This essay examines the defense of laches in claims to recover works of art and its particular importance in New York, and offers advice both for those attempting to recover art and those defending against claims from the distant past. --- RDS
JUDITH WALLACE is a member of the Art Law Group at Carter Ledyard & Milburn LLP. She represents collectors, foundations, artists and scholars in matters of art ownership, authenticity, authorship, consignment and sales, foundation governance and other art-related matters.
When is it too late to reclaim lost or stolen art? This question may arise when fiduciaries dealing with an estate begin to discover missing artwork stored, loaned, or consigned and never returned, or perhaps in the hands of someone who may have stolen it. Executors may receive unexpected demands to turn over artwork the decedent possessed for decades and that was assumed to be part of the estate.
Most people are aware that statutes of limitations set a deadline to file a lawsuit, but are less familiar with another "deadline." To prevent unfairness resulting from unreasonable delay in asserting legal rights, the equitable defense of "laches," which embodies the ancient principle that equity does not aid those who sleep on their rights, may bar a claim that is not barred by the statute of limitations.1
The Particular Importance of the Laches Defense in New York
Understanding the laches defense is important in New York, because of the state's distinctive rule on the statute of limitations to recover artwork.
The deadline for an original owner (or her successor) to recover artwork possessed by someone else is generally governed by the statute of limitations for conversion. Conversion is any act that excludes the rights of the owner, such as selling or destroying someone else's property. It is a civil wrong that may give rise to a claim for damages. In New York, someone who merely possesses artwork owned by another has not "converted" it until she refuses a demand by the owner for the return of the artwork, because until the possessor has refused a lawful demand, she has done nothing wrong. (There is an exception to this rule if the demand would be futile because the artwork no longer exists or possession already has been transferred to someone else, or if the work was stolen and is in the hands of the thief, who would presumably ignore such a demand.) This definition of conversion is significant because the statute of limitations for a tort does not start to run until the tortious act — i.e., the refusal of the demand — has taken place.
Furthermore, in New York the expiration of the statute of limitations against the possessor of the art does not extinguish the true owner's title to the art. Accordingly, even if the statute of limitations has expired against the thief or converter, and the thief has sold the artwork, the true owner can make a timely claim against the person who possesses it. As a result, under New York's distinctive rule, a demand for the return of artwork that had been stolen or converted decades earlier could be within the statute of limitations. (See the Spring 2012 issue of Spencer's Art Law Journal for a comprehensive discussion of the this rule and the public policy reasons for protecting true owners of lost or stolen art, originally set forth in the landmark 1991 Court of Appeals decision in Solomon R. Guggenheim Foundation v. Lubell.)2 Nevertheless, the doctrine of laches may bar an otherwise timely claim under New York law. In jurisdictions where the statute of limitations runs from the time of the original misappropriation and extinguishes the owner's title, the laches defense is less important and less often raised.3 7154982.1
What is Laches?
The doctrine of laches is intended to prevent unfairness resulting from the assertion of long-delayed claims. The laches defense has two elements: (1) unreasonable delay by the claimant and (2) prejudice to the defendant resulting from that delay.
Courts and claimants struggle with this seemingly straightforward test, especially when its application forecloses the claims of a sympathetic party. Two recent cases involving Holocaust-era claims are particularly helpful in illustrating the challenges in applying the laches defense.
Delay — Whose Delay?
