Previously published in Spencer's Art Law Journal, Spring 2012
This essay examines the unsettled case law about owner claims to recover misappropriated art under New York's distinctive demand and refusal rule and the rights of good faith purchasers or innocent recipients of gifts of misappropriated art when the statute of limitations has run in their favor. When these good faith/innocent folks decide to sell, can the owners get their art back from the buyer?—RDS
Introduction
Many are aware that one may gain legal title to real property by "adverse possession"—i.e., by occupying land openly and under a claim of right for the period specified under state law, which is ten years in New York. Public policy favors the active use of land, disfavors efforts to tie up rights in real estate in perpetuity, and, under certain circumstances, rewards misappropriation that is blatant and longstanding.
Personal property, in contrast, is treated differently. That raises the question of whether, and under what circumstances, possession of misappropriated personal property can be transformed into actual ownership. Is the mere passage of time sufficient? Is the expiration of the statute of limitations for conversion—just three years in New York—enough time? Some owners of art might not even notice their property was missing during that time, especially if it were not publicly exhibited. Are there special issues or public policy concerns applicable to fine art, and if so, what are they?
Mirvish v. Mott
Earlier this year, the New York Court of Appeals, the state's highest court, decided Mirvish v. Mott, a case concerning the ownership of The Cry, an erotically-themed monumental bronze sculpture by Jacques Lipchitz, which raised many of these issues.1
Mirvish v. Mott concerned a gift of The Cry by Yulla Lipchitz, the widow of sculptor Jacques Lipchitz, to her companion of nearly 20 years.2 Yulla had given her companion several other works of art over the years, always using a written deed of gift. In the case of The Cry, the 1,100-pound sculpture could not be easily displayed in the New York City apartment the couple shared, so the sculpture was kept in storage, and Yulla made her gift by writing out and handing over an unambiguous, explicit, signed, dated, handwritten statement on the back of a photograph of the The Cry stating that "I gave this sculpture 'The Cry' to my good friend Biond Fury in appreciation for all he did for me during my long illness. With love and my warm wishes for a Happy Future, Yulla Lipchitz / October 2, 1997, New York."
A year later, Hanno Mott, Yulla's son by a prior marriage, who had a power of attorney for his mother, loaned the sculpture in Yulla's name to an exhibit at the Tuileries Garden in Paris adjacent to the Louvre. Mott was unaware of the gift at the time of his loan in his mother's name and Yulla's companion was equally unaware of the loan, thinking that The Cry remained in storage.
After Yulla's death in 2003, her companion sought to retrieve the sculpture from storage, and contacted Mott, who was Yulla's executor as well as a residuary beneficiary of his mother's estate. Mott did not respond to the companion's repeated demands. The frustrated companion sold his interest in the work to Toronto art collector David Mirvish, who demanded the return of the sculpture and was informed that it had been sold to an overseas buyer in 2004. Mirvish then sued the estate and Mott and, in a later, separate lawsuit, once he learned Mott's buyer's identity, sued the buyer. The buyer immediately offered to settle the dispute and, in a settlement joined by Mott, agreed to return The Cry to escrow in New York pending the determination of the ownership of The Cry by the New York courts.
New York's Distinctive Demand and Refusal Rule from Guggenheim v. Lubell
The Mirvish dispute implicated New York's well-known demand and refusal rule, most famously set forth in the landmark 1991 case of Guggenheim v. Lubell.3 Guggenheim involved a claim for a work of art (a gouache by Marc Chagall) that had been stolen from the Guggenheim museum. Decades after the theft, the museum located its painting at the home of a couple that had purchased it in good faith from a New York gallery. The museum sued to recover it.
In New York statute of limitations for conversion is three years, and the statute of limitations for a claim seeking replevin (the recovery of the specific property, rather than money damages for conversion) is keyed to conversion's time limit. In Guggenheim, the Court of Appeals held that, in a claim seeking to recover misappropriated property, the statute of limitations for conversion and replevin only starts to run when the owner makes a demand which is refused, unless a demand would have been futile. The demand and refusal rule had been set forth in earlier New York cases, but Guggenheim reiterated it along with a discussion of its importance in claims relating to artwork in view of New York's strong public policy interest in ensuring that New York does not become a haven for trafficking in stolen cultural property.
Notwithstanding this strong public policy, the Guggenheim decision has been applied unevenly, or ignored, in various Appellate Division (New York's intermediate appellate court) and federal court decisions concerning disputes over property ownership in the two decades since Guggenheim was decided.4 It was therefore reasonable to assume that the Court of Appeals was taking the opportunity to address the confusion concerning the interplay of the statute of limitations and property ownership under the unique facts presented in the Mirvish case.
Surrogate's Court Decision
Because the dispute concerned a claim for personal property against an estate, the court of first instance was the Surrogate's Court, which has jurisdiction over probate matters. In that court, Mott challenged the validity of the gift, although he did not dispute Yulla Lipchitz's intent, her mental capacity, that she was not coerced, or the identification of her handwriting on the deed of gift. He also asserted a statute of limitations defense, arguing that Mirvish's time to file a claim began to run at the time of the 1998 loan to the Louvre and was time-barred, notwithstanding the rule in Guggenheim, which holds that the statute of limitations begins to run at the time of demand and refusal (2004) unless the demand was futile.
