An extract from The Art Law Review, 1st Edition

Art disputes

i Title in art

The Uniform Commercial Code (UCC), which has been adopted by every state in the United States, is a collection of laws governing commercial transactions in the US. Sales of tangible personal property, such as fine art, are governed by Article 2 of the UCC. Article 2 provides that title to artwork will generally pass from the seller to the buyer upon the physical delivery of an artwork. But, where the seller does not possess good title – such as when the artwork has been stolen or where some other defect in title exists – title may not transfer to the buyer, often leading to a title dispute.

A basic tenet of US law is that no one, not even a good-faith purchaser for value, can obtain good title to stolen property. This rule applies regardless of whether the purchaser acquired the artwork at auction or by private sale, or from a subsequent purchaser rather than directly from the thief. This is because title to stolen property is considered void.

In contrast, a good-faith purchaser for value may acquire title to an artwork where the transferor possesses voidable title. The UCC illustrates specific instances in which voidable title may arise, including, for example, when '(a) the transferor was deceived as to the identity of the purchaser, or (b) the delivery was in exchange for a check which is later dishonored . . .' The UCC also allows a merchant – such as an art dealer, gallery or auction house – to transfer good title to a buyer in the 'ordinary course of business', where the artwork was entrusted to that merchant. This provision is commonly referred to as the 'entrustment doctrine'.

Recently, in Richmond v. F-40 Restoration, the US District Court for the District of Connecticut examined the relative ownership rights to an antique car, a rare 1934 Pierce Arrow coupé, analysing both the entrustment doctrine and the application of void, versus voidable, title. Although the property at issue in this case was an antique car, the Court's analysis would be equally applicable to a work of fine art or other art object. The claimant in Richmond had hired a restorer to inspect, negotiate for and purchase the Pierce Arrow on his behalf. Several years later, without consent from the claimant, the restorer sold the car to a third party. The Court first examined whether the entrustment doctrine applied. Since the restorer did not regularly engage in the sale of antique cars and had specifically disavowed having a dealer's licence or being in the business of selling vehicles, he was not a 'merchant' under the UCC; therefore, the doctrine did not apply. The Court then held that, in any event, any title the restorer had in the car was void, not merely voidable. Thus, 'even assuming arguendo that the [subsequent possessors] qualify as good faith purchasers for value', their title, which traced back to the restorer, remained 'void under Section 2-403(1)'.

ii Nazi-looted art and cultural propertyNazi-looted art

In the United States, civil claims for the return of art misappropriated by the Nazis are determined by the courts or otherwise resolved through alternative dispute resolution (ADR). Unlike in many European countries, there is no restitution commission or committee that has been established by the US government for evaluating claims to artworks that were lost during the Nazi era. In part, this is due to the federal government's limited involvement in the operation of museums; the vast majority of US museums are privately owned or are owned by state and municipal authorities. Thus, restitution claims, whether against an individual or a museum, are decided under state law, which at times can vary widely from state to state.

In 1998, the US government convened the Washington Conference on Holocaust-Era Assets, held in Washington, DC, to consider the issues raised by the continuing discovery of Nazi-looted assets, including artworks. The Conference promulgated the Washington Conference Principles on Nazi-Confiscated Art (the Washington Principles), adopted by 44 nations. The Washington Principles invited Holocaust victims and their heirs to assert claims for the recovery of artworks and encouraged affected nations to develop processes to implement the principles and address disputes as to the artworks to achieve a 'just and fair' solution. At the subsequent Prague Holocaust Era Assets Conference in 2009, 46 nations, including the US, signed the Terezin Declaration on Holocaust Era Assets and Related Issues (the Terezin Declaration), which reaffirmed the core tenet of the Washington Principles that it is essential to 'facilitate just and fair solutions with regard to Nazi-confiscated and looted art . . .' The participating states urged, through the declaration, that all parties, including public and private institutions, adhere to its principles.

