BACKGROUND

The original plaintiff, Claude Cassirer (“Claude”), filed suit against the Foundation and the Kingdom of Spain in 2005 seeking to recover the Painting, which the Nazi regime wrongfully seized from his grandmother Lilly under duress in 1939.^{Footnote 2}

Having inherited the Painting upon her husband’s death in 1926, Lilly sought permission to leave Germany with her new husband in 1939 in response to increasing persecution of Jews.^{Footnote 3} The Nazi government appointed art dealer Jakob Scheidwimmer to evaluate Lilly’s belongings that she sought to take with her. Scheidwimmer refused Lilly permission to take the Painting and forced her to sell it to him at a price well below market value. Afraid that she would not be allowed to leave, Lilly agreed, and the funds paid for the Painting were placed in a blocked account from which Lilly knew she would be unable to withdraw them.

Scheidwimmer subsequently exchanged the Painting with an art dealer, German Jew Julius Sulzbacher, who eventually fled Germany for Holland. The Gestapo confiscated the Painting from Sulzbacher and returned it to Germany after the Nazi invasion of Holland. In 1943, an anonymous purchaser bought it at auction.

After the war ended, Lilly filed a claim in 1948 against Scheidwimmer for recovery of, or compensation for, the Painting through the restitution procedures set up by the Allies governing occupied Germany.^{Footnote 4} The Painting’s location was unknown at that time. Sulzbacher also brought a claim for the painting, as well as for three other paintings taken from him by Scheidwimmer. Lilly’s claim and Sulzbacher’s claims were combined into a single proceeding, which they ultimately settled in 1958 for compensation from the German government, as the paintings whereabouts remained unknown to the parties.^{Footnote 5} Under the settlement agreement, Lilly did not waive her right to seek recovery of the Painting.^{Footnote 6}

It later became known that, in July 1951, the Painting had surfaced in Los Angeles, California, where it was sold to a collector through New York and Beverly Hills art dealers. Within months, the collector apparently returned the Painting to the Beverly Hills-based Frank Perls Gallery. A Missouri-based collector, Sydney Schoenberg, subsequently purchased the Painting from the New York dealer M. Knoedler & Co., on consignment from the Frank Perls Gallery.

In November 1976, the Swiss private collector Baron Hans-Heinrich Thyssen-Bornemisza (the “Baron”) purchased the Painting from New York art dealer Stephen Hahn. The Painting remained in Switzerland as part of the Thyssen-Bornemisza Collection until 1992, except for several occasions when it was publicly exhibited outside the country.

In 1988, the Baron agreed to loan his art collection to the Kingdom of Spain for ten years in exchange for approximately US$ 50 million. As part of that agreement, Spain established the Foundation as a private, non-profit cultural institution to maintain and publicly exhibit the Baron’s art collection. Spain also agreed to the conversion of the Villahermosa Palace in Madrid for use as a new Thyssen-Bornemisza Museum (the “Museum”) to display the collection. On 22 June 1992, the Museum received the Painting as part of the Baron’s loaned collection, and the Museum opened to the public, with the Painting on display, on 10 October 1992.

In 1993, Spain decided to purchase the collection housed at the Museum, and it provided the Foundation with funds to purchase all 775 works, including the Painting. The Spanish Cabinet authorized the acquisition by passage of Real Decreto-Ley 11/1993 of 18 June 1993, and the purchase agreement was entered into on 21 June 1993.

Between 1958 and 1999, neither Lilly nor her heirs apparently made any efforts to locate the Painting. However, sometime in 2000, Claude discovered that the Painting was on display at the Museum. On 3 May 2001, he petitioned the Spanish Minister for Education, Culture and Sports (who was also chair of the Foundation’s board) for the Painting’s return, but his request was denied. In July 2003, five United States congressmen also wrote to the Minister requesting the Painting’s return, but their requests were similarly rejected.

Claude, a resident of California since 1980, filed suit against Spain and the Foundation in the United States District Court for the Central District of California on 10 May 2005. He sought either the Painting’s return or monetary compensation. Claude passed away in September 2010 and David Cassirer, Ava Cassirer, and the United Jewish Federation of San Diego County (the “Plaintiffs”) were substituted as plaintiffs in the lawsuit. Subsequently, in August 2011, the parties stipulated to the dismissal of the Kingdom of Spain, with the Foundation remaining as the sole defendant.

