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Bakalar v. Vavra

September 2, 2010

DAVID BAKALAR, PLAINTIFF--COUNTER-DEFENDANT--APPELLEE,
v.
MILOS VAVRA AND LEON FISCHER, DEFENDANT--COUNTER-CLAIMANT--APPELLANTS, SCHENKER INC. AND SCHENKER & CO. A.G., COUNTER-DEFENDANTS.



SYLLABUS BY THE COURT

An appeal from a judgment of the United States District Court for the Southern District of New York (Pauley, J.), after a bench trial, declaring that David Bakalar was the owner of an untitled drawing by Egon Schiele.

VACATED AND REMANDED. Judge Korman concurs in a separate opinion.

The opinion of the court was delivered by: Edward R. Korman, District Judge

Argued: October 9, 2009

Before: CABRANES and LIVINGSTON, Circuit Judges, and KORMAN, District Judge.*fn1

This case involves a dispute over the ownership of a drawing by Egon Schiele (the "Drawing") between plaintiff David Bakalar, the current possessor of the Drawing, and defendants Milos Vavra and Leon Fischer, heirs to the estate of Franz Friedrich Grunbaum ("Grunbaum"). Although the Drawing was untitled by the artist, one of the descriptive titles by which it is known is "Seated Woman with Bent Left Leg (Torso)."

Vavra and Fischer allege the following facts in their complaint. The Drawing was one of eighty-one Schieles that were included in a collection of 449 artworks owned by Grunbaum, an Austrian cabaret artist, and kept in his apartment in Vienna. Grunbaum was deprived of his possession and dominium over the Drawing after being arrested by the Nazis and signing a power of attorney while imprisoned at Dachau. The power of attorney, dated July 16, 1938 (four months after his imprisonment), authorized his wife Elisabeth "to file for me the legally required statement of assets and to provide on my behalf all declarations and signatures required for their legal effect according to the statutory provisions, and to represent me in general in all my affairs." (A-936.)

The statement of assets, to which the power of attorney referred, required Jews to list all of their property. The information was then used by the Nazis to impose confiscatory taxes and penalties of various kinds.*fn2 The power to represent Grunbaum "in all [his] affairs" enabled the Nazis to compel Elisabeth to dispose of Grunbaum's assets for the purpose of paying the imposed taxes and penalties.*fn3 Indeed, in a report dated four days after the execution of the power of attorney, Franz Kieslinger, an appraiser for the Nazis with the Viennese auction house Dorotheum-which was "a prime selling point of loot[ed] art in Austria" (A-1265)-conducted an appraisal of the 449 artworks that Grunbaum kept in his apartment, including the eighty-one Schieles. On August 1, 1938, Mrs. Grunbaum signed a List of Assets "for Franz Freidr. Grunbaum, according to Power of Attorney dated July 16, 1938." (A-933.) The valuation she placed on it was identical to that which Kieslinger had assigned it.

The manner in which the Drawing made its way from Vienna to Galerie St. Etienne, the New York art gallery from which Bakalar purchased it, is unclear. Grunbaum died in Dachau in 1941. The Registration of Death, a document filed in the district court of Vienna in which Mrs. Grunbaum reported the death of her husband, states that "[a]ccording to the deceased's widow, Elisabeth Sara Grunbaum, there is no estate." (A-982.) Mrs. Grunbaum was arrested by the Nazis on October 5, 1942, and died shortly thereafter in a concentration camp in Minsk. The Drawing was purchased along with forty-five other Schieles by Galerie Gutekunst, a Swiss art gallery, in February and May of 1956. The district judge found that the seller was Mathilde Lukacs-Herzl ("Lukacs-Herzl" or "Lukacs"), the sister of Mrs. Grunbaum. Later the same year, on September 18, 1956, the Drawing was purchased by the Galerie St. Etienne and was shipped to it in New York. On November 12, 1963, the latter sold the drawing to David Bakalar for $4,300.

Bakalar, a resident of Massachusetts, filed this action seeking a declaratory judgment that he is the rightful owner of the Drawing. The complaint was filed after a winning bid of approximately $675,000 for the Drawing at a Sotheby's auction was withdrawn, apparently because of a letter written on behalf of Milos Vavra and Leon Fischer, which challenged Bakalar's title. Vavra and Fischer, who have been formally designated by an Austrian court as the legal heirs to the estate of Grunbaum, are the two named defendants in this case. In response to Bakalar's complaint, Vavra and Fischer, who are residents of the Czech Republic and New York, respectively, filed counterclaims for declaratory judgment, replevin, and damages. After a bench trial, a judgment was entered in the Southern District of New York (Pauley, J.), based on findings of fact and conclusions of law, which sustained the claim of David Bakalar that he was the rightful owner.

