had his case determined in a state forum. In the federal suit, the Tenth Circuit affirmed the grant of summary judgment to defendant in the case, applying a well established rule of Oklahoma state law. In the state suit, however, after having his claim against the same defendant dismissed by the trial court, plaintiff appealed to the Oklahoma Supreme Court, which overruled the decision upon which both the state trial court and the Tenth Circuit had relied.
Although the Oklahoma Supreme Court decision had come more than three years subsequent to the Tenth Circuit's dismissal of the federal plaintiff's claims, the Tenth Circuit granted plaintiff's 60(b)(6) motion:
We are concerned with an action in which federal jurisdiction depends on diversity. In diversity jurisdiction cases the results in federal court should be substantially the same as those in state court litigation arising out of the same transaction or occurrence. Here they were not . . . The outcome determination principle mandated by Erie v. Tompkins has been violated.
518 F.2d at 723 (citations omitted); see also First American National Bank of Nashville v. Bonded Elevator, Inc. 111 F.R.D. 74 (W.D. Ky. 1986).
As American Iron and Steel and Pierce demonstrate, the fact that the New York Court of Appeals decision in Guggenheim came three years subsequent to the Second Circuit's interpretation of New York's demand and refusal law does not bar plaintiff's claim here. Indeed, courts have granted Rule 60(b)(6) relief when the periods between an initial judgment and a subsequent superseding decision spanned substantially greater periods of time. See Tsakonites v. Transpacific Carriers Corp., 322 F. Supp. 722 (S.D.N.Y. 1970) (granting 60(b)(6) relief where more than a five year period intervened between the district court's judgment and a subsequent United States Supreme Court decision which indicated that the district court judgment was error.)
In order to prevent the working of an extreme and undue hardship upon plaintiff, to accomplish substantial justice and to act with appropriate regard for the principles of federalism which underlie our dual judicial system in this extraordinary case, I hold plaintiff is entitled to similar relief here.
Apart from Rule 60(b)(6), a party may obtain relief under Rule 60(b)(5) where "it is no longer equitable that the judgment should have prospective application." Although the term "prospective application" as utilized in this rule has never been susceptible of precise definition, it has been held to apply where a judgment is "'executory' or involves the 'supervision of changing conduct or conditions' within the meaning of [the Supreme Court's decisions in United States v. Swift & Co, 286 U.S. 106, 76 L. Ed. 999, 52 S. Ct. 460 (1932) and Pennsylvania v. Wheeling & Belmont Bridge Co., 59 U.S. (18. How) 421 (1856).]" Twelve John Does v. District of Columbia, 268 U.S. App. D.C. 308, 841 F.2d 1133, 1138 (D.C. Cir. 1988).
Rule 60(b)(5)'s prospective application clause has most often been utilized to modify judgments granting injunctive relief; where injunctive relief has been awarded, and the law upon which such relief is premised later changes, a court may amend its injunctive decree. See Rufo v. Inmates of Suffolk County Jail, 112 S. Ct. 748, 116 L. Ed. 2d 867 (1992); System Federation No. 91 Railway Employees Department, AFL-CIO v. Wright, 364 U.S. 642, 650, 5 L. Ed. 2d 349, 81 S. Ct. 368 n. 6 (1960) ("There are many cases where a mere change in decisional law has been held to justify modification of an outstanding injunction" [citing cases]). At the other end of the spectrum, a money judgment will not usually be considered a judgment with "prospective application" pursuant to Rule 60(b)(5). See Twelve John Does, 841 F.2d at 1138.
The relief plaintiff seeks in this case, the return of a stolen painting, falls somewhere between the supervisory injunction and monetary judgment cases described above. The relief plaintiff seeks here is a form of specific performance, generically injunctive in nature - the physical return of a unique piece of art, rather than money damages. Transfer and possible international shipment of a valuable work of art may involve some further recourse to the court, but do not involve the level of judicial supervision required where changing conduct or conditions must be monitored. Although not by itself conclusive, the continuing effect of the judgment on future custody of the painting, in contrast to the effect of such a judgment upon fungible items such as money, is also relevant. Without holding that res judicata consequences of a decision are in themselves necessarily sufficient to trigger applicability of Rule 60(b)(5), the importance of the res judicata or "quiet title" effect is magnified when a future chain of custody and ownership of a valuable art object are affected.
