Case Review: Schoeps v. Free State of Bavaria (June. 2014)

July 7, 2014

By Chris Michaels

On 27 June 2014, Judge Jed. S. Rakoff of the Southern District of New York issued an order finding that the court did not have subject matter jurisdiction to decide on the merits a Nazi-era looted art case. This case was brought by the heirs of the late Jewish banker, Paul von Mendelssohn-Bartholdy, against the Free State of Bavaria for a Picasso painting titled, Madame Soler.

The plaintiffs in this case, Julius H. Schoeps, Britt-Marie Enhoerning, and Florence von Kesselstatt, argued that Mendelssohn-Bartholdy was forced to part with his artwork in 1934 after two years of Nazi persecution. He transferred possession of Madame Soler to art dealer Justin K. Thannhauser, who remained in possession of the painting for the next 30 years. In 1964, Thannhauser, who at that time had relocated to New York City, met with Halldor Soehner, a Senior Curator of the State Paintings Collections Munich, an entity operating under the Bavarian State Ministry for Education and Cultural Affairs (the “Ministry”). Soehner’s New York trip was pre-approved by the Ministry.

Upon Soehner’s return to Germany in June of 1964, Soehner and Thannhauser began planning their next meeting, which was to take place in Europe. Soehner then sought approval from the Ministry for the meeting with Thannhauser, which occurred in France in August of 1964. The Bavarian Ministry approved Soehner’s trip to France to conduct negotiations and in an August 1964 letter to Soehner, Thannhauser confirmed the purchase of Madame Soler by the Bavarian State Paintings Collections. The purchase was publicized in the museum publications as well as local news outlets. The purchase price of the painting was 1,775,000 Swiss Francs. Additionally, the Letter Agreement between the two was signed in Europe, which the court surmised was an attempt by Thannhauser to avoid U.S. taxes, and the painting was located in Switzerland at the time of the sale. Further, a Lichtenstein entity “EBA, Vaduz,” which was controlled by Thannhauser, transferred the painting to the Bavarian State Paintings Collections and received payment on behalf of Thannhauser.

The issue decided by the instant order was whether jurisdiction over the Free State of Bavaria was appropriate under the Foreign Sovereign Immunities Act (“FSIA”).  Under the Act, jurisdiction over a foreign state is allowed in three circumstances:

1. where a plaintiff’s claim is “based upon” “a commercial activity carried on in the United States by the foreign state”;
2. where a plaintiff’s claim is “based upon” “an act performed in the United States in connection with a commercial activity of the foreign state elsewhere”; or
3. where “an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere causes a direct effect in the United States.”

Here, the Court ruled that the FSIA could be circumvented because the exceptions to allow jurisdiction over a foreign sovereign and its entity did not apply under any of the above circumstances where no agreement between Soehner and Thannhauser for sale of the painting was reached in New York and where Soehner did not take any concrete action toward the purchase of the painting until his return to Germany. With respect to the first prong of jurisdiction under the FSIA, the Court found that the merits of this suit, should they be reached, were not “based upon” Bavaria’s acquisition of the painting, “let alone activity in the United States.” The Court points out that the essence of Plaintiff’s complaint is that the title to the painting never rightfully passed to Thannhauser because the painting was consigned by Mendelssohn-Bartholdy as a forced transaction.

Thus, the Court ruled, the merits of the case would necessarily focus on the circumstances of the forced sale. The Court went on to note that Bavaria would not even be the defendant in the case “but for the fact that Bavaria purchased the painting from Thannhauser in 1964.” The Court held, among other things, that this “but for” reasoning was insufficient to satisfy the FSIA’s “based upon” requirement.

With respect to the second prong, the Court held that it is “generally understood to apply to non-commercial acts in the United States that related to commercial acts abroad.” This prong was deemed inapplicable by the Court, however, because the Plaintiffs’ failed to argue that any non-commercial acts by Bavaria formed the basis of the suit.

Finally, under the third prong, the court noted that two requirements must be satisfied to confer jurisdiction: 1) “there must be an act outside the United States in connection with a commercial activity of [Bavaria] that cause[d] a direct effect in the United States and (2) [plaintiffs’] suit must be based upon that act.” The Court held that the elements of this prong were not satisfied where plaintiffs’ only arguments were that Bavaria’s purchase of the painting would have a negative impact on the New York art market and that Bavaria’s activities furthered a conspiracy to evade United States taxes. The Court, therefore, dismissed the lawsuit for lack of jurisdiction.

Plaintiffs were represented by Thomas J. Hamilton and John J. Byrne, Jr. of Byrne, Goldenberg, and Hamilton, PLLC of Washington D.C., and Defendant was represented by Andreas A. Frischknecht, James M. Hosking, and Andrew L. Poplinger of Chaffetz Lindsey, LLP of New York.

Sources:

• Opinion and Order, Schoeps v. Free State of Bavaria, Case No. 13 Civ. 2048 (JSR) (S.D.N.Y June 27, 2014).
• The Foreign Sovereign Immunities Act, 28 U.S.C. § 1605(a)(2).

About the Author: Chris Michaels is a litigation attorney in the Philadelphia office of the Atlanta, GA-based law firm, Cruser & Mitchell, LLP, where he actively pursues his interest in the field of art law. He may be reached at (518) 421-7238, chriswmichaels@gmail.com, or on Twitter @CMichaels88.