Over the course of ten years, the case peregrinated between the District Court and the Ninth Circuit Court of Appeals over a number of legal issues, including whether the Kingdom of Spain and its instrumentality (the Foundation) could be sued in a United States federal court pursuant to the Foreign Sovereign Immunities Act (“FSIA”).^{Footnote 7} Generally, a foreign sovereign and its political subdivisions, agencies, and instrumentalities cannot be sued in the United States courts unless one of the limited exceptions to immunity provided for by the FSIA applies, as the Ninth Circuit held it did in Cassirer.^{Footnote 8}

The District Court’s most recent order arose out of two motions filed on 23 March 2015. On that date, the Foundation moved for summary judgment that it was the owner of the Painting,^{Footnote 9} and the Plaintiffs moved for summary adjudication as to the applicable choice of law, asking the court to decide that California (as opposed to Swiss or Spanish) law applied to the case.^{Footnote 10} Both motions turned on the question of which jurisdiction’s laws should apply to determine legal ownership of the Painting. This is because, if the court applied the laws of Switzerland or Spain, where the Painting was possessed by the Baron and then the Foundation respectively, the Foundation could claim to have acquired legal title under the Swiss or Spanish laws of adverse possession. However, if as the Plaintiffs urged, the court applied California law, which does not recognize the doctrine of adverse possession for moveable property such as the Painting, then the Plaintiffs would have a stronger case that the Foundation had not acquired legal ownership.

THE DISTRICT COURT’S HOLDING

In its June 4 Order, the District Court granted summary judgment to the Foundation.^{Footnote 11} Summary judgment is appropriate where the moving party shows that there is no “genuine dispute as to any material fact” that must be decided at trial and, as a matter of law, s/he is entitled to judgment.^{Footnote 12} Relying on this standard, Judge Walter found that the Foundation was the owner of the Painting pursuant to Spanish adverse possession law. To reach that conclusion, the court conducted two stages of choice-of-law analysis before applying Spanish law to the facts of the case.

At the first choice-of-law stage, the court had to decide what rules it should follow to determine the applicable substantive law. There is disagreement among the federal appellate courts as to whether a federal court hearing a case brought under the FSIA should apply federal common law choice-of-law rules or the choice-of-law rules of the state in which it sits (the “forum state,” which in Cassirer would be California). Judge Walter noted that, although the Ninth Circuit historically has held that federal choice-of-law rules govern in FSIA cases, its holding was called into question by language in a footnote to a recent Ninth Circuit decision.^{Footnote 13} Accordingly, the court chose to proceed “out of an abundance of caution” by conducting choice-of-law analysis under both federal and California rules.^{Footnote 14}

As a result of this cautious approach, the second stage of choice-of-law analysis involved determining the applicable substantive law under each of federal and California rules. Beginning with the federal analysis, Judge Walter noted that this approach follows the Restatement (Second) of Conflict of Laws (the “Restatement”), which provides generally that interests in real and personal property should be determined by the law of the place with the “most significant relationship” to the thing and the parties.^{Footnote 15} The Restatement includes a list of factors to be referenced in determining which place has “the most significant relationship”: (a) the needs of the interstate and international systems; (b) the relevant policies of the forum; (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue; (d) the protection of justified expectations; (e) the basic policies underlying the particular field of law; (f) certainty, predictability, and uniformity of result; and (g) ease in the determination and application of the law to be applied.^{Footnote 16} If there is a question as to the transfer of an interest in a chattel by adverse possession, the Restatement further provides that “the law of the state where the chattel was at the time the transfer is claimed to have taken place” generally applies to determine the interest.^{Footnote 17}

Applying these principles, Judge Walter concluded that Spanish law on adverse possession applied under federal choice-of-law rules, as Spain was the place where the “transfer is claimed to have taken place” and there was “no reason to depart from the rule” in the Restatement.^{Footnote 18} The court took into account that Spain had the “dominant interest” in determining the circumstances under which an interest could pass by adverse possession on its territory and that the rule in the Restatement promoted certainty, predictability, and uniformity of result. Moreover, Judge Walter considered Spain to have a more significant relationship to the Painting and the parties than California, as the Painting had been in Spain for over twenty years while the only connection to California was Claude’s residence and brief sale arrangements in 1951–52.

Judge Walter then turned to the analysis under California choice-of-law rules, which provide for a three-part “governmental interest” test that the court concluded dictated the same result as the Restatement. Applying the three-part test, Judge Walter considered (1) whether the relevant Spanish and California laws actually differed, (2) whether there was a “true conflict,” that is, whether both Spain and California had an interest in having their laws applied, and (3) if a true conflict existed, whether Spain’s or California’s interest would be more impaired if its policy were subordinated to the policy of the other.