Since I find that plaintiff has in any event clearly stated valid grounds for relief under Rule 60(b)(6), it is unnecessary to determine whether relief would also be justified pursuant to Rule 60(b)(5), but on balance I conclude that plaintiff is be entitled to relief on this additional ground.
I must also consider the impact which the Second Circuit's denial without opinion of plaintiff's motion to recall its mandate should have on the disposition of plaintiff's motion here. Where an appeals court rules on an issue, "the court of appeals' rulings are the law of the case, and the district court is bound to follow them; it has no jurisdiction to review or alter them." Eutectric Corp. v. Metco Inc., 597 F.2d 32, 34 (2d Cir. 1979). The law of the case doctrine, however, applies only to issues which have been reviewed and determined by a court. "While it is true that issues considered and disposed of by an appellate court on appeal cannot thereafter be altered by a district court, it may consider matters not explicitly or implicitly decided." Panama Processes, S.A. v. Cities Service Co., 789 F.2d 991, 994 (2d Cir. 1986) (citations omitted). In this case, the lack of any opinion accompanying the Court of Appeals' denial of plaintiff's motion to recall its mandate requires that this court attempt to determine the basis for the Second Circuit's decision. Either of two possible rationales may have been the basis for the Court's ruling.
First, the Court could have determined that plaintiff had not stated any ground for relief pursuant to Rule 60(b) from the Court's mandate with respect to the due diligence requirement. As discussed in detail above, however, denial of plaintiff's motion on this ground would, I believe, raise serious questions about the relationship between the state and federal courts under Erie, resulting in a denial of rights which would have flowed to the plaintiff under state law. I do not believe that the Court would have denied relief on this ground. As the Second Circuit noted in one diversity case in which it modified its previous decision after a state Supreme Court ruling reversed an intermediate state court order upon which the Court had relied, "this Circuit has long shown considerable willingness to correct what it believed an erroneous interpretation of the law when an intervening state decision seemed to indicate a better view." Braniff Airways Inc. v. Curtiss-Wright Corp., 424 F.2d 427, 429 (2d Cir.), cert. denied 400 U.S. 829, 27 L. Ed. 2d 59, 91 S. Ct. 59 (1970). I have no reason to believe the Court would not have followed the same reasoning here.
There is a more probable alternative rationale which the Court of Appeals could have adopted in denying plaintiff's motion, namely that the relief should properly have been sought from the district court in the first instance.
In Standard Oil Company v. United States, 429 U.S. 17, 50 L. Ed. 2d 21, 97 S. Ct. 31 (1976) the Supreme Court held that a Rule 60(b) motion based on events subsequent to an appellate mandate and seeking to overturn a judgment summarily affirmed by the Supreme Court, could be pursued in the district court without the leave of the Supreme Court and without withdrawal of the Supreme Court's mandate. The Supreme Court reasoned that in cases where a litigant sought relief from a final judgment based upon events occurring subsequent to an appellate ruling, the trial court, rather than the appellate court, "is in a much better position to pass upon the issues presented." Id. at 19. Appellate permission was considered unnecessary because a district court would be capable of recognizing a frivolous 60(b) motion and because a district court ruling premised upon events occurring subsequent to an appellate court decision would not flout an appellate mandate.
While Standard Oil dealt with a change in circumstances arising from the alleged misconduct of a government counsel and material witness, the doctrine has since been applied to motions based upon a change in decisional law rendered subsequent to an appellate decision. LSLJ Partnership v. Frito-Lay, Inc., 920 F.2d 476 (7th Cir. 1990) (en banc). An essentially identical fact pattern is presented in this case. Here plaintiff with meritorious grounds for relief pursuant to Rule 60(b) directed her motion in the first instance to the appeals court. Following the Supreme Court's ruling in Standard Oil, it was appropriate for the Second Circuit to deny plaintiff's motion so that the motion could be determined in the first instance here; I infer, after reviewing the history of this action, that this was the reason for the Second Circuit's denial of plaintiff's motion to recall the Court's mandate.