Mirvish moved for summary judgment, seeking a determination that he was entitled to The Cry as a matter of law. While that motion was being briefed and argued, Mirvish, Mott and the buyer concluded their settlement agreement, which, as noted above, provided that The Cry would be delivered to whoever prevailed on the issue of ownership. As a result of that settlement agreement, Mirvish argued that Mott's statute of limitations defense was inapplicable, since the expiration of a statute of limitations does not extinguish title under New York law.
On December 31, 2008, the Surrogate's Court decided that Mr. Mirvish was the owner of The Cry. It did not make any finding on Mott's statute of limitations defense—apparently agreeing that it was irrelevant to the determination of ownership, which was the sole issue to be decided given the settlement agreement—and did not mention the Court of Appeals' decision in Guggenheim or New York's demand and refusal requirement, since it was undisputed that demand for The Cry had not been made by the donee until 2004.
Appellate Division Decision
Mott appealed, and the Appellate Division unanimously reversed the Surrogate, finding that the 1998 loan to the Louvre was a conversion that started the time to file a lawsuit seeking the sculpture to run. The Appellate Division likewise did not mention Guggenheim or explain why the demand and refusal requirement would not apply here. Furthermore, the Appellate Division considered an argument by Mott that there was a fact question as to whether Mrs. Lipchitz actually had delivered the written gift instrument to her companion during her lifetime or whether that companion had found the gift instrument among Yulla's belongings after her death.
Questions Left Open by the Court of Appeals' Decision in Mirvish v. Mott
Mirvish then obtained leave to appeal to the Court of Appeals. Because New York's highest court grants leave to appeal in only about six percent of civil cases where there is no dissent in the Appellate Division and no constitutional issue, it was anticipated that the inconsistency of the Appellate Division's decision with the demand and refusal requirement set forth the Court's landmark decision in Guggenheim might be the Court's focus.
In February 2012, the Court of Appeals unanimously reversed the Appellate Division and reinstated the decision of the Surrogate's Court, which had held that Mirvish was the owner of The Cry.5
However, the Court of Appeals' decision is notable for what it did not decide. While the award of The Cry to Mirvish is generally consistent with the longstanding New York rule applied to artwork in Guggenheim, the Court did not so much as mention Guggenheim in its decision and specifically declined to consider the demand and refusal rule. The Court of Appeals reversed the Appellate Division and found that the handwritten deed of gift was sufficient to establish that Mirvish is the owner of The Cry, but relied principally on the terms of the settlement agreement in the separate lawsuit against the party in possession of The Cry to reject Mott's other arguments against Mirvish's right to take possession of the sculpture. The result is a curiously limited decision that calls into question the Court of Appeals' commitment to Guggenheim and how the demand and refusal rule is to be applied going forward.
Accordingly, this is an opportune time to assess the state of the law in New York. This essay aims to identify decisions inconsistent with Guggenheim that are arguably wrongly decided, possible distinctions and suggestions as to how they should be resolved, and potential open issues for future litigants.
The State of the Law in New York Prior to the Decision in Mirvish v. Mott
Guggenheim's Demand and Refusal Rule
In Guggenheim, the Court of Appeals set forth what was intended to be a rule with "clarity and predictability":
The rule in this State is that a cause of action for replevin ... accrues when the true owner makes a demand for the return of the chattel and the person in possession of the chattel refuses to return it. ... Until demand is made and refused, possession of the stolen property ... is not considered wrongful.6
The only exceptions are when demand would be futile—for example, if he work has been destroyed or further transferred, or if the possessor is a thief who would know his possession is wrongful and presumably refuse any demand. Thus, in Guggenheim, after the museum made a claim for the return of its painting which was refused by the Lubells, the museum had a timely claim against the Lubells for the return of the museum's Chagall.
The Guggenheim court also recognized that important state (and federal) public policy reasons supported a rule that is protective of true owners in view of New York's "worldwide reputation as a preeminent cultural center." The court also took into account the Governor's decision, on the advice of the U.S. State Department, to veto a statute that would have provided a three-year state of limitations for art objects owned by certain non-profit institutions such as museums, which would run from the time that the institutions published a notice that they were in possession of the artwork, to prevent New York from becoming "a haven for cultural property stolen abroad."
New York Distinction Between the "Right" of Ownership and "Remedy" of a Conversion Claim
The Guggenheim rule is based in part on the well-established principle of New York law that the lapse of a statute of limitations for a claim for conversion does not confer ownership on the party in possession. Courts refer to this as the distinction between a "right" (i.e., ownership) and a "remedy" (i.e., the ability to sue for replevin and obtain possession).7 Often, this distinction is cold comfort to the true owner, who may have the satisfaction of knowing he continues to be the "true owner" but would be barred from filing a lawsuit to get that property back from the converter who has possession.
However, the distinction becomes significant if the party who is wrongfully in possession then sells or gifts the work to a third party. Because the owner's underlying title to the property remains undisturbed, the owner can demand the return of the property from that third party, and if the demand is refused, the owner has a timely lawsuit for conversion. Thus, the right versus remedy distinction in New York has teeth, and generally renders converted artwork unmarketable.
In Guggenheim, the Court recognized the "seemingly anomalous" rule that the statute of limitations against the thief had long since expired, but that the claim against the Lubells as converters was timely. Thus, in Mirvish v. Mott, after Mott asserted his statute of limitations defense, Mirvish learned the identity of the 2004 purchaser, and sued that purchaser. That purchaser obviously recognized that, under Guggenheim, Mirvish had a timely claim in which the only issue would be ownership of The Cry, and agreed to a settlement that would return the sculpture to escrow in New York for delivery to whomever the courts determined to be the owner.
