Second Circuit to Art Collector: New York Beats Switzerland.

In the case of Bakalar v. Vavra, the Second Circuit was faced with a dispute over the ownership of an Egon Schele — http://en.wikipedia.org/wiki/Egon_Schiele — drawing entitled “Seated Woman With Bent Left Leg (Torso)”. The drawing was in the possession of David Bakalar whose ownership of the drawing was challenged by Milos Vavra and Leon Fischer, the heirs to the estate of Franz Friedrich Grunbaum. Grunbaum’s “lost” the piece when the Nazis, after imprisoning him at Dachau (where he later died) made him sign away his rights to the drawing. Bakalar bought the painting from a New York dealer (who had acquired it from Swiss sources) in 1963 for $4,300. Bakalar’s rights were challenged after the drawing was sold at a 2008 Sotheby’s auction for $675,000.

Bakalar, a Massachusetts resident, filed suit in New York federal court seeking a declaratory judgment that he was the rightful owner of the drawing. The defendants, residents of the Czech Republic and New York, respectively, filed counterclaims for declaratory judgment, replevin, and damages. After a bench trial, a judge in the Southern District of New York held that David Bakalar was the rightful owner. In finding for Bakalar, the trial court applied a site-of-the-original transaction choice-of law test to the case. Since the relevant sale originated in Switzerland, the trial court applied Swiss law to the case and found that the claim was time barred. Under Swiss law “a person who acquires and takes possession of an object in good faith becomes the owner, even if the seller was not entitled to transfer ownership” unless the rightful owner makes a claim within 5 years of the loss or theft.” Swiss law also presumes that a purchaser acts in good faith, and a plaintiff seeking to reclaim stolen property has the burden of establishing that a purchaser did not act in good faith. Here the initial loss occurred in (at latest) 1963 and so a claim/lawsuit was required by 1968. In contrast, in New York, a thief cannot pass good title and a “rightful owner” has the right to commence a lawsuit (irrespective of when the original loss/theft occurred) within three years of demanding the return of the piece and the possessor’s refusal to so consent.

An appeal resulted and the Second Circuit weighed in. The Second Circuit rejected the trial court’s use of the situs test and instead applied an interests analysis, in which the law of the jurisdiction having the greatest interest in the litigation is applied and “the facts or contacts which obtain significance in defining State interests are those which relate to the purpose of the particular law in conflict.” The Second Circuit reasoned that New York has a greater interest than Switzerland in prohibiting a flourishing stolen art network. It therefore applied New York law to the claim and held that the claim was not time barred. It remanded the case back to the trial court for further proceedings. Under New York law, Bakalar now has the burden of proving that the drawing was not wrongfully taken from Grunbaum before his death at Dachau.

If you would like more information about this post, please contact Mike Bono at mbono@wcmlaw.com or Bob Cosgrove at rcosgrove@wcmlaw.com.

http://www.law.com/jsp/nylj/CaseDecisionFriendlyNY.jsp?id=1202471677842