A threshold question is whose delay is relevant in the laches test. This is important in a claim by an estate, when the heirs or executors only recently discovered a claim that the decedent knew about for decades, but for some reason did not pursue. A recent federal court decision by the Second Circuit Court of Appeals in Bakalar v. Vavra makes it clear that descendants are charged with their predecessors' knowledge and delay.4
The Bakalar case involved Holocaust-era issues, although it was not a typical claim for Nazi-looted art. This dispute involved the competing claims of the successors of two groups of family members of Fritz Grunbaum, the original owner of a drawing by Egon Schiele entitled Seated Woman with Bent Left Leg (Torso), and a prominent Austrian Jewish cabaret performer and art collector. Grunbaum died in a concentration camp, as did his wife Elisabeth. Decades later, Milos Vavra and Leon Fischer (remote relatives of the Grunbaums) asserted their claim as heirs to the estate in 1999, and eventually demanded the return of the Schiele drawing from Bakalar, who had filed a federal lawsuit seeking a declaratory judgment that he had good title. Bakalar had purchased the drawing in 1964 from the highly regarded Galerie St. Etienne in New York, and could trace his ownership back to Mathilde Lukacs, Grunbaum's sister-in-law, who sold the drawing to a Swiss gallery in 1956. At the time of his purchase, Bakalar had no knowledge of any question or disputes concerning ownership of the drawing.
After a non-jury trial, the district court, applying New York law,5 held that Bakalar had the burden of proof to demonstrate that Mathilde Lukacs acquired good title to the artwork, and that Bakalar had not met that burden.6 The fact that Lukacs possessed the drawing in 1956 "suffices to establish by a preponderance of the evidence that the [d]rawing was not looted by the Nazis." However, the district court found that there was no evidence from which to determine whether Lukacs was simply entrusted with the work for safekeeping (in which case she did not acquire good title) or whether she received it as a gift (in which case she would have good title). The court noted that Lukacs had not complied with the necessary legal formalities to acquire title as an intestate heir at any point prior to her sale of the drawing in 1956.
Because Bakalar failed to meet his burden to demonstrate that Mathilde Lukacs had good title, he would have lost his claim to the drawing if he had not asserted the laches defense. Although Bakalar could not his trace his title to Grunbaum, the district court held that he established the elements of the laches defense, which defeated Vavra's and Fischer's claim. The court held that the inaction by Vavra and Fischer's family members who were their predecessors in interest could be charged to Vavra and Fischer. Bakalar demonstrated that Vavra and Fischer's family members knew about Grunbaum's death in a concentration camp and should have known about their potential claim to Grunbaum's sizeable art collection, and had not been diligent in attempting to locate the collection. Those family members need not have known the location or even the existence of this particular drawing. The court found that given the political circumstances "a certain amount of delay or specificity might be excused" and noted that "[i]t may have been sufficient if ... their ancestors had been diligent in their efforts to recover Grunbaum's property generally, or if they had made intermittent efforts," but they had made none, other than a 1952 effort to recover some music royalties.
Prejudice – Must Be Caused by the Unreasonable Delay
Bakalar more easily met the second required element – prejudice caused by Vavra and Fischer's delay – which the court disposed of in two paragraphs. Citing the Guggenheim decision by the New York Court of Appeals, the district court found the prejudice "clear" because the delay resulted in "deceased witnesses, faded memories, lost documents, and hearsay testimony," including the death of Lukacs in 1979, the only person who could have testified as to how she acquired the drawing and therefore could have supported Bakalar's chain of title.
A second recent case involving a Holocaust-era claim illustrates circumstances in which lack of prejudice was found. In that decision, the New York state appellate court ordered the return of artwork from a Holocaust survivor's estate to a German museum.
That case, In re Flamenbaum, concerned a German museum's claim to a small Assyrian gold tablet, acquired by German archaeologists during excavations in 1914.7 The tablet was looted from a German national museum in Berlin during World War II, and bartered for cigarettes by a Russian soldier to a Holocaust survivor, Riven Flamenbaum, who kept the tablet until his death in 2003. The executor apparently did not disclose the tablet in Flamenbaum's estate accounting, and Flanenbaum's son objected and informed the Vorderasiatisches Museum in Berlin about the executor's possession of the tablet. The family then learned that the solid gold tablet was worth $10 million.8 The Surrogate held that the Museum had unreasonably delayed making any efforts to recover the tablet by failing to undertake any investigatory or recovery efforts in more than sixty years, even though it had learned that the tablet had been seen in the hands of a New York dealer in 1954. The court also found prejudice to the estate, because "[a]s a result of the museum's inexplicable failure to report the tablet as stolen, or take any other steps toward recovery, diligent good-faith purchasers over the course of more than sixty years were not given notice of a blemish in the title."9 The Surrogate also found that the estate was prejudiced by the fact that Flamenbaum was not available to testify.