This rule is less unfair than it may appear at first glance. Thieves do not get a "get out of jail free" card allowing them to take advantage of a statute of limitations defense, while the good faith purchasers from the thief are subject to claims. Courts in New York have long recognized that it is equitable to require property to be delivered to the true owner, and have developed various doctrines to prevent defendants who rely on their own conversion or concealment from taking advantage of the defense of statute of limitations. As the state's highest court held in 1910 in Lightfoot v. Davis, "the tort-feasor cannot allege his own wrong for the purpose of carrying back the injury to a time which will let in the statute [of limitations]."8 Similarly, in 1965, the Court of Appeals held in General Stencils, Inc. v. Chiappa, that the doctrine of "equitable estoppel" prevents the wrongdoer from asserting the statute of limitations as a defense so that he cannot "take refuge behind the shield of his own wrong."9 Thus, since the thief should be prohibited from asserting a statute of limitations defense at all, there is no significant anomaly or inequity in how the statute of limitations is applied. If these doctrines are coherently and consistently applied, there should be no perverse incentive for possessors to assert that they are wrongdoers so as to assert the statute of limitations defense, because there is no advantage to be gained.
Because Demand and Refusal Is a Substantive Element, Mere Possession of Property Owned By Another Is Not a Tort
The reason that the statute of limitations for a claim by an owner on a good-faith possessor does not start to run until demand and refusal is because, under New York law, refusal of a demand that is not futile is the wrongful conduct that constitutes conversion. New York courts have repeatedly held that the demand for property and its refusal is a "substantive" element of a conversion claim that is required to characterize the possessor as a wrongdoer, and is not merely a "procedural" step that needs to be complied with before the owner can file a lawsuit. Thus, as the Court of Appeals held in Guggenheim, someone who is not a thief but innocently possesses property he or she does not own has done nothing wrong until the owner demands the property's return, and the possessor refuses that demand. Demand is futile when the possessor is an outright thief or if the property has been transferred or destroyed. Thus, the court explicitly held that the statute of limitations does not run from when the owner had the right to make a demand for the artwork (which is the test in certain other legal contexts), but rather when the owner did make that demand.10
This was a well-established principle long before Guggenheim. As the federal Court of Appeals for the Second Circuit explained in 1982 in Kunstsammlungen Zu Weimar v. Elicofon,11 which also involved the assertion of a statute of limitations defense to a claim to recover artwork, calculating the statute of limitations from when the owner had the right to make the demand "would eviscerate the undisputed distinction in New York law between substantive and procedural demands ... Indeed, the very notion of a substantive demand requirement is that, despite having a right to the property, the true owner must nevertheless demand its return and be refused before he has a cause of action at all against the refuser." The cases that incorrectly suggest the cause of action accrues and the statute of limitations runs from the soonest time that an owner could have made his demand, regardless of when demand is actually made, are improperly addressing demand as a procedural requirement.12
Inconsistent Application of the Guggenheim Demand and Refusal Rule in Lower Courts
Some courts nevertheless hesitate to apply the demand and refusal rule, perhaps because it may seem harsh to allow a claim against an innocent party in possession decades after the initial misappropriation, even when the delay is not the fault of the owner and there has been no prejudice to the party in possession. (And when the owner has unreasonably delayed making a demand, and the possessor is prejudiced by that delay, the possessor may have a defense of laches, which is discussed below). As a result of this hesitancy on the part of courts to apply the rule, there are decisions in New York that incorrectly state that "wrongful" or "unauthorized" possession of property starts the statute of limitations period, or that use of the property as though one is the owner is conversion and starts the statute of limitations period. After all, many possessors would prefer to be considered wrongdoers from the time of their acquisition if it meant that the claim against them to recover the property would be time-barred. These decisions quite clearly conflict with Guggenheim.
One such case is New York City Transit Authority v. New York Historical Society, decided by the Appellate Division, Second Department in 1997, which involved collections of photographs that had been donated by the New York City Transit Authority to the New-York Historical Society.13 The Transit Authority, it was later learned, did not in fact have the legal authority to transfer those photographs. Just as in Guggenheim, when the Transit Authority demanded their return, the museum asserted a statute of limitations defense.
In New York City Transit Authority, however, the court found for the museum, citing Guggenheim, oddly enough, for the proposition that "[it]t is well settled that where the initial possession of a chattel is wrongful or unlawful, the cause of action to recover the chattel accrues and the Statute of Limitations begins to run at the time of the initial unlawful possession." The court then distinguished Guggenheim, and held that the statute of limitations against the museum began to run from the New-York Historical Society's possession, with the result that the Transit Authority's claim was time-barred, because "[a] demand is only a substantive requirement of a cause of action to recover chattels where one in possession of the chattels acquired such possession lawfully or where, as in the case of a good-faith purchaser for value, the initial possession of the chattels is not considered wrongful." In other words, the court found, bafflingly, that receipt of a gift from a public agency that the agency did not have authority to make was wrongful, but that a good-faith purchase of stolen property was somehow less wrongful, with the result that while a good-faith purchaser was subject to a claim, a museum that paid nothing for the property had a good statute of limitations defense. It is hard to see why a court would view the museum as less blameworthy (and, therefore, more worthy to keep the property) than the Lubells in Guggenheim. The Lubells investigated the artwork's provenance by contacting the artist's family, and had no way of learning of the theft because the Guggenheim did not report the work stolen to law enforcement authorities or other museums. The New-York Historical Society, in contrast, could have checked with the Governor's office to see if the gift of public property to a private party was permissible or authorized, or performed the legal research to identify the same state Constitution provision that the court relied upon. Unfortunately, the only feature of New York City Transit Authority that is consistent with Guggenheim was that a museum prevailed.
