Art Law: S.D.N.Y on Picasso’s “Madame Soler”and Bavaria’s Sovereign Immunity – Update

Last week, I had briefly posted that Judge Rakoff had ruled against the heirs of Paul von Mendelssohn-Bartholdy (left) in their suit seeking the restitution of Picasso’s Madame Soler. Today, we have a guest post by Michael Schulz of Frankfurt’s Goethe University who looks at the case in some more detail.

Last month, Judge Rakoff at the U.S. District Court for the Southern District of New York ruled that the German Federal State of Bavaria is entitled to sovereign immunity in a suit seeking the return of Picasso’s  painting „Madame Soler“. The plaintiffs, heirs of Jewish banker Paul von Mendelssohn-Bartholdy, commenced the suit against Bavaria to recover the Picasso painting, which was originally owned by Mendelssohn-Bartholdy. According to the complaint, Mendelssohn-Bartholdy had been financially and professionally ruined in 1934, after two years of Nazi persecution. Hence he was forced to sell the painting to the Berlin art dealer Justin K. Thannhauser. Thannhauser moved from Berlin to New York City, and in 1965, he sold the painting to Bavaria. Since then, “Madame Soler” had been on display at the Neue Pinakothek, a museum in Munich.

Bavaria was not a defendant in that case in its capacity as successor to the German Reich, but since it had bought the painting from Thannhauser. The complaint alleged that this purchase was a negligent acquisition because Bavaria ignored the conspicuous possibility that the Nazi policies had been deprived Mendelssohn-Bartholdy of the painting. The plaintiffs sought to nullify the transfer of ownership from Mendelssohn-Bartholdy to Thannhauser. If this transfer was held to be void, then Bavaria would have acquired good title only if it had acted in good faith – and in this respect, the plaintiffs pointed to the questionable circumstances of the 1934 transfer, which were known to Bavaria at the time it acquired “Madame Soler”.  In its defense, Bavaria argued that was a “good faith purchaser” and that the circumstances under which the painting was sold in 1934 did not amount to a forced sale.

To Judge Rakoff, the main issue was whether New York had subject matter jurisdiction to hear the case. The Foreign Sovereign Immunities Act (FSIA) provides the sole basis to obtain jurisdiction over a foreign state in a U.S. court. In comparable cases plaintiffs had invoked the expropriation exception under FISA and argued that a painting was taken in violation of international law (e.g. Republic of Austria v. Altman, 541 U.S. 677). Obviously, the “expropriation exception” was not a viable option in this case, as Bavaria did not perform the acts of persecution, and was not sued in a capacity of legal successor of the German Reich. So the plaintiffs argued that Bavaria exceptionally was not immune from U.S. jurisdiction because the suit was “based upon” a commercial activity having a substantial connection to the United States or, in the alternative, because it was based on a commercial conduct occurring outside the United State but having a “direct effect” on the United States.*

Judge Rakoff finally ruled that these exceptions did not apply and granted Bavaria´s motion to dismiss. He concluded that the suit was not based upon Bavaria’s acquisition of the painting in 1964/65, but that “the gravamen of this action is that title to Madame Soler never rightfully passed to Thannhauser in Germany”. Further the court concluded that even if there were any issues with Bavaria’s title to Madame Soler, these were entirely based on what happened in Berlin in 1934. Even though a binding offer to buy was made in New York, the court asserted that the facts of the case did not support plaintiffs´ view that the “based upon”- requirement is fulfilled.

Rather, Judge Rakoff accepted that, on the evidence before him regarding the painting’s purchase, the only link to New York was an initial meeting between Thannhauser and a Mr Soehner, a then Senior Curator of the State Paintings Collection in Munich. All the other relevant actions took place in Europe: the drafting of a letter agreement in France, the shipment of “Madame Soler” from Vaduz to Munich, the payment to a bank account  in Liechtenstein.

The court further concluded that these “outside acts” did not have a direct effect to the U.S. on which the suit could be based: Neither an alleged negative effect on the New York art market nor the alleged evasion of U.S. taxes constitute a direct effect as required by the third prong of 28 U.S. Code § 1605 (2) (a)*. I think the court’s decision is correct. U.S. courts tend to interpret the FSIA exceptions in a restrictive way. The immaterial effects on the forum in this case did not suffice to overcome Bavaria’s sovereignty defence.

As reported earlier in this blog, before the Mendelssohn heirs sued Bavaria sued in New York, Bavaria had refused to engage in mediation and submit the matter to the Limbach Commission, based on its argument that the transfer from Mendelssohn-Bartholdy to Thanhausser in 1934 did not qualify as a forced sale. However, the circumstances of that purchase are less than clear. In another case brought by the Mendelssohn heirs against museums in the United States (Schoeps v. Museum of Modern Art, 594 F.Supp. 2d 461, S.D.N.Y. 2008), which ultimately settled in 2009, Judge Rakoff was convinced that Mendelssohn-Bartholdy was forced to transfer his paintings as a result of the threats to the Jewish community and the economic pressure put on him by the Nazi regime.

Since it held it had no jurisdiction, New York court did not have to establish the facts of this case in that respect. This outcome is of course disappointing, not only for the plaintiffs. One would like to see the case being decided on the merits, whether by a German court or by way of ADR – even if claims had become time-barred under German law, Bavaria could always decide not to invoke the limitation defence. For example, it should be established whether the price that Thannhauser paid to Mendelssohn-Bartholdy was adequate. Further, it would be important to find out more about the circumstances of Bavaria’s purchase of the painting. Is it true, as the complaint alleges, that Bavaria sold a large amount of other paintings, which were formerly owned by Nazis like Goehring and Borman, to conceal the ownership history of these paintingy and to fund the purchase of “Madame Soler”? In my opinion these issues must be resolved and re-discussed here in Germany. It remains to be seen whether the Bavarian Government has changed its mind in the aftermath of the Gurlitt case.

 

* 28 U.S. Code § 1605 – General exceptions to the jurisdictional immunity of a foreign state

A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case— 

(2) in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States; […]

The picture above is a period reproduction of Max Liebermann’s 1909 portrait of Paul von Mendelssohn-Bartholdy.

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