The Appellate Division reversed, finding that the estate had not shown that the Museum had exercised a lack of due diligence by failing to report the tablet stolen to law enforcement or listing it on an international stolen art registry. The Appellate Division also found a lack of prejudice — despite the fact that the estate's principal witness had died — because the estate had failed to show that the Museum's failures to act prejudiced the estate's ability to defend its claim, or that the estate changed its position in reliance on such delay. As New York Court of Appeals noted in Guggenheim, the continued enjoyment of artwork that one is not entitled to possess is a benefit, not a prejudice. Courts may also find that someone who has not paid for artwork is less likely to have suffered prejudice.10 The Appellate Division directed the Surrogate to order the estate to return the tablet to the Museum, but three weeks later, referred the case to the New York State Court of Appeals, the state's highest court, for review.11 Nevertheless, the Appellate Division's decision makes it clear that, although laches is an equitable test, courts do not regard it as a license to award artwork to the more sympathetic party. Prejudice to the possessor caused by the owner's delay is always required.
Can Delay Be So Long That It Is Presumed to Be Prejudicial?
One question often raised is whether a delay can be so long that it can be presumed to be prejudicial. There may be, but sixty years is not enough. The courts rejected Bakalar's argument that the delayed claim in his case was prejudicial as a matter of law, and required him to demonstrate prejudice based on the facts of his case.12
Bakalar and Flamenbaum provide an instructive contrast, in that the courts reached different conclusions about prejudice from the fact that a principal witness had died. Lukacs could have testified as to how she received the disputed artwork, as could Riven Flamenbaum. However, it appears that the courts will consider what kind of testimony the missing witness could have offered when deciding whether the loss of the witness is prejudicial. The estate did not argue (and could not) that Riven Flamenbaum had purchased the tablet or received it as a gift from its owner, the German state.
Courts Will Apply New York Law When New York Galleries Are Involved in Order to Enforce New York State Policy of Protecting Owners' Rights
The Bakalar cas also demonstrates that courts will enforce New York's public policy, reflected in New York's distinctive owner-protective rules, by analyzing cases that involve sales by New York galleries under New York law, even if critical events took place overseas. The initial transfer to Lukacs took place in Austria, and her 1956 sale was to a Swiss gallery. Swiss law is more protective of a good faith purchaser. In a preliminary decision, the federal district court initially decided that Swiss law would govern, but it was reversed by the Second Circuit on
this point because Bakalar purchased the artwork from a New York gallery, which gave New York a "compelling interest" in the application of its law to this dispute. As the Court of Appeals held in the Guggenheim decision, New York is a "preeminent cultural center," and the state has a public policy interest in ensuring it does not become "a haven for cultural property stolen abroad."13
Equity Allows Courts to Consider the Conduct of the Parties
Laches is an equitable defense, and courts are therefore compelled to consider whether a party asserting the defense is a wrongdoer.
As noted above, equity does not mean that courts simply decide which party is more sympathetic. Instead, Courts decide a narrower question — whether finding an ownership claim barred by laches will cause an inequitable result. The possessor must also demonstrate unreasonable delay by the original owner (or her successor), and prejudice that resulted from that delay, which the Flamenbaum estate did not.