Since I infer that the Second Circuit denied plaintiff's motion to recall its mandate on the basis that the motion should have been initially determined by the district court, granting plaintiff's motion does not flout the Second Circuit's mandate, or the law of the case as established by the Court of Appeals.
Even if, however, the contrary were to be determined to be the case, as mentioned in part I above, United States v. Fernandez, 506 F.2d 1200 (2d Cir. 1974), decided prior to Standard Oil, indicates that the appellate court may reverse the district court action on grounds of violation of the earlier mandate, but then achieve the same result as that reached in Standard Oil, albeit by a more circuitous route, by remanding with instructions to act in accordance with the changed conditions involved rather than the earlier mandate.
Defendant has renewed its claim, which I rejected in my earlier findings, that plaintiff's suit is barred by laches. The Court of Appeals in its 1987 decision, 836 F.2d at 112 & n 7, referred to the possibility of laches in this case.
I have reconsidered the question and conclude that my original findings in the April 20 Order should be amplified to reflect the importance of the presence in the case of a nonbankrupt third party defendant, permitting defendant to pursue responsibility for lack of care in purchasing and reselling the art up the chain of possession. Thus plaintiff's delay does not put the innocent purchaser in the position of facing loss of the asset without recourse, whereas a ruling for defendant would leave plaintiff, as the theft victim, with no recourse at all. The balancing of the equities, with due consideration to the difficulty of an owner who lacks institutional resources to trace stolen art, favors rejection of the laches claim here.
A claim may be barred by the defense of laches where a plaintiff unreasonably delays commencing an action and that delay operates to the prejudice of a defendant. In Re Estate of Barabash, 31 N.Y.2d 76, 334 N.Y.S.2d 890, 894-895, 286 N.E.2d 268 (1972); see also Southside Fair Housing Com. v. City of New York, 928 F.2d 1336, 1354 (2d Cir. 1991). In reviewing a laches defense, a court must balance the two factors of delay and prejudice, and then apply that balancing test to the facts of the case. Stone v. Williams, 873 F.2d 620, 623-625 (2d Cir. 1989) ("Stone I"), rev'd on other grounds 891 F.2d 401 (2d Cir. 1989) cert. denied 496 U.S. 937, 110 S. Ct. 2558, 109 L. Ed. 2d 741 (1990) ("Stone II"). Because of the particularly fact sensitive nature of the laches inquiry and the lack of any objective standard pursuant to which a laches defense will be held to bar an otherwise valid claim, an assessment of whether a plaintiff is guilty of laches is committed to the sound discretion of the trial court. See Stone I, 873 F.2d at 623-624.
In assessing delay, the focus is on the reasonableness of a plaintiff's delay rather than on its length. Where a plaintiff delays in bringing suit because she is "justifiably ignorant of the facts giving rise to the cause of action," a laches defense will not operate. In Re Estate of Barbash, 334 N.Y.S.2d at 895; see also Stone I, 873 F.2d at 624-625.
It is also important to recognize that "lack of diligence, standing alone, is insufficient to support a claim of laches; the party asserting the claim also must establish that it was prejudiced by the delay." Majorica, S.A. v. R.H. Macy & Co. Inc., 762 F.2d 7, 8 (2d Cir. 1985); Augustine v. Szwed, 77 A.D.2d 298, 432 N.Y.S.2d 962, 965 (App. Div. 4th Dept 1980). The prejudice which will support a laches defense may take several forms. The passage of time may make it more difficult for a defendant to defend against a claim by virtue of the death of witnesses, lost evidence or faded memories, or a defendant may have changed position in reliance upon the absence of a suit. Stone I, 873 F.2d at 625; Augustine, 432 N.Y.S.2d at 965-966. Courts should also consider the underlying value of repose when reviewing a laches argument and reject a laches defense where a defendant has engaged in egregious conduct which would obviate any prejudice the defendant might have suffered. Stone I at 626; Stone II, 891 F.2d at 404; Augustine at 966.
