New US law facilitates claims to recover Nazi-looted art

Stephenson Harwood 30 May 2017

Proceedings were brought in the US courts against the Federal Republic of Germany and the Prussian Cultural Heritage Foundation by the heirs of a consortium of Jewish art dealers who allege that the dealers were forced to sell their collection of Medieval artefacts known as the “Welfenschatz” (Guelph Treasure) to the State of Prussia at a fraction of its market value in 1935. The Welfenschatz is currently located at the Museum of Decorative Arts, which is administered by the Prussian Cultural Heritage Foundation. The heirs allege that the Prussian Cultural Heritage Foundation is in wrongful possession of the collection because the sale to the State of Prussia was coerced as part of Nazi persecution of the Jewish sellers.

The Defendants filed a motion to dismiss all of the claims against them. The grounds they relied on included an argument that they were entitled to immunity from suit under the US Foreign Sovereign Immunities Act (“FSIA”).

Under the FSIA, 28 U.S.C. §§ 1602-1611, “a foreign state is presumptively immune from the jurisdiction of United States courts,” and “unless a specified exception applies, a federal court lacks subject-matter jurisdiction over a claim against a foreign state.” The definition of a “foreign state” includes a state’s political subdivisions, agencies, and instrumentalities. 28 U.S.C. § 1603(a).

The FSIA contains an exception known as the “expropriation exception”. This allows claims against ​foreign states to proceed where (i) the claims relate to rights in property taken in violation of international law and (ii) either (a) the property is present in the US in connection with a commercial activity carried on in the US by the foreign state; or (b) that property is owned by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the US.

The lawsuit contained ten different claims. On 31 March 2017, the US District Court for the District of Columbia ruled that 5 of these claims can continue.

The court found that the FSIA expropriation exception applied to these five claims. As to the first limb of the test for the exception to apply (i.e. rights in property taken in violation of international law), the court found thatthe taking of the Welfenschatz as alleged in the complaint bears a sufficient connection to genocide such that the alleged coerced sale may amount to a taking in violation of international law”. The court rejected the Defendants’ argument that the taking of the Welfenschatz was not made in violation of international law because it involved Germany expropriating property of its own nationals and that the FSIA’s expropriation exception did not apply in such circumstances. As for the second limb of the test for application of the expropriation exception (i.e. the commercial activity nexus), the Defendants conceded that the Plaintiffs had adequately pleaded this with regard to the Prussian Cultural Heritage Foundation, which was an instrumentality of Germany. The court found that this was sufficient to allow the claims to proceed.

The ruling means that Germany will have to defend itself for the first time against claims in the US courts seeking the restitution of Nazi-looted objects.

In the original motion to dismiss, the Defendants had also argued that the statute of limitations for a claim on the Welfenschatz had expired. However, following the enactment of the Holocaust Expropriated Art Recovery Act, the time within which a claim could be brought was reset to December when the bill was signed into law. The Defendants therefore withdrew that argument.

The Holocaust Expropriated Art Recovery Act was signed into US law on 16 December 2016 and allows civil claims in the US for the recovery of artworks or other specified property (including books, manuscripts, photos and sacred and ceremonial objects) lost been 1 January 1933 and 31 December 1945 through Nazi persecution to be commenced within 6 years after the claimant’s discovery of (1) the identity and location of the property and (2) their interest in the property. Claims known by claimants before the Act was signed into law are considered discovered on the date of enactment. The Act was introduced to assist claimants who found themselves powerless in the face of expired limitation periods which meant that they were unable to commence proceedings to recover misappropriated property.
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