It is not only outright thieves who will fail this equitable test. In a recent federal decision, Shiotani v. Walters, because the possessors paid substantially less than the appraised value and did not fully investigate the provenance, they were not good faith purchasers. Therefore the court stated that finding their claim barred by laches would not lead to an inequitable result.14
Does a Successful Laches Defense Confer Good Title to Artwork? (As a Successful Statute of Limitations Defense Does Not)
The Bakalar decision also dealt with the seldom-litigated issue of the precise legal effect of a successful laches defense. As noted above, one distinctive aspect of New York's statute of limitations rule is that the expiration of a statute of limitations eliminates a remedy — a conversion claim — but does not confer a right — good title to the artwork — on the possessor. This is not necessarily the rule in other jurisdictions, in which expiration of the statute of limitations may result in a judgment granting good title to the possessor of the artwork. New York's rule thus raises the question of whether a successful laches defense confers good title or simply defeats the non-possessor's claim for return of his art. A finding that the possessor had obtained good title by a laches defense would shut the door forever on recovery of art from a subsequent downstream transferee.
If the possessor of artwork obtains the right to continued possession but does not obtain good title, he has a somewhat limited victory. The Guggenheim decision shows that, under New York's demand and refusal rule, a true owner whose conversion claim is time-barred against a thief or converter can make a fresh demand on a future transferee (and any other future transferee in the chain of title) and have a timely claim.
There is a surprising scarcity of authority on whether a successful laches defense by a possessor conveys good title (as opposed to possession only) on the successful defendant. One New York lower court decision for 1979 directly holds that laches does not extinguish a plaintiff's ownership rights. In Village of Larchmont v. City of New Rochelle, the plaintiff sought a determination that it was the legal owner of a piece of property that was subject to an easement that the plaintiff granted to the defendant forty-seven years earlier. Despite the lapse of time, the court held that the plaintiff's action was not barred by laches because "[t]itle can only be divested by conveyance, or by adverse possession . . . Laches cannot deplete legal title for the law exacts no diligence as a condition to the retention of title to property."15 The court cites to no case law for this proposition and, on this point, the case has only been cited by two other courts, one in California and the other in Guam. Secondary sources do not address the issue directly, but they do refer to laches as a bar to relief or remedy, rather than causing the divesture of ownership rights or title.16
The Appellate Division decision in the Guggenheim case also recognized the distinction between the right to possession and title, and appeared to hold that laches, like the statute of limitations, would only determine "the relative possessory interests of the parties" and would not lead to an actual transfer of title to the possessor based on delay, leaving the owner free to claim title and attempt to recover the artwork from any other future transferee in the chain of title. The court contrasted this to the statute allowing adverse possession of real property to transfer title to someone who exclusively occupies real property owned by another under an open claim of right for the required period of time.17
None of this was discussed in Bakalar. Instead, the district court's decision concluded, without explanation that, as a result of his successful laches defense "Bakalar ... holds lawful title to the [d]rawing." There was no analysis or specific holding that this necessarily follows as a result of a successful laches defense in New York. The Second Circuit affirmed the district court's decision without any independent analysis of this point.
Bakalar is a federal decision. Therefore, this may still be an open issue in state court, and a contrary decision by the New York Court of Appeals on this point of state law would be binding on the federal courts. Unfortunately, it does not seem likely to be presented to the New York Court of Appeals in the pending Flamenbaum appeal.
Why Should Laches Quiet Title When the Expiration of a Statute of Limitations Does Not?
There does not appear to be any reported decision in which the courts have discuss why laches should quiet title when the expiration of the statute of limitations for conversion does not. However, there is a reasonable explanation based on differences in the issues that form the element of a laches defense and the burdens of proof.
Under a doctrine known as collateral estoppel, parties who have litigated an issue and lost, and those closely aligned in interest with them, generally cannot re-litigate that issue on the same facts against another party. Once having lost the point, the party is deemed to have lost it in subsequent cases.
An original owner (or her successor) who has lost her claim to recover artwork based on a successful laches defense will have been found to have unreasonably delayed her attempt to recover her art. A second court would be evaluating the same delay by the original owner in searching for the art and making a claim. An original owner who has lost on a laches defense would also be found to have caused prejudice by that delay. If the prejudice is a witness who is deceased, it would be very unusual if any subsequent possessor of the artwork in a subsequent lawsuit was not prejudiced in exactly the same way as the possessor in the first lawsuit. After all, dead witnesses (often cited as the source of prejudice in laches cases) are not going to come back to life. Quieting title as a result of a successful laches defense may simply be a recognition that collateral estoppel will bar any future claim by the original owner and there is no practical way that she can recover title.
