By: Jessica P.G. Newman, Cypress LLP

https://www.lexology.com/library/detail.aspx?g=49a26789-0c0a-48d0-87b3-16ed7b1d60c0

After nearly twenty years in U.S. federal courts, the heirs to a Jewish woman whose painting was sold under duress to the Nazis may finally have a chance to secure its return. The latest chapter in the painting’s storied history comes at the hands of the Supreme Court, which held that in a Foreign Sovereign Immunities Act (“FSIA”) suit involving non-federal claims against a foreign state-actor, courts should use the same choice-of-law provision they would use in a suit with a private party to determine the applicable substantive law. This reverses the Ninth Circuit’s application of federal common law rather than California’s choice-of-law rule and gives the heirs a chance to argue for restitution of the work.

The Cassirer Family and Camille Pissarro’s Painting

In 1900, Paul Cassirer, a member of a prominent German Jewish family of art dealers purchased Camille Pissarro’s Rue Saint-Honoré in the Afternoon, Effect of Rain from the agent for the Impressionist painter. A quarter century later, Lilly Cassirer inherited the work, displaying it in her Berlin home. Facing increased persecution from the Nazis, Lilly had no choice but to flee Germany in 1939. To obtain an exit visa, she sold the painting at a gross under value to a Nazi agent.

After the war, Lilly and her grandson Claude Cassirer relocated to the United States and began the search for Rue Saint-Honoré. In 1958, having no luck locating the work, Lilly elected to accept compensation from the German Federal Republic. She was declared the legal owner of the painting and received roughly $250,000 in today’s dollars (a fraction of the tens of millions of dollars at which it is valued now). The payment was made pursuant to the law in the American Zone of Germany, Military Government Law No. 59 providing for restitution of property, or, if the property could not be found, for compensation. The lower court expressly found that Lilly did not waive her right to restitution of the painting as part of this payment.

Unbeknownst to Lilly at the time, the work too had made its way to the United States. Following the war, the painting surfaced at a New York gallery in 1952 then sold to a St. Louis collector where it remained until 1976. That year, it was purchased by the Baron Hans Heinrich Thyssen-Bornemisza, a resident of Switzerland and one of the world’s foremost private art collectors. Rue Saint-Honoré returned to Europe and remained in Thyssen-Bornemisza’s collection for several years. In 1998, Thyssen-Bornemisza sold much of his collection to an entity created and controlled by the Kingdom of Spain, called the Thyssen- Bornemisza Collection Foundation. The Spanish Government financed the purchase and provided the Foundation with a palace in Madrid to serve as a museum for the collection.

In 1999, Claude learned of the work’s location through an acquaintance who saw the painting in a museum catalogue. Claude, Lilly’s sole heir, made several informal efforts to retrieve the painting. When these failed, he filed suit in 2005 in the Central District of California.

The Cassirers’ Lawsuit Against the Foundation

The suit proceeded under the FSIA’s expropriation exception. Under this exception, a foreign state or instrumentality can be sued in an American court for cases involving “rights in property taken in violation of international law.” This issue was decided during a prior phase in the litigation, but the question then became under what law would the case proceed. To answer this question the court had to apply a choice-of-law rule – a means of selecting which jurisdiction’s substantive law governed the determination of liability. The parties contested which choice-of-law rule the court should use.

Plaintiffs, then consisting of Claude’s children David and Ava and the Jewish Federation of San Diego County, called for the use of California’s choice-of-law rule. The defendant Foundation advocated for a rule based in federal common law. The lower courts selected the federal rule, resulting in the application of Spanish rather than California property law.

After trial, applying Spanish law to the Foundation’s acquisition, the lower courts concluded that the Foundation was the rightful owner of Rue Sant-Honoré. Notably, the trial court separately concluded that under Swiss law, the Baron was not a good faith purchaser. It detailed the many red flags that should have triggered further investigation by the Baron as a sophisticated art collector including intentionally removed labels, visibly torn labels, contradictory provenance information, and the numerous lootings of Pissarro paintings by the Nazis.

Nevertheless, the Court still ruled that the Foundation acquired ownership of the painting under Spain’s laws of acquisitive prescription. This conclusion rested on a key difference between Spanish and California law. Under Spanish law, the Foundation could become the rightful owner so long as it lacked actual knowledge that the painting was stolen. By contrast, under California law even a good-faith purchaser of stolen property cannot prevail against the original owner and that owner’s heirs. The trial court concluded that although both the Foundation and the Baron may have had suspicions regarding the origins of the painting, these suspicions did not amount to actual knowledge that the painting was stolen. As a result, although the Court believed the Foundation had a “moral commitment[]” to return the painting, it held that it had “no alternative but to apply Spanish law” under which the Foundation was the rightful owner.