There are also a handful of cases, some of which rely on dicta or pre-Guggenheim decisions, to state the proposition that acts that are consistent with a belief that one owns the property at issue constitute conversion. These are inconsistent with the facts of Guggenheim, as the Lubells had possession of the work for twenty years, loaned the work for public exhibition, held themselves out as owners, and treated the Chagall in every way as if it was their property. Nevertheless, the Court of Appeals found that the conversion only occurred when the Lubells refused the Guggenheim's demand.
Just such an error was made by the Appellate Division in Mirvish v. Mott. The First Department misapplied case law, stating that "asportation" of property constitutes conversion, which the court interpreted to mean simply moving property from one place to another without an intent to steal the property. For the proposition that an "asportation" constitutes conversion, the Appellate Division in Mirvish v. Mott relied upon a Second Department decision in Davidson v. Fasanella,14 a spare opinion which appears to be inconsistent with the substantive demand and refusal requirement. That decision may be explained as an erroneous statement of tort principles in connection with a dispute over a decades-old contract dispute where the art was purchased but for some reason never delivered to the buyer.15 Davidson is probably best understood as a case in which the buyer's contract remedy of specific performance against the seller was barred by the statute of limitations, not as a conversion case.
An explicit holding in Mirvish v. Mott that theft, sale, transfer, or destruction are the only circumstances that make demand futile would therefore have helped clarify the application of Guggenheim and helped similarly situated owners to resolve their claims more quickly and definitively. Finding that "asportation" means even innocent movement of property, and constitutes conversion, would mean that the statute of limitations for conversion or replevin would almost always start to run when a good-faith purchaser picks up a work of art from a gallery and takes it home. Alternatively, a clarification that "asportation" means theft would be consistent with the rule that demand and refusal is not required on a thief, and that the statute of limitations for conversion against a thief runs from the time of the theft.
Affirmation of Guggenheim by the Court of Appeals in 2002 in State v. Seventh Regiment
As the Court of Appeals confirmed eleven years later, in, State of New York v. Seventh Regiment Fund, Inc.,16 a dispute over state militia memorabilia, the proper distinction is between persons who, before the owner's demand, know their possession is wrongful (like a thief) and persons who do not know their possession is wrongful (like Mott). The Appellate Division decision in Guggenheim had explicitly stated that "the requirement that a demand be made upon a good faith purchaser (or indeed anyone else whose possession is not tortious) is a substantive element of the cause of action, not a procedural condition precedent to suit . . ."17 Similarly, in Seventh Regiment, the court confirmed that "[n]aturally, if demand would be futile because circumstances show that the defendant knows it has no right to the goods, demand is not required."18 Both Guggenheim and Seventh Regiment were unanimous decisions of the Court of Appeals.
What the Court of Appeals Decided in Mirvish v. Mott
The Court of Appeals reversed the Appellate Division, relying on its 1990 decision in Sofsky v. Rosenberg setting forth the common-sense rule that possession of a clear and unambiguous gift instrument after the donor's death established a presumption that the gift had been delivered.19 Accordingly, the Court of Appeals reinstated the Surrogate Court's holding that the gift by Yulla Lipchitz was valid and therefore Mirvish is the owner of The Cry.
This left the issue of whether the statute of limitations was applicable to Mirvish's claim, and whether or not it had expired. As noted above, Mott asserted a variation of the defense asserted in Guggenheim, arguing that his loan of the sculpture in 1998 in Yulla's name to the Louvre exhibit was a conversion that started the statute of limitations running. He also argued that Guggenheim only applied to bona fide purchasers and not to those who received their property from an estate. Yet the Court of Appeals—like the Surrogate's Court and the Appellate Division—did not so much as mention the Guggenheim case, the leading decision on the statute of limitations for conversion and replevin, when it rejected Mott's argument. Instead, the court held that the terms of a settlement agreement of the related case against the buyer to whom Mott had sold the sculpture in 2004, which provided that the sculpture would be delivered to whomever prevailed on the issue of ownership, resolved the issue, and it did not need to decide when the statute of limitations for conversion started to run. Accordingly, the court did not take the opportunity to clarify a number of inconsistencies in how Guggenheim's purportedly clear rule has been applied by other New York courts.
How Other Jurisdictions Resolve Statute of Limitations Issues
In other jurisdictions, the statute of limitations does not run from demand and refusal. Rather, it may run from the time that work was misappropriated, or from the time that the owner knew or should have known about the misappropriation. In Guggenheim, the Court of Appeals unequivocally rejected New Jersey's alternative of a "discovery" rule, which would start the statute of limitations running when the true owner knew or should have known who has possession of stolen artwork, and which requires the owner to exercise reasonable diligence in searching for missing property.20 The Court noted the difficulty of determining what actions a true owner should have taken on the facts of any particular case, and acknowledged that there was a legitimate difference of opinion in the art community about whether publicizing an art theft was likely to lead to recovery or merely drive a stolen work underground.21
Furthermore, in some other jurisdictions, the expiration of the statute of limitations serves to extinguish claims to title, in contrast to New York's distinction between a "right" and a "remedy." In Mirvish, the Court of Appeals confirmed—apparently as so obvious a point that it required no citation or discussion—that actual ownership or title to property is not affected by the expiration of a statute of limitations for conversion.22 Similarly, a federal court in California evaluating the state's most recent attempt to extend the statute of limitations for Holocaust-era claims recognized that a statute of limitations "affects only the potential remedy but no substantive right," and that applicable California or foreign law would determine ownership.23 However, that is not the rule in all jurisdictions. In New Jersey, and in Switzerland, for example, the expiration of a statute of limitations does confer good title on the party in possession.24
Where Are We Now In New York?