In contrast, a conversion claim against a subsequent possessor, defending on statute of limitations grounds, would examine an entirely distinct issue — the facts of the date and circumstances of the demand on that particular possessor, and the response to the owner's demand, which may constitute the tort of conversion. A previous lawsuit against a previous possessor that was time-barred would not dictate the result in a later case following a demand on a subsequent possessor.
Lessons for Owners and Heirs — What Can Be Done To Preserve a Potential Claim or Defend Against Claims
Bakalar held that a good-faith purchaser of art has the burden of proving that the work was not stolen.18 This makes New York a favorable forum for an owner seeking to recover stolen art. A plausible claim that is not rebutted by a preponderance of the evidence should prevail.
When evaluating a laches defense, courts consider the owner's due diligence in searching for or attempting to recover artwork. Courts have often excused failure to notify legal authorities about lost or stolen artwork. In the decision in Guggenheim, the New York Court of Appeals recognized that museums might justifiably fear that publicity about the theft would drive stolen artwork further underground, further delaying recovery. Nevertheless, a police report and filing of notice with International Foundation for Art Research Art Loss Registry can serve as evidence of due diligence. Owners should forego making a report only if there is a legitimate reason to believe that it could be harmful to their recovery efforts and can substantiate that concern.
Owners also cannot indefinitely delay investigating missing artwork or demanding its return if they know where the artwork is or may be. There may be a temptation to postpone making a demand, because a demand (in New York) starts the three-year statute of limitations for recovery to run, and the owner may not feel prepared, financially or otherwise, to file a lawsuit within the following three years. A court will decide whether that delay was unreasonable if a laches defense is asserted.
Accordingly, owners not in possession face a conundrum when they learn of a potential sale of their artwork. If an owner asserts a claim and the artwork is withdrawn from sale, the owner may be at risk of a claim that she tortiously interfered with the sale. At the same time, if the owner does not intervene at that point, but asserts her claim of ownership later, the possessor may argue that the owner should have spoken up at the time of the sale.
Owners not in possession of artwork also should be cautious about leaving claims for artwork unresolved during their lifetimes if they have knowledge of the facts that would help to establish ownership. A possessor may assert that the loss of a fact witness who might have had testimony helpful to them is prejudicial. This is particularly important because a laches defense, unlike a statute of limitations defense, may be found to transfer title to the possessor, and thereby shut the door forever on efforts to recover a work of art.
It is not too late to bring claims to recover Nazi-looted art. The widely reported results in Bakalar and Flamenbaum may give the impression that courts are beginning to bar World War II-era claims simply because too much time had passed. Neither Bakalar nor Flamenbaum support that proposition.
Finally, before deciding whether they have a good claim or defense, owners and heirs should appreciate that their conduct, the conduct of their predecessors in interest, and how they acquired the art, will be scrutinized by the court to determine whether an equitable defense of laches will bar the claim.
Footnotes
1 See Solomon R. Guggenheim Found. v. Lubell, 77 N.Y.2d 311, 321 (year). The word "laches" is derived from the old french "lachesse," meaning "lassitude."
2 Judith Wallace, New York's Distinctive Rule Regarding Recovery of Misappropriated Art After the Court of Appeals' Decision in Mirvish v. Mott, Spencer's Art Law Journal, Vol. 3, No. 1 (Spring 2012), at p. 17, available at http://www.clm.com/docs/7045310_1.pdf.
