A three-judge panel for the Second Circuit Court of Appeals has agreed with the lower court’s decision that the Metropolitan Museum of Art may keep a “rose period” Picasso painting despite claims that it was sold by a German-Jewish family to escape Nazi persecution in Italy during World War II.  See Zuckerman v. The Metropolitan Museum of Art, Case No. 18‐634, -- F.3d – (2d Cir., June 26, 2019).

The Zuckerman Case

We first wrote about this lawsuit in 2016 shortly after it was filed.  The plaintiff, Laurel Zuckerman, is the sole heir of Paul and Alice Leffmann, the painting’s former owners.  In the years leading up to World War II, the Leffmans “fled from Germany to Italy in fear for their lives, after losing their business, livelihood, home, and most of their possessions due to Nazi persecution.”  The Leffmanns managed to escape the Nazi Holocaust only by selling one of their most prized possessions for a mere fraction of its fair-market value:  Pablo Picasso’s The Actor, a “monumental” artwork that now hangs in the Met.  Using the relatively paltry proceeds of that sale, the Leffmanns financed their flight from Italy through Switzerland and, ultimately, to Brazil. 
Then, in 2018, we described at length the ruling penned by Judge Preska of the Southern District of New York in her 50-page opinion dismissing Zuckerman’s lawsuit to recover The Actor from the Met.  Despite the Leffmanns’ tragic story, recounted carefully by Judge Preska, she ultimately ruled that Zuckerman’s lawsuit failed to allege that the Leffmanns parted with the painting under duress. 
Now, on appeal, the Second Circuit, led by Chief Judge Katzmann, has issued a narrow decision, adopting a separate argument put forth by the Met that Zuckerman’s claims are barred by the doctrine of laches, since neither the Leffmanns nor their heirs made a demand for the Painting until 2010. The court held this delay was unreasonable, and that it damaged the Met’s ability to defend against the claim.  The court further concluded that the recently-enacted federal HEAR Act (discussed in our previous coverage of this case) did not preempt the laches defense asserted by the Met, even though it creates a uniform six-year statute of limitations for claims to recover art lost during the Holocaust. 
The opinion focuses on whether the family’s delay in filing this suit was reasonable, as well as the harm caused to the Met by that delay.  The court points to the fact that the Leffmanns knew the identity of the purchaser of the “masterwork” painting and that they were a sophisticated couple who “actively and successfully pursued other claims for Nazi‐era losses” after the war. The painting even had a well-documented provenance, including “P. Leffmann,” published in the Met’s catalogue.
Moreover, the court held that, in the more than six decades that have passed since the end of World War II, the Met has been prejudiced in its ability to defend itself due to “deceased witness[es], faded memories, . . . and hearsay testimony of questionable value,” as well as the likely disappearance of documentary evidence.

The Reif v. Nagy Case

A similar issue has also recently been addressed by New York state courts, albeit with a strikingly different outcome.  The case of Reif v. Nagy, No. 161799/15 (N.Y. App. Div. July 9, 2019) concerns two Egon Schiele paintings that were originally part of Viennese-Jewish performer Fritz Grunbaum’s art collection before he was arrested and imprisoned in a Nazi concentration camp in 1938.  (See our previous posts about this case here and here.)  Last year, a New York trial court ruled that the works should be returned to Grunbaum’s heirs, and earlier this month, an intermediate appellate court affirmed that decision.   The decision from the First Department rejected the laches defense put forward by the works’ current possessors, focusing mainly on the “prejudice” prong of the doctrine of laches and rejecting defendants’ contention that they suffered sufficient prejudice to bar the plaintiffs’ claims, even though the artwork was looted over 80 years ago.  The court writes, “The mere lapse of time, without a showing of prejudice, is insufficient to sustain a claim of laches.” 
In this case, the defendants (a British art dealer and his affiliated company) offered multiple theories for why they were prejudiced by the delay, but the court found each was without merit, since defendants acquired the artwork in 2013 and had suffered no change in position or loss of evidence since the acquisition.  In addition, the court notes that the defendants were aware of a potential claim to these particular artworks, bought the works at a discount, and even obtained title insurance in anticipation of such a claim.  Against this backdrop, the court held, the defendants were not prejudiced sufficiently to warrant a laches defense. 
 
Applying Laches, With Divergent Results
 
The two decisions here each examine New York’s equitable defense of laches, and reach differing conclusions.  The Second Circuit’s ruling focused, in part, on the fact that the Leffmans’ family made no claim despite the fact that the work at issue was in the highly-visible Met collection since the 1950s.  It also noted that, due to the passage of time, the litigants could put forth little meaningful evidence for or against a central argument in the case, i.e., whether the Picasso was sold under duress.  In contrast, in Reif v. Nagy, the First Department held that there had been no real prejudice to a buyer who purchased the works in 2013, and who was aware of the risk of claims by Grunbaum’s heirs.  The cases, together, are a reminder that the doctrine of laches requires an intensive case-by-case examination of the equities of a specific situation.
 
The two cases also reflect divergent views on how the federal HEAR Act, which became effective in 2016, interacts with a common law laches defenses.  In Reif v. Nagy, the trial court had opined, with minimal analysis, that the HEAR Act meant that Nagy could not even put forward a laches defense, citing the HEAR Act’s directive that actions brought within six years will be timely, “[n]otwithstanding any defense at law relating to the passage of time.”  Reif v. Nagy, 61 Misc. 3d 319, 327–28, 80 N.Y.S.3d 629, 635 (N.Y. Sup. Ct. 2018), aff'd as modified, No. 161799/15, 2019 WL 2931960 (N.Y. App. Div. July 9, 2019).  The First Department did not expressly weigh in on the intersection between the HEAR Act and laches, instead holding that laches did not apply on the merits because of the lack of prejudice to defendants.  But the Second Circuit’s Zuckerman decision ruled that the HEAR Act preempts state statute-of-limitations defenses in cases involving Nazi-era property, but does not similarly preempt laches defenses; this interpretation undermines the trial court’s Reif interpretation that the HEAR Act also precludes defendants in such cases from pleading laches defenses.  Going forward, Zuckerman dictates that, in cases involving artworks with problematic Nazi-era provenances, defendants will continue to have a potential laches defense available.  Given the fact-intensive nature of laches defenses, the art world can probably expect more disputes that focus on these issues of delay and prejudice to defendants.