000, including the buyer’s premium.
Sotheby’s later rescinded the sale after receiving a letter challenging Bakalar’s title to the Watercolour, written on behalf of Milos Vavra (a resident of the Czech Republic) and Leon Fischer (a New York resident), designated by an Austrian court as the heirs to the Fritz Grünbaum estate. Bakalar subsequently brought suit in a New York federal district court seeking a declaratory judgment that he is the legal owner of the Watercolour.
In 2008, the New York federal district court upheld Bakalar’s claim and, in doing so, applied Swiss law. The court proceeded to hold that, because Elisabeth Grünbaum’s sister possessed the Watercolour and other Schiele works she sold in 1956, the Galerie Gutekunst, as buyer, was entitled to presume she owned them. Because the Galerie Gutekunst was a good-faith purchaser and because the Grünbaum heirs had not produced any concrete evidence that the Nazis looted the Watercolour or that it was otherwise taken from Grünbaum, Bakalar acquired good title when he purchased the Watercolour from the Galerie St. Etienne. Moreover, the court noted that even if the Watercolour had been stolen at some point prior to the Galerie Gutekunst’s purchase in 1956, under Swiss law, any absolute claims to the Watercolour by those from whom the Watercolour was stolen expired five years later, in 1961.
On appeal by Vavra and Fischer, the Second Circuit applied New York’s choice of law rules and examined the question of whether there is a difference between the laws and policies of Switzerland and New York which could determine the outcome of the case.