In his post-trial findings of fact and conclusion of law, the district judge reaffirmed his pre-trial ruling that Swiss law applied. Bakalar v. Vavra, 2008 WL 4067335, at *6 (S.D.N.Y. Sept. 2, 2008) (citing Bakalar v. Vavra, 550 F. Supp. 2d 548, 550 (S.D.N.Y. 2008)). 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 or authorized to transfer ownership." Id. at *7. One "relevant exception to this rule is that if the object had been lost or stolen, the owner who previously lost the object retains the right to reclaim the object for five years." Id.The district judge proceeded to hold that, because Lukacs-Herzl "possessed the Drawing and the other Schiele works she sold" in 1956, the Galerie Gutekunst, as buyer, "was entitled to presume that she owned them." Id. Because Galerie Gutekunst was a good faith purchaser, and because the Grunbaum heirs had "not produced any concrete evidence that the Nazis looted the Drawing or that it was otherwise taken from Grunbaum," Bakalar acquired good title when he purchased the Drawing from Galerie St. Etienne. Id. at *8. Nevertheless, even if the Drawing had been stolen at some point prior to the Galerie Gutekunst's purchase in 1956, "any absolute claims to the property" by those from whom the Drawing was stolen "expired five years later, in 1961," pursuant to Swiss law. Id. at *7.

DISCUSSION

I.

Because jurisdiction in this case is predicated on diversity of citizenship, New York's choice-of-law rules apply. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Before engaging in a choice-of-law analysis, we turn to the threshold question whether there is a difference between the laws of Switzerland and New York upon which the outcome of the case is dependent. We conclude that there is a significant difference that is reflected in the laws and policies of these two jurisdictions.

A. Swiss Law and Practice

The preceding summary of the district judge's findings of fact and conclusions of law contain a description of Swiss law, to which we add only a few words. Under Article 934 of the Swiss Civil Code, as summarized by Bakalar's expert, "a buyer acting in good faith will acquire valid title to stolen property after a period of five years. After the five year period, a previous owner of a stolen object is no longer entitled to request the return of the stolen object from a good-faith possessor." (A-706)(emphasis in original). Moreover, as Bakalar's expert explained, 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. See also In re Holocaust Victim Assets Litig., 105 F. Supp. 2d 139 (E.D.N.Y. 2000), aff'd, 413 F.3d 183, 186 (2d Cir. 2005); Autocephalous Greek-Orthodox Church of Cyprus v. Goldberg & Feldman Fine Arts, Inc., 717 F. Supp. 1374, 1400 (S.D. Ind. 1989), aff'd, 917 F.2d 278 (7th Cir. 1990). Significantly, according to Bakalar's expert,

[t]here has never been a legal presumption that art works with a potential relationship to Germany during World War II (i.e. emanating from a German collection or created by artists deemed "degenerate" by the Nazis) would in general and per se be tainted, and that a dealer accepting such art works would automatically be subject to a heightened standard of diligence in the 1950s. Such a presumption did not in the 1950s and does not today exist in Swiss law.

See also Final Report of the Independent Commission of Experts (Bergier Commission Report), Switzerland, National Socialism and the Second World War 364 (2002).

While it is true, as Bakalar's expert continues, that "[i]n 1987, the Swiss Federal Supreme Court raised the standards of due diligence with respect to sales transactions involving second-hand luxury automobiles," and later to the antiquities business because "in these businesses stolen property is known to be frequent; therefore a heightened alertness may be expected from buyers in these sectors," and "[w]hile some Swiss legal commentators are of the opinion that the art market should also fall into this category of businesses at risk, the Swiss Federal Supreme Court has not extended the stricter standards to transactions with works of art," (A-714) (emphasis in original).

Nevertheless, Bakalar argues that Swiss law is "not blind to the rights of dispossessed former owners," and does not "reflect indifference to the possibility of theft." While this benign assessment of Swiss law has been disputed by others, see e.g., Hector Feliciano, The Lost Museum: The Nazi Conspiracy to Steal the World's Greatest Works of Art 155 (1st ed. 1995), we have no occasion to address this issue. Instead, we simply note the obvious: Swiss law places significant hurdles to the recovery of stolen art, and almost "insurmountable" obstacles to the recovery of artwork stolen by the Nazis from Jews and others during World War II and the years preceding it. In re Holocaust Victim Assets Litig., 105 F. Supp. 2d 139 at 159 ("[T]he legal and practical obstacles to the recovery of [stolen] art... are already substantial, if not insurmountable.").

B. New York Law

Unlike Switzerland, in New York, a thief cannot pass good title. See Menzel v. List, 49 Misc. 2d 300, 305 (N.Y. Sup. Ct. 1966), modified as to damages, 28 A.D.2d 516 (1st Dep't 1967), rev'd as to modification, 24 N.Y.2d 91 (1969); see also Silsbury v. McCoon, 3 N.Y. 379, 383-84 (1850).

This means that, under New York law, as Menzel v. List specifically held and one scholar observed, "absent other considerations an artwork stolen during World War II still belongs to the original owner, even if there have been several subsequent buyers and even if each of those buyers was completely unaware that she was buying stolen goods." Michelle I. Turner, Note, The Innocent Buyer of Art Looted During World War II, 32 Vand. J. Transnat'l L. 1511, 1534 (1999). The manner in which the New York rule is ...


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