In view of the Court of Appeals' reluctance to reaffirm Guggenheim, it is an opportune time to note a number of related doctrines that are applicable to mitigate any unfairness caused by the application of Guggenheim to possessors who acted in good faith, while at the same time protecting the rights of the true owner.
Does New York Recognize Adverse Possession of Personal Property?
Federal courts have seemingly recognized something akin to adverse possession of personal property in New York.
In Songbyrd, Inc.. v. Grossman, the federal district court did so through a back-door method in its conversion analysis. The court noted that "the decisive issue is when [the defendant] began unauthorized possession" of master recording tapes claimed by a recording artist known as "Professor Longhair."25 This rule—if it were an accurate statement of law—would be harsher than the "discovery" rule in New Jersey that starts the statute of limitations running when the owner knew or should have known of the work's theft and is utterly inconsistent with Guggenheim. (It should be noted that New Jersey's highest court stated that adverse possession did not apply to personal property because, among other reasons, it would be hard to show the requirement of open and notorious possession for items that can be easily concealed or displayed in the home.)
Songbyrd stated that "New York has not required a demand and refusal for the accrual of a conversion claim against a possessor who openly deals with the property as its own."26 That observation is incorrect, because the Lubells had displayed the Mark Chagall gouache in their living room for decades and twice loaned it for public exhibition.27 The proposition that one could start the statute of limitations running by asserting a claim of right to the artwork is analogous to the concept of adverse possession of real property, and the Lubells asserted a defense of adverse possession, which was rejected.28 Given Guggenheim's holding, the answer to the question presented in Mirvish, whether any movement or assertion of ownership of The Cry in connection with the 1998 loan to the Louvre could have started the statute of limitations to run, should have been a simple and resounding "no."
More recently, a decision from the U.S. District Court for the Southern District for New York, in Board of Managers of Soho International Arts Condominium explicitly stated that the doctrine of adverse possession applies to personal property, relying on the 1910 New York Court of Appeals decision in Lightfoot v. Davis,29and that the statutory period for adverse possession is three years.30 Soho International Arts Condominium involved the City's efforts to force the condominium to reinstall a mural by the artist Forrest Myers. In that case, the mural was more of a hot potato than a sought-after asset, and the City alleged that the condominium owned the mural as a result of adverse possession, so as to require the building to assume responsibility for the artwork, while the condominium disclaimed ownership. The superficial similarity to real property, from the fact that the mural was painted on a building, may have made adapting the adverse possession analysis to a dispute over ownership of art deceptively easy. Unsurprisingly, though, the court found that there could be no adverse possession by a party that did not want or claim the property. The safest course may be not to rely too much on a 100-year old case with dicta on the possibility of a theory of adverse possession of personal property, because the holding of Lightfoot was that a thief cannot obtain good title. The absence of case law in New York awarding ownership of personal property based on a finding of adverse possession may be more telling than these outliers. Soho International Arts Condominium may be most useful as an illustration of the general rule that when parties are making completely counterintuitive arguments (i.e., my adversary owns the property in dispute), anomalous and arguably incorrect statements of law may result.
Moreover, the significance of these incorrect statements should not be inflated into an actual conflict as to the validity of Guggenheim. For example, Songbyrd was not wrongly decided as barred by the statute of limitations, because in that case the owner's demand and refusal of that demand occurred even earlier than the defendant's unauthorized possession. The Second Circuit noted that Professor Longhair demanded the return of his master recording tapes in 1975, and it affirmed the trial court's decision that the owner's conversion claim "accrued no later than August 1986 and was time barred at the time this action was filed in 1995."31 Similarly, the court in Soho International Arts Condominium found that there was no adverse possession. Thus, neither of these incorrect statements resulted in decisions that were, on the merits, inconsistent with Guggenheim.
Does a Successful Laches Defense Result in Good Title for the Possessor?
To ensure that the demand and refusal rule is applied equitably, courts do not need to search for pretextual distinctions. Instead, potential unfairness to blameless defendants can be addressed by the defense of laches. As the court noted in Guggenheim, unreasonable delay is not relevant to the statute of limitations. Instead, it is relevant to the defense of laches. An owner cannot unreasonably delay making a demand once learning of the location of the property, but if he does, and if that delay results in prejudice, a defense of laches may allow the possessor to retain possession. If there is no prejudice, the possessors have no cause to complain from enjoying the property for longer than they were rightfully entitled to. Whether or not there has been unreasonable delay and prejudice is usually regarded as an issue of fact, which means that laches is generally an issue that cannot be resolved by a pre-trial motion.