3 California also has a unique statute of limitations, set forth in California Code of Civil Procedure Section 338, enacted in 2011, which allows claims for "specific recovery of a work of fine art" brought within six years of actual discovery of artwork for claims against a "museum, gallery, auctioneer or dealer," when the case involves "unlawful taking or theft ... of a work of fine art, including a taking or theft by means of fraud or duress." See Cassirer v. Kingdom of Spain, 616 F.3d 1019 (9th Cir. 2010); Von Saher v. Norton Simon Museum of Art at Pasadena, 578 F.3d 1016 (9th Cir. 2003). The statute was enacted following the invalidation by the U.S. Supreme Court of a California statute that explicitly extended the statute of limitations for claims by Holocaust victims, on the grounds that it unconstitutionally intruded on the federal government's foreign affairs powers, and the invalidation of an earlier version of the statute in the Von Saher case. See id.; see also American Ins. Assn. v. Garamendi, 539 U.S. 396 (2003) (invalidating California's Holocaust Victim Insurance Relief Act of 1999).
4 Bakalar v. Vavra, No. 11-4042-CV, 2012 WL 4820801 (2d Cir. Oct. 11, 2012).
5 An earlier decision in the case, later reversed by the Second Circuit, had held that Swiss law would govern the case. See Bakalar v. Vavra, 619 F.3d 136, 146 (2d Cir. 2010).
6 Bakalar v. Vavra, 819 F. Supp.2d 293 (S.D.N.Y. 2011). Additional facts are set forth in the earlier district court decisions in this case. See Bakalar, 851 F. Supp.2d 489 (S.D.N.Y. 2011); 05 Civ. 3037, 2008 WL 4067335 (S.D.N.Y. Sept. 2, 2008); 550 F. Supp.2d 548 (S.D.N.Y. 2008); 2006 WL 2311113 (S.D.N.Y. Aug. 10, 2006); 237 F.R.D. 59 (S.D.N.Y. 2006). Vol. 3, No. 3 WINTER 2012/13
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7 The tablet was excavated prior to World War I by a German team of archaeologists from the foundation of the Ishtar Temple, around the city of Ashtur, in what is now northern Iraq and was then part of the Ottoman Empire. The tablet, which describes the construction of the Ishtar Temple, dates to the reign of King Tukulti-Ninurta I of Assyria (1243-1207 BCE).
8 Kieran Crowley & Chuck Bennett, Holocaust Survivor's Kin Can Keep $10M Relic, N.Y. POST, Apr. 6, 2010.
9 In re Flamenbaum, 27 Misc. 3d 1090, 899 N.Y.S.2d 546, 544 (Surr. Ct. Nassau Cty. 2010).
10 See Hoelzer v. City of Stamford, Connecticut, 933 F.2d 1131, 1138 (2d Cir. 1991) (stating that although the possessor of Works Progress Administration murals from a Stamford, Connecticut school had not asserted a defense of laches, he "would have failed to establish the prejudice necessary" because he "paid nothing for the murals" and "would ... receive a windfall were he granted title.").
11 See Andrew Keshner, Court of Appeals to Review Ancient Tablet's Ownership, N.Y.L.J., June 28, 2012.
12 Bakalar v. Vavra, No. 05-Civ.-3037, 2006 WL 2311113 (S.D.N.Y. Aug. 10, 2006), affirmed 619 F.3d 136, 147 (2010).
13 Bakalar, 619 F.3d 136, 143-44 (2010).
14 Shiotani v. Walters, No. 10-Civ.-1375, NYLJ 1202582521467, at *1 (S.D.N.Y., Decided Dec. 3, 2012).
15 Village of Larchmont v. City of New Rochelle, 100 Misc. 2d 463, 418 N.Y.S.2d 966, 969 (Sup. Ct. 1979).
16 See, e.g., 1 Dan B. Dobbs, Law of Remedies s. 2.4(4) (2d ed. 1993) ("A plaintiff guilty of laches may be barred from recovery of any kind of equitable remedy."); John Norton Pomeroy, A Treatise on Equity Jurisprudence s. 419 (5th ed. 1941) (noting that laches "operates as a bar in a court of equity").
17 Guggenheim Found. v. Lubell, 153 A.D.2d 143, 150-51 (1st Dep't 1990).
18 Bakalar v. Vavra, 619 F.3d 136, 142 (2d Cir. 2010).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