First, Judge Walter found that Spanish law and California law differed. Spanish law permits the acquisition of ownership in personal property by adverse possession, while California law does not.

Second, he concluded that a true conflict existed by considering each jurisdiction’s policies underlying its laws on adverse possession. He found, on the one hand, that Spain’s adverse possession laws reflected an interest in promoting certainty of title, protecting defendants from stale claims, and encouraging plaintiffs not to sleep on their rights. On the other hand, California’s choice not to extend the doctrine of adverse possession to personal property reflected its interest in protecting the “rightful owner” (particularly those, such as Claude Cassirer, residing in its territory) of personal property that (unlike real property) may be difficult to locate even when held openly and notoriously by a subsequent possessor, as well as encouraging potential purchasers to verify the true owner before buying property.

Third, after “carefully evaluat[ing] and compar[ing] the nature and strength” of Spain’s and California’s interests in the application of their laws,^{Footnote 19} Judge Walter found that Spain’s interest would be substantially more impaired if its policy were subordinated to that of California. He noted that, under the California governmental interest test, the court must focus on the appropriate “scope” of the jurisdiction’s competing policies, rather than evaluate their wisdom or quality. He noted that, although not a strict rule, California choice-of-law authorities tend to recognize that “a jurisdiction ordinarily has ‘the predominant interest’ in regulating conduct that occurs within its borders, and in being able to assure individuals and commercial entities operating within its territory that applicable limitations on liability set forth in the jurisdiction’s law will be available . . . in the event they are faced with litigation in the future.”^{Footnote 20} With this in mind, Judge Walter considered the fact that the Painting had been in the Foundation’s possession in Spain since 1992 (and that its possession in Spain provided the basis for the Foundation’s ownership claim) gave strong weight to Spain’s interest in predictably regulating conduct within its borders. Applying California law would allow Lilly’s successors’ unpredictable choice of residence (i.e., their decision to live in California) to “undermine Spain’s interest in certainty of title.”^{Footnote 21}

By contrast, applying Spanish law would not significantly undermine California public policy. Judge Walter stated: “Although California has a fundamental interest in protecting its residents and specifically has an interest in protecting its residents claiming to be rightful owners of stolen art, that interest is far less significant where the original victim did not reside in California.”^{Footnote 22} He noted that, while California had not adopted its own adverse possession law for personal property, nothing in California law prevented a party from acquiring ownership of personal property by adverse possession elsewhere.

Significantly, the court considered a 2010 amendment to section 338(c) of the California Code of Civil Procedure (“Section 338(c)”), which extended the time limit for bringing claims to recover stolen art and clarified that the time limit begins to run only when the claimant actually discovers the facts underlying its claim for recovery, “relevant” to demonstrating “California’s interest in protecting ‘rightful owners’ of stolen art.”^{Footnote 23} Nonetheless, the court emphasized that the amendment merely altered the procedural statute of limitations applicable to stolen art claims and that California legislators had not created a new claim for substantive relief or restricted a court’s choice of substantive law in stolen art claims.^{Footnote 24} The law of adverse possession, unlike statute of limitations law, relates to the substantive merits of a claim, and the goal of the 2010 amendment was to remove procedural obstacles to substantively meritorious claims for art restitution.

The choice of Spanish law effectively decided the case. Having concluded that both federal and California rules pointed to the application of Spanish law, Judge Walter held that the Foundation had acquired ownership of the Painting by adverse possession under Spanish law.^{Footnote 25} The Foundation met the requirements of Spain’s adverse possession law: It had (i) possessed the Painting as owner, (ii) publicly, peacefully, and without interruption, (iii) for the statutory period. Since at least 1993, it had “projected an external image of ownership” by displaying the Painting publicly at the museum without any contrary indication of ownership,^{Footnote 26} and it identified itself as owner in several publications and when loaning the Painting for exhibition. The court did not need to address whether the relevant statutory period was three years (applicable to “good faith” possession) or six years (applicable to “bad faith” possession, i.e., with the knowledge of a title defect), as the requirement would be satisfied in either case.^{Footnote 27} The Foundation rightfully owned the Painting as of no later than June 1999 (six years after it purchased the Painting from the Baron).