Whatever length of time is needed to establish the "delay" element of the test, the expiration of the three-year statute of limitations for conversion and replevin is probably not sufficient. The decades-long delay in Guggenheim was sufficient to warrant a trial on laches (though the case settled before that trial), but was not sufficient to establish that defense as a matter of law. Similarly, in a later Appellate Division decision, the Appellate division reversed summary judgment for the defendant because even a 24-year delay was not too long as a matter of law.32 Even Holocaust-era claims relating to looted art are still, fifty years later, potentially viable.
But no matter how lengthy the delay, a defendant asserting laches must also show prejudice, such as a change in position caused by the owner's delay. Because of this, laches is a difficult defense for a possessor who paid nothing for the artwork, like the New-York Historical Society (who received a gift) or Mott (who asserted rights as an heir). For example, in a case involving a claim by an art restorer who sought to quiet title to artwork that had been in his custody for many years, the Second Circuit confirmed that it makes no sense to grant a party "who paid nothing for" property a "windfall" by dispensing with the demand and refusal requirement for conversion and shifting the burden to wronged owners. The court found that art restorer would have failed to establish prejudice, even if he had raised laches, because he had paid nothing for the murals.33 In contrast, the Lubells paid for the Chagall, and their warranty against their seller had certainly expired. Mott did not even make the laches argument in the Surrogate's Court.
But what rights against a defendant does a possessor gain as a result of prevailing on a defense of laches? In Guggenheim, the Court of Appeals held that the Lubells' defense of laches remained viable. However, based on that case, it does not seem that a successful laches defense could confer ownership on the possessor. The Appellate Division's decision in Guggenheim states that laches governs "the relative possessory rights of the parties," in contrast to the adverse possession statute, which provides the potential for "establishing title by virtue of the mere lapse of time" in connection with real property (emphasis supplied).34 This is consistent with the New York rule that the lapse of a statute of limitations bars a remedy for conversion or replevin, but does not extinguish an ownership right. The result of a successful laches defense may be different in other jurisdictions, but those jurisdictions might also hold that the expiration of a statute of limitations confers title on the possessor.
Thus, under New York law, it would seem that a successful laches defense by the possessor, like the expiration of the statute of limitations, cannot result in good title to misappropriated art.
In Mirvish v. Mott, it would be hard for Mott to have argued laches, which may explain why he did not assert this defense. The delay was not long, and Mott paid nothing for The Cry, and nothing for shipment to and from the exhibit at the Louvre, and only sold The Cry after receiving a demand. The mere fact that the possessor has become accustomed to the mistaken belief that he is the owner does not constitute prejudice. As the Appellate Division held in Guggenheim, the museum's delay in making its demand benefited rather than prejudiced the Lubells, because it gave [them] that much more time to enjoy what [they] otherwise would not have had."
Accounting for Interference that Falls Short of Conversion
The fact that Mott's loan of The Cry did not constitute conversion and start the statute of limitations to run for conversion does not mean that unauthorized borrowing of property is not actionable. It should be regarded as a trespass.
For example, in both a pre-Guggenheim 1983 decision in Sporn v. MCA Records Inc.,35 and in a post-Guggenheim decision in 1995 in Vigilant Ins. Co. v. Housing Authority,36 the Court of Appeals distinguished between trespass and conversion, holding that a conversion consists of a "destruction or taking" of property or an act "to the exclusion of the owner's rights," in contrast with mere "interference," which is a trespass. After describing this distinction, the Court of Appeals in Sporn held that the 1965 sale of master recordings, followed by commercial exploitation of that recording and the rejection of a demand (admitted by the plaintiff) that the recording company stop doing so, was sufficiently exclusive of the owner's rights to constitute conversion.37 Likewise, in 1995, in Vigilant, the Court of Appeals held that the plaintiff's cause of action for conversion accrued when the defendant placed stops on bonds and refused to honor the title and right of the plaintiff's subrogor to negotiate the bonds or redeem interest coupons.38 Unfortunately, the Court of Appeals did not take the opportunity to hold in Mott that a loan to the Louvre that unquestionably increased the value of The Cry was at most a trespass, and certainly not a conversion, since The Cry was returned intact after the loan and demand was not futile.
In short, trespass is actionable, and damages may be appropriate, but because trespass is not conversion, it does not start the statute of limitations to run for recovery of the property. This makes perfect sense, because a trespass, such as borrowing or lending the property without authorization, might not be readily discoverable, and should not enable the trespassor to then seize possession of the property three years later with impunity and be entitled to a statute of limitations defense. That would defy common sense.
Courts Administering Estates Must Be Authorized to Determine Ownership
Mirvish v. Mott arose, as many disputes do, in the context of an estate proceeding in which the estate claimed the property and disputed the decedent's gift of that property. One question raised in Mirvish v. Mott was whether the Surrogate's Court, which has jurisdiction over the probate of estates, has jurisdiction under Section 209(4) of the Surrogate's Court Procedure Act to declare the ownership of any disputed property claimed by the executor, without regard for whether the claim against the estate was time barred.
Here, too, the Court of Appeals' decision was based on the specific facts of Mirvish v. Mott. Because Mott had, in a separate petition of his own, independently asked the Surrogate to determine the ownership of The Cry, the Court of Appeals held there was no question that the issue of ownership was properly before the Surrogate without regard for Mott's assertion of the statute of limitations defense to Mirvish's claim.