Following the trial, the Plaintiffs sought the Supreme Court’s review of a single issue: whether a court in an FSIA case raising non-federal claims (relating to property, tort, contracts and so forth) should apply the forum State’s choice-of-law rule, or instead use a federal one.

The Supreme Court granted cert.

The Supreme Court Decision

The FSIA creates a uniform body of federal law governing when a foreign state or instrumentality is subject to suit in the United States. In doing so, it provides a framework for determining under what circumstances a foreign state may be sued in the United States. If a foreign state is not immune from suit in the United States, then it is liable just like any other private party. In other words, the FSIA creates a pass through to the substantive law that would govern a similar suit between private individuals.

In order to apply the same substantive law, the Court reasoned, the FSIA must necessarily require application of the same choice-of-law rule that would apply in a suit between private parties. To allow otherwise would lead to inconsistent results. The Court illustrated this possibility by comparing the facts of the case at hand to a hypothetical suit involving a private museum. If federal common law dictated which choice-of-law rule applies, then Spanish law would govern the determination of liability against the Foundation. Yet a suit against a private museum would result in the application of California’s substantive law. Under Spanish Law, if the Foundation did not know Rue Saint-Honoré was stolen then it would own the painting by virtue of possession (the conclusion reached by the lower courts). By contrast, under California law, even a good faith purchaser of a stolen good, such as the Foundation, could not prevail against the rightful pre-theft owner. Thus, were the Supreme Court to accept the Ninth Circuit’s approach, the private museum would be forced to return the work, while the Foundation would be allowed to keep the work. This inconsistency runs contrary to the FSIA’s intent to hold a foreign state liable as the same manner as a private party when it is subject to suit in the United States.

Accordingly, the Supreme Court concluded that courts in FSIA suits should use the same choice-of-law rule they would use in a suit involving private parties. In this case, that meant using California’s choice- of-law rule, which in turn leads to application of California rather than Spanish property law.

The Supreme Court rounded out its opinion by rejecting any suggestion that the decision could create a foreign relations problem. Citing an amicus brief filed by the United States, the Court noted that FSIA suits only arise in situations where a foreign state is determined not to be immune from suit. In such circumstances, there is no greater justification for applying federal common law rather than the substantive rule of law that would otherwise apply to the suit. The routine application of state choice-of- law without international incident likewise confirmed the Court’s conclusion.

The Supreme Court did not reach an ultimate determination of who owns the work. Rather it remanded the case with directions to the lower court to apply California’s choice-of-law rule.

Impact on FSIA Cases

For FSIA suits, the decision eliminates the circuit split as to what choice-of-law rule applies. In doing so, it creates more predictability for parties seeking to hale foreign states or instrumentalities into court.

In the specific context of FSIA suits concerning the restitution of looted artwork, the decision will likely have a narrow application. In this instance, the Foundation could be liable based on the expropriation exception to the FSIA. As noted above, this exception removes immunity for foreign states for cases involving “rights in property taken in violation of international law.”

This contrasts with the Court’s 2021 decision in Federal Republic of Germany v. Philipp. There, the Supreme Court declined to apply the expropriation exception to restitute a collection of medieval relics known as the “Guelph Treasure” to the heirs of German Jewish art dealers. Wary of turning the exception “into an all-purpose jurisdictional hook for adjudicating human rights violations” the Court framed the exception as a matter of property right. Thus, the relevant international law was the law of property -not genocide. Within this framework, a foreign sovereign’s taking of its own nationals’ property is a matter of domestic concern. In other words, the expropriation exception only applies to takings from non-citizens. The Court concluded that German’s taking of the Guelph Treasure from its own nationals therefore did not fall within the expropriation exception. This scenario is, unfortunately far more common in restitution cases, limiting the application of the FSIA to these cases going forward.

For the Cassirers, however, the suit gives them another opportunity to secure the return of their work. This will be their third attempt in this case alone. Although the lower courts still need to conduct an analysis under California law, the Supreme Court’s decision suggests that this time around the Cassirers might finally succeed as applying California’s nemo dat rule could lead to a more favorable outcome.