Judge Walter also briefly considered and rejected the argument that the amendment of Section 338(c) deprived the Foundation of its ownership. He found that, to the extent that Section 338(c) would deprive the Foundation of ownership, it would violate the Foundation’s due process rights under the Fourteenth Amendment of the United States Constitution, which protects against a deprivation of property by the state without due process of law. The Foundation acquired ownership of the Painting under Spanish law prior to the retroactive extension of the statute of limitations under Section 338(c) in 2011 and, to the extent that application of the statute would deprive the Foundation of ownership, it therefore would violate due process. In any event, the amendment to Section 338(c) merely extended the time for bringing a claim. It did not alter the substantive legal obligations underlying the Plaintiffs’ claim, and therefore the result of applying substantive adverse possession law should not be affected by Section 338(c).

COMMENT

Two elements of Judge Walter’s decision are of particular note. First, its discussion of choice of law highlights an area of uncertainty in FSIA cases. Second, the decision is interesting for its consideration of the amendment to Section 338(c) in the context of weighing Spain’s and California’s respective interests in having their substantive law applied to the litigation.

As to the first point, arguably the most important aspect of the decision in Cassirer is its discussion of choice of law. As Judge Walter’s decision demonstrates, the choice of applicable law is frequently dispositive in stolen art cases (in Cassirer, summary judgment would have been unlikely if California law had applied), and therefore clarity in the choice-of-law rules is paramount to ensuring predictable results in these cases.^{Footnote 28} The decision highlights the unsettled question as to what choice-of-law rules a federal court must use when a foreign government (or its political subdivision, agency, or instrumentality) is sued. The federal appellate courts, whose decisions must be followed by district courts in their circuit, differ as to whether the choice-of-law rules of the forum state or federal common law choice-of-law rules apply in FSIA cases. This is an important issue for art and cultural property disputes that not infrequently involve suits against state-owned museums or cultural institutions such as the Foundation.

The choice between federal or state rules is complex. There is general agreement that a federal court should apply the forum state choice-of-law rules where the federal court has jurisdiction because the dispute is between citizens of different U.S. states or a citizen of a U.S. state and a subject of a foreign state (this is known as “diversity jurisdiction,” as opposed to “federal question jurisdiction” that exists when the cause of action arises under federal law).^{Footnote 29} However, it is less clear whether forum state rules apply because jurisdiction arises from diversity, or because state (or non-federal) law provides the “rule of decision” (that is, the substantive rule that determines an issue).^{Footnote 30} This uncertainty means that the question is far more difficult in cases against foreign states or their instrumentalities, where federal court jurisdiction is based on the FSIA,^{Footnote 31} rather than diversity jurisdiction, but the substantive basis of the claims is non-federal.

The FSIA does not contain an express choice-of-law provision, and federal courts take different positions on the applicable rules. For example, the Second Circuit Court of Appeals applies forum state choice-of-law rules in FSIA cases.^{Footnote 32} It reached this position by looking to language in the FSIA that provides that “the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances.”^{Footnote 33} In order to best achieve Congressional intent to treat cases against foreign sovereign defendants in the same manner as those against individual defendants, the Second Circuit concluded that forum state rules should apply to FSIA cases the same as in diversity jurisdiction cases,^{Footnote 34} at least where they involve non-federal law substantive claims.^{Footnote 35} The Fifth and Sixth Circuits have followed the Second Circuit,^{Footnote 36} as has the District of Columbia Circuit Court.^{Footnote 37} By contrast, the Ninth Circuit has been the foremost authority for the application of federal rules in FSIA cases.^{Footnote 38}

However, as noted in Judge Walter’s Cassirer decision, the long-standing Ninth Circuit position was recently called into question by that appellate court’s opinion in Sachs v. Republic of Austria. ^{Footnote 39} A footnote to the majority opinion in Sachs suggested that it might be appropriate to apply forum state choice-of-law rules in FSIA cases in light of the rule that cases against foreign sovereigns should be treated similarly to those against individuals.^{Footnote 40} It stated: “[I]t may also be permissible to view the above [cited Supreme Court] cases as suggesting there be a choice-of-law-decision, either based on the forum’s choice of law principles, or some other rule.”^{Footnote 41} Although not essential to the outcome in Sachs, this footnote raised the question whether the Ninth Circuit might change its position, thus creating further uncertainty, as evidenced by Judge Walter’s decision to conduct choice-of-law analysis under both California and federal rules.