In 2019, an appellate court in New York affirmed a decision ordering two pieces of Nazi-looted art to be returned to the heirs of their original Jewish owner, Fritz Grunbaum, a prominent cabaret performer in 1930s Vienna and a prolific collector of art. The lower court, in applying the Holocaust Expropriated Art Recovery (HEAR) Act (discussed in Section III.iii) suggested that courts are obligated to apply the Holocaust policy of the US. The court ruled that the case must be viewed in light of the HEAR Act, and in so doing, underscored that one of the two purposes of the HEAR Act, as noted in the legislative history, was 'to ensure that laws governing claims to Nazi-confiscated art and other property further United States policy as set forth in the Washington Conference Principles . . . and the Terezin Declaration', and that, therefore, the HEAR Act 'compels us to help return Nazi looted art to its heirs . . .' On appeal, the court affirmed this point, emphasising that Congress, in relevant part, enacted the HEAR Act 'in an effort to “ensure that laws governing claims to Nazi-confiscated art and other property further United States policy”. . .'

But this approach has not been uniformly applied by courts in the US. In a recent opinion issued by the United States Court of Appeals for the Ninth Circuit, Cassirer v. Thyssen-Bornemisza Collection, the Ninth Circuit noted that courts 'cannot order compliance with the Washington Principles or the Terezin Declaration'. Thus, other jurisdictions in the US consider both the Washington Principles and the Terezin Declaration to be non-binding international agreements.

Another recent development concerning art misappropriated during the Nazi era involves the Foreign Sovereign Immunities Act (FSIA). Under US law, foreign states and their agencies and instrumentalities are immune from jurisdiction in a US court unless certain exceptions apply, which are set forth in the FSIA. Since its enactment in 1976, these exceptions have been used as a basis for jurisdiction over foreign sovereigns being sued in the United States.

Of the enumerated exceptions, the 'expropriation exception' is most utilised in Nazi-era restitution cases. This exception provides that, where property has been taken in violation of international law, and either that property or any property exchanged for it is present in the US in connection with a commercial activity carried on in the US by the foreign state, or that property, or any property exchanged for it, is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the US, then that state will not be immune from suit where the rights to such property are at issue.

Currently, there are two cases concerning the interpretation of the FSIA that are set to be heard by the US Supreme Court. The first, Federal Republic of Germany v. Philipp, involves a restitution claim by the heirs to a collection of medieval artworks known as the Guelph Treasure, which was sold in 1935 by a consortium of Jewish art dealers to the Nazi-controlled state of Prussia, allegedly as agents of Hermann Goering. The Guelph Treasure is currently in the possession of the Prussian Cultural Heritage Foundation, a German agency. In its petition for certiorari, Germany presented two questions to the Supreme Court: (1) whether the expropriation exception 'provides jurisdiction over claims that a foreign sovereign has violated international human-rights law when taking property from its own national within its own borders, even though such claims do not implicate the established international law governing states' responsibility for takings of property'; and (2) whether 'the doctrine of international comity is unavailable in cases against foreign sovereigns, even in cases of considerable historical and political significance to the foreign sovereign, and even where the foreign nation has a domestic frame-work for addressing the claims'.

This petition sets forth issues of exceptional importance to Nazi-looted art cases brought in the US against foreign sovereigns and their agencies or instrumentalities. In particular, the parties dispute whether property taken by a foreign state from its own nationals during the course of genocide, in this case the Holocaust, constitutes a 'taking' for purposes of the FSIA. Germany argues that a violation of the 'international law of takings' only addresses when a state has taken property from another state's national. Respondents, on the other hand, argue that any 'genocidal thefts' violate international law.

In the second case, Republic of Hungary v. Simon, survivors of the Holocaust in Hungary filed suit against the Republic of Hungary and Magyar Államvasutak Zrt, Hungary's state-owned railway company, seeking compensation for the seizure of property that was allegedly taken as part of the Hungarian government's genocidal campaign. Before the Supreme Court is the question of whether the doctrine of international comity may apply where jurisdiction otherwise exists under the FSIA. Both cases were argued on 7 December 2020.

