Around this time last year, our blog wrote about the history of two works by Austrian Expressionist Egon Schiele.  Both were once owned by Fritz Grünbaum, a Jewish Austrian cabaret performer and art collector who was imprisoned by the Nazis in 1938 and died in Dachau in 1941; it’s unclear what happened to his art during and immediately after World War II, but a handful of the works have surfaced over the years since, sometimes leading to competing claims of ownership.

One work, auctioned at Sotheby’s last November, was sold by Massachusetts businessman David Bakalar, but only after Bakalar prevailed following more than seven years of litigation against Grünbaum’s heirs.  Bakalar traced his ownership of the work back to a Swiss art dealer who claimed he legitimately obtained many Schiele works in the 1950s from Grünbaum’s sister-in-law.  The Second Circuit ultimately ruled that Bakalar owned the piece on the basis of laches (essentially, that the heirs had waited too long to seek the work’s return).  See Bakalar v. Vavra, 819 F. Supp. 2d 293 (S.D.N.Y. 2011) and 500 Fed. App’x 6 (2d Cir. 2012).

The lengthy legal wrangling over Bakalar’s Schiele stands in stark contrast to the circumstances surrounding another Schiele work, auctioned at Christie’s last November; there, the work was sold subject to a negotiated agreement between the current possessor and Grünbaum’s heirs, which treated the work as looted art and provided compensation to the heirs while allowing a buyer at auction to obtain clear title to the work.

Now, a new chapter has begun in this story; a few weeks ago, Grünbaum’s heirs again took up the fight to reclaim more works from his lost art collection.  This time, they filed a suit in New York state court against a British art dealer named Richard Nagy, alleging that two Schiele works that Nagy offered for sale at last month’s Salon Art + Design show at the Park Avenue Armory came from the Grünbaum collection and should be returned to his descendants.  See Reif v. Nagy, Case No. 161799/2015 (Sup. Ct. N.Y. Co.).

The plaintiffs initially asked the court for preliminary injunctive relief to prevent the works from leaving New York until the case is resolved.  The court granted a temporary restraining order, and the parties subsequently agreed to a stipulation that Nagy will keep the works at a New York storage facility pending further court action.

The heirs allege that, while imprisoned, Grünbaum was forced to execute a power of attorney so that his wife, Elisabeth, could liquidate his assets and turn them over to the Nazi regime; once she had done so, Elisabeth was deported in 1942 to a Nazi extermination camp in Minsk, where she died.  The complaint attaches historical documentation, which, according to the plaintiffs, shows that Fritz’s and Elisabeth’s property, including the art, was confiscated by the Nazis.  The heirs’ primary claim is conversion, and they seek a declaratory judgment that the two works (which they estimate may be worth as much as $5 million) are rightfully their property.  They also bring claims under a New York statute forbidding deceptive business practices, alleging that Nagy has misleadingly represented that he has the right to sell the works despite being on notice that the works were looted from Grünbaum.

Defendant Richard Nagy and his dealership have not yet set forth any formal substantive arguments in the litigation; they are expected to respond to the complaint by mid-January.  But in statements to the press, Nagy has indicated that he will likely argue that the two works at issue here have the same background as the work at issue in the Bakalar case; that is, that the works were validly sold by Elisabeth Grünbaum’s sister, Mathilde Lukacs, after the war, and subsequent buyers therefore obtained good title.  He has also stated that other independent authorities in Vienna have ruled that the works sold by Lukacs were not looted.  He may also argue that Lukacs was a collector in her own right, and the works she sold in the early ‘50s may not have even been part of the Grünbaum collection at all.  The heirs’ attorney has in the past suggested that the paperwork involving the purported sale by Lukacs may be a forgery, and has maintained that Lukacs had no right to sell any of the Grünbaums’ property in any case.

As this litigation progresses, it is likely to present many of the same challenges as other cases involving Holocaust-era art, including incomplete or questionable documentation, a lack of witnesses, and thorny legal questions ranging from timeliness of claims to how much weight to give related rulings by foreign tribunals.  The Reif court may also need to address principles of res judicata if the case raises questions that were previously litigated in the Bakalar litigation.  It is also possible that the parties may explore a negotiated settlement like the one behind last year’s auction at Christie’s.  The art world has been paying increased attention to voluntary restitution arrangements as an alternative to protracted and costly litigation; for example, just last month, New York’s Museum of Modern Art returned a Kirchner painting to the heirs of a German Jewish collector who had to leave it behind when he fled Europe after the Nazis rose to power.  Moreover, in recent years, federal courts dealing with these cases have increasingly looked to the Washington Conference Principles on Nazi-Confiscated Art, a non-binding statement encouraging restitution efforts, to which the United States is a signatory.  Against this complex backdrop, we will continue to monitor this case as it unfolds.