In the April 20 Order, I explicitly held that Mrs. DeWeerth had not unreasonably delayed in prosecuting her claims for purposes of determining the running of the statute of limitations. As noted supra, the Court of Appeals for the Second Circuit, acting prior to Guggenheim, reached the opposite conclusion. The Court of Appeals reviewed my findings on this issue on a de novo basis, holding that such review is appropriate where an appellate court considers the application of a legal standard by a district court to a set of facts (in this case, the "due diligence" requirement announced in DeWeerth. 836 F.2d at 110). In contrast, "[a] ruling on the applicability of laches is overturned only when it can be said to constitute an abuse of discretion." Stone I, 873 F.2d at 624 (citations omitted).
More significantly, however, I found in the April 20 Order that even if plaintiff had unreasonably delayed in asserting a claim, defendant suffered no prejudice as a result. The evidence before me demonstrated that Mrs. DeWeerth had inherited the Monet from her father and subsequently neither sold it nor conveyed it to anyone else. Moreover, after analyzing the specific arguments made by the defendant with respect to the prejudice allegedly caused by plaintiff's delay, in particular the prejudice defendant allegedly suffered by virtue of the death of Mrs. DeWeerth's sister, I held that these arguments were without merit:
Even if plaintiff had unreasonably delayed her demand, defendant cannot show that she was prejudiced by the delay. She has argued that because of the delay the testimony of Frau von Palm, the only person who could testify as to what happened to the painting, has been irretrievably lost. This argument fails because it assumes, contrary to all the other evidence presented, that Frau von Palm's testimony would have been favorable to her.
It also fails because it is simply not true. Defendant could have deposed Reichenbach to attempt to trace the history of the painting's transfers, but she did not. Having failed to exhaust obvious paths of inquiry she cannot sustain her burden of proving that she was prejudiced. April 20 Order at 695, n.10.
It may be that the Second Circuit believed this determination was clearly erroneous. Given the fact that it never explicitly reached the laches issue, however, either in its December 30 Order or in its denial of plaintiff's motion for the recall of its mandate, I do not assume that the Second Circuit reached such a conclusion.
To the extent that my April 20 Order did not clearly address the laches issue, I believe it would be appropriate to clarify that Order here: plaintiff, in prosecuting this action, was not guilty of laches. Plaintiff did not unreasonably delay in prosecuting her claims. And even assuming plaintiff did fail to exercise due diligence in searching for her stolen painting, defendant suffered no prejudice as a result.
Defendant, of course, has possessed the Monet for many years - constituting an advantage of value since monies would have had to be paid to rent the painting for that period, but also doubtless exacerbating the pain which will be incident to loss of the art object. Like plaintiff, defendant has, of course, been victimized by an unknown wrongdoer or wrongdoers - the original thief and those who passed on the painting with knowledge or suspicion of its theft or lack of due care in buying and selling it. But defendant also has recourse at least one step backward up the chain of custody.
The value of repose inherent in the laches defense would certainly be furthered by denying plaintiff's motion. But the fact that a long time has passed since defendant purchased the painting in and of itself does not mean that plaintiff is barred by laches. New York's political and judicial systems have made and reaffirmed a considered choice in cases where the rights of original owners and subsequent innocent purchasers collide. Inherent in that choice, as in any choice which might be imagined on the issue, is that one of two innocent victims will be harmed, sometimes at a point when she may legitimately feel that the passage of time has long since made her right to possession inviolate. As has been restated innumerable times, however, it is not the province of the federal judiciary to second guess the manner in which New York has resolved this dilemma; neither can New York's policy be obviated by the utilization of an equitable doctrine imbued with sufficient flexibility to achieve a preferred result.
Since I find that plaintiff has asserted valid grounds for relief pursuant to Federal Rule of Civil Procedure 60(b)(6) and that this court has the authority to grant it, the Memorandum Order of April 20, 1987 is readopted as amplified herein. Plaintiff is directed to submit a proposed judgment.
Dated: White Plains, New York
October 16, 1992
VINCENT L. BRODERICK, U.S.D.J.