Cultural property

The US government combats trade in illicit antiquities using a variety of legal tools. The National Stolen Property Act (NSPA), which may also be employed in Nazi-looted art matters, is a statute that allows the government to both criminally prosecute those who knowingly possess, sell, receive or transport stolen goods valued at more than US$5,000 that have either crossed a state or United States boundary line or moved in interstate or foreign commerce, and to render such objects subject to forfeiture proceedings. To fall under the purview of the NSPA, an object must qualify as 'stolen'. As established by US jurisprudence, antiquities acquired in contravention of a foreign nation's valid patrimony law are considered stolen for purposes of the NSPA.

One type of forfeiture proceeding that is commonly used in the context of looted cultural property is a civil action brought by the government pursuant to 19 USC Section 1595a. Section 1595a is a customs statute that authorises the forfeiture of any merchandise that is 'stolen, smuggled, or clandestinely imported or introduced' or attempted to be introduced into the United States 'contrary to law'. A violation of the NSPA often serves as the basis of the 'contrary to law' prong of the law.

A recent forfeiture claim illustrates the application of this statute. On 18 May 2020, the US government filed a complaint for the civil forfeiture of the Gilgamesh Dream Tablet, which was purchased by Hobby Lobby Stores, Inc (Hobby Lobby) for donation to or display at the Museum of the Bible. The government's complaint states that property is considered 'stolen' pursuant to 19 USC Section 1595a and the NSPA 'if it was taken without official authorisation from a foreign country whose laws establish state ownership of such cultural property'. In the case of the Tablet, it was alleged to have been removed from Iraq in contravention of the country's patrimony law; therefore, it would constitute stolen property subject to civil forfeiture.

iii Limitation periods

In the United States, statutes of limitations often vary in content and application from state to state, and differ depending on the type of claim being pursued. For example, if a buyer acquires an artwork that is subsequently determined to be inauthentic, the buyer may bring an action for fraud against the seller. In New York, the statute of limitations governing fraud claims is either six years from the date of the fraud (i.e., the date of purchase of the artwork) or two years from the date the fraud was discovered, or with reasonable diligence, could have been discovered. In contrast, other states apply different limitation periods. For instance, under Florida law, a claim for fraud must be commenced within four years. Accrual for the claim begins 'from the time the facts giving rise to the cause of action were discovered or should have been discovered with the exercise of due diligence'; however, the action 'must be begun within 12 years after the date of the commission of the alleged fraud, regardless of the date the fraud was or should have been discovered'.

Where the cause of action involves claims for replevin or conversion of art, accrual may depend on whether the possessor holds the art in good faith. In some states, including New York, a 'demand and refusal' rule applies, under which the three-year limitation period does not begin to run until the owner makes a demand for the return of the property and the possessor refuses. The majority of states, however, follow a 'discovery rule'. In these states, the limitation period, which differs depending on the state, begins to run when the plaintiff discovers or, after the exercise of reasonable diligence, should have discovered the whereabouts of the artwork.

For art recovery cases involving art lost during the Nazi era, a special statute of limitations applies – the HEAR Act of 2016. Under the terms of the Act, which establishes a uniform federal statute of limitations, the limitation period starts to run upon the actual discovery by the claimant of the identity and location of the artwork or other property and the claimant's possessory interest in that property. In the case of a possible misidentification, the Act provides that discovery is deemed to occur 'on the date on which there are facts sufficient to form a substantial basis to believe that the artwork or other property is the artwork or other property that was lost'. For those who had claims already pending in court, the law deemed such claimants to have had the requisite knowledge as of the date of enactment of the statute, unless the claimant was otherwise barred under an exception to the Act. The law is set to expire on 1 January 2027, although it will still apply to claims already pending at that time.

In addition to state and federal statutes of limitations, the equitable doctrine of laches may also bar otherwise timely art claims. To establish the defence, a possessor must show that the claimant unreasonably delayed in bringing the action to the prejudice of the possessor. A court may also weigh the relative equities between the parties in determining whether to apply the defence.

iv Alternative dispute resolution

In the United States, there are no specialised ADR organisations dealing specifically in art matters. Moreover, as a general matter, art disputes that are resolved by ADR are almost always subject to confidentiality provisions; indeed, confidentiality is one of the top reasons for parties to avoid litigation. Consequently, the prevalence of ADR in resolving art disputes in the US is difficult to quantify.