It would have been helpful guidance to future litigants if the court had confirmed the Surrogate's jurisdiction in Mirvish v. Mott to determine ownership did not depend entirely on the fact that there were dueling petitions. After all, estates do not hold property in perpetuity, but exist for a limited time to distribute the decedent's property. Courts have recognized that the Surrogate has broad authority to decide on its own to address issues necessary for the administration of estates in the interests of justice,39 and the New York State Constitution, article VI, Section 12(e) provides that "[t]he surrogate's court shall exercise such equity jurisdiction as may be provided at law."
It also makes practical sense to allow the Surrogate to determine ownership when these issues are presented, because deferring resolution of the issue of ownership until the estate sold the property would simply defer resolution until a later day, which is contrary to judicial economy. In any event, in most circumstances, the fact that the ownership is disputed would render the property unmarketable or significantly reduce its value, because no recipient or purchaser of the disputed property would have any assurance that he or she has good title or could convey good title; rather, they would have a "time bomb" that could explode into litigation against the purchaser, beneficiary, estate, and executor and unsettle the distribution of assets.40
Is Guggenheim Confined to Bona Fide Purchasers?
Another argument raised in Mirvish v. Mott, which the Court of Appeals did not address, was that the demand and refusal requirement applies only to bona fide purchasers, like the Lubells in Guggenheim. Mott argued that individuals who received property that was initially misappropriated by some kind of mistake or misunderstanding, rather than outright theft, or who had received the property by or bequest, rather than by purchase, were not governed by the demand and refusal rule. The Appellate Division in New York City Transit Authority made essentially the same carveout.
This argument makes no logical or equitable sense, because it would treat people who paid for a work of art worse than those who received gifts or bequests of misappropriated art. Such a limitation would gut the impact of Guggenheim's distinction between possession and ownership, which is intended to deter trafficking in stolen goods. Under Guggenheim, misappropriated property becomes unmarketable because the owner would have a fresh claim against any transferee, whether the transfer is by purchase or by gift. Allowing broad, unwarranted exemptions from Guggenheim would undercut the public policy goals of Guggenheim and the recognition of demand and refusal as a substantive element of conversion, by allowing thieves or converters to gift stolen or misappropriated property. A defendant who would rather see artwork in the hands of a museum rather than returned to the owner would be able to frustrate the owner's rights. This proposed rule would also incentivize buyers not to record payments for transfers of artwork, and instead to characterize them as gifts.
Furthermore, basing a distinction on whether the property was initially stolen or simply misappropriated based on a mistake or misunderstanding would invite every defendant to raise potentially unresolvable factual issues about the initial wrongful taking of the property, which would be problematic in view of the previously stated strong public policy of ensuring that New York is inhospitable to trade in stolen artwork. A distinction of this sort would invite defendants to assert that they are successors in interest to thieves. The Court of Appeals in Mirvish v. Mott could have clarified that the demand and refusal rule is not limited to the facts of Guggenheim but applies a basic principle of property ownership.
Does the Demand and Refusal Rule Apply Only to Claims Involving Fine Art?
A related question is whether the demand and refusal rule only applies to cases involving fine art, in view of Guggenheim's reliance on public policy issues relating specifically to New York's role as a cultural center and the importance of ensuring that New York does not encourage trafficking in stolen art.
Art disputes tend to recur because litigation over long-delayed demands are only likely to arise when the property does not depreciate, even after decades, and where it is movable, easily concealed, and not readily traceable. Art fits this description perfectly.
The fact that New York's governor, on the advice of the U.S. Department of Justice, would not waive the demand and refusal rule even for cultural institutions that openly displayed art and provided public notice evidences the importance of ensuring there is no exception that allows New York to facilitate trafficking in stolen art. That does not mean that the demand and refusal element of conversion only applies to claims concerning art. Furthermore, the demand and refusal rule has not been limited in such a way in the case law—State v. Seventh Regiment, decided by the Court of Appeals eleven years after Guggenheim, involved a variety of property, including artwork, letters, flags, trophies, silverware, medals and other military memorabilia. Finally, there is no sound policy reason why New York law should facilitate trade in stolen jewelry, rare books, furnishings, fossils, items used in religious practice, historic artifacts, or any other valuable items that could equally well be part of a country's cultural heritage or history and implicate the same concerns that the federal and state government raised with respect to fine art.
In sum, New York, as a commercial as well as cultural center, should have a policy interest in not being a center for trafficking in valuable stolen property of any kind.
Predictions for the Future
Looking into a crystal ball, it is possible that the Court of Appeals avoided weighing in on these issues because there was some difference of opinion and the Court strives for unanimity—in 2011, 129 of 242 of its decisions on appeals were unanimous.41 Alternatively, the Court might have declined to analyze unnecessary issues because of the Court's need to be efficient—after all, all seven Judges of the court generally hear oral argument and decide appeals, and in 2011, the court disposed of more than 3,500 matters, including all the motions and leave applications that that—in addition to appeals, they decide motions and criminal leave applications.42
Since the Court last revisited the Guggenheim case in any significant way nearly ten years ago, it easily could be another decade before these issues are again squarely before the Court. The Court's decision protects the rights of owners to claim misappropriated property. However, while the overall framework of principles governing conversion, the statute of limitations, and laches generally can function as a coherent, clear, principled and consistent set of doctrines that reflect a strong public policy in favor of restoring of artwork to its true owner, a number of inconsistent and uncorrected Appellate Division decisions create potential questions and, more importantly, difficulty in obtaining results without the expense and uncertainty of a trial. Therefore, until the Court of Appeals revisits the open questions, parties seeking to claim disputed gifts should remember that the Court has reaffirmed the basic principle that ownership is not affected by the expiration of a statute of limitations.
