In doing so, the 9th U.S. Circuit Court of Appeals also reinstated a California law allowing lawsuits over art ownership disputes dating back as far as 100 years. The decision reversed a lower court ruling that invalidated the law saying it infringed on the federal government's exclusive authority over foreign affairs.
At issue is the French impressionistic painting "Rue St.-Honore, Apres-Midi, Effet de Pluie" painted in 1897 by Camille Pissarro.
Prominent German businessman Julius Cassirer purchased the painting the next year and it passed on to his son Fritz and Fritz's wife Lilly when Julius died. When Fritz and Lilly decided to flee Nazi Germany in 1939, they were required to hand over the painting to the Nazi government in exchange for $360 and a visa to leave the country.
After World War II, Lilly unsuccessfully attempted to locate the painting and said she accepted about $13,000 in restitution in the German courts in the 1950s. Lilly died in 1962 and named her grandson Claude Cassirer her sole heir.
In 1976, Baron Hans-Heinrich Thyssen-Bornemisza, who the 9th Circuit called "one of the world's most prolific private art collectors" and scion of Germany's Thyssen steel empire, bought the painting. In 1993, the Spanish government and Thyssen-Bornemisza placed his collection into a nonprofit called the Thyssen-Bornemisza Foundation and housed it in a palace museum.
In 2000, a friend of Claude Cassirer called him at his San Diego home to tell him he saw the painting hanging in the Spanish museum. After negotiations with the Spanish government and foundation officials failed to reach an agreement, Claude Cassirer filed a lawsuit against the foundation in Los Angeles federal court seeking retention of the painting.
Claude Cassirer claimed in 2005 that a newly enacted state law extending the statute of limitations to allow for lawsuits in California courts over lost artwork reported stolen up to 100 years ago allowed for his legal challenge.
After Claude Cassirer died, his children David and Ava picked up the fight and replaced him in the lawsuit against the Thyssen-Bornemisza Foundation, the technical owner of the painting.
Last year, U.S. District Judge Gary Feess tossed out the lawsuit when he invalidated the state law.
The appeals court ordered the case returned to Feess to consider the merits of the lawsuit.
Foundation lawyer Thaddeus Stauber said the foundation is considering asking a special panel of 11 judges of the 9th Circuit to reconsider the ruling.
"The foundation continues to maintain its rightful ownership of the painting," Stauber said.
Stauber said the restitution Lilly Cassirer received from the German courts has been a key issue in the twisted legal saga. Stauber claims that Lilly Cassirer gave up her ownership claims in agreeing to the German court settlement. The family argues ownership rights weren't given up and that the restitution was meant to compensate them for the loss of the painting, which was still unaccounted for in the 1950s.