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Statute of Limitations Issues in Looted-Art Cases

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The Legal Intelligencer 22 July 2015
By Chris Michaels

Nazi-looted art has made headlines over the past few years, most notably in the German Cornelius Gurlitt case, as artwork has been discovered, and in some cases returned and subsequently sold at auction. Looted-art cases can present several complex legal issues including, among other things, whether an applicable statute of limitations bars the plaintiff from recovery and different theories about when that statute of limitation begins to accrue.

In the United States, there is a general rule that no one can acquire good title from a thief. This rule is codified in Section 2-403 of the Uniform Commercial Code, which states that "a purchaser of goods acquires all title which his transferor had or had power to transfer." This rule is followed by every U.S. jurisdiction, with Louisiana being the only exception because it follows the rule of prescriptive acquisition, essentially giving good title after a certain amount of time has passed. The rule that no one can acquire good title from a thief even applies to a "good-faith purchaser" who is unaware that the artwork he is purchasing is stolen. The title concept is important in looted-art cases because it allows the original owner of the artwork to bring a replevin claim against the current possessor of the artwork in an attempt to regain rightful possession. The original owner, however, does not have carte blanch to bring a replevin claim as he or she pleases. The claim may be barred by a statute of limitations.

Generally, the purpose of a statute of limitations is threefold: (1) it promotes the expeditious filing of claims; (2) it offers a level of protection to the defendant by acknowledging that evidence may be lost or nonexistent after a certain amount of time; and (3) it offers protection for a good-faith purchaser after the applicable period of time. Typically, statutes of limitations in United States are five years, with some jurisdictions having as high as 10 years and some as low as two, depending on the claim. For most statute of limitations claims, and especially for looted-art cases, the key issue is not the actual length of the statute of limitations but, rather, when that statute of limitations begins to accrue.

With respect to looted-art cases, there are two major philosophies of accrual: (1) the discovery rule; and (2) the demand-refusal rule. In O'Keefe v. Snyder, 83 N.J. 478, at 491 (1980), which was the first reported case dealing with the recovery of stolen artwork, the court outlined the discovery rule as follows: "In an appropriate case, a cause of action will not accrue until the injured party discovers, or by the exercise of reasonable diligence and intelligence should have discovered, the facts which form the basis of a cause of action." The discovery concept was further clarified by a 1990 case out of the U.S. Court of Appeals for the Seventh Circuit, which introduced the concept of fraudulent concealment. The case explained that a defendant may not invoke a statute of limitations defense when that defendant has prevented a plaintiff from learning of a cause of action through deceit or fraud. Therefore, a plaintiff who has not discovered facts regarding a potential cause of action will not be penalized when a defendant has deliberately covered up those facts. In Ohio and Pennsylvania, the discovery rule is slightly modified in that a cause of action does not accrue until the wrongdoer is discovered by actual or constructive knowledge.

The downside to the discovery rule is that it is both fact-intensive and fact-sensitive. Courts will look at many factors in determining the timing of the discovery rule, including, but not limited to, when the theft took place, the availability of witnesses and the accessibility of relevant evidence, and whether the defendant was prejudiced by the delay in plaintiff's filing of the suit.

In addition to the discovery rule, other courts, most notably New York and Florida, have adopted what is known as the demand-refusal rule. Under this theory of accrual, the cause of action arises not when a theft takes place nor when the plaintiff discovers or should have discovered the theft; rather, the cause of action arises when the plaintiff demands the return of the artwork and the defendant, in turn, refuses to return the work. For a brief period under New York law, there was an obligation on the part of the plaintiff/original owner to exercise due diligence to locate the stolen artwork. (See DeWeerth v. Baldinger, 804 F. Supp. 539, 553 (S.D.N.Y. 1992).) Currently, however, there is no such due diligence requirement and the original owner may make a demand whenever he or she discovers the location of the missing/stolen artwork, as in Solomon R. Guggenheim Foundation v. Lubell, 153 A.D.2d 143, 550 N.Y.S.2d 618 (1990), aff'd, 77 N.Y.2d 311, 567 N.E.2d 426, 567 N.Y.S.2d 623 (1991). As the Guggenheim court explained,

"Our decision today is in part influenced by our recognition that New York enjoys a worldwide reputation as a pre-eminent cultural center. To place the burden of locating stolen artwork on the true owner and to foreclose the rights of that owner to recover its property if the burden is not met would, we believe, encourage illicit trafficking in stolen art. Three years after the theft, any purchaser, good faith or not, would be able to hold onto stolen artwork unless the true owner was able to establish that it had undertaken a reasonable search for the missing art. This shifting of the burden onto the wronged owner is inappropriate. In our opinion, the better rule gives the owner relatively greater protection and places the burden of investigating the provenance of a work of art on the potential purchaser."

Following the decision in Guggenheim, Florida courts also adopted the New York demand-refusal rule.

A question that often arises under the demand-refusal rule is what, exactly, constitutes a refusal. New York courts have held that there are no special "magic words" the current possessor must use, such as "I refuse your demand," in order to effectuate a refusal. Instead, courts have held that actions, as well as words, must be used to analyze whether the current possessor intends to "interfere with the demander's possession or use of his property," as in Grosz v. Museum of Modern Art, 772 F. Supp. 2d 473 (S.D.N.Y), aff'd, 403 F. app'x 575 (2d Cir. 2010), cert. denied, 132 S. Ct. 102 (2011).

In response to a replevin action to recover stolen artwork, good-faith purchasers may invoke a laches defense where there was an unreasonable delay in the plaintiff filing the suit and where the defendant suffered prejudice as a result of the delay. The inquiry into whether a laches defense applies is not an objective test and courts must balance the two factors of delay and prejudice. Typically, the inquiry focuses on the reasonableness of plaintiff's action. Of course, there are many other issues to address in a looted-art case and, as evidenced by some of the issues outlined above, many of the cases revolve around the particular facts of each case.

Chris Michaels is an attorney in the Philadelphia office of Cruser & Mitchell, where he practices art law and general litigation. He can be reached at 267-888-2842, cmichaels@cmlawfirm.com, or on Twitter @CMichaelsartlaw. Visit his website at cmichaelsartlaw.com.

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