Footnotes
1 Mirvish v. Mott, 18 N.Y.3d 510, 942 N.Y.S.2d 404 (2012). With Gary D. Sesser and Ronald D. Spencer, also of Carter Ledyard's art law practice, the author represented the appellant, David Mirvish, in this case.
2 The Court of Appeals decision recounts the facts in detail.
3 Solomon R. Guggenheim Museum v. Lubell, 77 N.Y.2d 311 (1991).
4 See, e.g., Davidson v. Fasanella, 269 A.D.2d 351 (2d Dep't 2000).
5 Mirvish v. Mott, 18 N.Y.3d 510, 942 N.Y.S.2d 404 (2012), reconsideration denied, 2012 WL 1988434 (N.Y. Ct. App. June 5, 2012).
6 Guggenheim, 77 N.Y.2d at 320.
7 See Tanges v. Heidelberg North Am., Inc., 93 N.Y.2d 48 (1999); Hulbert v. Clark, 128 N.Y. 295, 297 (1891); David D. Siegel, N.Y. Practice § 34, at 38 (2d ed. 1991).
8 Lightfoot v. Davis, 198 N.Y. 261, 269 (1910),
9 General Stencils, Inc. v. Chiappa, 18 N.Y.2d 125, 127 (1966).
10 See Guggenheim, 77 N.Y.2d at 319-320 ("compare [CPLR] 206 [where a demand is necessary to entitle a person to commence an action, the time to commence that action is measured from when the right to make demand is complete]").
11 Kunstsammlungen Zu Weimar v. Elicofon, 678 F.2d 1150, 1161-1162 (2d Cir. 1982).
12 See Andrea E. Hayworth, Stolen Artwork: Deciding Ownership is No Pretty Picture, 43 Duke L.J. 337, n. 131. (1993).
13 New York City Transit Auth. v. New York Hist. Soc., 167 Misc. 2d 31 (Sup. Ct. Kings Co. 1995), aff'd 237 A.D.2d 419 (2d Dep't 1997),
14 Davidson v. Fasanella, 269 A.D.2d 351 (2d Dep't 2000).
15 See Davidson v. Fasanella, Index No. 18900/97, 1999 WL 35023183 (Sup. Ct. N.Y. County March 1, 1999)
16 State of New York v. Seventh Regiment Fund, Inc., 98 N.Y.2d 249, 260 (2002).
17 Guggenheim, 153 A.D.2d at 147 (emphasis supplied)
18 State of New York v. Seventh Regiment Fund, Inc., 98 N.Y.2d 249, 260 (2002) (citation omitted).
19 See Sofsky v. Rosenberg, 76 N.Y.2d 927, 930 (1990); see also G. Brinckerhoff v. Lawrence, 2 Sand. Ch. 400 (Chancery) (1845) ("Where the intent of the donor is proved under his own hand ... the courts have ... presumed a delivery in support of the gift, on slight evidence.").
20 See O'Keefe v. Snyder, 83 N.J. 478 (1980).
21 Guggenheim, 77 N.Y.2d at 318-320..
22 Mirvish v. Mott, 942 N.Y.S.2d at 410.
23 Cassirer v. Thyssen-Bornemisza Collection Fdn., No. CV 05-3459-GAF, slip op. at 2 (C.D. Cal. May 24, 2012).
24 See Guggenheim, 77 N.Y.2d at 319 (citing O'Keefe v. Snyder, 83 N.J. 478 (1980)). See also Bakalar v. Vavra, 619 F.3d 136, 141-46 (2d Cir. 2010) (noting difference between Swiss law and New York law, as set forth in the Guggenheim decision, concerning title to stolen art).
25 Songbyrd, inc. v. Grossman, 23 F.Supp.2d 219, 222 (N.D.N.Y. 1998), aff'd 206 F.3d 172 (2d Cir. 2000).
26 See Songbyrd, Inc., 206 F.3d 172, 183.
27 See Guggenheim, 77 N.Y.2d at 316, 321.
28 See Guggenheim, 77 N.Y.2d at 316
29 Lightfoot v. Davis, 198 N.Y. 261 (1910)
30 Board of Managers of Soho International Arts Condominium v. City of New York, No. 01 Civ. 1226 (S.D.N.Y. May 13, 2005).
31 Songbyrd, 206 F.3d at 174, 181; Songbyrd, 23 F. Supp.2d at 223.
32 Martin v. Briggs, 235 A.D.2d 192, 199 (1st Dep't 1997).
33 Hoelzer v. City of Stamford, Connecticut, 933 F.2d 1131, 1138 (2d Cir. 1991).
34 Guggenheim, 153 A.D.2d 143, 149-50 (1st Dep't 1990) (emphasis supplied).
35 Sporn v. MCA Records Inc., 58 N.Y.2d 482 (1983).
36 Vigilant Ins. Co. v. Housing Authority, 87 N.Y.2d 36 (1995).
37 Sporn, 58 N.Y.2d at 486-89.
38 See Vigilant, 87 N.Y.2d at 36.
39 Stortecky v. Mazzone, 85 N.Y.2d 518 (1995).
40 Madden, Robert E., Steps To Take When Stolen Art Work Is Found In An Estate, 24 Est. Plan 459, 1997 WL 869194 (W.G.&L).
41 Court of Appeals 2011 Annual Report, p. 6.
42 Court of Appeals 2011 Annual Report, p. 3
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