Although ostensibly the choice between forum state and federal rules did not impact the outcome in the Cassirer decision, it is easy to foresee many situations where the differences could be outcome determinative. For example, what if the California legislature passed a law requiring the application of California substantive law in stolen art ownership disputes, or passed legislation prohibiting the recognition in California of title acquired by adverse possession over formerly stolen art? In such a case, under Judge Walter’s reasoning, California’s governmental interest test would arguably lead to the application of California substantive law in Cassirer even where the Restatement approach taken by federal rules might still lead to the application of Spanish law. Moreover, one cannot help but wonder whether, even in Cassirer, Judge Walter’s conduct of the California governmental interest test might have been influenced by the desirability of having the result align with the result under the Restatement, as the weight given to various governmental interests under the California test is highly discretionary. It is possible that, in an effort to reconcile the results, courts may choose to construe and apply the governmental interest test in a manner more similar to the test under the Restatement than would otherwise be the case.

This uncertainty regarding the choice-of-law rules applicable to FSIA cases is an important problem that needs judicial attention. In light of its footnote in Sachs, the Ninth Circuit now needs to elucidate its position. Given that the parties have already appealed the case, it is likely to soon have the opportunity.^{Footnote 42} Moreover, in light of the split among the federal courts and the importance of this issue to FSIA cases, the question is likely ripe for the Supreme Court to decide if an appropriate case comes before it.

As to the second point of interest, it is notable that Judge Walter considered the recent amendment to Section 338(c) relevant but not compelling in determining the weight of California’s interest in having its laws applied to a stolen art claim. The court’s conclusion that California’s interest was not as strong as Spain’s was on the basis that the California legislature, in amending Section 338(c), merely intended to “eliminat[e] inequitable procedural obstacles” to otherwise meritorious stolen art claims (by extending the length of the statute of limitations and delaying the point at which it is deemed to begin to run) while the question of adverse possession deals with the actual merits of the claim. This distinction is correct: Section 338(c) deals with a procedural bar to suit, while adverse possession deals with the underlying merits of the suit. Nonetheless, statutes of limitations and adverse possession law have a strikingly similar effect: They both have the result that, after a certain period of time has passed, an original owner cannot recover stolen art from a subsequent possessor principally by virtue of the passage of time. It is interesting that, relying on the California governmental interest test’s focus on “scope,” Judge Walter delineated California’s interest in this type of dispute on the basis of the procedural versus substantive distinction as opposed to the practical effect of the legal provision at issue.

Moreover, it is remarkable that, in considering the amendment to Section 338(c) in the context of California’s governmental interest test, the decision gave little attention to the element of the amendment that removed stolen art claims from the application of California’s “borrowing statute” contained in Section 361 of the California Code of Civil Procedure. Section 361 directs courts to apply the statute of limitations of the foreign country where the claim arose, except in limited circumstances.^{Footnote 43} Like the rest of the amendment, this element dealt with the removal of a procedural bar, and therefore Judge Walter’s procedural versus substantive dichotomy is equally applicable. However, given the importance Judge Walter placed on the fact that California legislators had not prohibited the application of foreign adverse possession law to stolen art claims, it is surprising that the decision does not more fully address the fact that the legislative amendment expressly exempted stolen art claims from foreign procedural laws that have nearly the same practical effect as the foreign substantive law he applied in this case.

On a related matter, it is worth pointing out the statement in the decision that, to the extent that Section 338(c) would deprive the Foundation of its ownership of the Painting, it would violate the Foundation’s due process rights. The discussion on this point is brief and not explained in detail. Given that the court’s decision regarding the Foundation’s ownership of the Painting is premised on Spain’s substantive law of adverse possession, it is difficult to see how the extension of the statute of limitations could deprive it of ownership or is even relevant to the result reached in the decision. On that basis, the discussion of Section 338(c) and due process is superfluous and unlikely to have much significance going forward.

Although Judge Walter’s decision rejected the Plaintiffs’ claims, the case is unlikely to go away any time soon, despite the court’s imprecation to the parties that “before the next phase of the litigation commences in the Ninth Circuit, the Foundation pause, reflect, and consider whether it would be appropriate to work towards a mutually-agreeable resolution in this action, in light of Spain’s acceptance of the Washington Conference Principles and the Terezin Declaration and, specifically, its commitment to achieve ‘just and fair solutions’ for victims of Nazi persecution.”^{Footnote 44} Having just scored a victory in its ten-year fight to keep the Painting, the Foundation seems unlikely to heed this advice. From a legal perspective, the District Court decision has highlighted some interesting issues, which we may expect to hear more on from the Ninth Circuit.